[House Report 104-280]
[From the U.S. Government Publishing Office]



   104th Congress 1st 
         Session        HOUSE OF REPRESENTATIVES        Report
                                                       104-280
_______________________________________________________________________



         SEVEN-YEAR BALANCED BUDGET RECONCILIATION ACT OF 1995

                               ----------                              

                              R E P O R T

                                 of the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                              to accompany

                               H.R. 2491

  A BILL TO PROVIDE FOR RECONCILIATION PURSUANT TO SECTION 105 OF THE 
        CONCURRENT RESOLUTION ON THE BUDGET FOR FISCAL YEAR 1996

                             together with

               MINORITY, ADDITIONAL, AND DISSENTING VIEWS

                                     



                               Volume II
                             Titles XIII-XX

October 17, 1995.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed
SEVEN -YEAR BALANCED BUDGET RECONCILIATION ACT OF 1995 --VOLUME II
   104th Congress 1st   HOUSE OF REPRESENTATIVES        Report
         Session
                                                       104-280
_______________________________________________________________________


 
   SEVEN-YEAR BALANCED BUDGET RECONCILIATION ACT OF 1995 -- VOLUME II

                               __________

                              R E P O R T

                                 of the

                        COMMITTEE ON THE BUDGET
                        HOUSE OF REPRESENTATIVES

                              to accompany


                               H.R. 2491

  A BILL TO PROVIDE FOR RECONCILIATION PURSUANT TO SECTION 105 OF THE 
        CONCURRENT RESOLUTION ON THE BUDGET FOR FISCAL YEAR 1996


                             together with


               MINORITY, ADDITIONAL, AND DISSENTING VIEWS





                               Volume II


                             Titles XIII-XX

October 17, 1995.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed
                        COMMITTEE ON THE BUDGET

  JOHN R. KASICH, Ohio, Chairman
MARTIN OLAV SABO, Minnesota,         DAVID L. HOBSON, Ohio
  Ranking Minority Member            ROBERT S. WALKER, Pennsylvania,
CHARLES W. STENHOLM, Texas             Vice Chairman
LOUISE McINTOSH SLAUGHTER,           JIM KOLBE, Arizona
  New York                           CHRISTOPHER SHAYS, Connecticut
MIKE PARKER, Mississippi             WALLY HERGER, California
WILLIAM J. COYNE, Pennsylvania       JIM BUNNING, Kentucky
ALAN B. MOLLOHAN, West Virginia      LAMAR S. SMITH, Texas
JERRY F. COSTELLO, Illinois          WAYNE ALLARD, Colorado
HARRY JOHNSTON, Florida              DAN MILLER, Florida
PATSY T. MINK, Hawaii                RICK LAZIO, New York
BILL ORTON, Utah                     BOB FRANKS, New Jersey
EARL POMEROY, North Dakota           NICK SMITH, Michigan
GLEN BROWDER, Alabama                BOB INGLIS, South Carolina
LYNN C. WOOLSEY, California          MARTIN R. HOKE, Ohio
JOHN W. OLVER, Massachusetts         SUSAN MOLINARI, New York
LUCILLE ROYBAL-ALLARD, California    JIM NUSSLE, Iowa
CARRIE P. MEEK, Florida              PETER HOEKSTRA, Michigan
LYNN N. RIVERS, Michigan             STEVE LARGENT, Oklahoma
LLOYD DOGGETT, Texas                 SUE MYRICK, North Carolina
                                     SAM BROWNBACK, Kansas
                                     JOHN SHADEGG, Arizona
                                     GEORGE P. RADANOVICH, California
                                     CHARLES F. BASS, New Hampshire

                           Professional Staff

  Richard E. May, Staff Director
 Eileen M. Baumgartner, Minority 
          Staff Director


                  V O L U M E   I I   C O N T E N T S

                              ----------                              

                          Legislative Language

                                                                   Page
Title XIII--Committee on Ways and Means--Revenue Reconciliation..     2
Title XIV--Committee on Ways and Means--Tax Simplification.......    65
Title XV--Medicare...............................................   150
Title XVI--Transformation of the Medicaid Program................   150
Title XVII--Department of Commerce Abolition.....................   193
Title XVIII--Welfare Reform......................................   233
Title XIX--Contract Tax Provisions...............................   233
Title XX--Budget Process.........................................   233

                            Report Language

Titles XIII and XIV--Committee on Ways and Means.................   235
    Title XIII--Revenue Reconciliation...........................   240
    Title XIV--Tax Simplification................................   377
Title XVI--Transformation of the Medicaid Program................   603
Title XVII--Department of Commerce Abolition.....................   743
Miscellaneous House Report Requirements..........................   949

               Minority, Additional, and Dissenting Views

Title II--Committee on Banking and Financial Services............   957
Title III--Committee on Commerce.................................   959
Title IV--Committee on Economic and Educational Opportunities....   975
Title VII--Committee on the Judiciary............................   985
Title VIII--Committee on National Security.......................   987
Title IX--Committee on Resources.................................   988
Titles XIII and XIV--Committee on Ways and Means.................  1000
Committee on the Budget..........................................  1018
                                                                       
104th Congress                                            Rept. 104-280
                        HOUSE OF REPRESENTATIVES

 1st Session                                                  Volume II
_______________________________________________________________________



PROVIDING FOR RECONCILIATION PURSUANT TO SECTION 105 OF THE CONCURRENT 
             RESOLUTION ON THE BUDGET FOR FISCAL YEAR 1996

_______________________________________________________________________


October 17, 1995.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______


             Mr. Kasich, from the Committee on the Budget,

                        submitted the following

                              R E P O R T

                             together with

               MINORITY, ADDITIONAL, AND DISSENTING VIEWS

                        [To accompany H.R. 2491]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Budget, to whom reconciliation 
recommendations were submitted pursuant to section 105 of House 
Concurrent Resolution 67, the concurrent resolution on the 
budget for fiscal year 1996, having considered the same, report 
the bill without recommendation.

    TITLE XIII--COMMITTEE ON WAYS AND MEANS--REVENUE RECONCILIATION

SEC. 13001. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This title may be cited as the ``Revenue 
Reconciliation Act of 1995''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this title an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for this title is as 
follows:

    TITLE XIII--COMMITTEE ON WAYS AND MEANS--REVENUE RECONCILIATION

Sec. 13001. Short title; amendment of 1986 Code.

           Subtitle A--Extension of Expiring Provisions, Etc.

              Part I--Extensions Through December 31, 1997

Sec. 13101. Work opportunity tax credit.
Sec. 13102. Employer-provided educational assistance programs.
Sec. 13103. Research credit.
Sec. 13104. Contributions of stock to private foundations.
Sec. 13105. Credit for clinical testing expenses.

 Part II--Permanent Extension of FUTA Exemption for Alien Agricultural 
                                Workers

Sec. 13106. FUTA exemption for alien agricultural workers.

                   Part III--Commercial Aviation Fuel

Sec. 13111. Delay of scheduled increase in tax on fuel used in 
commercial aviation.

    Part IV--Extension of Airport and Airway Trust Fund Excise Taxes

Sec. 13116. Extension of Airport and Airway Trust Fund excise taxes.

                  Subtitle B--Medical Savings Accounts

Sec. 13201. Medical savings accounts.

          Subtitle C--Pickle-Johnson Taxpayer Bill of Rights 2

                       Part I--Taxpayer Advocate

Sec. 13301. Establishment of position of taxpayer advocate within 
Internal Revenue Service.
Sec. 13302. Expansion of authority to issue taxpayer assistance orders.

       Part II--Modifications to Installment Agreement Provisions

Sec. 13306. Notification of reasons for termination of installment 
agreements.
Sec. 13307. Administrative review of termination of installment 
agreement.

             Part III--Abatement of Interest and Penalties

Sec. 13311. Expansion of authority to abate interest.
Sec. 13312. Review of IRS failure to abate interest.
Sec. 13313. Extension of interest-free period for payment of tax after 
notice and demand.

                         Part IV--Joint Returns

Sec. 13316. Studies of joint return-related issues.
Sec. 13317. Joint return may be made after separate returns without 
full payment of tax.
Sec. 13318. Disclosure of collection activities.

                     Part V--Collection Activities

Sec. 13321. Modifications to lien and levy provisions.
Sec. 13322. Offers-in-compromise.

                      Part VI--Information Returns

Sec. 13326. Civil damages for fraudulent filing of information returns.
Sec. 13327. Requirement to conduct reasonable investigations of 
information returns.

              Part VII--Awarding of Costs and Certain Fees

Sec. 13331. United States must establish that its position in 
proceeding was substantially justified.
Sec. 13332. Increased limit on attorney fees.
Sec. 13333. Failure to agree to extension not taken into account.
Sec. 13334. Award of litigation costs permitted in declaratory judgment 
proceedings.
Sec. 13335. Effective date.

 Part VIII--Modification to Recovery of Civil Damages for Unauthorized 
                           Collection Actions

Sec. 13336. Increase in limit on recovery of civil damages for 
unauthorized collection actions.
Sec. 13337. Court discretion to reduce award for litigation costs for 
failure to exhaust administrative remedies.

 Part IX--Modifications to Penalty for Failure to Collect and Pay Over 
                                  Tax

Sec. 13341. Preliminary notice requirement.
Sec. 13342. Disclosure of certain information where more than 1 person 
liable for penalty for failure to collect and pay over tax.
Sec. 13343. Right of contribution where more than 1 person liable for 
penalty for failure to collect and pay over tax.
Sec. 13344. Volunteer board members of tax-exempt organizations exempt 
from penalty for failure to collect and pay over tax.

          Part X--Modifications of Rules Relating to Summonses

Sec. 13346. Enrolled agents included as third-party recordkeepers.
Sec. 13347. Safeguards relating to designated summonses.
Sec. 13348. Annual report to Congress concerning designated summonses.

  Part XI--Relief From Retroactive Application of Treasury Department 
                              Regulations

Sec. 13351. Relief from retroactive application of Treasury Department 
regulations.

                   Part XII--Miscellaneous Provisions

Sec. 13356. Report on pilot program for appeal of enforcement actions.
Sec. 13357. Phone number of person providing payee Statements required 
to be shown on such Statement.
Sec. 13358. Required notice of certain payments.
Sec. 13359. Unauthorized enticement of information disclosure.
Sec. 13360. Annual reminders to taxpayers with outstanding delinquent 
accounts.
Sec. 13361. 5-year extension of authority for undercover operations.
Sec. 13362. Disclosure of form 8300 information on cash transactions.
Sec. 13363. Disclosure of returns and return information to designee of 
taxpayer.
Sec. 13364. Study of netting of interest on overpayments and 
liabilities.
Sec. 13365. Credit for expenses of certain TCMP audits.
Sec. 13366. Expenses of detection of underpayments and fraud, etc.

              Subtitle D--Additional Technical Corrections

Sec. 13401. Reporting of real estate transactions.
Sec. 13402. Clarification of denial of deduction for stock redemption 
expenses.
Sec. 13403. Clarification of depreciation class for certain energy 
property.
Sec. 13404. Clerical amendment to section 404.
Sec. 13405. Treatment of certain veterans' reemployment rights.

                  Subtitle E--Tax Information Sharing

Sec. 13501. Disclosure of return information for administration of 
certain veterans programs.

                     Subtitle F--Revenue Increases

               Part I--Provisions Relating to Businesses

Sec. 13601. Tax treatment of certain extraordinary dividends.
Sec. 13602. Registration of confidential corporate tax shelters.
Sec. 13603. Denial of deduction for interest on loans with respect to 
company-owned insurance.
Sec. 13604. Termination of suspense accounts for family corporations 
required to use accrual method of accounting.
Sec. 13605. Termination of Puerto Rico and possession tax credit.
Sec. 13606. Depreciation under income forecast method.
Sec. 13607. Transfers of excess pension assets.

                         Part II--Legal Reforms

Sec. 13611. Repeal of exclusion for punitive damages and for damages 
not attributable to physical injuries or sickness.
Sec. 13612. Reporting of certain payments made to attorneys.

 Part III--Treatment of Individuals Who Lose United States Citizenship

Sec. 13616. Revision of income, estate, and gift taxes on individuals 
who lose United States citizenship.
Sec. 13617. Information on individuals losing United States 
citizenship.
Sec. 13618. Report on tax compliance by United States citizens and 
residents living abroad.

             Part IV--Reforms Relating to Energy Provisions

Sec. 13621. Termination of credit for electricity produced from certain 
renewable resources.
Sec. 13622. Reduction of incentives for alcohol fuels.
Sec. 13623. Exclusion for energy conservation subsidies limited to 
subsidies with respect to dwelling units.

         Part V--Reforms Relating to Nonrecognition Provisions

Sec. 13626. Basis adjustment to property held by corporation where 
stock in corporation is replacement property under involuntary 
conversion rules.
Sec. 13627. Expansion of requirement that involuntarily converted 
property be replaced with property acquired from an unrelated person.
Sec. 13628. No rollover or exclusion of gain on sale of principal 
residence which is attributable to depreciation deductions.
Sec. 13629. Nonrecognition of gain on sale of principal residence by 
noncitizens limited to new residences located in the United States.

             Part VI--Reforms Relating to Gaming Activities

Sec. 13631. Treatment of Indian gaming activities under unrelated 
business income tax.
Sec. 13632. Repeal of targeted exemption from tax on unrelated trade or 
business income from gambling in certain States.
Sec. 13633. Extension of withholding to certain gambling winnings.

                        Part VII--Other Reforms

Sec. 13636. Sunset of low-income housing credit.
Sec. 13637. Repeal of credit for contributions to community development 
corporations.
Sec. 13638. Repeal of diesel fuel tax rebate to purchasers of diesel-
powered automobiles and light trucks.
Sec. 13639. Application of failure-to-pay penalty to substitute 
returns.
Sec. 13640. Repeal of special rule for rental use of vacation homes, 
etc., for less than 15 days.
Sec. 13641. Election to cease status as qualified scholarship funding 
corporation.
Sec. 13642. Certain amounts derived from foreign corporations treated 
as unrelated business taxable income.

      Part VIII--Excise Tax on Amounts of Private Excess Benefits

Sec. 13646. Excise taxes for failure by certain charitable 
organizations to meet certain qualification requirements.
Sec. 13647. Reporting of certain excise taxes and other information.
Sec. 13648. Exempt organizations required to provide copy of return.
Sec. 13649. Certain organizations required to disclose nonexempt 
status.
Sec. 13650. Increase in penalties on exempt organizations for failure 
to file complete and timely annual returns.
Sec. 13651. Studies.

           Subtitle G--Reform of the Earned Income Tax Credit

Sec. 13701. Repeal of earned income credit for individuals without 
qualifying children; modifications to credit phaseout.
Sec. 13702. Modification of adjusted gross income used for phaseout.
Sec. 13703. Earned income tax credit denied to individuals not 
authorized to be employed in the United States.

               Subtitle H--Increase in Public Debt Limit

Sec. 13801. Increase in public debt limit.

            Subtitle I--Coal Industry Retiree Health Equity

Sec. 13901. Repeal of reachback provisions of coal industry health 
benefit system.

           Subtitle A--Extension of Expiring Provisions, Etc.

              PART I--EXTENSIONS THROUGH DECEMBER 31, 1997

SEC. 13101. WORK OPPORTUNITY TAX CREDIT.

    (a) Amount of Credit.--Subsection (a) of section 51 is amended by 
striking ``40 percent'' and inserting ``35 percent''.
    (b) Members of Targeted Groups.--Subsection (d) of section 51 is 
amended to read as follows:
    ``(d) Members of Targeted Groups.--For purposes of this subpart--
            ``(1) In general.--An individual is a member of a targeted 
        group if such individual is--
                    ``(A) a qualified AFDC recipient,
                    ``(B) a qualified ex-felon,
                    ``(C) a high-risk youth,
                    ``(D) a vocational rehabilitation referral, or
                    ``(E) a qualified summer youth employee.
            ``(2) Qualified AFDC recipient.--
                    ``(A) In general.--The term `qualified AFDC 
                recipient' means any individual who is certified by the 
                designated local agency as being a member of a family 
                receiving assistance under an AFDC program for at least 
                a 9-month period ending during the 9-month period 
                ending on the hiring date.
                    ``(B) AFDC program.--For purposes of this 
                paragraph, the term `AFDC program' means any program 
                providing aid under a State plan approved under part A 
                of title IV of the Social Security Act (relating to aid 
                to families with dependent children) and any successor 
                of such program.
                    ``(C) Special rules for veterans.--In the case of a 
                veteran, subparagraph (A) shall be applied by 
                substituting `12-month' for `9-month' the second place 
                it appears.
                    ``(D) Veteran.--For purposes of subparagraph (C), 
                the term `veteran' means any individual who is 
                certified by the designated local agency as--
                            ``(i)(I) having served on active duty 
                        (other than active duty for training) in the 
                        Armed Forces of the United States for a period 
                        of more than 180 days, or
                            ``(II) having been discharged or released 
                        from active duty in the Armed Forces of the 
                        United States for a service-connected 
                        disability, and
                            ``(ii) not having any day during the 60-day 
                        period ending on the hiring date which was a 
                        day of extended active duty in the Armed Forces 
                        of the United States.
                For purposes of clause (ii), the term `extended active 
                duty' means a period of more than 90 days during which 
                the individual was on active duty (other than active 
                duty for training).
            ``(3) Qualified ex-felon.--The term `qualified ex-felon' 
        means any individual who is certified by the designated local 
        agency--
                    ``(A) as having been convicted of a felony under 
                any statute of the United States or any State,
                    ``(B) as having a hiring date which is not more 
                than 1 year after the last date on which such 
                individual was so convicted or was released from 
                prison, and
                    ``(C) as being a member of a family which had an 
                income during the 6 months immediately preceding the 
                earlier of the month in which such income determination 
                occurs or the month in which the hiring date occurs, 
                which, on an annual basis, would be 70 percent or less 
                of the Bureau of Labor Statistics lower living 
                standard.
        Any determination under subparagraph (C) shall be valid for the 
        45-day period beginning on the date such determination is made.
            ``(4) High-risk youth.--
                    ``(A) In general.--The term `high-risk youth' means 
                any individual who is certified by the designated local 
                agency--
                            ``(i) as having attained age 18 but not age 
                        25 on the hiring date, and
                            ``(ii) as having his principal place of 
                        abode within an empowerment zone or enterprise 
                        community.
                    ``(B) Youth must continue to reside in zone.--In 
                the case of a high-risk youth, the term `qualified 
                wages' shall not include wages paid or incurred for 
                services performed while such youth's principal place 
                of abode is outside an empowerment zone or enterprise 
                community.
            ``(5) Vocational rehabilitation referral.--The term 
        `vocational rehabilitation referral' means any individual who 
        is certified by the designated local agency as--
                    ``(A) having a physical or mental disability which, 
                for such individual, constitutes or results in a 
                substantial handicap to employment, and
                    ``(B) having been referred to the employer upon 
                completion of (or while receiving) rehabilitative 
                services pursuant to--
                            ``(i) an individualized written 
                        rehabilitation plan under a State plan for 
                        vocational rehabilitation services approved 
                        under the Rehabilitation Act of 1973, or
                            ``(ii) a program of vocational 
                        rehabilitation carried out under chapter 31 of 
                        title 38, United States Code.
            ``(6) Qualified summer youth employee.--
                    ``(A) In general.--The term `qualified summer youth 
                employee' means any individual--
                            ``(i) who performs services for the 
                        employer between May 1 and September 15,
                            ``(ii) who is certified by the designated 
                        local agency as having attained age 16 but not 
                        18 on the hiring date (or if later, on May 1 of 
                        the calendar year involved),
                            ``(iii) who has not been an employee of the 
                        employer during any period prior to the 90-day 
                        period described in subparagraph (B)(i), and
                            ``(iv) who is certified by the designated 
                        local agency as having his principal place of 
                        abode within an empowerment zone or enterprise 
                        community.
                    ``(B) Special rules for determining amount of 
                credit.--For purposes of applying this subpart to wages 
                paid or incurred to any qualified summer youth 
                employee--
                            ``(i) subsection (b)(2) shall be applied by 
                        substituting `any 90-day period between May 1 
                        and September 15' for `the 1-year period 
                        beginning with the day the individual begins 
                        work for the employer', and
                            ``(ii) subsection (b)(3) shall be applied 
                        by substituting `$3,000' for `$6,000'.
                The preceding sentence shall not apply to an individual 
                who, with respect to the same employer, is certified as 
                a member of another targeted group after such 
                individual has been a qualified summer youth employee.
                    ``(C) Youth must continue to reside in zone.--
                Paragraph (4)(B) shall apply for purposes of this 
                paragraph.
            ``(7) Hiring date.--The term `hiring date' means the day 
        the individual is hired by the employer.
            ``(8) Designated local agency.--The term `designated local 
        agency' means a State employment security agency established in 
        accordance with the Act of June 6, 1933, as amended (29 U.S.C. 
        49-49n).
            ``(9) Special rules for certifications.--
                    ``(A) In general.--An individual shall not be 
                treated as a member of a targeted group unless--
                            ``(i) on or before the day on which such 
                        individual begins work for the employer, the 
                        employer has received a certification from a 
                        designated local agency that such individual is 
                        a member of a targeted group, or
                            ``(ii)(I) on or before the day the 
                        individual is offered employment with the 
                        employer, a pre-screening notice is completed 
                        with respect to such individual, and
                            ``(II) not later than the 14th day after 
                        the individual begins work for the employer, 
                        the employer submits such notice to the 
                        designated local agency as part of a written 
                        request for such a certification from such 
                        agency.
                For purposes of this paragraph, the term `pre-screening 
                notice' means a document (in such form as the Secretary 
                shall prescribe) which is signed by the employer and 
                the individual under penalties of perjury and which 
                contains information provided by the individual on the 
                basis of which the employer believes that the 
                individual is a member of a targeted group.
                    ``(B) Incorrect certifications.--If--
                            ``(i) an individual has been certified by a 
                        designated local agency as a member of a 
                        targeted group, and
                            ``(ii) such certification is incorrect 
                        because it was based on false information 
                        provided by such individual,
                the certification shall be revoked and wages paid by 
                the employer after the date on which notice of 
                revocation is received by the employer shall not be 
                treated as qualified wages.
                    ``(C) Explanation of denial of request.--If a 
                designated local agency denies a request for 
                certification of membership in a targeted group, such 
                agency shall provide to the person making such request 
                a written explanation of the reasons for such denial.''
    (c) Minimum Employment Period.--Paragraph (3) of section 51(i) is 
amended to read as follows:
            ``(3) Individuals not meeting minimum employment period.--
        No wages shall be taken into account under subsection (a) with 
        respect to any individual unless such individual either--
                    ``(A) is employed by the employer at least 180 days 
                (20 days in the case of a qualified summer youth 
                employee), or
                    ``(B) has completed at least 500 hours (120 hours 
                in the case of a qualified summer youth employee) of 
                services performed for the employer.''
    (d) Definition of Wages.--Subsection (c) of section 51 is amended 
by striking paragraph (3).
    (e) Termination.--Paragraph (4) of section 51(c) is amended to read 
as follows:
            ``(3) Termination.--The term `wages' shall not include any 
        amount paid or incurred to an individual who begins work for 
        the employer--
                    ``(A) after December 31, 1994, and before January 
                1, 1996, or
                    ``(B) after December 31, 1997.''
    (f) Redesignation of Credit.--
            (1) Sections 38(b)(2) and 51(a) are each amended by 
        striking ``targeted jobs credit'' and inserting ``work 
        opportunity credit''.
            (2) The subpart heading for subpart F of part IV of 
        subchapter A of chapter 1 is amended by striking ``Targeted 
        Jobs Credit'' and inserting ``Work Opportunity Credit''.
            (3) The table of subparts for such part IV is amended by 
        striking ``targeted jobs credit'' and inserting ``work 
        opportunity credit''.
    (g) Business Awareness Program.--The Secretary of Labor shall 
implement a program to encourage small businesses to use the services 
of local agencies to identify individuals who qualify to be certified 
as members of targeted groups (as defined in section 51 of the Internal 
Revenue Code of 1986, as amended by this section). Such Secretary, and 
the heads of other Federal agencies, shall make every effort to 
encourage small businesses to benefit from the credit allowable under 
such section by simplifying procedures to the extent possible.
    (h) Technical Amendments.--
            (1) Paragraph (1) of section 51(c) is amended by striking 
        ``, subsection (d)(8)(D),''.
            (2) Paragraph (3) of section 51(i) is amended by striking 
        ``(d)(12)'' each place it appears and inserting ``(d)(6)''.
    (i) Effective Date.--The amendments made by this section shall 
apply to individuals who begin work for the employer after December 31, 
1995.

SEC. 13102. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE PROGRAMS.

    (a) Extension.--Subsection (d) of section 127 (relating to 
educational assistance programs) is amended by striking ``December 31, 
1994'' and inserting ``December 31, 1997''.
    (b) Limitation to Education Below Graduate Level.--The last 
sentence of section 127(c)(1) is amended by inserting before the period 
``or at the graduate level''.
    (c) Effective Dates.--
            (1) Extension.--The amendment made by subsection (a) shall 
        apply to taxable years beginning after December 31, 1994.
            (2) Limitation.--The amendment made by subsection (b) shall 
        apply to taxable years beginning after December 31, 1995.

SEC. 13103. RESEARCH CREDIT.

    (a) In General.--Subsection (h) of section 41 (relating to credit 
for research activities) is amended--
            (1) by striking ``June 30, 1995'' each place it appears and 
        inserting ``December 31, 1997'', and
            (2) by striking ``July 1, 1995'' each place it appears and 
        inserting ``January 1, 1998''.
    (b) Base Amount for Start-up Companies.--Clause (i) of section 
41(c)(3)(B) (relating to start-up companies) is amended to read as 
follows:
                            ``(i)  Taxpayers to which subparagraph 
                        applies.--The fixed-base percentage shall be 
                        determined under this subparagraph if--
                                    ``(I) the first taxable year in 
                                which a taxpayer had both gross 
                                receipts and qualified research 
                                expenses begins after December 31, 
                                1983, or
                                    ``(II) there are fewer than 3 
                                taxable years beginning after December 
                                31, 1983, and before January 1, 1989, 
                                in which the taxpayer had both gross 
                                receipts and qualified research 
                                expenses.''
    (c) Election of Alternative Incremental Credit.--Subsection (c) of 
section 41 is amended by redesignating paragraphs (4) and (5) as 
paragraphs (5) and (6), respectively, and by inserting after paragraph 
(3) the following new paragraph:
            ``(4) Election of alternative incremental credit.--
                    ``(A) In general.--At the election of the taxpayer, 
                the credit determined under subsection (a)(1) shall be 
                equal to the sum of--
                            ``(i) 1.65 percent of so much of the 
                        qualified research expenses for the taxable 
                        year as exceeds 1 percent of the average 
                        described in subsection (c)(1)(B) but does not 
                        exceed 1.5 percent of such average,
                            ``(ii) 2.2 percent of so much of such 
                        expenses as exceeds 1.5 percent of such average 
                        but does not exceed 2 percent of such average, 
                        and
                            ``(iii) 2.75 percent of so much of such 
                        expenses as exceeds 2 percent of such average.
                    ``(B) Election.--An election under this paragraph 
                may be made only for the first taxable year of the 
                taxpayer beginning after June 30, 1995. Such an 
                election shall apply to the taxable year for which made 
                and all succeeding taxable years unless revoked with 
                the consent of the Secretary.''
    (d) Increased Credit for Contract Research Expenses With Respect to 
Certain Research Consortia.--Paragraph (3) of section 41(b) is amended 
by adding at the end the following new subparagraph:
                    ``(C) Amounts paid to certain research consortia.--
                            ``(i) In general.--Subparagraph (A) shall 
                        be applied by substituting `75 percent' for `65 
                        percent' with respect to amounts paid or 
                        incurred by the taxpayer to a qualified 
                        research consortium for qualified research.
                            ``(ii) Qualified research consortium.--The 
                        term `qualified research consortium' means any 
                        organization described in subsection (e)(6)(B) 
                        if--
                                    ``(I) at least 15 unrelated 
                                taxpayers paid (during the calendar 
                                year in which the taxable year of the 
                                taxpayer begins) amounts to such 
                                organization for qualified research,
                                    ``(II) no 3 persons paid during 
                                such calendar year more than 50 percent 
                                of the total amounts paid during such 
                                calendar year for qualified research, 
                                and
                                    ``(III) no person contributed more 
                                than 20 percent of such total amounts.
                        For purposes of subclause (I), all persons 
                        treated as a single employer under subsection 
                        (a) or (b) of section 52 shall be treated as 
                        related taxpayers.''
    (e) Conforming Amendment.--Subparagraph (D) of section 28(b)(1) is 
amended by striking ``June 30, 1995'' and inserting ``December 31, 
1997''.
    (f) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to taxable years 
        ending after June 30, 1995.
            (2) Subsections (c) and (d).--The amendments made by 
        subsections (c) and (d) shall apply to taxable years beginning 
        after June 30, 1995.

SEC. 13104. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.

    (a) In General.--Subparagraph (D) of section 170(e)(5) is amended 
by striking ``December 31, 1994'' and inserting ``December 31, 1997''.
    (b) Effective Date.--The amendment made by this section shall apply 
to contributions made after December 31, 1994.

SEC. 13105. CREDIT FOR CLINICAL TESTING EXPENSES.

    (a) In General.--Subsection (e) of section 28 is amended by 
striking ``December 31, 1994'' and inserting ``December 31, 1997''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after December 31, 1994.

 PART II--PERMANENT EXTENSION OF FUTA EXEMPTION FOR ALIEN AGRICULTURAL 
                                WORKERS

SEC. 13106. FUTA EXEMPTION FOR ALIEN AGRICULTURAL WORKERS.

    (a) In General.--Subparagraph (B) of section 3306(c)(1) (defining 
employment) is amended by striking ``before January 1, 1995,''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to services performed after December 31, 1994.

                   PART III--COMMERCIAL AVIATION FUEL

SEC. 13111. DELAY OF SCHEDULED INCREASE IN TAX ON FUEL USED IN 
                    COMMERCIAL AVIATION.

    (a) 2-Year Delay.--Sections 4092(b)(2), 6421(f)(2)(B), and 
6427(l)(4)(B) are each amended by striking ``September 30, 1995'' and 
inserting ``September 30, 1997''.
    (b) Conforming Amendment.--Section 13245 of the Omnibus Budget 
Reconciliation Act of 1993 is hereby repealed.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        take effect on September 30, 1995.
            (2) Cross reference.--

                  For refund of tax paid on commercial aviation fuel 
before the date of the enactment of this Act, see section 6427(l) of 
the Internal Revenue Code of 1986.

    (d) Floor Stocks Tax.--
            (1) Imposition of tax.--In the case of commercial aviation 
        fuel which is held by any person on October 1, 1997, there is 
        hereby imposed a floor stocks tax equal to 4.3 cents per 
        gallon.
            (2) Liability for tax and method of payment.--
                    (A) Liability for tax.--A person holding aviation 
                fuel on October 1, 1997, to which the tax imposed by 
                paragraph (1) applies shall be liable for such tax.
                    (B) Method of payment.--The tax imposed by 
                paragraph (1) shall be paid in such manner as the 
                Secretary shall prescribe.
                    (C) Time for payment.--The tax imposed by paragraph 
                (1) shall be paid on or before April 30, 1998.
            (3) Definitions.--For purposes of this subsection--
                    (A) Held by a person.--Aviation fuel shall be 
                considered as ``held by a person'' if title thereto has 
                passed to such person (whether or not delivery to the 
                person has been made).
                    (B) Commercial aviation fuel.--The term 
                ``commercial aviation fuel'' means aviation fuel (as 
                defined in section 4093 of such Code) which is held on 
                October 1, 1997, for sale or use in commercial aviation 
                (as defined in section 4092(b) of such Code).
                    (C) Secretary.--The term ``Secretary'' means the 
                Secretary of the Treasury or his delegate.
            (4) Exception for exempt uses.--The tax imposed by 
        paragraph (1) shall not apply to aviation fuel held by any 
        person exclusively for any use for which a credit or refund of 
        the entire tax imposed by section 4091 of such Code (other than 
        the rate imposed by section 4091(b)(2) of such Code) is 
        allowable for aviation fuel so used.
            (5) Exception for certain amounts of fuel.--
                    (A) In general.--No tax shall be imposed by 
                paragraph (1) on aviation fuel held on October 1, 1997, 
                by any person if the aggregate amount of commercial 
                aviation fuel held by such person on such date does not 
                exceed 2,000 gallons. The preceding sentence shall 
                apply only if such person submits to the Secretary (at 
                the time and in the manner required by the Secretary) 
                such information as the Secretary shall require for 
                purposes of this paragraph.
                    (B) Exempt fuel.--For purposes of subparagraph (A), 
                there shall not be taken into account fuel held by any 
                person which is exempt from the tax imposed by 
                paragraph (1) by reason of paragraph (4).
                    (C) Controlled groups.--For purposes of this 
                paragraph--
                            (i) Corporations.--
                                    (I) In general.--All persons 
                                treated as a controlled group shall be 
                                treated as 1 person.
                                    (II) Controlled group.--The term 
                                ``controlled group'' has the meaning 
                                given to such term by subsection (a) of 
                                section 1563 of such Code; except that 
                                for such purposes the phrase ``more 
                                than 50 percent'' shall be substituted 
                                for the phrase ``at least 80 percent'' 
                                each place it appears in such 
                                subsection.
                            (ii) Nonincorporated persons under common 
                        control.--Under regulations prescribed by the 
                        Secretary, principles similar to the principles 
                        of clause (i) shall apply to a group of persons 
                        under common control where 1 or more of such 
                        persons is not a corporation.
            (6) Other laws applicable.--All provisions of law, 
        including penalties, applicable with respect to the taxes 
        imposed by section 4091 of such Code shall, insofar as 
        applicable and not inconsistent with the provisions of this 
        subsection, apply with respect to the floor stock taxes imposed 
        by paragraph (1) to the same extent as if such taxes were 
        imposed by such section 4091.
    (f) Study.--The Secretary of the Treasury or his delegate shall, in 
consultation with the Secretary of Transportation, conduct a study of 
the Federal excise tax burdens on each of the various modes of 
transportation and the benefits provided to each such mode from 
revenues derived from such excise taxes. The results of such study 
shall be submitted not later than June 30, 1996, to the Committee on 
Ways and Means of the House of Representatives and the Committee on 
Finance of the Senate.

    PART IV--EXTENSION OF AIRPORT AND AIRWAY TRUST FUND EXCISE TAXES

SEC. 13116. EXTENSION OF AIRPORT AND AIRWAY TRUST FUND EXCISE TAXES.

    (a) Fuel Tax.--
            (1) Subparagraph (A) of section 4091(b)(3) is amended by 
        striking ``January 1, 1996'' and inserting ``October 1, 1996''.
            (2) Paragraph (2) of section 4081(d), as amended by section 
        14721 of this Act, is amended by striking ``January 1, 1996'' 
        and inserting ``October 1, 1996''.
    (b) Ticket Taxes.--Sections 4261(g) and 4271(d) are each amended by 
striking ``January 1, 1996'' and inserting ``October 1, 1996''.
    (c) Transfer to Airport and Airway Trust Fund.--
            (1) Subsection (b) of section 9502 is amended by striking 
        ``January 1, 1996'' each place it appears and inserting 
        ``October 1, 1996''.
            (2) Paragraph (3) of section 9502(f) is amended by striking 
        ``December 31, 1995'' and inserting ``September 30, 1996''.

                  Subtitle B--Medical Savings Accounts

SEC. 13201. MEDICAL SAVINGS ACCOUNTS.

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

``SEC. 220. MEDICAL SAVINGS ACCOUNTS.

    ``(a) Deduction Allowed.--In the case of an individual who is an 
eligible individual for any month during the taxable year, there shall 
be allowed as a deduction for the taxable year an amount equal to the 
aggregate amount paid in cash during such taxable year by such 
individual to a medical savings account of such individual.
    ``(b) Limitations.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the amount allowable as a deduction under 
        subsection (a) to an individual for the taxable year shall not 
        exceed the lesser of--
                    ``(A) $2,500, or
                    ``(B) the deductible under the catastrophic health 
                plan covering such individual.
        If the catastrophic health plan covering such individual 
        provides coverage for any other eligible individual who is the 
        spouse or any dependent (as defined in section 152) of the 
        taxpayer, subparagraph (A) shall be applied by substituting 
        `$5,000' for `$2,500'. The preceding sentence shall not apply 
        if the spouse or any dependent (as so defined) of such 
        individual is covered under any other catastrophic health plan.
            ``(2) Special rule for married individuals.--
                    ``(A) In general.--This subsection shall be applied 
                separately for each married individual.
                    ``(B) Special rule.--If individuals who are married 
                to each other are covered under the same catastrophic 
                health plan, then the amounts applicable under 
                subparagraphs (A) and (B) of paragraph (1) shall be 
                divided equally between them unless they agree on a 
                different division.
            ``(3) Coordination with exclusion for employer 
        contributions.--No deduction shall be allowed under this 
        section for any amount paid for any taxable year to a medical 
        savings account of an individual if--
                    ``(A) any amount is paid to any medical savings 
                account of such individual which is excludable from 
                gross income under section 106(b) for such year, or
                    ``(B) in a case described in paragraph (2), any 
                amount is paid to any medical savings account of either 
                spouse which is so excludable for such year.
            ``(4) Proration of limitation.--
                    ``(A) In general.--The limitation under paragraph 
                (1) shall be the sum of the monthly limitations for 
                months during the taxable year that the individual is 
                an eligible individual if--
                            ``(i) such individual is not an eligible 
                        individual for all months of the taxable year,
                            ``(ii) the deductible under the 
                        catastrophic health plan covering such 
                        individual is not the same throughout such 
                        taxable year, or
                            ``(iii) such limitation is determined using 
                        the next to the last sentence of paragraph (1) 
                        for some but not all months during such taxable 
                        year.
                    ``(B) Monthly limitation.--The monthly limitation 
                for any month shall be an amount equal to \1/12\ of the 
                limitation which would (but for this paragraph and 
                paragraph (3)) be determined under paragraph (1) if the 
                facts and circumstances as of the first day of such 
                month that such individual is covered under a 
                catastrophic health plan were true for the entire 
                taxable year.
            ``(5) Denial of deduction to dependents.--No deduction 
        shall be allowed under this section to any individual with 
        respect to whom a deduction under section 151 is allowable to 
        another taxpayer for a taxable year beginning in the calendar 
        year in which such individual's taxable year begins.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible individual.--
                    ``(A) In general.--The term `eligible individual' 
                means, with respect to any month, any individual--
                            ``(i) who is covered under a catastrophic 
                        health plan at any time during such month, and
                            ``(ii) who is not, while covered under a 
                        catastrophic health plan, covered under any 
                        health plan--
                                    ``(I) which is not a catastrophic 
                                health plan, and
                                    ``(II) which provides coverage for 
                                any benefit which is covered under the 
                                catastrophic health plan.
                    ``(B) Certain coverage disregarded.--Subparagraph 
                (A)(ii) shall be applied without regard to--
                            ``(i) coverage for any benefit provided by 
                        permitted insurance, and
                            ``(ii) coverage (whether through insurance 
                        or otherwise) for accidents, dental care, 
                        vision care, or long-term care.
            ``(2) Catastrophic health plan.--The term `catastrophic 
        health plan' means any health plan which provides no 
        compensation for an individual's expenses covered by the plan 
        for any calendar year to the extent such expenses for such 
        calendar year do not exceed $1,500 ($3,000 if the catastrophic 
        health plan covering the taxpayer provides coverage for more 
        than 1 individual) or such higher amounts as may be specified 
        by the plan.
            ``(3) Permitted insurance.--The term `permitted insurance' 
        means--
                    ``(A) Medicare supplemental insurance,
                    ``(B) insurance if substantially all of the 
                coverage provided under such insurance relates to--
                            ``(i) liabilities incurred under workers' 
                        compensation laws,
                            ``(ii) tort liabilities,
                            ``(iii) liabilities relating to ownership 
                        or use of property,
                            ``(iv) credit insurance, or
                            ``(v) such other similar liabilities as the 
                        Secretary may specify by regulations,
                    ``(C) insurance for a specified disease or illness, 
                and
                    ``(D) insurance paying a fixed amount per day (or 
                other period) of hospitalization.
    ``(d) Medical Savings Account.--For purposes of this section--
            ``(1) Medical savings account.--The term `medical savings 
        account' means a trust created or organized in the United 
        States exclusively for the purpose of paying the qualified 
        medical expenses of the account holder, but only if the written 
        governing instrument creating the trust meets the following 
        requirements:
                    ``(A) Except in the case of a rollover contribution 
                described in subsection (f)(4), no contribution will be 
                accepted unless it is in cash.
                    ``(B) The trustee is a bank (as defined in section 
                408(n)), an insurance company (as defined in section 
                816), or another person who demonstrates to the 
                satisfaction of the Secretary that the manner in which 
                such person will administer the trust will be 
                consistent with the requirements of this section.
                    ``(C) No part of the trust assets will be invested 
                in life insurance contracts.
                    ``(D) The assets of the trust will not be 
                commingled with other property except in a common trust 
                fund or common investment fund.
                    ``(E) The interest of an individual in the balance 
                in his account is nonforfeitable.
            ``(2) Qualified medical expenses.--
                    ``(A) In general.--The term `qualified medical 
                expenses' means, with respect to an account holder, 
                amounts paid by such holder--
                            ``(i) for medical care (as defined in 
                        section 213(d)) for such individual, the spouse 
                        of such individual, and any dependent (as 
                        defined in section 152) of such individual, but 
                        only to the extent such amounts are not 
                        compensated for by insurance or otherwise, or
                            ``(ii) for long-term care insurance for 
                        such individual, spouse, or dependent.
                    ``(B) Health insurance may not be purchased from 
                account.--Subparagraph (A)(i) shall not apply to any 
                payment for insurance.
            ``(3) Account holder.--The term `account holder' means the 
        individual on whose behalf the medical savings account was 
        established.
            ``(4) Certain rules to apply.--Rules similar to the 
        following rules shall apply for purposes of this section:
                    ``(A) Section 219(d)(2) (relating to no deduction 
                for rollovers).
                    ``(B) Section 219(f)(3) (relating to time when 
                contributions deemed made).
                    ``(C) Except as provided in section 106(b), section 
                219(f)(5) (relating to employer payments).
                    ``(D) Section 408(g) (relating to community 
                property laws).
                    ``(E) Section 408(h) (relating to custodial 
                accounts).
    ``(e) Tax Treatment of Accounts.--
            ``(1) Account taxed as grantor trust.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the account holder of a medical 
                savings account shall be treated for purposes of this 
                title as the owner of such account and shall be subject 
                to tax thereon in accordance with subpart E of part I 
                of subchapter J of this chapter (relating to grantors 
                and others treated as substantial owners).
                    ``(B) Treatment of capital losses.--With respect to 
                assets held in a medical savings account, any capital 
                loss for a taxable year from the sale or exchange of 
                such an asset shall be allowed only to the extent of 
                capital gains from such assets for such taxable year. 
                Any capital loss which is disallowed under the 
                preceding sentence shall be treated as a capital loss 
                from the sale or exchange of such an asset in the next 
                taxable year. For purposes of this subparagraph, all 
                medical savings accounts of the account holder shall be 
                treated as 1 account.
            ``(2) Account assets treated as distributed in the case of 
        prohibited transactions or account pledged as security for 
        loan.--Rules similar to the rules of paragraphs (2) and (4) of 
        section 408(e) shall apply to medical savings accounts, and any 
        amount treated as distributed under such rules shall be treated 
        as not used to pay qualified medical expenses.
            ``(3) Treatment of account after death of account holder.--
                    ``(A) In general.--A trust shall not constitute a 
                medical savings account unless the written governing 
                instrument provides that, if the account holder dies 
                while there is a balance in the account, the entire 
                balance of the account holder will be distributed 
                within 5 years after the death of the account holder.
                    ``(B) Exception where spouse becomes account 
                holder.--Subparagraph (A) shall not apply if the 
                account is payable to (or for the benefit of) the 
                surviving spouse of the decedent.
    ``(f) Tax Treatment of Distributions.--
            ``(1) Inclusion of amounts not used for qualified medical 
        expenses.--
                    ``(A) In general.--No amount shall be included in 
                the gross income of the account holder by reason of a 
                payment or distribution from a medical savings account 
                which is used exclusively to pay the qualified medical 
                expenses of the account holder. Any amount paid or 
                distributed from a medical savings account which is not 
                so used shall be included in the gross income of such 
                holder to the extent such amount does not exceed the 
                excess of--
                            ``(i) the aggregate contributions to such 
                        account which were allowed as a deduction under 
                        this section or which were excluded under 
                        section 106(b), over
                            ``(ii) the aggregate prior payments or 
                        distributions from such account which were 
                        includible in gross income under this 
                        paragraph.
                    ``(B) Special rules.--For purposes of subparagraph 
                (A)--
                            ``(i) all medical savings accounts of the 
                        account holder shall be treated as 1 account,
                            ``(ii) all payments and distributions 
                        during any taxable year shall be treated as 1 
                        distribution, and
                            ``(iii) any distribution of property shall 
                        be taken into account at its fair market value 
                        on the date of the distribution.
            ``(2) Penalty for distributions not used for qualified 
        medical expenses.--
                    ``(A) In general.--The tax imposed by this chapter 
                for any taxable year in which there is a payment or 
                distribution from a medical savings account which is 
                not used exclusively to pay the qualified medical 
                expenses of the account holder shall be increased by 10 
                percent of the amount of such payment or distribution 
                which is includible in gross income under paragraph 
                (1).
                    ``(B) Exceptions.--Subparagraph (A) shall not apply 
                if the payment or distribution is made on or after the 
                date the account holder--
                            ``(i) attains age 59 \1/2\,
                            ``(ii) becomes disabled within the meaning 
                        of section 72(m)(7), or
                            ``(iii) dies.
            ``(3) Withdrawal of excess contributions.--Paragraph (1) 
        shall not apply to the distribution of any contribution paid 
        during a taxable year to a medical savings account if--
                    ``(A) such distribution is received on or before 
                the day prescribed by law (including extensions of 
                time) for filing such individual's return for such 
                taxable year,
                    ``(B) no deduction is allowed under this section 
                with respect to such contribution, and
                    ``(C) such distribution is accompanied by the 
                amount of net income attributable to such contribution.
        In the case of such a distribution, for purposes of section 61, 
        any net income described in subparagraph (C) shall be deemed to 
        have been earned and receivable in the taxable year in which 
        such contribution is made.
            ``(4) Rollovers.--Paragraph (1) shall not apply to any 
        amount paid or distributed out of a medical savings account to 
        the account holder if the entire amount received (including 
        money and any other property) is paid into another medical 
        savings account for the benefit of such holder not later than 
        the 60th day after the day on which he received the payment or 
        distribution.
            ``(5) Coordination with medical expense deduction.--For 
        purposes of section 213, any payment or distribution out of a 
        medical savings account for qualified medical expenses shall 
        not be treated as an expense paid for medical care to the 
        extent of the amount of such payment or distribution which is 
        excludable from gross income solely by reason of paragraph 
        (1)(A).
    ``(g) Cost-of-Living Adjustment.--
            ``(1) In general.--In the case of any taxable year 
        beginning in a calendar year after 1996, each dollar amount in 
        subsection (b)(1) or in subsection (c)(2) shall be increased by 
        an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the medical care cost adjustment for such 
                calendar year.
        If any increase under the preceding sentence is not a multiple 
        of $50, such increase shall be rounded to the nearest multiple 
        of $50.
            ``(2) Medical care cost adjustment.--For purposes of 
        paragraph (1), the medical care cost adjustment for any 
        calendar year is the percentage (if any) by which--
                    ``(A) the medical care component of the Consumer 
                Price Index (as defined in section 1(f)(5)) for August 
                of the preceding calendar year, exceeds
                    ``(B) such component for August of 1995.
    ``(h) Reports.--The trustee of a medical savings account shall make 
such reports regarding such account to the Secretary and to the account 
holder with respect to contributions, distributions, and such other 
matters as the Secretary may require under regulations. The reports 
required by this subsection shall be filed at such time and in such 
manner and furnished to such individuals at such time and in such 
manner as may be required by those regulations.''
    (b) Deduction Allowed Whether or Not Individual Itemizes Other 
Deductions.--Subsection (a) of section 62 is amended by inserting after 
paragraph (15) the following new paragraph:
            ``(16) Medical savings accounts.--The deduction allowed by 
        section 220.''
    (c) Exclusions for Employer Contributions to Medical Savings 
Accounts.--
            (1) Exclusion from income tax.--The text of section 106 
        (relating to contributions by employer to accident and health 
        plans) is amended to read as follows:
    ``(a) General Rule.--Gross income of an employee does not include 
employer-provided coverage under an accident or health plan.
    ``(b) Contributions to Medical Savings Accounts.--
            ``(1) In general.--In the case of an employee who is an 
        eligible individual, gross income does not include amounts 
        contributed by such employee's employer to any medical savings 
        account of such employee.
            ``(2) Coordination with deduction limitation.--The amount 
        excluded from the gross income of an employee under this 
        subsection for any taxable year shall not exceed the limitation 
        under section 220(b)(1) (determined without regard to this 
        subsection) which is applicable to such employee for such 
        taxable year.''
            ``(3) No constructive receipt.--No amount shall be included 
        in the gross income of any employee solely because the employee 
        may choose between the contributions referred to in paragraph 
        (1) and employer contributions to another health plan of the 
        employer.
            ``(4) Special rule for deduction of employer 
        contributions.--Any employer contribution to a medical savings 
        account, if otherwise allowable as a deduction under this 
        chapter, shall be allowed only for the taxable year in which 
        paid.
            ``(5) Definitions.--For purposes of this subsection, the 
        terms `eligible individual' and `medical savings account' have 
        the respective meanings given to such terms by section 220.''
            (2) Exclusion from employment taxes.--
                    (A) Social security taxes.--
                            (i) Subsection (a) of section 3121 is 
                        amended by striking ``or'' at the end of 
                        paragraph (20), by striking the period at the 
                        end of paragraph (21) and inserting ``; or'', 
                        and by inserting after paragraph (21) the 
                        following new paragraph:
            ``(22) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(b).''
                            (ii) Subsection (a) of section 209 of the 
                        Social Security Act is amended by striking 
                        ``or'' at the end of paragraph (17), by 
                        striking the period at the end of paragraph 
                        (18) and inserting ``; or'', and by inserting 
                        after paragraph (18) the following new 
                        paragraph:
            ``(19) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(b) of the Internal Revenue Code 
        of 1986.''
                    (B) Railroad retirement tax.--Subsection (e) of 
                section 3231 is amended by adding at the end the 
                following new paragraph:
            ``(10) medical savings account contributions.--The term 
        `compensation' shall not include any payment made to or for the 
        benefit of an employee if at the time of such payment it is 
        reasonable to believe that the employee will be able to exclude 
        such payment from income under section 106(b).''
                    (C) Unemployment tax.--Subsection (b) of section 
                3306 is amended by striking ``or'' at the end of 
                paragraph (15), by striking the period at the end of 
                paragraph (16) and inserting ``; or'', and by inserting 
                after paragraph (16) the following new paragraph:
            ``(17) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(b).''
                    (D) Withholding tax.--Subsection (a) of section 
                3401 is amended by striking ``or'' at the end of 
                paragraph (19), by striking the period at the end of 
                paragraph (20) and inserting ``; or'', and by inserting 
                after paragraph (20) the following new paragraph:
            ``(21) any payment made to or for the benefit of an 
        employee if at the time of such payment it is reasonable to 
        believe that the employee will be able to exclude such payment 
        from income under section 106(b).''
    (d) Medical Savings Account Contributions Not Available Under 
Cafeteria Plans.--Subsection (f) of section 125 is amended by inserting 
``106(b),'' before ``117''.
    (e) Tax on Prohibited Transactions.--Section 4975 (relating to tax 
on prohibited transactions) is amended--
            (1) by adding at the end of subsection (c) the following 
        new paragraph:
            ``(4) Special rule for medical savings accounts.--An 
        individual for whose benefit a medical savings account (within 
        the meaning of section 220(d)) is established shall be exempt 
        from the tax imposed by this section with respect to any 
        transaction concerning such account (which would otherwise be 
        taxable under this section) if, with respect to such 
        transaction, the account ceases to be a medical savings account 
        by reason of the application of section 220(e)(2) to such 
        account.'', and
            (2) by inserting ``or a medical savings account described 
        in section 220(d)'' in subsection (e)(1) after ``described in 
        section 408(a)''.
    (f) Failure To Provide Reports on Medical Savings Accounts.--
Section 6693 (relating to failure to provide reports on individual 
retirement accounts or annuities) is amended--
            (1) by inserting ``or on medical savings accounts'' after 
        ``annuities'' in the heading of such section, and
            (2) by adding at the end of subsection (a) the following: 
        ``The person required by section 220(h) to file a report 
        regarding a medical savings account at the time and in the 
        manner required by such section shall pay a penalty of $50 for 
        each failure to so file unless it is shown that such failure is 
        due to reasonable cause.''
    (g) Clerical Amendments.--
            (1) The table of sections for part VII of subchapter B of 
        chapter 1 is amended by striking the last item and inserting 
        the following:

                              ``Sec. 220. Medical savings accounts.
                              ``Sec. 221. Cross reference.''

            (2) The table of sections for subchapter B of chapter 68 is 
        amended by inserting ``or on medical savings accounts'' after 
        ``annuities'' in the item relating to section 6693.
    (h) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

          Subtitle C--Pickle-Johnson Taxpayer Bill of Rights 2

                       PART I--TAXPAYER ADVOCATE

SEC. 13301. ESTABLISHMENT OF POSITION OF TAXPAYER ADVOCATE WITHIN 
                    INTERNAL REVENUE SERVICE.

    (a) General Rule.--Section 7802 (relating to Commissioner of 
Internal Revenue; Assistant Commissioner (Employee Plans and Exempt 
Organizations)) is amended by adding at the end the following new 
subsection:
    ``(d) Office of Taxpayer Advocate.--
            ``(1) In general.--There is established in the Internal 
        Revenue Service an office to be known as the `Office of the 
        Taxpayer Advocate'. Such office shall be under the supervision 
        and direction of an official to be known as the `Taxpayer 
        Advocate' who shall be appointed by and report directly to the 
        Commissioner of Internal Revenue. The Taxpayer Advocate shall 
        be entitled to compensation at the same rate as the highest 
        level official reporting directly to the Deputy Commissioner of 
        the Internal Revenue Service.
            ``(2) Functions of office.--
                    ``(A) In general.--It shall be the function of the 
                Office of Taxpayer Advocate to--
                            ``(i) assist taxpayers in resolving 
                        problems with the Internal Revenue Service,
                            ``(ii) identify areas in which taxpayers 
                        have problems in dealings with the Internal 
                        Revenue Service,
                            ``(iii) to the extent possible, propose 
                        changes in the administrative practices of the 
                        Internal Revenue Service to mitigate problems 
                        identified under clause (ii), and
                            ``(iv) identify potential legislative 
                        changes which may be appropriate to mitigate 
                        such problems.
                    ``(B) Annual reports.--
                            ``(i) Objectives.--Not later than June 30 
                        of each calendar year after 1995, the Taxpayer 
                        Advocate shall report to the Committee on Ways 
                        and Means of the House of Representatives and 
                        the Committee on Finance of the Senate on the 
                        objectives of the Taxpayer Advocate for the 
                        fiscal year beginning in such calendar year. 
                        Any such report shall contain full and 
                        substantive analysis, in addition to 
                        statistical information.
                            ``(ii) Activities.--Not later than December 
                        31 of each calendar year after 1995, the 
                        Taxpayer Advocate shall report to the Committee 
                        on Ways and Means of the House of 
                        Representatives and the Committee on Finance of 
                        the Senate on the activities of the Taxpayer 
                        Advocate during the fiscal year ending during 
                        such calendar year. Any such report shall 
                        contain full and substantive analysis, in 
                        addition to statistical information, and 
                        shall--
                                    ``(I) identify the initiatives the 
                                Taxpayer Advocate has taken on 
                                improving taxpayer services and 
                                Internal Revenue Service 
                                responsiveness,
                                    ``(II) contain recommendations 
                                received from individuals with the 
                                authority to issue Taxpayer Assistance 
                                Orders under section 7811,
                                    ``(III) contain a summary of at 
                                least 20 of the most serious problems 
                                encountered by taxpayers, including a 
                                description of the nature of such 
                                problems,
                                    ``(IV) contain an inventory of the 
                                items described in subclauses (I), 
                                (II), and (III) for which action has 
                                been taken and the result of such 
                                action,
                                    ``(V) contain an inventory of the 
                                items described in subclauses (I), 
                                (II), and (III) for which action 
                                remains to be completed and the period 
                                during which each item has remained on 
                                such inventory,
                                    ``(VI) contain an inventory of the 
                                items described in subclauses (II) and 
                                (III) for which no action has been 
                                taken, the period during which each 
                                item has remained on such inventory, 
                                the reasons for the inaction, and 
                                identify any Internal Revenue Service 
                                official who is responsible for such 
                                inaction,
                                    ``(VII) identify any Taxpayer 
                                Assistance Order which was not honored 
                                by the Internal Revenue Service in a 
                                timely manner, as specified under 
                                section 7811(b),
                                    ``(VIII) contain recommendations 
                                for such administrative and legislative 
                                action as may be appropriate to resolve 
                                problems encountered by taxpayers,
                                    ``(IX) describe the extent to which 
                                regional problem resolution officers 
                                participate in the selection and 
                                evaluation of local problem resolution 
                                officers, and
                                    ``(X) include such other 
                                information as the Taxpayer Advocate 
                                may deem advisable.
                            ``(iii) Report to be submitted directly.--
                        Each report required under this subparagraph 
                        shall be provided directly to the Committees 
                        referred to in clauses (i) and (ii) without any 
                        prior review or comment from the Commissioner, 
                        the Secretary of the Treasury, any other 
                        officer or employee of the Department of the 
                        Treasury, or the Office of Management and 
                        Budget.
            ``(3) Responsibilities of commissioner.--The Commissioner 
        of Internal Revenue shall establish procedures requiring a 
        formal response to all recommendations submitted to the 
        Commissioner by the Taxpayer Advocate within 3 months after 
        submission to the Commissioner.''
    (b) Conforming Amendments.--
            (1) Section 7811 (relating to Taxpayer Assistance Orders) 
        is amended--
                    (A) by striking ``the Office of Ombudsman'' in 
                subsection (a) and inserting ``the Office of the 
                Taxpayer Advocate'', and
                    (B) by striking ``Ombudsman'' each place it appears 
                (including in the headings of subsections (e) and (f)) 
                and inserting ``Taxpayer Advocate''.
            (2) The heading for section 7802 is amended to read as 
        follows:

``SEC. 7802. COMMISSIONER OF INTERNAL REVENUE; ASSISTANT COMMISSIONERS; 
                    TAXPAYER ADVOCATE.''

            (3) The table of sections for subchapter A of chapter 80 is 
        amended by striking the item relating to section 7802 and 
        inserting the following new item:

                              ``Sec. 7802. Commissioner of Internal 
                                        Revenue; Assistant 
                                        Commissioners; Taxpayer 
                                        Advocate.''

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

SEC. 13302. EXPANSION OF AUTHORITY TO ISSUE TAXPAYER ASSISTANCE ORDERS.

    (a) Terms of Orders.--Subsection (b) of section 7811 (relating to 
terms of Taxpayer Assistance Orders) is amended--
            (1) by inserting ``within a specified time period'' after 
        ``the Secretary'', and
            (2) by inserting ``take any action as permitted by law,'' 
        after ``cease any action,''.
    (b) Limitation on Authority To Modify or Rescind.--Section 7811(c) 
(relating to authority to modify or rescind) is amended to read as 
follows:
    ``(c) Authority To Modify or Rescind.--Any Taxpayer Assistance 
Order issued by the Taxpayer Advocate under this section may be 
modified or rescinded--
            ``(1) only by the Taxpayer Advocate, the Commissioner of 
        Internal Revenue, the Deputy Commissioner of Internal Revenue, 
        or a regional problem resolution officer, and
            ``(2) only if a written explanation of the reasons for the 
        modification or rescission is provided to the Taxpayer 
        Advocate.''
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

       PART II--MODIFICATIONS TO INSTALLMENT AGREEMENT PROVISIONS

SEC. 13306. NOTIFICATION OF REASONS FOR TERMINATION OF INSTALLMENT 
                    AGREEMENTS.

    (a) Terminations.--Subsection (b) of section 6159 (relating to 
extent to which agreements remain in effect) is amended by adding at 
the end the following new paragraph:
            ``(5) Notice requirements.--The Secretary may not take any 
        action under paragraph (2), (3), or (4) unless--
                    ``(A) a notice of such action is provided to the 
                taxpayer not later than the day 30 days before the date 
                of such action, and
                    ``(B) such notice includes an explanation why the 
                Secretary intends to take such action.
        The preceding sentence shall not apply in any case in which the 
        Secretary believes that collection of any tax to which an 
        agreement under this section relates is in jeopardy.''
    (b) Conforming Amendment.--Paragraph (3) of section 6159(b) is 
amended to read as follows:
            ``(3) Subsequent change in financial conditions.--If the 
        Secretary makes a determination that the financial condition of 
        a taxpayer with whom the Secretary has entered into an 
        agreement under subsection (a) has significantly changed, the 
        Secretary may alter, modify, or terminate such agreement.''
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date 6 months after the date of the enactment of this 
Act.

SEC. 13307. ADMINISTRATIVE REVIEW OF TERMINATION OF INSTALLMENT 
                    AGREEMENT.

    (a) General Rule.--Section 6159 (relating to agreements for payment 
of tax liability in installments) is amended by adding at the end the 
following new subsection:
    ``(c) Administrative Review.--The Secretary shall establish 
procedures for an independent administrative review of terminations of 
installment agreements under this section for taxpayers who request 
such a review.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on January 1, 1996.

             PART III--ABATEMENT OF INTEREST AND PENALTIES

SEC. 13311. EXPANSION OF AUTHORITY TO ABATE INTEREST.

    (a) General Rule.--Paragraph (1) of section 6404(e) (relating to 
abatement of interest in certain cases) is amended--
            (1) by inserting ``unreasonable'' before ``error'' each 
        place it appears in subparagraphs (A) and (B), and
            (2) by striking ``in performing a ministerial act'' each 
        place it appears and inserting ``in performing a ministerial or 
        managerial act''.
    (b) Clerical Amendment.--The subsection heading for subsection (e) 
of section 6404 is amended--
            (1) by striking ``Assessments'' and inserting 
        ``Abatement'', and
            (2) by inserting ``Unreasonable'' before ``Errors''.
    (c) Effective Date.--The amendments made by this section shall 
apply to interest accruing with respect to deficiencies or payments for 
taxable years beginning after the date of the enactment of this Act.

SEC. 13312. REVIEW OF IRS FAILURE TO ABATE INTEREST.

    (a) In General.--Section 6404 is amended by adding at the end the 
following new subsection:
    ``(g) Review of Denial of Request for Abatement of Interest.--The 
Tax Court shall have jurisdiction over any action brought by a taxpayer 
who meets the requirements referred to in section 7430(c)(4)(A)(iii) to 
determine whether the Secretary's failure to abate interest under this 
section was an abuse of discretion if such action is brought within 6 
months after the date of the Secretary's final determination not to 
abate such interest.''
    (b) Effective Date.--The amendment made by this section shall apply 
to requests for abatement after the date of the enactment of this Act.

SEC. 13313. EXTENSION OF INTEREST-FREE PERIOD FOR PAYMENT OF TAX AFTER 
                    NOTICE AND DEMAND.

    (a) General Rule.--Paragraph (3) of section 6601(e) (relating to 
payments made within 10 days after notice and demand) is amended to 
read as follows:
            ``(3) Payments made within specified period after notice 
        and demand.--If notice and demand is made for payment of any 
        amount and if such amount is paid within 21 calendar days (10 
        business days if the amount for which such notice and demand is 
        made equals or exceeds $100,000) after the date of such notice 
        and demand, interest under this section on the amount so paid 
        shall not be imposed for the period after the date of such 
        notice and demand.''
    (b) Conforming Amendments.--
            (1) Subparagraph (A) of section 6601(e)(2) is amended by 
        striking ``10 days from the date of notice and demand 
        therefor'' and inserting ``21 calendar days from the date of 
        notice and demand therefor (10 business days if the amount for 
        which such notice and demand is made equals or exceeds 
        $100,000)''.
            (2) Paragraph (3) of section 6651(a) is amended by striking 
        ``10 days of the date of the notice and demand therefor'' and 
        inserting ``21 calendar days from the date of notice and demand 
        therefor (10 business days if the amount for which such notice 
        and demand is made equals or exceeds $100,000)''.
    (c) Effective Date.--The amendments made by this section shall 
apply in the case of any notice and demand given after June 30, 1996.

                         PART IV--JOINT RETURNS

SEC. 13316. STUDIES OF JOINT RETURN-RELATED ISSUES.

    The Secretary of the Treasury or his delegate and the Comptroller 
General of the United States shall each conduct separate studies of--
            (1) the effects of changing the liability for tax on a 
        joint return from being joint and several to being 
        proportionate to the tax attributable to each spouse,
            (2) the effects of providing that, if a divorce decree 
        allocates liability for tax on a joint return filed before the 
        divorce, the Secretary may collect such liability only in 
        accordance with the decree,
            (3) whether those provisions of the Internal Revenue Code 
        of 1986 intended to provide relief to innocent spouses provide 
        meaningful relief in all cases where such relief is 
        appropriate, and
            (4) the effect of providing that community income (as 
        defined in section 66(d) of such Code) which, in accordance 
        with the rules contained in section 879(a) of such Code, would 
        be treated as the income of one spouse is exempt from a levy 
        for failure to pay any tax imposed by subtitle A by the other 
        spouse for a taxable year ending before their marriage.
The reports of such studies shall be submitted to the Committee on Ways 
and Means of the House of Representatives and the Committee on Finance 
of the Senate within 6 months after the date of the enactment of this 
Act.

SEC. 13317. JOINT RETURN MAY BE MADE AFTER SEPARATE RETURNS WITHOUT 
                    FULL PAYMENT OF TAX.

    (a) General Rule.--Paragraph (2) of section 6013(b) (relating to 
limitations on filing of joint return after filing separate returns) is 
amended by striking subparagraph (A) and redesignating the following 
subparagraphs accordingly.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 13318. DISCLOSURE OF COLLECTION ACTIVITIES.

    Subsection (e) of section 6103 (relating to disclosure to persons 
having material interest) is amended by adding at the end the following 
new paragraph:
            ``(8) Disclosure of collection activities with respect to 
        joint return.--If any deficiency of tax with respect to a joint 
        return is assessed and the individuals filing such return are 
        no longer married or no longer reside in the same household, 
        upon request in writing by either of such individuals, the 
        Secretary shall disclose in writing to the individual making 
        the request whether the Secretary has attempted to collect such 
        deficiency from such other individual, the general nature of 
        such collection activities, and the amount collected.''

                     PART V--COLLECTION ACTIVITIES

SEC. 13321. MODIFICATIONS TO LIEN AND LEVY PROVISIONS.

    (a) Withdrawal of Certain Notices.--Section 6323 (relating to 
validity and priority against certain persons) is amended by adding at 
the end the following new subsection:
    ``(j) Withdrawal of Notice in Certain Circumstances.--
            ``(1) In general.--The Secretary may withdraw a notice of a 
        lien filed under this section and this chapter shall be applied 
        as if the withdrawn notice had not been filed, if the Secretary 
        determines that--
                    ``(A) the filing of such notice was premature or 
                otherwise not in accordance with administrative 
                procedures of the Secretary,
                    ``(B) the taxpayer has entered into an agreement 
                under section 6159 to satisfy the tax liability for 
                which the lien was imposed by means of installment 
                payments, unless such agreement provides otherwise,
                    ``(C) the withdrawal of such notice will facilitate 
                the collection of the tax liability, or
                    ``(D) with the consent of the taxpayer or the 
                Taxpayer Advocate, the withdrawal of such notice would 
                be in the best interests of the taxpayer (as determined 
                by the Taxpayer Advocate) and the United States.
        Any such withdrawal shall be made by filing notice at the same 
        office as the withdrawn notice. A copy of such notice of 
        withdrawal shall be provided to the taxpayer.
            ``(2) Notice to credit agencies, etc.--Upon written request 
        by the taxpayer with respect to whom a notice of a lien was 
        withdrawn under paragraph (1), the Secretary shall promptly 
        make reasonable efforts to notify credit reporting agencies, 
        and any financial institution or creditor whose name and 
        address is specified in such request, of the withdrawal of such 
        notice. Any such request shall be in such form as the Secretary 
        may prescribe.''
    (b) Return of Levied Property in Certain Cases.--Section 6343 
(relating to authority to release levy and return property) is amended 
by adding at the end the following new subsection:
    ``(d) Return of Property in Certain Cases.--If--
            ``(1) any property has been levied upon, and
            ``(2) the Secretary determines that--
                    ``(A) the levy on such property was premature or 
                otherwise not in accordance with administrative 
                procedures of the Secretary,
                    ``(B) the taxpayer has entered into an agreement 
                under section 6159 to satisfy the tax liability for 
                which the levy was imposed by means of installment 
                payments, unless such agreement provides otherwise,
                    ``(C) the return of such property will facilitate 
                the collection of the tax liability, or
                    ``(D) with the consent of the taxpayer or the 
                Taxpayer Advocate, the return of such property would be 
                in the best interests of the taxpayer (as determined by 
                the Taxpayer Advocate) and the United States,
the provisions of subsection (b) shall apply in the same manner as if 
such property had been wrongly levied upon, except that no interest 
shall be allowed under subsection (c).''
    (c) Modifications in Certain Levy Exemption Amounts.--
            (1) Fuel, etc.--Paragraph (2) of section 6334(a) (relating 
        to fuel, provisions, furniture, and personal effects exempt 
        from levy) is amended--
                    (A) by striking ``If the taxpayer is the head of a 
                family, so'' and inserting ``So'',
                    (B) by striking ``his household'' and inserting 
                ``the taxpayer's household'', and
                    (C) by striking ``$1,650 ($1,550 in the case of 
                levies issued during 1989)'' and inserting ``$2,500''.
            (2) Inflation adjustment.--Section 6334 (relating to 
        property exempt from levy) is amended by adding at the end the 
        following new subsection:
    ``(f) Inflation Adjustment.--
            ``(1) In general.--In the case of any calendar year 
        beginning after 1996, each dollar amount referred to in 
        paragraphs (2) and (3) of subsection (a) shall be increased by 
        an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for such calendar year, by 
                substituting `calendar year 1995' for `calendar year 
                1992' in subparagraph (B) thereof.
            ``(2) Rounding.--If any dollar amount after being increased 
        under paragraph (1) is not a multiple of $10, such dollar 
        amount shall be rounded to the nearest multiple of $10.''
            (3) Technical amendment.--Paragraph (3) of section 6334(a) 
        is amended by striking ``($1,050 in the case of levies issued 
        during 1989)''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall take effect on the date 
        of the enactment of this Act.
            (2) Exempt amounts.--The amendments made by subsection (c) 
        shall take effect with respect to levies issued after December 
        31, 1995.

SEC. 13322. OFFERS-IN-COMPROMISE.

    (a) Review Requirements.--Subsection (b) of section 7122 (relating 
to records) is amended by striking ``$500.'' and inserting ``$100,000. 
However, such compromise shall be subject to continuing quality review 
by the Secretary.''
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

                      PART VI--INFORMATION RETURNS

SEC. 13326. CIVIL DAMAGES FOR FRAUDULENT FILING OF INFORMATION RETURNS.

    (a) General Rule.--Subchapter B of chapter 76 (relating to 
proceedings by taxpayers and third parties) is amended by redesignating 
section 7434 as section 7435 and by inserting after section 7433 the 
following new section:

``SEC. 7434. CIVIL DAMAGES FOR FRAUDULENT FILING OF INFORMATION 
                    RETURNS.

    ``(a) In General.--If any person willfully files a fraudulent 
information return with respect to payments purported to be made to any 
other person, such other person may bring a civil action for damages 
against the person so filing such return.
    ``(b) Damages.--In any action brought under subsection (a), upon a 
finding of liability on the part of the defendant, the defendant shall 
be liable to the plaintiff in an amount equal to the greater of $5,000 
or the sum of--
            ``(1) any actual damages sustained by the plaintiff as a 
        proximate result of the filing of the fraudulent information 
        return (including any costs attributable to resolving 
        deficiencies asserted as a result of such filing),
            ``(2) the costs of the action, and
            ``(3) in the court's discretion, reasonable attorneys fees.
    ``(c) Period for Bringing Action.--Notwithstanding any other 
provision of law, an action to enforce the liability created under this 
section may be brought without regard to the amount in controversy and 
may be brought only within the later of--
            ``(1) 6 years after the date of the filing of the 
        fraudulent information return, or
            ``(2) 1 year after the date such fraudulent information 
        return would have been discovered by exercise of reasonable 
        care.
    ``(d) Copy of Complaint Filed With IRS.--Any person bringing an 
action under subsection (a) shall provide a copy of the complaint to 
the Internal Revenue Service upon the filing of such complaint with the 
court.
    ``(e) Finding of Court To Include Correct Amount of Payment.--The 
decision of the court awarding damages in an action brought under 
subsection (a) shall include a finding of the correct amount which 
should have been reported in the information return.
    ``(f) Information Return.--For purposes of this section, the term 
`information return' means any statement described in section 
6724(d)(1)(A).''
    (b) Clerical Amendment.--The table of sections for subchapter B of 
chapter 76 is amended by striking the item relating to section 7434 and 
inserting the following:

                              ``Sec. 7434. Civil damages for fraudulent 
                                        filing of information returns.
                              ``Sec. 7435. Cross references.''

    (c) Effective Date.--The amendments made by this section shall 
apply to fraudulent information returns filed after the date of the 
enactment of this Act.

SEC. 13327. REQUIREMENT TO CONDUCT REASONABLE INVESTIGATIONS OF 
                    INFORMATION RETURNS.

    (a) General Rule.--Section 6201 (relating to assessment authority) 
is amended by redesignating subsection (d) as subsection (e) and by 
inserting after subsection (c) the following new subsection:
    ``(d) Required Reasonable Verification of Information Returns.--In 
any court proceeding, if a taxpayer asserts a reasonable dispute with 
respect to any item of income reported on an information return filed 
with the Secretary under subpart B or C of part III of subchapter A of 
chapter 61 by a third party and the taxpayer has fully cooperated with 
the Secretary (including providing, within a reasonable period of time, 
access to and inspection of all witnesses, information, and documents 
within the control of the taxpayer as reasonably requested by the 
Secretary), the Secretary shall have the burden of producing reasonable 
and probative information concerning such deficiency in addition to 
such information return.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act.

              PART VII--AWARDING OF COSTS AND CERTAIN FEES

SEC. 13331. UNITED STATES MUST ESTABLISH THAT ITS POSITION IN 
                    PROCEEDING WAS SUBSTANTIALLY JUSTIFIED.

    (a) General Rule.--Subparagraph (A) of section 7430(c)(4) (defining 
prevailing party) is amended by striking clause (i) and by 
redesignating clauses (ii) and (iii) as clauses (i) and (ii), 
respectively.
    (b) Burden of Proof on United States.--Paragraph (4) of section 
7430(c) is amended by redesignating subparagraph (B) as subparagraph 
(C) and by inserting after subparagraph (A) the following new 
subparagraph:
                    ``(B) Exception if united states establishes that 
                its position was substantially justified.--
                            ``(i) General rule.--A party shall not be 
                        treated as the prevailing party in a proceeding 
                        to which subsection (a) applies if the United 
                        States establishes that the position of the 
                        United States in the proceeding was 
                        substantially justified.
                            ``(ii) Presumption of no justification if 
                        internal revenue service didn't follow certain 
                        published guidance.--For purposes of clause 
                        (i), the position of the United States shall be 
                        presumed not to be substantially justified if 
                        the Internal Revenue Service did not follow its 
                        applicable published guidance in the 
                        administrative proceeding. Such presumption may 
                        be rebutted.
                            ``(iii) Applicable published guidance.--For 
                        purposes of clause (ii), the term `applicable 
                        published guidance' means--
                                    ``(I) regulations, revenue rulings, 
                                revenue procedures, information 
                                releases, notices, and announcements, 
                                and
                                    ``(II) any of the following which 
                                are issued to the taxpayer: private 
                                letter rulings, technical advice 
                                memoranda, and determination letters.''
    (c) Conforming Amendments.--
            (1) Subparagraph (B) of section 7430(c)(2) is amended by 
        striking ``paragraph (4)(B)'' and inserting ``paragraph 
        (4)(C)''.
            (2) Subparagraph (C) of section 7430(c)(4), as redesignated 
        by subsection (b), is amended by striking ``subparagraph (A)'' 
        and inserting ``this paragraph''.
            (3) Sections 6404(g) and 6656(c)(1), as amended by this 
        title, are each amended by striking ``section 
        7430(c)(4)(A)(iii)'' and inserting ``section 
        7430(c)(4)(A)(ii)''.

SEC. 13332. INCREASED LIMIT ON ATTORNEY FEES.

    Paragraph (1) of section 7430(c) (defining reasonable litigation 
costs) is amended--
            (1) by striking ``$75'' in clause (iii) of subparagraph (B) 
        and inserting ``$110'',
            (2) by striking ``an increase in the cost of living or'' in 
        clause (iii) of subparagraph (B), and
            (3) by adding after clause (iii) the following:
        ``In the case of any calendar year beginning after 1996, the 
        dollar amount referred to in clause (iii) shall be increased by 
        an amount equal to such dollar amount multiplied by the cost-
        of-living adjustment determined under section 1(f)(3) for such 
        calendar year, by substituting `calendar year 1995' for 
        `calendar year 1992' in subparagraph (B) thereof. If any dollar 
        amount after being increased under the preceding sentence is 
        not a multiple of $10, such dollar amount shall be rounded to 
        the nearest multiple of $10.''

SEC. 13333. FAILURE TO AGREE TO EXTENSION NOT TAKEN INTO ACCOUNT.

    Paragraph (1) of section 7430(b) (relating to requirement that 
administrative remedies be exhausted) is amended by adding at the end 
the following new sentence: ``Any failure to agree to an extension of 
the time for the assessment of any tax shall not be taken into account 
for purposes of determining whether the prevailing party meets the 
requirements of the preceding sentence.''

SEC. 13334. AWARD OF LITIGATION COSTS PERMITTED IN DECLARATORY JUDGMENT 
                    PROCEEDINGS.

    Subsection (b) of section 7430 is amended by striking paragraph (3) 
and by redesignating paragraph (4) as paragraph (3).

SEC. 13335. EFFECTIVE DATE.

    The amendments made by this part shall apply in the case of 
proceedings commenced after the date of the enactment of this Act.

 PART VIII--MODIFICATION TO RECOVERY OF CIVIL DAMAGES FOR UNAUTHORIZED 
                           COLLECTION ACTIONS

SEC. 13336. INCREASE IN LIMIT ON RECOVERY OF CIVIL DAMAGES FOR 
                    UNAUTHORIZED COLLECTION ACTIONS.

    (a) General Rule.--Subsection (b) of section 7433 (relating to 
damages) is amended by striking ``$100,000'' and inserting 
``$1,000,000''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to actions by officers or employees of the Internal Revenue 
Service after the date of the enactment of this Act.

SEC. 13337. COURT DISCRETION TO REDUCE AWARD FOR LITIGATION COSTS FOR 
                    FAILURE TO EXHAUST ADMINISTRATIVE REMEDIES.

    (a) General Rule.--Paragraph (1) of section 7433(d) (relating to 
civil damages for certain unauthorized collection actions) is amended 
to read as follows:
            ``(1) Award for damages may be reduced if administrative 
        remedies not exhausted.--The amount of damages awarded under 
        subsection (b) may be reduced if the court determines that the 
        plaintiff has not exhausted the administrative remedies 
        available to such plaintiff within the Internal Revenue 
        Service.''
    (b) Effective Date.--The amendment made by this section shall apply 
in the case of proceedings commenced after the date of the enactment of 
this Act.

 PART IX--MODIFICATIONS TO PENALTY FOR FAILURE TO COLLECT AND PAY OVER 
                                  TAX

SEC. 13341. PRELIMINARY NOTICE REQUIREMENT.

    (a) In General.--Section 6672 (relating to failure to collect and 
pay over tax, or attempt to evade or defeat tax) is amended by 
redesignating subsection (b) as subsection (c) and by inserting after 
subsection (a) the following new subsection:
    ``(b) Preliminary Notice Requirement.--
            ``(1) In general.--No penalty shall be imposed under 
        subsection (a) unless the Secretary notifies the taxpayer in 
        writing by mail to an address as determined under section 
        6212(b) that the taxpayer shall be subject to an assessment of 
        such penalty.
            ``(2) Timing of notice.--The mailing of the notice 
        described in paragraph (1) shall precede any notice and demand 
        of any penalty under subsection (a) by at least 60 days.
            ``(3) Statute of limitations.--If a notice described in 
        paragraph (1) with respect to any penalty is mailed before the 
        expiration of the period provided by section 6501 for the 
        assessment of such penalty (determined without regard to this 
        paragraph), the period provided by such section for the 
        assessment of such penalty shall not expire before the later 
        of--
                    ``(A) the date 90 days after the date on which such 
                notice was mailed, or
                    ``(B) if there is a timely protest of the proposed 
                assessment, the date 30 days after the Secretary makes 
                a final administrative determination with respect to 
                such protest.
            ``(4) Exception for jeopardy.--This subsection shall not 
        apply if the Secretary finds that the collection of the penalty 
        is in jeopardy.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to proposed assessments made after June 30, 1996.

SEC. 13342. DISCLOSURE OF CERTAIN INFORMATION WHERE MORE THAN 1 PERSON 
                    LIABLE FOR PENALTY FOR FAILURE TO COLLECT AND PAY 
                    OVER TAX.

    (a) In General.--Subsection (e) of section 6103 (relating to 
disclosure to persons having material interest), as amended by section 
13318, is amended by adding at the end the following new paragraph:
            ``(9) Disclosure of certain information where more than 1 
        person subject to penalty under section 6672.--If the Secretary 
        determines that a person is liable for a penalty under section 
        6672(a) with respect to any failure, upon request in writing of 
        such person, the Secretary shall disclose in writing to such 
        person--
                    ``(A) the name of any other person whom the 
                Secretary has determined to be liable for such penalty 
                with respect to such failure, and
                    ``(B) whether the Secretary has attempted to 
                collect such penalty from such other person, the 
                general nature of such collection activities, and the 
                amount collected.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act.

SEC. 13343. RIGHT OF CONTRIBUTION WHERE MORE THAN 1 PERSON LIABLE FOR 
                    PENALTY FOR FAILURE TO COLLECT AND PAY OVER TAX.

    (a) In General.--Section 6672 (relating to failure to collect and 
pay over tax, or attempt to evade or defeat tax) is amended by adding 
at the end the following new subsection:
    ``(d) Right of Contribution Where More Than 1 Person Liable for 
Penalty.--If more than 1 person is liable for the penalty under 
subsection (a) with respect to any tax, each person who paid such 
penalty shall be entitled to recover from other persons who are liable 
for such penalty an amount equal to the excess of the amount paid by 
such person over such person's proportionate share of the penalty. Any 
claim for such a recovery may be made only in a proceeding which is 
separate from, and is not joined with--
            ``(1) an action for collection of such penalty brought by 
        the United States, or
            ``(2) a proceeding in which the United States files a 
        counterclaim or third-party complaint for the collection of 
        such penalty.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to penalties assessed after the date of the enactment of this 
Act.

SEC. 13344. VOLUNTEER BOARD MEMBERS OF TAX-EXEMPT ORGANIZATIONS EXEMPT 
                    FROM PENALTY FOR FAILURE TO COLLECT AND PAY OVER 
                    TAX.

    (a) In General.--Section 6672 is amended by adding at the end the 
following new subsection:
    ``(e) Exception for Voluntary Board Members of Tax-Exempt 
Organizations.--No penalty shall be imposed by subsection (a) on any 
unpaid, volunteer member of any board of trustees or directors of an 
organization exempt from tax under subtitle A if such member--
            ``(1) is solely serving in an honorary capacity,
            ``(2) does not participate in the day-to-day or financial 
        operations of the organization, and
            ``(3) does not have actual knowledge of the failure on 
        which such penalty is imposed.
The preceding sentence shall not apply if it results in no person being 
liable for the penalty imposed by subsection (a).''
    (b) Public Information Requirements.--
            (1) In general.--The Secretary of the Treasury or the 
        Secretary's delegate (hereafter in this subsection referred to 
        as the ``Secretary'') shall take such actions as may be 
        appropriate to ensure that employees are aware of their 
        responsibilities under the Federal tax depository system, the 
        circumstances under which employees may be liable for the 
        penalty imposed by section 6672 of the Internal Revenue Code of 
        1986, and the responsibility to promptly report to the Internal 
        Revenue Service any failure referred to in subsection (a) of 
        such section 6672. Such actions shall include--
                    (A) printing of a warning on deposit coupon 
                booklets and the appropriate tax returns that certain 
                employees may be liable for the penalty imposed by such 
                section 6672, and
                    (B) the development of a special information 
                packet.
            (2) Development of explanatory materials.--The Secretary 
        shall develop materials explaining the circumstances under 
        which board members of tax-exempt organizations (including 
        voluntary and honorary members) may be subject to penalty under 
        section 6672 of such Code. Such materials shall be made 
        available to tax-exempt organizations.
            (3) IRS instructions.--The Secretary shall clarify the 
        instructions to Internal Revenue Service employees on the 
        application of the penalty under section 6672 of such Code with 
        regard to voluntary members of boards of trustees or directors 
        of tax- exempt organizations.

          PART X--MODIFICATIONS OF RULES RELATING TO SUMMONSES

SEC. 13346. ENROLLED AGENTS INCLUDED AS THIRD-PARTY RECORDKEEPERS.

    (a) In General.--Paragraph (3) of section 7609(a) (relating to 
third-party recordkeeper defined) is amended by striking ``and'' at the 
end of subparagraph (G), by striking the period at the end of 
subparagraph (H) and inserting ``; and'', and by adding at the end the 
following the subparagraph:
                    ``(I) any enrolled agent.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to summonses issued after the date of the enactment of this Act.

SEC. 13347. SAFEGUARDS RELATING TO DESIGNATED SUMMONSES.

    (a) Standard of Review.--Subparagraph (A) of section 6503(j)(2) 
(defining designated summons) is amended by redesignating clauses (i) 
and (ii) as clauses (ii) and (iii), respectively, and by inserting 
before clause (ii) (as so redesignated) the following new clause:
                            ``(i) the issuance of such summons is 
                        preceded by a review of such issuance by the 
                        regional counsel of the Office of Chief Counsel 
                        for the region in which the examination of the 
                        corporation is being conducted,''.
    (b) Limitation on Persons To Whom Designated Summons May Be 
Issued.--Paragraph (1) of section 6503(j) is amended by striking ``with 
respect to any return of tax by a corporation'' and inserting ``to a 
corporation (or to any other person to whom the corporation has 
transferred records) with respect to any return of tax by such 
corporation for a taxable year (or other period) for which such 
corporation is being examined under the coordinated examination program 
(or any successor program) of the Internal Revenue Service''.
    (c) Effective Date.--The amendments made by this section shall 
apply to summonses issued after the date of the enactment of this Act.

SEC. 13348. ANNUAL REPORT TO CONGRESS CONCERNING DESIGNATED SUMMONSES.

    Not later than December 31 of each calendar year after 1995, the 
Secretary of the Treasury or his delegate shall report to the Committee 
on Ways and Means of the House of Representatives and the Committee on 
Finance of the Senate on the number of designated summonses (as defined 
in section 6503(j) of the Internal Revenue Code of 1986) which were 
issued during the preceding 12 months.

  PART XI--RELIEF FROM RETROACTIVE APPLICATION OF TREASURY DEPARTMENT 
                              REGULATIONS

SEC. 13351. RELIEF FROM RETROACTIVE APPLICATION OF TREASURY DEPARTMENT 
                    REGULATIONS.

    (a) In General.--Subsection (b) of section 7805 (relating to rules 
and regulations) is amended to read as follows:
    ``(b) Retroactivity of Regulations.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, no temporary, proposed, or final regulation 
        relating to the internal revenue laws shall apply to any 
        taxable period ending before the earliest of the following 
        dates:
                    ``(A) The date on which such regulation is filed 
                with the Federal Register.
                    ``(B) In the case of any final regulation, the date 
                on which any proposed or temporary regulation to which 
                such final regulation relates was filed with the 
                Federal Register.
                    ``(C) The date on which any notice substantially 
                describing the expected contents of any temporary, 
                proposed, or final regulation is issued to the public.
            ``(2) Exception for promptly issued regulations.--Paragraph 
        (1) shall not apply to regulations filed or issued within 12 
        months of the date of the enactment of the statutory provision 
        to which the regulation relates.
            ``(3) Prevention of abuse.--The Secretary may provide that 
        any regulation may take effect or apply retroactively to 
        prevent abuse.
            ``(4) Correction of procedural defects.--The Secretary may 
        provide that any regulation may apply retroactively to correct 
        a procedural defect in the issuance of any prior regulation.
            ``(5) Internal regulations.--The limitation of paragraph 
        (1) shall not apply to any regulation relating to internal 
        Treasury Department policies, practices, or procedures.
            ``(6) Congressional authorization.--The limitation of 
        paragraph (1) may be superseded by a legislative grant from 
        Congress authorizing the Secretary to prescribe the effective 
        date with respect to any regulation.
            ``(7) Election to apply retroactively.--Paragraph (1) shall 
        not apply to any regulation which the taxpayer elects to apply 
        before the dates specified in paragraph (1) but only if such 
        election applies to all regulations which were issued with such 
        regulation under the statutory provision to which such 
        regulation relates.
            ``(8) Application to rulings.--The Secretary may prescribe 
        the extent, if any, to which any ruling (including any judicial 
        decision or any administrative determination other than by 
        regulation) relating to the internal revenue laws shall be 
        applied without retroactive effect.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply with respect to regulations which relate to statutory provisions 
enacted on or after the date of the enactment of this Act.

                   PART XII--MISCELLANEOUS PROVISIONS

SEC. 13356. REPORT ON PILOT PROGRAM FOR APPEAL OF ENFORCEMENT ACTIONS.

    Not later than March 1, 1996, the Secretary of the Treasury or his 
delegate shall submit to the Committee on Ways and Means of the House 
of Representatives and the Committee on Finance of the Senate a report 
on the pilot program for appeals of enforcement actions (including 
lien, levy, and seizure actions) to the Appeals Division of the 
Internal Revenue Service, together with such recommendations as he may 
deem advisable.

SEC. 13357. PHONE NUMBER OF PERSON PROVIDING PAYEE STATEMENTS REQUIRED 
                    TO BE SHOWN ON SUCH STATEMENT.

    (a) General Rule.--The following provisions are each amended by 
striking ``name and address'' and inserting ``name, address, and phone 
number of the information contact'':
            (1) Section 6041(d)(1).
            (2) Section 6041A(e)(1).
            (3) Section 6042(c)(1).
            (4) Section 6044(e)(1).
            (5) Section 6045(b)(1).
            (6) Section 6049(c)(1)(A).
            (7) Section 6050B(b)(1).
            (8) Section 6050H(d)(1).
            (9) Section 6050I(e)(1).
            (10) Section 6050J(e).
            (11) Section 6050K(b)(1).
            (12) Section 6050N(b)(1).
    (b) Effective Date.--The amendments made by subsection (a) shall 
apply to statements required to be furnished after December 31, 1996 
(determined without regard to any extension).

SEC. 13358. REQUIRED NOTICE OF CERTAIN PAYMENTS.

    If any payment is received by the Secretary of the Treasury or his 
delegate from any taxpayer and the Secretary cannot associate such 
payment with such taxpayer, the Secretary shall make reasonable efforts 
to notify the taxpayer of such inability within 60 days after the 
receipt of such payment.

SEC. 13359. UNAUTHORIZED ENTICEMENT OF INFORMATION DISCLOSURE.

    (a) In General.--Subchapter B of chapter 76 (relating to 
proceedings by taxpayers and third parties), as amended by section 
13316(a), is amended by redesignating section 7435 as section 7436 and 
by inserting after section 7434 the following new section:

``SEC. 7435. CIVIL DAMAGES FOR UNAUTHORIZED ENTICEMENT OF INFORMATION 
                    DISCLOSURE.

    ``(a) In General.--If any officer or employee of the United States 
intentionally compromises the determination or collection of any tax 
due from an attorney, certified public accountant, or enrolled agent 
representing a taxpayer in exchange for information conveyed by the 
taxpayer to the attorney, certified public accountant, or enrolled 
agent for purposes of obtaining advice concerning the taxpayer's tax 
liability, such taxpayer may bring a civil action for damages against 
the United States in a district court of the United States. Such civil 
action shall be the exclusive remedy for recovering damages resulting 
from such actions.
    ``(b) Damages.--In any action brought under subsection (a), upon a 
finding of liability on the part of the defendant, the defendant shall 
be liable to the plaintiff in an amount equal to the lesser of $500,000 
or the sum of--
            ``(1) actual, direct economic damages sustained by the 
        plaintiff as a proximate result of the information disclosure, 
        and
            ``(2) the costs of the action.
Damages shall not include the taxpayer's liability for any civil or 
criminal penalties, or other losses attributable to incarceration or 
the imposition of other criminal sanctions.
    ``(c) Payment Authority.--Claims pursuant to this section shall be 
payable out of funds appropriated under section 1304 of title 31, 
United States Code.
    ``(d) Period for Bringing Action.--Notwithstanding any other 
provision of law, an action to enforce liability created under this 
section may be brought without regard to the amount in controversy and 
may be brought only within 2 years after the date the actions creating 
such liability would have been discovered by exercise of reasonable 
care.
    ``(e) Mandatory Stay.--Upon a certification by the Commissioner or 
the Commissioner's delegate that there is an ongoing investigation or 
prosecution of the taxpayer, the district court before which an action 
under this section is pending, shall stay all proceedings with respect 
to such action pending the conclusion of the investigation or 
prosecution.
    ``(f) Crime-Fraud Exception.--Subsection (a) shall not apply to 
information conveyed to an attorney, certified public accountant, or 
enrolled agent for the purpose of perpetrating a fraud or crime.''
    (b) Clerical Amendment.--The table of sections for subchapter B of 
chapter 76, as amended by section 13316(b), is amended by striking the 
item relating to section 7435 and by adding at the end the following 
new items:

                              ``Sec. 7435. Civil damages for 
                                        unauthorized enticement of 
                                        information disclosure.
                              ``Sec. 7436. Cross references.''

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

SEC. 13360. ANNUAL REMINDERS TO TAXPAYERS WITH OUTSTANDING DELINQUENT 
                    ACCOUNTS.

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

``SEC. 7524. ANNUAL NOTICE OF TAX DELINQUENCY.

    ``Not less often than annually, the Secretary shall send a written 
notice to each taxpayer who has a tax delinquent account of the amount 
of the tax delinquency as of the date of the notice.''
    (b) Clerical Amendment.--The table of sections for chapter 77 is 
amended by adding at the end the following new item:

                              ``Sec. 7524. Annual notice of tax 
                                        delinquency.''

    (c) Effective Date.--The amendments made by this section shall 
apply to calendar years after 1995.

SEC. 13361. 5-YEAR EXTENSION OF AUTHORITY FOR UNDERCOVER OPERATIONS.

    (a) In General.--Paragraph (3) of section 7601(c) of the Anti-Drug 
Abuse Act of 1988 is amended by striking all that follows ``this Act'' 
and inserting a period.
    (b) Restoration of Authority for 5 Years.--Subsection (c) of 
section 7608 is amended by adding at the end the following new 
paragraph:
            ``(6) Application of section.--The provisions of this 
        subsection--
                    ``(A) shall apply after November 17, 1988, and 
                before January 1, 1990, and
                    ``(B) shall apply after the date of the enactment 
                of this paragraph and before January 1, 2001.
        All amounts expended pursuant to this subsection during the 
        period described in subparagraph (B) shall be recovered to the 
        extent possible, and deposited in the Treasury of the United 
        States as miscellaneous receipts, before January 1, 2001.''
    (c) Enhanced Oversight.--
            (1) Additional information required in reports to 
        congress.--Subparagraph (B) of section 7608(c)(4) is amended--
                    (A) by striking ``preceding the period'' in clause 
                (ii),
                    (B) by striking ``and'' at the end of clause (ii), 
                and
                    (C) by striking clause (iii) and inserting the 
                following:
                            ``(iii) the number, by programs, of 
                        undercover investigative operations closed in 
                        the 1-year period for which such report is 
                        submitted, and
                            ``(iv) the following information with 
                        respect to each undercover investigative 
                        operation pending as of the end of the 1-year 
                        period for which such report is submitted or 
                        closed during such 1-year period--
                                    ``(I) the date the operation began 
                                and the date of the certification 
                                referred to in the last sentence of 
                                paragraph (1),
                                    ``(II) the total expenditures under 
                                the operation and the amount and use of 
                                the proceeds from the operation,
                                    ``(III) a detailed description of 
                                the operation including the potential 
                                violation being investigated and 
                                whether the operation is being 
                                conducted under grand jury auspices, 
                                and
                                    ``(IV) the results of the operation 
                                including the results of criminal 
                                proceedings.''
            (2) Audits required without regard to amounts involved.--
        Subparagraph (C) of section 7608(c)(5) is amended to read as 
        follows:
                    ``(C) Undercover investigative operation.--The term 
                `undercover investigative operation' means any 
                undercover investigative operation of the Service; 
                except that, for purposes of subparagraphs (A) and (C) 
                of paragraph (4), such term only includes an operation 
                which is exempt from section 3302 or 9102 of title 31, 
                United States Code.''
            (3) Effective date.--The amendments made by this subsection 
        shall take effect on the date of the enactment of this Act.

SEC. 13362. DISCLOSURE OF FORM 8300 INFORMATION ON CASH TRANSACTIONS.

    (a) In General.--Subsection (l) of section 6103 (relating to 
disclosure of returns and return information for purposes other than 
tax administration) is amended by adding at the end the following new 
paragraph:
            ``(15) Disclosure of returns filed under section 6050i.--
        The Secretary may, upon written request, disclose to officers 
        and employees of--
                    ``(A) any Federal agency,
                    ``(B) any agency of a State or local government, or
                    ``(C) any agency of the government of a foreign 
                country,
        information contained on returns filed under section 6050I. Any 
        such disclosure shall be made on the same basis, and subject to 
        the same conditions, as apply to disclosures of information on 
        reports filed under section 5313 of title 31, United States 
        Code; except that no disclosure under this paragraph shall be 
        made for purposes of the administration of any tax law.''
    (b) Conforming Amendments.--
            (1) Subsection (i) of section 6103 is amended by striking 
        paragraph (8).
            (2) Subparagraph (A) of section 6103(p)(3) is amended--
                    (A) by striking ``(7)(A)(ii), or (8)'' and 
                inserting ``or (7)(A)(ii)'', and
                    (B) by striking ``or (14)'' and inserting ``(14), 
                or (15)''.
            (3) The material preceding subparagraph (A) of section 
        6103(p)(4) is amended--
                    (A) by striking ``(5), or (8)'' and inserting ``or 
                (5)'',
                    (B) by striking ``(i)(3)(B)(i), or (8)'' and 
                inserting ``(i)(3)(B)(i),'', and
                    (C) by striking ``or (12)'' and inserting ``(12), 
                or (15)''.
            (4) Clause (ii) of section 6103(p)(4)(F) is amended--
                    (A) by striking ``(5), or (8)'' and inserting ``or 
                (5)'', and
                    (B) by striking ``or (14)'' and inserting ``(14), 
                or (15)''.
            (5) Paragraph (2) of section 7213(a) is amended by striking 
        ``or (12)'' and inserting ``(12), or (15)''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 13363. DISCLOSURE OF RETURNS AND RETURN INFORMATION TO DESIGNEE OF 
                    TAXPAYER.

    Subsection (c) of section 6103 (relating to disclosure of returns 
and return information to designee of taxpayer) is amended by striking 
``written request for or consent to such disclosure'' and inserting 
``request for or consent to such disclosure''.

SEC. 13364. STUDY OF NETTING OF INTEREST ON OVERPAYMENTS AND 
                    LIABILITIES.

    (a) In General.--The Secretary of the Treasury or his delegate 
shall--
            (1) conduct a study of the manner in which the Internal 
        Revenue Service has implemented the netting of interest on 
        overpayments and underpayments and of the policy and 
        administrative implications of global netting, and
            (2) before submitting the report of such study, hold a 
        public hearing to receive comments on the matters included in 
        such study.
    (b) Report.--The report of such study shall be submitted not later 
than 6 months after the date of the enactment of this Act to the 
Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate.

SEC. 13365. CREDIT FOR EXPENSES OF CERTAIN TCMP AUDITS.

    (a) In General.--Subchapter B of chapter 65 is amended by adding at 
the end the following new section:

``SEC. 6428. CREDIT FOR EXPENSES OF 1994 TCMP AUDITS.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by subtitle A an 
amount equal to the qualified TCMP expenses paid or incurred by the 
taxpayer during the taxable year.
    ``(b) Limitation.--The amount of the credit allowed by subsection 
(a) shall not exceed $3,000 with respect to an audit.
    ``(c) Qualified TCMP Expenses.--For purposes of this section, the 
term `qualified TCMP expenses' means amounts which would (but for 
subsection (d)) be allowed as a deduction under section 162 or 212(3) 
in connection with an audit under the Taxpayer Compliance Measurement 
Program of the taxpayer's return of tax imposed by chapter 1 for any 
taxable year beginning during 1994. Such term shall not include any 
expense in connection with an audit of an estate, trust, partnership, 
or S corporation.
    ``(d) Denial of Double Benefit.--No deduction shall be allowed 
under chapter 1 for any amount for which a credit is allowed under this 
section.
    ``(e) Credit Treated as Subpart C Credit.--For purposes of this 
title, the credit allowed under subsection (a) shall be treated as a 
credit allowed under subpart C of part IV of subchapter A of chapter 
1.''
    (b) Technical Amendments.--
            (1) Paragraph (2) of section 1324(b) of title 31, United 
        States Code, is amended by inserting before the period ``, or 
        from section 6428 of such Code''.
            (2) The table of sections for such subchapter B is amended 
        by adding at the end the following new item:

                              ``Sec. 6428. Credit for expenses of 1994 
                                        TCMP audits.''

    (d) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after December 31, 1994, in taxable 
years ending after such date.

SEC. 13366. EXPENSES OF DETECTION OF UNDERPAYMENTS AND FRAUD, ETC.

    (a) In General.--Section 7623 (relating to expenses of deduction 
and punishment of frauds) is amended to read as follows:

``SEC. 7623. EXPENSES OF DETECTION OF UNDERPAYMENTS AND FRAUD, ETC.

    ``The Secretary, under regulations prescribed by the Secretary, is 
authorized to pay such sums as he deem necessary for--
            ``(1) detecting underpayments of tax, and
            ``(2) detecting and bringing to trial and punishment 
        persons guilty of violating the internal revenue laws or 
        conniving at the same,
in cases where such expenses are not otherwise provided for by law. Any 
amount payable under the preceding sentence shall be paid from the 
proceeds of amounts (other than interest) collected by reason of the 
information provided, and any amount so collected shall be available 
for such payments.''.
    (b) Clerical Amendment.--The table of sections for subchapter B of 
chapter 78 is amended by striking the item relating to section 7623 and 
inserting the following new item:

                              ``Sec. 7623. Expenses of detection of 
                                        underpayments and fraud, 
                                        etc.''.

    (c) Effective Date.--The amendments made by this section shall take 
effect on the date which is 6 months after the enactment of this Act.
    (d) Report.--The Secretary of the Treasury or his delegate shall 
submit an annual report to the Committee on Ways and Means of the House 
of Representatives and the Committee on Finance of the Senate on the 
payments under section 7623 of the Internal Revenue Code of 1986 during 
the year and on the amounts collected for which such payments were 
made.

              Subtitle D--Additional Technical Corrections

SEC. 13401. REPORTING OF REAL ESTATE TRANSACTIONS.

    (a) In General.--Paragraph (3) of section 6045(e) (relating to 
prohibition of separate charge for filing return) is amended by adding 
at the end the following new sentence: ``Nothing in this paragraph 
shall be construed to prohibit the real estate reporting person from 
taking into account its cost of complying with such requirement in 
establishing its charge (other than a separate charge for complying 
with such requirement) to any customer for performing services in the 
case of a real estate transaction.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect as if included in section 1015(e)(2)(A) of the Technical 
and Miscellaneous Revenue Act of 1988.

SEC. 13402. CLARIFICATION OF DENIAL OF DEDUCTION FOR STOCK REDEMPTION 
                    EXPENSES.

    (a) In General.--Paragraph (1) of section 162(k) is amended by 
striking ``the redemption of its stock'' and inserting ``the 
reacquisition of its stock or of the stock of any related person (as 
defined in section 465(b)(3)(C))''.
    (b) Certain Deductions Permitted.--Subparagraph (A) of section 
162(k)(2) is amended by striking ``or'' at the end of clause (i), by 
redesignating clause (ii) as clause (iii), and by inserting after 
clause (i) the following new clause:
                            ``(ii) deduction for amounts which are 
                        properly allocable to indebtedness and 
                        amortized over the term of such indebtedness, 
                        or''.
    (c) Clerical Amendment.--The subsection heading for subsection (k) 
of section 162 is amended by striking ``Redemption'' and inserting 
``Reacquisition''.
    (d) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to amounts paid or 
        incurred after September 13, 1995, in taxable years ending 
        after such date.
            (2) Subsection (b).--The amendment made by subsection (b) 
        shall take effect as if included in the amendment made by 
        section 613 of the Tax Reform Act of 1986.

SEC. 13403. CLARIFICATION OF DEPRECIATION CLASS FOR CERTAIN ENERGY 
                    PROPERTY.

    (a) In General.--Subparagraph (B) of section 168(e)(3) (relating to 
5-year property) is amended by adding at the end the following flush 
sentence:
                ``Nothing in any provision of law shall be construed to 
                treat property as not being described in clause (vi)(I) 
                (or the corresponding provisions of prior law) by 
                reason of being public utility property (within the 
                meaning of section 48(a)(3)).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect as if included in the amendments made by section 11813 of 
the Revenue Reconciliation Act of 1990.

SEC. 13404. CLERICAL AMENDMENT TO SECTION 404.

    (a) In General.--Paragraph (1) of section 404(j) is amended by 
striking ``(10)'' and inserting ``(9)''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect as if included in the amendments made by section 
713(d)(4)(A) of the Deficit Reduction Act of 1984.

SEC. 13405. TREATMENT OF CERTAIN VETERANS' REEMPLOYMENT RIGHTS.

    (a) In General.--Section 414 is amended by adding at the end the 
following new subsection:
    ``(u) Special Rules Relating to Veterans' Reemployment Rights.--
            ``(1) Treatment of certain contributions made pursuant to 
        veterans' reemployment rights.--If any contribution is made by 
        an employer or an employee under an individual account plan 
        with respect to an employee, or by an employee to a defined 
        benefit pension plan that provides for employee contributions, 
        and such contribution is required by reason of such employee's 
        rights under chapter 43 of title 38, United States Code, 
        resulting from qualified military service, then--
                    ``(A) such contribution shall not be subject to any 
                otherwise applicable limitation contained in section 
                402(g), 402(h), 403(b), 404(a), 404(h), 408, 415, or 
                457, and shall not be taken into account in applying 
                such limitations to other contributions or benefits 
                under such plan or any other plan, with respect to the 
                year in which the contribution is made,
                    ``(B) such contribution shall be subject to the 
                limitations referred to in subparagraph (A) with 
                respect to the year to which the contribution relates 
                (in accordance with rules prescribed by the Secretary), 
                and
                    ``(C) such plan shall not be treated as failing to 
                meet the requirements of section 401(a)(4), 401(a)(26), 
                401(k)(3), 401(m), 403(b)(12), 408(k)(3), 408(k)(6), 
                410(b), or 416 by reason of the making of such 
                contribution.
        For purposes of the preceding sentence, any elective deferral 
        or employee contribution made under paragraph (2) shall be 
        treated as required by reason of the employee's rights under 
        such chapter.
            ``(2) Reemployment rights with respect to elective 
        deferrals.--
                    ``(A) In general.--For purposes of this subchapter 
                and subchapter E, if an employee is entitled to the 
                benefits of chapter 43 of title 38, United States Code, 
                with respect to any plan which provides for elective 
                deferrals, the employer sponsoring the plan shall be 
                treated as meeting the requirements of such chapter 43 
                with respect to such elective deferrals only if such 
                employer--
                            ``(i) permits such employee to make 
                        additional elective deferrals under such plan 
                        (in the amount determined under subparagraph 
                        (B) or such lesser amount as is elected by the 
                        employee) during the period which begins on the 
                        date of the reemployment of such employee with 
                        such employer and has the same length as the 
                        lesser of--
                                    ``(I) the product of 3 and the 
                                period of qualified military service 
                                which resulted in such rights, and
                                    ``(II) 5 years, and
                            ``(ii) makes a matching contribution with 
                        respect to any additional elective deferral 
                        made pursuant to clause (i) which would have 
                        been required had such deferral actually been 
                        made during the period of such qualified 
                        military service.
                    ``(B) Amount of makeup required.--The amount 
                determined under this subparagraph with respect to any 
                plan is the maximum amount of the elective deferrals 
                that the individual would have been permitted to make 
                under the plan in accordance with the limitations 
                referred to in paragraph (1)(A) during his period of 
                qualified military service if he had continued to be 
                employed by the employer during such period and 
                received compensation as determined under paragraph 
                (7). Proper adjustment shall be made to the amount 
                determined under the preceding sentence for any 
                elective deferrals actually made during the period of 
                such qualified military service.
                    ``(C) Elective deferral.--For purposes of this 
                paragraph, the term `elective deferral' has the meaning 
                given such term by section 402(g)(3); except that such 
                term shall include any deferral of compensation under 
                an eligible deferred compensation plan (as defined in 
                section 457(b)).
                    ``(D) After-tax employee contributions.--References 
                in subparagraphs (A) and (B) to elective deferrals 
                shall be treated as including references to other 
                employee contributions.
            ``(3) Certain retroactive adjustments not required.--For 
        purposes of this subchapter and subchapter E, no provision of 
        chapter 43 of title 38, United States Code, shall be construed 
        as requiring--
                    ``(A) any crediting of earnings to an employee with 
                respect to any contribution before such contribution is 
                actually made, or
                    ``(B) any allocation of any forfeiture with respect 
                to the period of qualified military service.
            ``(4) Loan repayment suspensions permitted.--If any plan 
        suspends the obligation to repay any loan made to an employee 
        from such plan for any part of any period during which such 
        employee is performing qualified military service, such 
        suspension shall not be taken into account for purposes of 
        section 72(p), 401(a), or 4975(d)(1).
            ``(5) Qualified military service.--For purposes of this 
        subsection, the term `qualified military service' means any 
        service in the uniformed services (as defined in chapter 43 of 
        title 38, United States Code) by any individual if such 
        individual is entitled to reemployment rights under such 
        chapter with respect to such service.
            ``(6) Individual account plan.--For purposes of this 
        subsection, the term `individual account plan' means any 
        defined contribution plan, any tax-sheltered annuity plan under 
        section 403(b), and any eligible deferred compensation plan (as 
        defined in section 457(b)).
            ``(7) Compensation.--For purposes of section 415(c)(3), an 
        employee who is in qualified military service shall be treated 
        as receiving compensation from the employer during such period 
        of qualified military service equal to--
                    ``(A) the compensation the employee would have 
                received during such period if the employee were not in 
                qualified military service, determined based on the 
                rate of pay the employee would have received from the 
                employer but for absence during the period of qualified 
                military service, or
                    ``(B) if the compensation of the employee was not 
                based on a fixed rate, the employee's average 
                compensation from the employer during the 12-month 
                period immediately preceding the qualified military 
                service (or, if shorter, the period of employment 
                immediately preceding the qualified military service).
            ``(8) Requirements for qualified retirement plan.--For 
        purposes of this subchapter and subchapter E, an employer 
        sponsoring a plan shall be treated as meeting the requirements 
        of chapter 43 of title 38, United States Code, only if each of 
        the following requirements is met:
                    ``(A) An individual reemployed under such chapter 
                is treated with respect to such plan as not having 
                incurred a break in service with the employer 
                maintaining the plan by reason of such individual's 
                period of qualified military service.
                    ``(B) Each period of qualified military service 
                served by an individual is, upon reemployment under 
                such chapter, deemed with respect to such plan to 
                constitute service with the employer maintaining the 
                plan for the purpose of determining the 
                nonforfeitability of the individual's accrued benefits 
                under such plan and for the purpose of determining the 
                accrual of benefits under such plan.
                    ``(C) An individual reemployed under such chapter 
                is entitled to accrued benefits that are contingent on 
                the making of, or derived from, employee contributions 
                or elective deferrals only to the extent the individual 
                makes payment to the plan with respect to such 
                contributions or deferrals. No such payment may exceed 
                the amount the individual would have been permitted or 
                required to contribute had the individual remained 
                continuously employed by the employer throughout the 
                period of qualified military service. Any payment to 
                such plan shall be made during the period beginning 
                with the date of reemployment and whose duration is 3 
                times the period of the qualified military service (but 
                not greater than 5 years).
            ``(9) References.--For purposes of this section, any 
        reference to chapter 43 of title 38, United States Code, shall 
        be treated as a reference to such chapter as in effect on 
        December 12, 1994 (without regard to any subsequent 
        amendment).''
    (b) Effective Date.--The amendments made by this section shall be 
effective as of December 12, 1994.

                  Subtitle E--Tax Information Sharing

SEC. 13501. DISCLOSURE OF RETURN INFORMATION FOR ADMINISTRATION OF 
                    CERTAIN VETERANS PROGRAMS.

    (a) General Rule.--Subparagraph (D) of section 6103(l)(7) (relating 
to disclosure of return information to Federal, State, and local 
agencies administering certain programs) is amended by striking 
``Clause (viii) shall not apply after September 30, 1998.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act.

                     Subtitle F--Revenue Increases

               PART I--PROVISIONS RELATING TO BUSINESSES

SEC. 13601. TAX TREATMENT OF CERTAIN EXTRAORDINARY DIVIDENDS.

    (a) Treatment of Extraordinary Dividends in Excess of Basis.--
Paragraph (2) of section 1059(a) (relating to corporate shareholder's 
basis in stock reduced by nontaxed portion of extraordinary dividends) 
is amended to read as follows:
            ``(2) Amounts in excess of basis.--If the nontaxed portion 
        of such dividends exceeds such basis, such excess shall be 
        treated as gain from the sale or exchange of such stock for the 
        taxable year in which the extraordinary dividend is received.''
    (b) Treatment of Redemptions Where Options Involved.--Paragraph (1) 
of section 1059(e) (relating to treatment of partial liquidations and 
non-pro rata redemptions) is amended to read as follows:
            ``(1) Treatment of partial liquidations and certain 
        redemptions.--Except as otherwise provided in regulations--
                    ``(A) Redemptions.--In the case of any redemption 
                of stock--
                            ``(i) which is part of a partial 
                        liquidation (within the meaning of section 
                        302(e)) of the redeeming corporation,
                            ``(ii) which is not pro rata as to all 
                        shareholders, or
                            ``(iii) which would not have been treated 
                        (in whole or in part) as a dividend if any 
                        options had not been taken into account under 
                        section 318(a)(4),
                any amount treated as a dividend with respect to such 
                redemption shall be treated as an extraordinary 
                dividend to which paragraphs (1) and (2) of subsection 
                (a) apply without regard to the period the taxpayer 
                held such stock. In the case of a redemption described 
                in clause (iii), only the basis in the stock redeemed 
                shall be taken into account under subsection (a).
                    ``(B) Reorganizations, etc.--An exchange described 
                in section 356(a)(1) which is treated as a dividend 
                under section 356(a)(2) shall be treated as a 
                redemption of stock for purposes of applying 
                subparagraph (A).''
    (c) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to distributions after May 3, 1995.
            (2) Transition rule.--The amendments made by this section 
        shall not apply to any distribution made pursuant to the terms 
        of--
                    (A) a written binding contract in effect on May 3, 
                1995, and at all times thereafter before such 
                distribution, or
                    (B) a tender offer outstanding on May 3, 1995.
            (3) Certain dividends not pursuant to certain 
        redemptions.--In determining whether the amendment made by 
        subsection (a) applies to any extraordinary dividend other than 
        a dividend treated as an extraordinary dividend under section 
        1059(e)(1) of the Internal Revenue Code of 1986 (as amended by 
        this Act), paragraphs (1) and (2) shall be applied by 
        substituting ``September 13, 1995'' for ``May 3, 1995''.

SEC. 13602. REGISTRATION OF CONFIDENTIAL CORPORATE TAX SHELTERS.

    (a) In General.--Section 6111 (relating to registration of tax 
shelters) is amended by redesignating subsections (d) and (e) as 
subsections (e) and (f), respectively, and by inserting after 
subsection (c) the following new subsection:
    ``(d) Certain Confidential Arrangements Treated as Tax Shelters.--
            ``(1) In general.--For purposes of this section, the term 
        `tax shelter' includes any entity, plan, arrangement, or 
        transaction--
                    ``(A) a significant purpose of which is the 
                avoidance or evasion of Federal income tax for a 
                participant which is a corporation,
                    ``(B) which is offered to any potential participant 
                under conditions of confidentiality, and
                    ``(C) for which the tax shelter organizers may 
                receive fees in excess of $100,000 in the aggregate.
            ``(2) Conditions of confidentiality.--For purposes of 
        paragraph (1)(C), an offer is under conditions of 
        confidentiality if--
                    ``(A) the potential participant to whom the offer 
                is made (or any other person acting on behalf of such 
                participant) has an understanding or agreement with or 
                for the benefit of any promoter of the tax shelter that 
                such participant (or other person) will limit 
                disclosure of the tax shelter or any significant tax 
                features of the tax shelter, or
                    ``(B) any promoter of the tax shelter--
                            ``(i) claims, knows, or has reason to know,
                            ``(ii) knows or has reason to know that any 
                        other person (other than the potential 
                        participant) claims, or
                            ``(iii) causes another person to claim,
                that the tax shelter (or any aspect thereof) is 
                proprietary to any person other than the potential 
                participant or is otherwise protected from disclosure 
                to or use by others.
        For purposes of this subsection, the term `promoter' means any 
        person who participates in the organization, management, or 
        sale of the tax shelter.
            ``(3) Persons other than organizer required to register in 
        certain cases.--
                    ``(A) In general.--If--
                            ``(i) the requirements of subsection (a) 
                        are not met with respect to any tax shelter (as 
                        defined in paragraph (1)) by any tax shelter 
                        organizer, and
                            ``(ii) no tax shelter organizer is a United 
                        States person,
                then each United States person who discussed 
                participation in such shelter shall register such 
                shelter under subsection (a).
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to a United States person who discussed participation 
                in a tax shelter if--
                            ``(i) such person notified the promoter in 
                        writing (not later than the close of the day on 
                        which such discussions began) that such person 
                        would not participate in such shelter, and
                            ``(ii) such person does not participate in 
                        such shelter.
            ``(4) Offer to participate treated as offer for sale.--For 
        purposes of subsections (a) and (b), an offer to participate in 
        a tax shelter (as defined in paragraph (1)) shall be treated as 
        an offer for sale.''
    (b) Penalty.--Subsection (a) of section 6707 (relating to failure 
to furnish information regarding tax shelters) is amended by adding at 
the end the following new paragraph:
            ``(3) Confidential arrangements.--
                    ``(A) In general.--In the case of a tax shelter (as 
                defined in section 6111(d)), the penalty imposed under 
                paragraph (1) shall be an amount equal to the greater 
                of--
                            ``(i) 50 percent of the fees paid to any 
                        promoter of the tax shelter with respect to 
                        offerings made before the date such shelter is 
                        registered under section 6111, or
                            ``(ii) $10,000.
                Clause (i) shall be applied by substituting `75 
                percent' for `50 percent' in the case of an intentional 
                failure or act described in paragraph (1).
                    ``(B) Special rule for participants required to 
                register shelter.--In the case of a person required to 
                register such a tax shelter by reason of section 
                6111(d)(3)--
                            ``(i) such person shall be required to pay 
                        the penalty under paragraph (1) only if such 
                        person actually participated in such shelter,
                            ``(ii) the amount of such penalty shall be 
                        determined by taking into account under 
                        subparagraph (A)(i) only the fees paid by such 
                        person, and
                            ``(iii) such penalty shall be in addition 
                        to the penalty imposed on any other person for 
                        failing to register such shelter.''
    (c) Conforming Amendments.--
            (1) Paragraph (2) of section 6707(a) is amended by striking 
        ``The penalty'' and inserting ``Except as provided in paragraph 
        (3), the penalty''.
            (2) Subparagraph (A) of section 6707(a)(1) is amended by 
        striking ``paragraph (2)'' and inserting ``paragraph (2) or 
        (3), as the case may be''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to any tax shelter (as defined in section 6111(d) of the 
        Internal Revenue Code of 1986, as amended by this section) 
        interests in which are offered to potential participants after 
        the date of the enactment of this Act.
            (2) Due date for registration.--The due date for 
        registering any tax shelter required to be registered by reason 
        of the amendments made by this section shall be not earlier 
        than the close of a reasonable period after the Secretary of 
        the Treasury prescribes guidance with respect to meeting such 
        requirements.

SEC. 13603. DENIAL OF DEDUCTION FOR INTEREST ON LOANS WITH RESPECT TO 
                    COMPANY-OWNED INSURANCE.

    (a) In General.--Paragraph (4) of section 264(a) is amended--
            (1) by inserting ``or endowment or annuity contract'' after 
        ``life insurance policies'', and
            (2) by striking all that follows ``carried on by the 
        taxpayer'' and inserting a period.
    (b) Phasein of Disallowance.--Section 264 is amended by adding at 
the end the following new subsection:
    ``(d) Phasein of Disallowance Under Subsection (a)(4).--In the case 
of calendar years after 1995 and before 2000--
            ``(1) In general.--The amount of interest paid or accrued 
        during any period in any such calendar year with respect to 
        qualified indebtedness which is disallowed by reason of the 
        amendment made by section 13603(a) of the Revenue 
        Reconciliation Act of 1995 (determined without regard to this 
        subsection) shall not exceed the applicable percentage of such 
        interest which is so disallowed.
            ``(2) Qualified indebtedness.--For purposes of paragraph 
        (1), the term `qualified indebtedness' means indebtedness 
        incurred before September 18, 1995, with respect to a life 
        insurance policy covering only the life of the individual who 
        was insured under such policy on such date. Any increase on or 
        after such date in the amount of such indebtedness shall be 
        treated as indebtedness incurred after such date.
            ``(3) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage shall be determined in 
        accordance with the following table:

        ``In the case of periods
                                                         The applicable
        in calendar year:
                                                         percentage is:
                1996.................................   20 percent     
                1997.................................   40 percent     
                1998.................................   60 percent     
                1999................................. 80 percent.''    

    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to interest paid or accrued after December 31, 1995.
            (2) Exception.--The amendments made by this section shall 
        not apply to contracts purchased on or before June 20, 1986.
    (d) 4-Year Spread of Income Inclusion on Surrender, Etc. of 
Contracts.--
            (1) In general.--In the case of indebtedness with respect 
        to any life insurance policy described in paragraph (4) of 
        section 264(a) of the Internal Revenue Code of 1986, if--
                    (A) the interest paid or accrued after December 31, 
                1995, on such indebtedness is not allowed as a 
                deduction under chapter 1 of such Code by reason of 
                such paragraph (4) (as amended by this section), and
                    (B) the entire amount of interest paid or accrued 
                on or before such date on such indebtedness was allowed 
                as a deduction under such chapter 1,
        then (in lieu of any other inclusion in gross income) the 
        qualified amount with respect to such policy shall be 
        includible in gross income ratably over the 4 taxable years 
        beginning with the taxable year such amount would (but for this 
        paragraph) be includible.
            (2) Qualified amount.--For purposes of paragraph (1), the 
        term ``qualified amount'' means, with respect to any policy, 
        the amount received under such policy--
                    (A) on the complete surrender, redemption, or 
                maturity of such policy during 1996, or
                    (B) in full discharge during 1996 of the obligation 
                under the policy which is in the nature of a refund of 
                the consideration paid for the policy,
        but only to the extent such amount is includible in gross 
        income for the taxable year in which the event described in 
        subparagraph (A) or (B) occurs.
            (3) Special rule.--A contract shall not be treated as 
        failing to meet the requirement of section 264(c)(1) of the 
        Internal Revenue Code of 1986 solely by reason of an occurrence 
        described in subparagraph (A) or (B) of paragraph (2) of this 
        subsection.

SEC. 13604. TERMINATION OF SUSPENSE ACCOUNTS FOR FAMILY CORPORATIONS 
                    REQUIRED TO USE ACCRUAL METHOD OF ACCOUNTING.

    (a) In General.--Subsection (i) of section 447 (relating to method 
of accounting for corporations engaged in farming) is amended by adding 
at the end the following new paragraph:
            ``(7) Termination.--
                    ``(A) In general.--No suspense account may be 
                established under this subsection by any corporation 
                required by this section to change its method of 
                accounting for any taxable year ending after September 
                13, 1995.
                    ``(B) 20-year phaseout of existing suspense 
                accounts.--Each suspense account under this subsection 
                shall be reduced (but not below zero) for each of the 
                first 20 taxable years beginning after September 13, 
                1995, by an amount equal to the applicable portion of 
                such account. Any reduction in a suspense account under 
                this paragraph shall be included in gross income for 
                the taxable year of the reduction. The amount of the 
                reduction required under this paragraph for any taxable 
                year shall be reduced (but not below zero) by the 
                amount of any reduction required for such taxable year 
                under any other provision of this subsection.
                    ``(C) Applicable portion.--For purposes of 
                subparagraph (B), the term `applicable portion' means, 
                for any taxable year, the amount which would ratably 
                reduce the amount in the account (after taking into 
                account prior reductions) to zero over the period 
                consisting of such taxable year and the remaining 
                taxable years in such first 20 taxable years.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years ending after September 13, 1995.

SEC. 13605. TERMINATION OF PUERTO RICO AND POSSESSION TAX CREDIT.

    (a) In General.--Section 936 is amended by adding at the end the 
following new subsection:
    ``(j) Termination.--
            ``(1) In general.--This section shall not apply to any 
        taxable year beginning after December 31, 1995.
            ``(2) Exception for existing claimants.--
                    ``(A) In general.--Paragraph (1) shall be applied 
                by substituting `2005' for `1995' in the case of an 
                existing credit claimant.
                    ``(B) Exception terminates if new line of business 
                added.--If, after September 13, 1995, a corporation 
                which would (but for this subparagraph) be an existing 
                credit claimant adds a substantial new line of 
                business, such corporation shall cease to be treated as 
                an existing credit claimant as of the close of the 
                taxable year ending before the date of such addition.
                    ``(C) Existing credit claimant.--For purposes of 
                this subsection, the term `existing credit claimant' 
                means any corporation which satisfied the conditions of 
                both subparagraph (A) and subparagraph (B) of 
                subsection (a)(2) for at least 1 base period year for 
                which such corporation elected the application of this 
                section.
            ``(3) Limit on credit of existing claimants.--
                    ``(A) In general.--In the case of an existing 
                credit claimant, the aggregate amount of income taken 
                into account under subsection (a)(1) for any taxable 
                year beginning after December 31, 1995 (hereinafter in 
                this subsection referred to as the `current year'), 
                shall not exceed the adjusted base period income of 
                such claimant.
                    ``(B) Coordination with subsection (a)(4).--The 
                amount of income described in subsection (a)(1)(A) 
                which is taken into account in applying subsection 
                (a)(4) shall be such income as reduced under this 
                paragraph. In determining such reduction, any reduction 
                under subparagraph (A) in the amount which would 
                otherwise be taken into account under subsection (a)(1) 
                shall be allocated between the income described in 
                subparagraph (A) thereof and the income described in 
                subparagraph (B) thereof in proportion to the 
                respective amounts of such incomes.
            ``(4) Adjusted base period income.--For purposes of 
        paragraph (3)--
                    ``(A) In general.--The term `adjusted base period 
                income' means the average of the inflation-adjusted 
                possession incomes of the corporation for each base 
                period year.
                    ``(B) Inflation-adjusted possession income.--For 
                purposes of subparagraph (A), the inflation-adjusted 
                possession income of any corporation for any base 
                period year shall be an amount equal to the possession 
                income of such corporation for such base period year 
                multiplied by the inflation adjustment percentage for 
                such base period year.
                    ``(C) Inflation adjustment percentage.--For 
                purposes of subparagraph (B), the inflation adjustment 
                percentage for any base period year means, with respect 
                to the current year, the percentage (if any) by which--
                            ``(i) the CPI for last calendar year ending 
                        before the beginning of the current year, 
                        exceeds
                            ``(ii) the CPI for last calendar year 
                        ending before the beginning of the base period 
                        year.
                For purposes of the preceding sentence, the CPI for any 
                calendar year is the CPI (as defined in section 
                1(f)(5)) for such year under section 1(f)(4).
                    ``(D) Increase in inflation adjustment percentage 
                for growth during base years.--The inflation adjustment 
                percentage (determined under subparagraph (C) without 
                regard to this subparagraph) for each of the 5 taxable 
                years referred to in paragraph (5)(A) shall be 
                increased by--
                            ``(i) 5 percentage points in the case of a 
                        taxable year ending during the 1-year period 
                        ending on September 12, 1995;
                            ``(ii) 10.25 percentage points in the case 
                        of a taxable year ending during the 1-year 
                        period ending on September 12, 1994;
                            ``(iii) 15.76 percentage points in the case 
                        of a taxable year ending during the 1-year 
                        period ending on September 12, 1993;
                            ``(iv) 21.55 percentage points in the case 
                        of a taxable year ending during the 1-year 
                        period ending on September 12, 1992; and
                            ``(v) 27.63 percentage points in the case 
                        of a taxable year ending during the 1-year 
                        period ending on September 12, 1991.
            ``(5) Base period year.--For purposes of this subsection--
                    ``(A) In general.--The term `base period year' 
                means each of 3 taxable years which are among the 5 
                most recent taxable years of the corporation ending 
                before September 13, 1995, determined by disregarding--
                            ``(i) one taxable year for which the 
                        corporation had the largest inflation-adjusted 
                        possession income, and
                            ``(ii) one taxable year for which the 
                        corporation had the smallest inflation-adjusted 
                        possession income.
                    ``(B) Corporations not having significant 
                possession income throughout 5-year period.--
                            ``(i) In general.--If a corporation does 
                        not have significant possession income for each 
                        of the most recent 5 taxable years ending 
                        before September 13, 1995, then, in lieu of 
                        applying subparagraph (A), the term `base 
                        period year' means only those taxable years (of 
                        such 5 taxable years) for which the corporation 
                        has significant possession income; except that, 
                        if such corporation has significant possession 
                        income for 4 of such 5 taxable years, the rule 
                        of subparagraph (A)(ii) shall apply.
                            ``(ii) Special rule.--If there is no year 
                        (of such 5 taxable years) for which a 
                        corporation has significant possession income--
                                    ``(I) the term `base period year' 
                                means the first taxable year ending on 
                                or after September 13, 1995, but
                                    ``(II) the amount of possession 
                                income for such year which is taken 
                                into account under paragraph (4) shall 
                                be the amount which would be determined 
                                if such year were a short taxable year 
                                ending on August 31, 1995.
                            ``(iii) Significant possession income.--For 
                        purposes of this subparagraph, the term 
                        `significant possession income' means 
                        possession income which exceeds 2 percent of 
                        the possession income of the taxpayer for the 
                        taxable year (of the period of 6 taxable years 
                        ending with the first taxable year ending on or 
                        after September 13, 1995) having the greatest 
                        possession income.
                    ``(C) Election to use one base period year.--
                            ``(i) In general.--At the election of the 
                        taxpayer, the term `base period year' means 
                        only the last taxable year of the corporation 
                        ending in calendar year 1992.
                            ``(ii) Election.--An election under this 
                        subparagraph by any possession corporation may 
                        be made only for the corporation's first 
                        taxable year beginning after December 31, 1995, 
                        for which it is a possession corporation. The 
                        rules of subclauses (II) and (III) of 
                        subsection (a)(4)(B)(iii) shall apply to the 
                        election under this subparagraph.
                    ``(D) Acquisitions and dispositions.--Rules similar 
                to the rules of subparagraphs (A) and (B) of section 
                41(f)(3) shall apply for purposes of this subsection.
            ``(6) Possession income.--For purposes of this subsection, 
        the term `possession income' means the sum of the income 
        referred to in subsection (a)(1)(A) and the income referred to 
        in subsection (a)(1)(B). In no event shall possession income be 
        treated as being less than zero.
            ``(7) Short years.--If the current year or a base period 
        year is a short taxable year, the application of this 
        subsection shall be made with such annualizations as the 
        Secretary shall prescribe.''
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1995.

SEC. 13606. DEPRECIATION UNDER INCOME FORECAST METHOD.

    (a) General Rule.--Section 167 (relating to depreciation) is 
amended by redesignating subsection (g) as subsection (h) and by 
inserting after subsection (f) the following new subsection:
    ``(g) Depreciation Under Income Forecast Method.--
            ``(1) In general.--If the depreciation deduction allowable 
        under this section to any taxpayer with respect to any property 
        is determined under the income forecast method or any similar 
        method--
                    ``(A) in determining the amount of the depreciation 
                deduction under such method, the estimated income from 
                the property shall include all estimated income from 
                use of the property,
                    ``(B) the adjusted basis of the property shall only 
                include amounts with respect to which the requirements 
                of section 461(h) are satisfied,
                    ``(C) the depreciation deduction under such method 
                for the 10th taxable year beginning after the taxable 
                year in which the property was placed in service shall 
                be equal to the adjusted basis of such property as of 
                the beginning of such 10th taxable year, and
                    ``(D) such taxpayer shall pay (or be entitled to 
                receive) interest computed under the look-back method 
                of paragraph (2) for any recomputation year.
            ``(2) Look-back method.--The interest computed under the 
        look-back method of this paragraph for any recomputation year 
        shall be determined by--
                    ``(A) first determining the depreciation deductions 
                under this section with respect to such property which 
                would have been allowable for prior taxable years if 
                the determination of the amounts so allowable had been 
                made on the basis of the sum of the following (instead 
                of the estimated income with respect to such 
                property)--
                            ``(i) the actual income from such property 
                        for periods before the close of the 
                        recomputation year, and
                            ``(ii) an estimate of the future income 
                        with respect to such property for periods after 
                        the recomputation year,
                    ``(B) second, determining (solely for purposes of 
                computing such interest) the overpayment or 
                underpayment of tax for each such prior taxable year 
                which would result solely from the application of 
                subparagraph (A), and
                    ``(C) then using the adjusted overpayment rate (as 
                defined in section 460(b)(7)), compounded daily, on the 
                overpayment or underpayment determined under 
                subparagraph (B).
        For purposes of the preceding sentence, any cost incurred after 
        the property is placed in service (which is not treated as a 
        separate property under paragraph (5)) shall be taken into 
        account by discounting (using the Federal mid-term rate 
        determined under section 1274(d) as of the time such cost is 
        incurred) such cost to its value as of the date the property is 
        placed in service. The taxpayer may elect with respect to any 
        property to have the preceding sentence not apply to such 
        property.
            ``(3) Exception from look-back method.--Paragraph (1)(D) 
        shall not apply with respect to any property which, when placed 
        in service by the taxpayer, had a basis of $100,000 or less.
            ``(4) Recomputation year.--For purposes of this subsection, 
        except as provided in regulations, the term `recomputation 
        year' means, with respect to any property, the third and the 
        10th taxable years beginning after the taxable year in which 
        the property was placed in service, unless the actual income 
        from the property for such third or 10th taxable year (as the 
        case may be) and each prior taxable year is within 10 percent 
        of the estimated income from the property for each such year 
        which was taken into account under paragraph (1)(A).
            ``(5) Special rules.--
                    ``(A) Certain costs treated as separate property.--
                For purposes of this section, the following costs shall 
                be treated as separate properties:
                            ``(i) Any costs incurred with respect to 
                        any property after the 10th taxable year 
                        beginning after the taxable year in which the 
                        property was placed in service.
                            ``(ii) Any costs incurred after the 
                        property is placed in service and before the 
                        close of such 10th taxable year if such costs 
                        are significant and give rise to a significant 
                        increase in the income from the property which 
                        was not included in the estimated income from 
                        the property.
                    ``(B) Syndication income from television series.--
                In the case of property which is an episode in a 
                television series, estimated income from syndicating 
                such series shall not be required to be taken into 
                account under this subsection before the earlier of--
                            ``(i) the 4th taxable year beginning after 
                        the date the first episode in such series is 
                        placed in service, or
                            ``(ii) the earliest taxable year in which 
                        the taxpayer had a reasonable expectation that 
                        there would be a future syndication of such 
                        series.
                    ``(C) Collection of interest.--For purposes of 
                subtitle F (other than sections 6654 and 6655), any 
                interest required to be paid by the taxpayer under 
                paragraph (1) for any recomputation year shall be 
                treated as an increase in the tax imposed by this 
                chapter for such year.
                    ``(D) Determinations.--For purposes of this 
                subsection, determinations of the amount of income from 
                any property shall be determined in the same manner as 
                for purposes of applying the income forecast method; 
                except that any income from the disposition of such 
                property shall be taken into account.
                    ``(E) Treatment of pass-thru entities.--Rules 
                similar to the rules of section 460(b)(4) shall apply 
                for purposes of this subsection.''
    (b) Effective Date.--
            (1) In general.--The amendment made by subsection (a) shall 
        apply to property placed in service after September 13, 1995.
            (2) Binding contracts.--The amendment made by subsection 
        (a) shall not apply to any property produced or acquired by the 
        taxpayer pursuant to a written contract which was binding on 
        September 13, 1995, and at all times thereafter before such 
        production or acquisition.

SEC. 13607. TRANSFERS OF EXCESS PENSION ASSETS.

    (a) In General.--Section 420 (relating to transfers of excess 
pension assets to retiree health accounts) is amended by adding at the 
end the following new subsection:
    ``(f) Similar Rules To Apply to Other Transfers of Excess Plan 
Assets.--
            ``(1) In general.--If there is a qualified unrestricted 
        transfer of any excess pension assets of a defined benefit plan 
        (other than a multiemployer plan) to an employer--
                    ``(A) a trust which is part of such plan shall not 
                be treated as failing to meet the requirements of 
                section 401(a) or any other provision of law solely by 
                reason of such transfer (or any other action authorized 
                under this section), and
                    ``(B) such transfer shall not be treated as a 
                prohibited transaction for purposes of section 4975.
        The gross income of the employer shall include the amount of 
        any qualified transfer made during the taxable year.
            ``(2) Qualified unrestricted transfer.--For purposes of 
        this section--
                    ``(A) In general.--The term `qualified unrestricted 
                transfer' means a transfer--
                            ``(i) of excess pension assets of a defined 
                        benefit plan to the employer, and
                            ``(ii) with respect to which the 
                        requirements of subsection (c)(2)(A) are met 
                        (determined by treating such transfer as a 
                        qualified transfer).
                    ``(B) Coordination with transfers to retiree health 
                accounts.--Such term shall not include any qualified 
                transfer (as defined in subsection (b)).
                    ``(C) Expiration.--No transfer in any taxable year 
                beginning after December 31, 2000, shall be treated as 
                a qualified unrestricted transfer.
            ``(3) Definition and special rule.--For purposes of this 
        subsection--
                    ``(A) Excess pension assets.--The term `excess 
                pension assets' has the meaning given such term by 
                subsection (e)(2); except that the amount thereof shall 
                be the lesser of--
                            ``(i) the amount determined as of the most 
                        recent valuation date of the plan preceding the 
                        transfer, or
                            ``(ii) the amount determined as of January 
                        1, 1995 (or, if January 1, 1995, is not a 
                        valuation date, the most recent prior valuation 
                        date).
                    ``(B) Coordination with section 412.--In the case 
                of a qualified unrestricted transfer--
                            ``(i) any assets transferred in a plan year 
                        on or before the valuation date for such year 
                        (and any income allocable thereto) shall, for 
                        purposes of section 412, be treated as assets 
                        in the plan as of the valuation date for such 
                        year, and
                            ``(ii) the plan shall be treated as having 
                        a net experience loss under section 
                        412(b)(2)(B)(iv) in an amount equal to the 
                        amount of such transfer and for which 
                        amortization charges begin for the first plan 
                        year after the plan year in which such transfer 
                        occurs, except that such section shall be 
                        applied to such amount by substituting `10 plan 
                        years' for `5 plan years'.
                    ``(C) Treatment of transfers.--Except for purposes 
                of this section, a qualified unrestricted transfer 
                shall be treated as a qualified transfer to a health 
                benefits account.''
    (b) Reversion Tax.--Section 4980 (relating to tax on reversion of 
qualified plan assets to employers) is amended by adding at the end the 
following new subsection:
    ``(e) Special Rules for Qualified Unrestricted Transfers Under 
Section 420.--In the case of a qualified unrestricted transfer to which 
section 420(f) applies--
            ``(1) no tax shall be imposed by subsection (a) if such 
        transfer occurs before July 1, 1996,
            ``(2) subsection (a) shall be applied by substituting `6.5 
        percent' for `20 percent' if such transfer occurs after June 
        30, 1996, and
            ``(3) subsection (d) shall not apply.''
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1995.

                         PART II--LEGAL REFORMS

SEC. 13611. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES AND FOR DAMAGES 
                    NOT ATTRIBUTABLE TO PHYSICAL INJURIES OR SICKNESS.

    (a) In General.--Paragraph (2) of section 104(a) (relating to 
compensation for injuries or sickness) is amended to read as follows:
            ``(2) the amount of any damages (other than punitive 
        damages) received (whether by suit or agreement and whether as 
        lump sums or as periodic payments) on account of personal 
        physical injuries or physical sickness;''.
    (b) Emotional Distress As Such Treated as Not Physical Injury or 
Physical Sickness.--Section 104(a) is amended by striking the last 
sentence and inserting the following new sentence: ``For purposes of 
paragraph (2), emotional distress shall not be treated as a physical 
injury or physical sickness. The preceding sentence shall not apply to 
an amount of damages not in excess of the amount paid for medical care 
(described in subparagraph (A) or (B) of section 213(d)(1)) 
attributable to emotional distress.''
    (c) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to amounts received 
        after December 31, 1995, in taxable years ending after such 
        date.
            (2) Exception.--The amendments made by this section shall 
        not apply to any amount received under a written binding 
        agreement, court decree, or mediation award in effect on (or 
        issued on or before) September 13, 1995.

SEC. 13612. REPORTING OF CERTAIN PAYMENTS MADE TO ATTORNEYS.

    (a) In General.--Section 6045 (relating to returns of brokers) is 
amended by adding at the end the following new subsection:
    ``(f) Return Required In The Case of Payments to Attorneys.--
            ``(1) In general.--Any person engaged in a trade or 
        business and making a payment (in the course of such trade or 
        business) to which this subsection applies shall file a return 
        under subsection (a) and a statement under subsection (b) with 
        respect to such payment.
            ``(2) Application of subsection.--
                    ``(A) In general.--This subsection shall apply to 
                any payment to an attorney in connection with legal 
                services (whether or not such services are performed 
                for the payor).
                    ``(B) Exception.--This subsection shall not apply 
                to the portion of any payment which is required to be 
                reported under section 6041(a) (or would be so required 
                but for the dollar limitation contained therein) or 
                section 6051.''
    (b) Reporting of Attorneys Fees Payable to Corporations.--The 
regulations providing an exception under section 6041 of the Internal 
Revenue Code of 1986 for payments made to corporations shall not apply 
to payments of attorneys fees.
    (c) Effective Date.--The amendment made by subsection (a), and 
subsection (b), shall apply to payments made after December 31, 1995.

 PART III--TREATMENT OF INDIVIDUALS WHO LOSE UNITED STATES CITIZENSHIP

SEC. 13616. REVISION OF INCOME, ESTATE, AND GIFT TAXES ON INDIVIDUALS 
                    WHO LOSE UNITED STATES CITIZENSHIP.

    (a) In General.--Subsection (a) of section 877 is amended to read 
as follows:
    ``(a) Treatment of Expatriates.--
            ``(1) In general.--Every nonresident alien individual who, 
        within the 10-year period immediately preceding the close of 
        the taxable year, lost United States citizenship, unless such 
        loss did not have for 1 of its principal purposes the avoidance 
        of taxes under this subtitle or subtitle B, shall be taxable 
        for such taxable year in the manner provided in subsection (b) 
        if the tax imposed pursuant to such subsection exceeds the tax 
        which, without regard to this section, is imposed pursuant to 
        section 871.
            ``(2) Certain individuals treated as having tax avoidance 
        purpose.--For purposes of paragraph (1), an individual shall be 
        treated as having a principal purpose to avoid such taxes if--
                    ``(A) the average annual net income tax (as defined 
                in section 38(c)(1)) of such individual for the period 
                of 5 taxable years ending before the date of the loss 
                of United States citizenship is greater than $100,000, 
                or
                    ``(B) the net worth of the individual as of such 
                date is $500,000 or more.
        In the case of the loss of United States citizenship in any 
        calendar year after 1996, such $100,000 and $500,000 amounts 
        shall be increased by an amount equal to such dollar amount 
        multiplied by the cost-of-living adjustment determined under 
        section 1(f)(3) for such calendar year by substituting `1994' 
        for `1992' in subparagraph (B) thereof. Any increase under the 
        preceding sentence shall be rounded to the nearest multiple of 
        $1,000.''
    (b) Exceptions.--
            (1) In general.--Section 877 is amended by striking 
        subsection (d), by redesignating subsection (c) as subsection 
        (d), and by inserting after subsection (b) the following new 
        subsection:
    ``(c) Tax Avoidance Not Presumed in Certain Cases.--
            ``(1) In general.--Subsection (a)(2) shall not apply to an 
        individual if--
                    ``(A) such individual is described in a 
                subparagraph of paragraph (2) of this subsection, and
                    ``(B) within the 1-year period beginning on the 
                date of the loss of United States citizenship, such 
                individual submits a ruling request for the Secretary's 
                determination as to whether such loss has for 1 of its 
                principal purposes the avoidance of taxes under this 
                subtitle or subtitle B.
            ``(2) Individuals described.--
                    ``(A) Dual citizenship, etc.--An individual is 
                described in this subparagraph if--
                            ``(i) the individual became at birth a 
                        citizen of the United States and a citizen of 
                        another country and continues to be a citizen 
                        of such other country, or
                            ``(ii) the individual becomes (not later 
                        than the close of a reasonable period after 
                        loss of United States citizenship) a citizen of 
                        the country in which--
                                    ``(I) such individual was born,
                                    ``(II) if such individual is 
                                married, such individual's spouse was 
                                born, or
                                    ``(III) either of such individual's 
                                parents were born.
                    ``(B) Long-term foreign residents.--An individual 
                is described in this subparagraph if, for each year in 
                the 10-year period ending on the date of loss of United 
                States citizenship, the individual was present in the 
                United States for 30 days or less. The rule of section 
                7701(b)(3)(D)(ii) shall apply for purposes of this 
                subparagraph.
                    ``(C) Renunciation upon reaching age of majority.--
                An individual is described in this subparagraph if the 
                individual's loss of United States citizenship occurs 
                before such individual attains age 18\1/2\.
                    ``(D) Individuals specified in regulations.--An 
                individual is described in this subparagraph if the 
                individual is described in a category of individuals 
                prescribed by regulation by the Secretary.''
            (2) Technical amendment.--Paragraph (1) of section 877(b) 
        of such Code is amended by striking ``subsection (c)'' and 
        inserting ``subsection (d)''.
    (c) Treatment of Property Disposed of in Nonrecognition 
Transactions; Treatment of Distributions From Certain Controlled 
Foreign Corporations.--Subsection (d) of section 877, as redesignated 
by subsection (b), is amended to read as follows:
    ``(d) Special Rules for Source, Etc.--For purposes of subsection 
(b)--
            ``(1) Source rules.--The following items of gross income 
        shall be treated as income from sources within the United 
        States:
                    ``(A) Sale of property.--Gains on the sale or 
                exchange of property (other than stock or debt 
                obligations) located in the United States.
                    ``(B) Stock or debt obligations.--Gains on the sale 
                or exchange of stock issued by a domestic corporation 
                or debt obligations of United States persons or of the 
                United States, a State or political subdivision 
                thereof, or the District of Columbia.
                    ``(C) Income or gain derived from controlled 
                foreign corporation.--Any income or gain derived from 
                stock in a foreign corporation but only--
                            ``(i) if the individual losing United 
                        States citizenship owned (within the meaning of 
                        section 958(a)), or is considered as owning (by 
                        applying the ownership rules of section 
                        958(b)), at any time during the 2-year period 
                        ending on the date of the loss of United States 
                        citizenship, more than 50 percent of--
                                    ``(I) the total combined voting 
                                power of all classes of stock entitled 
                                to vote of such corporation, or
                                    ``(II) the total value of the stock 
                                of such corporation, and
                            ``(ii) to the extent such income or gain 
                        does not exceed the earnings and profits 
                        attributable to such stock which were earned or 
                        accumulated before the loss of citizenship and 
                        during periods that the ownership requirements 
                        of clause (i) are met.
            ``(2) Gain recognition on certain exchanges.--
                    ``(A) In general.--In the case of any exchange of 
                property to which this paragraph applies, 
                notwithstanding any other provision of this title, such 
                property shall be treated as sold for its fair market 
                value on the date of such exchange, and any gain shall 
                be recognized for the taxable year which includes such 
                date.
                    ``(B) Exchanges to which paragraph applies.--This 
                paragraph shall apply to any exchange during the 10-
                year period described in subsection (a) if--
                            ``(i) gain would not (but for this 
                        paragraph) be recognized on such exchange in 
                        whole or in part for purposes of this subtitle,
                            ``(ii) income derived from such property 
                        was from sources within the United States (or, 
                        if no income was so derived, would have been 
                        from such sources), and
                            ``(iii) income derived from the property 
                        acquired in the exchange would be from sources 
                        outside the United States.
                    ``(C) Exception.--Subparagraph (A) shall not apply 
                if the individual enters into an agreement with the 
                Secretary which specifies that any income or gain 
                derived from the property acquired in the exchange (or 
                any other property which has a basis determined in 
                whole or part by reference to such property) during 
                such 10-year period shall be treated as from sources 
                within the United States. If the property transferred 
                in the exchange is disposed of by the person acquiring 
                such property, such agreement shall terminate and any 
                gain which was not recognized by reason of such 
                agreement shall be recognized as of the date of such 
                disposition.
                    ``(D) Secretary may extend period.--To the extent 
                provided in regulations prescribed by the Secretary, 
                subparagraph (B) shall be applied by substituting the 
                15-year period beginning 5 years before the loss of 
                United States citizenship for the 10-year period 
                referred to therein.
                    ``(E) Secretary may require recognition of gain in 
                certain cases.--To the extent provided in regulations 
                prescribed by the Secretary--
                            ``(i) the removal of appreciated tangible 
                        personal property from the United States, and
                            ``(ii) any other occurrence which (without 
                        recognition of gain) results in a change in the 
                        source of the income or gain from property from 
                        sources within the United States to sources 
                        outside the United States,
                shall be treated as an exchange to which this paragraph 
                applies.
            ``(3) Substantial diminishing of risks of ownership.--For 
        purposes of determining whether this section applies to any 
        gain on the sale or exchange of any property, the running of 
        the 10-year period described in subsection (a) shall be 
        suspended for any period during which the individual's risk of 
        loss with respect to the property is substantially diminished 
        by--
                    ``(A) the holding of a put with respect to such 
                property (or similar property),
                    ``(B) the holding by another person of a right to 
                acquire the property, or
                    ``(C) a short sale or any other transaction.''
    (d) Credit for Foreign Taxes Imposed on United States Source 
Income.--
            (1) Subsection (b) of section 877 is amended by adding at 
        the end the following new sentence: ``The tax imposed solely by 
        reason of this section shall be reduced (but not below zero) by 
        the amount of any income, war profits, and excess profits taxes 
        (within the meaning of section 903) paid to any foreign country 
        or possession of the United States on any income of the 
        taxpayer on which tax is imposed solely by reason of this 
        section.''
            (2) Subsection (a) of section 877, as amended by subsection 
        (a), is amended by inserting ``(after any reduction in such tax 
        under the last sentence of such subsection)'' after ``such 
        subsection''.
    (e) Comparable Estate and Gift Tax Treatment.--
            (1) Estate tax.--
                    (A) In general.--Subsection (a) of section 2107 is 
                amended to read as follows:
    ``(a) Treatment of Expatriates.--
            ``(1) Rate of tax.--A tax computed in accordance with the 
        table contained in section 2001 is hereby imposed on the 
        transfer of the taxable estate, determined as provided in 
        section 2106, of every decedent nonresident not a citizen of 
        the United States if, within the 10-year period ending with the 
        date of death, such decedent lost United States citizenship, 
        unless such loss did not have for 1 of its principal purposes 
        the avoidance of taxes under this subtitle or subtitle A.
            ``(2) Certain individuals treated as having tax avoidance 
        purpose.--
                    ``(A) In general.--For purposes of paragraph (1), 
                an individual shall be treated as having a principal 
                purpose to avoid such taxes if such individual is so 
                treated under section 877(a)(2).
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to a decedent meeting the requirements of section 
                877(c)(1).''
                    (B) Credit for foreign death taxes.--Subsection (c) 
                of section 2107 is amended by redesignating paragraph 
                (2) as paragraph (3) and by inserting after paragraph 
                (1) the following new paragraph:
            ``(2) Credit for foreign death taxes.--
                    ``(A) In general.--The tax imposed by subsection 
                (a) shall be credited with the amount of any estate, 
                inheritance, legacy, or succession taxes actually paid 
                to any foreign country in respect of any property which 
                is included in the gross estate solely by reason of 
                subsection (b).
                    ``(B) Limitation on credit.--The credit allowed by 
                subparagraph (A) for such taxes paid to a foreign 
                country shall not exceed the lesser of--
                            ``(i) the amount which bears the same ratio 
                        to the amount of such taxes actually paid to 
                        such foreign country in respect of property 
                        included in the gross estate as the value of 
                        the property included in the gross estate 
                        solely by reason of subsection (b) bears to the 
                        value of all property subjected to such taxes 
                        by such foreign country, or
                            ``(ii) such property's proportionate share 
                        of the excess of--
                                    ``(I) the tax imposed by subsection 
                                (a), over
                                    ``(II) the tax which would be 
                                imposed by section 2101 but for this 
                                section.
                    ``(C) Proportionate share.--For purposes of 
                subparagraph (B), a property's proportionate share is 
                the percentage which the value of the property which is 
                included in the gross estate solely by reason of 
                subsection (b) bears to the total value of the gross 
                estate.''
                    (C) Expansion of inclusion in gross estate of stock 
                of foreign corporations.--Paragraph (2) of section 
                2107(b) is amended by striking ``more than 50 percent 
                of'' and all that follows and inserting ``more than 50 
                percent of--
                    ``(A) the total combined voting power of all 
                classes of stock entitled to vote of such corporation, 
                or
                    ``(B) the total value of the stock of such 
                corporation,''.
            (2) Gift tax.--
                    (A) In general.--Paragraph (3) of section 2501(a) 
                is amended to read as follows:
            ``(3) Exception.--
                    ``(A) Certain individuals.--Paragraph (2) shall not 
                apply in the case of a donor who, within the 10-year 
                period ending with the date of transfer, lost United 
                States citizenship, unless such loss did not have for 1 
                of its principal purposes the avoidance of taxes under 
                this subtitle or subtitle A.
                    ``(B) Certain individuals treated as having tax 
                avoidance purpose.--For purposes of subparagraph (A), 
                an individual shall be treated as having a principal 
                purpose to avoid such taxes if such individual is so 
                treated under section 877(a)(2).
                    ``(C) Exception for certain individuals.--
                Subparagraph (B) shall not apply to a decedent meeting 
                the requirements of section 877(c)(1).
                    ``(D) Credit for foreign gift taxes.--The tax 
                imposed by this section solely by reason of this 
                paragraph shall be credited with the amount of any gift 
                tax actually paid to any foreign country in respect of 
                any gift which is taxable under this section solely by 
                reason of this paragraph.''
    (f) Comparable Treatment of Lawful Permanent Residents Who Cease To 
Be Taxed as Residents.--
            (1) In general.--Section 877 is amended by redesignating 
        subsection (e) as subsection (f) and by inserting after 
        subsection (d) the following new subsection:
    ``(e) Comparable Treatment of Lawful Permanent Residents Who Cease 
To Be Taxed as Residents.--
            ``(1) In general.--Any long-term resident of the United 
        States who--
                    ``(A) ceases to be a lawful permanent resident of 
                the United States (within the meaning of section 
                7701(b)(6)), or
                    ``(B) commences to be treated as a resident of a 
                foreign country under the provisions of a tax treaty 
                between the United States and the foreign country and 
                who does not waive the benefits of such treaty 
                applicable to residents of the foreign country,
        shall be treated for purposes of this section and sections 
        2107, 2501, and 6039F in the same manner as if such resident 
        were a citizen of the United States who lost United States 
        citizenship on the date of such cessation or commencement.
            ``(2) Long-term resident.--For purposes of this subsection, 
        the term `long-term resident' means any individual (other than 
        a citizen of the United States) who is a lawful permanent 
        resident of the United States in at least 8 taxable years 
        during the period of 15 taxable years ending with the taxable 
        year during which the event described in subparagraph (A) or 
        (B) of paragraph (1) occurs. For purposes of the preceding 
        sentence, an individual shall not be treated as a lawful 
        permanent resident for any taxable year if such individual is 
        treated as a resident of a foreign country for the taxable year 
        under the provisions of a tax treaty between the United States 
        and the foreign country and does not waive the benefits of such 
        treaty applicable to residents of the foreign country.
            ``(3) Special rules.--
                    ``(A) Exceptions not to apply.--Subsection (c) 
                shall not apply to an individual who is treated as 
                provided in paragraph (1).
                    ``(B) Step-up in basis.--Solely for purposes of 
                determining any tax imposed by reason of this 
                subsection, property which was held by the long-term 
                resident on the date the individual first became a 
                resident of the United States shall be treated as 
                having a basis on such date of not less than the fair 
                market value of such property on such date. The 
                preceding sentence shall not apply if the individual 
                elects not to have such sentence apply. Such an 
                election, once made, shall be irrevocable.
            ``(4) Authority to exempt individuals.--This subsection 
        shall not apply to an individual who is described in a category 
        of individuals prescribed by regulation by the Secretary.
            ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be appropriate to carry out this subsection, 
        including regulations providing for the application of this 
        subsection in cases where an alien individual becomes a 
        resident of the United States during the 10-year period after 
        being treated as provided in paragraph (1).''
            (2) Conforming amendments.--
                    (A) Section 2107 is amended by striking subsection 
                (d), by redesignating subsection (e) as subsection (d), 
                and by inserting after subsection (d) (as so 
                redesignated) the following new subsection:
    ``(e) Cross Reference.--

                  ``For comparable treatment of long-term lawful 
permanent residents who ceased to be taxed as residents, see section 
877(e).''

                    (B) Paragraph (3) of section 2501(a) (as amended by 
                subsection (e)) is amended by adding at the end the 
                following new subparagraph:
                    ``(E) Cross reference.--

                  ``For comparable treatment of long-term lawful 
permanent residents who ceased to be taxed as residents, see section 
877(e).''

    (g) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to--
                    (A) individuals losing United States citizenship 
                (within the meaning of section 877 of the Internal 
                Revenue Code of 1986) on or after February 6, 1995, and
                    (B) long-term residents of the United States with 
                respect to whom an event described in subparagraph (A) 
                or (B) of section 877(e)(1) of such Code occurs on or 
                after June 13, 1995.
            (2) Special rule.--
                    (A) In general.--In the case of an individual who 
                performed an act of expatriation specified in paragraph 
                (1), (2), (3), or (4) of section 349(a) of the 
                Immigration and Nationality Act (8 U.S.C. 1481(a)(1)-
                (4)) before February 6, 1995, but who did not, on or 
                before such date, furnish to the United States 
                Department of State a signed statement of voluntary 
                relinquishment of United States nationality confirming 
                the performance of such act, the amendments made by 
                this section shall apply to such individual except 
                that--
                            (i) the 10-year period described in section 
                        877(a) of such Code shall not expire before the 
                        end of the 10-year period beginning on the date 
                        such statement is so furnished, and
                            (ii) the 1-year period referred to in 
                        section 877(c) of such Code, as amended by this 
                        section, shall not expire before the date which 
                        is 1 year after the date of the enactment of 
                        this Act.
                    (B) Exception.--Subparagraph (A) shall not apply if 
                the individual establishes to the satisfaction of the 
                Secretary of the Treasury that such loss of United 
                States citizenship occurred before February 6, 1994.

SEC. 13617. INFORMATION ON INDIVIDUALS LOSING UNITED STATES 
                    CITIZENSHIP.

    (a) In General.--Subpart A of part III of subchapter A of chapter 
61 is amended by inserting after section 6039E the following new 
section:

``SEC. 6039F. INFORMATION ON INDIVIDUALS LOSING UNITED STATES 
                    CITIZENSHIP.

    ``(a) In General.--Notwithstanding any other provision of law, any 
individual who loses United States citizenship (within the meaning of 
section 877(a)) shall provide a statement which includes the 
information described in subsection (b). Such statement shall be--
            ``(1) provided not later than the earliest date of any act 
        referred to in subsection (c), and
            ``(2) provided to the person or court referred to in 
        subsection (c) with respect to such act.
    ``(b) Information To Be Provided.--Information required under 
subsection (a) shall include--
            ``(1) the taxpayer's TIN,
            ``(2) the mailing address of such individual's principal 
        foreign residence,
            ``(3) the foreign country in which such individual is 
        residing,
            ``(4) the foreign country of which such individual is a 
        citizen,
            ``(5) in the case of an individual having a net worth of at 
        least the dollar amount applicable under section 877(a)(2)(B), 
        information detailing the assets and liabilities of such 
        individual, and
            ``(6) such other information as the Secretary may 
        prescribe.
    ``(c) Acts Described.--For purposes of this section, the acts 
referred to in this subsection are--
            ``(1) the individual's renunciation of his United States 
        nationality before a diplomatic or consular officer of the 
        United States pursuant to paragraph (5) of section 349(a) of 
        the Immigration and Nationality Act (8 U.S.C. 1481(a)(5)),
            ``(2) the individual's furnishing to the United States 
        Department of State a signed statement of voluntary 
        relinquishment of United States nationality confirming the 
        performance of an act of expatriation specified in paragraph 
        (1), (2), (3), or (4) of section 349(a) of the Immigration and 
        Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
            ``(3) the issuance by the United States Department of State 
        of a certificate of loss of nationality to the individual, or
            ``(4) the cancellation by a court of the United States of a 
        naturalized citizen's certificate of naturalization.
    ``(d) Penalty.--Any individual failing to provide a statement 
required under subsection (a) shall be subject to a penalty for each 
year (of the 10-year period beginning on the date of loss of United 
States citizenship) during any portion of which such failure continues 
in an amount equal to the greater of--
            ``(1) 5 percent of the tax required to be paid under 
        section 877 for the taxable year ending during such year, or
            ``(2) $1,000,
unless it is shown that such failure is due to reasonable cause and not 
to willful neglect.
    ``(e) Information To Be Provided To Secretary.--Notwithstanding any 
other provision of law--
            ``(1) any Federal agency or court which collects (or is 
        required to collect) the statement under subsection (a) shall 
        provide to the Secretary--
                    ``(A) a copy of any such statement, and
                    ``(B) the name (and any other identifying 
                information) of any individual refusing to comply with 
                the provisions of subsection (a),
            ``(2) the Secretary of State shall provide to the Secretary 
        a copy of each certificate as to the loss of American 
        nationality under section 358 of the Immigration and 
        Nationality Act which is approved by the Secretary of State, 
        and
            ``(3) the Federal agency primarily responsible for 
        administering the immigration laws shall provide to the 
        Secretary the name of each lawful permanent resident of the 
        United States (within the meaning of section 7701(b)(6)) whose 
        status as such has been revoked or has been administratively or 
        judicially determined to have been abandoned.
Notwithstanding any other provision of law, not later than 30 days 
after the close of each calendar quarter, the Secretary shall publish 
in the Federal Register the name of each individual losing United 
States citizenship (within the meaning of section 877(a)) with respect 
to whom the Secretary receives information under the preceding sentence 
during such quarter.
    ``(f) Reporting by Long-Term Lawful Permanent Residents Who Cease 
To Be Taxed as Residents.--In lieu of applying the last sentence of 
subsection (a), any individual who is required to provide a statement 
under this section by reason of section 877(e)(1) shall provide such 
statement with the return of tax imposed by chapter 1 for the taxable 
year during which the event described in such section occurs.
    ``(g) Exemption.--The Secretary may by regulations exempt any class 
of individuals from the requirements of this section if he determines 
that applying this section to such individuals is not necessary to 
carry out the purposes of this section.''
    (b) Clerical Amendment.--The table of sections for such subpart A 
is amended by inserting after the item relating to section 6039E the 
following new item:

                              ``Sec. 6039F. Information on individuals 
                                        losing United States 
                                        citizenship.''

    (c) Effective Date.--The amendments made by this section shall 
apply to--
            (1) individuals losing United States citizenship (within 
        the meaning of section 877 of the Internal Revenue Code of 
        1986) after the date of the enactment of this Act, and
            (2) long-term residents of the United States with respect 
        to whom an event described in subparagraph (A) or (B) of 
        section 877(e)(1) of such Code occurs after such date.

SEC. 13618. REPORT ON TAX COMPLIANCE BY UNITED STATES CITIZENS AND 
                    RESIDENTS LIVING ABROAD.

    Not later than 90 days after the date of the enactment of this Act, 
the Secretary of the Treasury shall prepare and submit to the Committee 
on Ways and Means of the House of Representatives and the Committee on 
Finance of the Senate a report--
            (1) describing the compliance with subtitle A of the 
        Internal Revenue Code of 1986 by citizens and lawful permanent 
        residents of the United States (within the meaning of section 
        7701(b)(6) of such Code) residing outside the United States, 
        and
            (2) recommending measures to improve such compliance 
        (including improved coordination between executive branch 
        agencies).

             PART IV--REFORMS RELATING TO ENERGY PROVISIONS

SEC. 13621. TERMINATION OF CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN 
                    RENEWABLE RESOURCES.

    (a) Facilities Must Be Placed in Service Before September 14, 
1995.--Paragraph (3) of section 45(c) (defining qualified facility) is 
amended by striking ``July 1, 1999'' and inserting ``September 14, 
1995''.
    (b) Effective Date.--
            (1) In general.--The amendment made by this section shall 
        apply to taxable years ending after September 13, 1995.
            (2) Binding contracts.--The amendment made by this section 
        shall not apply to any facility--
                    (A) which is constructed or acquired by the 
                taxpayer pursuant to a written contract which was 
                binding on September 13, 1995, and at all times 
                thereafter before such construction or acquisition, and
                    (B) which is placed in service before September 14, 
                1996.

SEC. 13622. REDUCTION OF INCENTIVES FOR ALCOHOL FUELS.

    (a) Denial of Credit for Alcohol Used To Produce Ether.--Subsection 
(b) of section 40 is amended by adding at the end the following new 
paragraph:
            ``(6) Denial of credit for alcohol used to produce ether.--
        No credit shall be allowed under this section for alcohol used 
        to produce any ether.''
    (b) Limitation on Alcohol Eligible for Credit for Alcohol Used as 
Fuel--
            (1) In general.--Subparagraph (A) of section 40(d)(1) 
        (defining alcohol) 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 adding at the end the following 
        new clause:
                            ``(iii) alcohol produced by a still (or 
                        other distilling apparatus) placed in service 
                        after September 13, 1995.''
            (2) Future credit limited to average historical 
        production.--Section 40 is amended by adding at the end the 
        following new subsection:
    ``(i) Expanded Production Ineligible for Credit.--
            ``(1) In general.--Subsection (a) shall apply to alcohol 
        produced after December 31, 1995, only if the alcohol is 
        designated under this subsection by a producer who is 
        registered under section 4101.
            ``(2) Designation based on historical production.--The 
        amount of alcohol produced by a producer during any calendar 
        year which may be designated under this subsection by any 
        producer other than an eligible small ethanol producer is the 
        amount equal to the average annual amount of alcohol (as 
        defined in subsection (d)(1)(A) without regard to clause 
        (iii))--
                    ``(A) which was produced by such producer (other 
                than casual off-farm production) during the 3-year 
                period ending on August 31, 1995, and
                    ``(B) which was sold or used by such producer for 
                any purpose described in clause (i) of subsection 
                (b)(4)(B).
        For purposes of the preceding sentence, a rule similar to the 
        rule of subsection (b)(4)(D) shall apply.
            ``(3) Production for less than entire base period.--
                    ``(A) In general.--If alcohol is produced by a 
                producer for less than the entire 3-year period 
                referred to in paragraph (2)(A), the average referred 
                to in paragraph (2) shall be treated as being equal to 
                50 percent of the annual productive capacity of such 
                producer as of September 13, 1995.
                    ``(B) Producer may establish higher average 
                production.--In the case of a producer who produced 
                alcohol during at least the last 3 months of such 3-
                year period, subparagraph (A) shall be applied by 
                substituting for `50 percent' the percentage 
                established by such producer to the satisfaction of the 
                Secretary as the percentage which such producer's 
                normal alcohol production is of its productive 
                capacity.
            ``(4) Acquisitions and dispositions.--Rules similar to the 
        rules of subparagraphs (A) and (B) of section 41(f)(3) shall 
        apply for purposes of this subsection.''
            (3) Conforming amendment.--Paragraph (1) of section 40(g) 
        is amended by striking ``clauses (i) and (ii)'' and inserting 
        ``clauses (i), (ii), and (iii)''.
    (c) Reduction of Credit For Ethanol By Reason of Carbon Dioxide 
Byproduct Benefit.--Subsection (h) of section 40 is amended--
            (1) by striking ``54 cents'' each place it appears and 
        inserting ``51 cents'', and
            (2) by striking ``40 cents'' each place it appears and 
        inserting ``38.25 cents''.
    (d) Conforming Reductions of Other Incentives for Ethanol Fuel.--
            (1) Repeal of reduced rate on ethanol fuel produced other 
        than from petroleum or natural gas.--Subsection (b) of section 
        4041 is amended to read as follows:
    ``(b) Exemption for Off-Highway Business Use.--
            ``(1) In general.--No tax shall be imposed by subsection 
        (a) or (d)(1) on liquids sold for use or used in an off-highway 
        business use.
            ``(2) Tax where other use.--If a liquid on which no tax was 
        imposed by reason of paragraph (1) is used otherwise than in an 
        off-highway business use, a tax shall be imposed by paragraph 
        (1)(B), (2)(B), or (3)(A)(ii) of subsection (a) (whichever is 
        appropriate) and by the corresponding provision of subsection 
        (d)(1) (if any).
            ``(3) Off-highway business use defined.--For purposes of 
        this subsection, the term `off-highway business use' has the 
        meaning given to such term by section 6421(e)(2); except that 
        such term shall not, for purposes of subsection (a)(1), include 
        use in a diesel-powered train.''
            (2) Repeal of reduced rate on ethanol fuel produced from 
        natural gas.--Subsection (m) of section 4041 is amended--
                    (A) by striking ``or ethanol'' each place it 
                appears (including the heading of paragraph (2)), and
                    (B) by striking ``, ethanol, or other alcohol'' in 
                paragraph (2) and inserting ``or other alcohol (other 
                than ethanol)''.
    (e) Conforming Amendments To Excise Taxes; Fuel Alcohol Taxed in 
Same Manner as Other Motor Fuels.--
            (1) In general.--Paragraph (1) of section 4083(a) (defining 
        taxable fuel) is amended by striking ``and'' at the end of 
        subparagraph (A), by striking the period at the end of 
        subparagraph (B) and inserting ``, and'', and by adding at the 
        end the following:
                    ``(C) fuel alcohol.''
            (2) Fuel alcohol.--Subsection (a) of section 4083 is 
        amended by adding at the end the following new paragraph:
            ``(4) Fuel alcohol.--The term `fuel alcohol' means any 
        alcohol (including ethanol and methanol)--
                    ``(A) which is produced other than from petroleum, 
                natural gas, or coal (including peat), and
                    ``(B) which is withdrawn from the distillery where 
                produced free of tax under chapter 51 by reason of 
                section 5181 or so much of section 5214(a)(1) as 
                relates to fuel use.
        Such term shall not include alcohol designated under section 
        40(i).''
            (3) Rate of tax.--Clause (i) of section 4081(a)(2)(A) is 
        amended by inserting ``or fuel alcohol'' after ``gasoline''.
            (4) Special rules for imposition of tax.--
                    (A) Paragraph (1) of section 4081(a) is amended by 
                adding at the end the following new subparagraph:
                    ``(C) Special rules for fuel alcohol.--In the case 
                of fuel alcohol--
                            ``(i) the distillery where produced shall 
                        be treated as a refinery, and
                            ``(ii) subparagraph (B) shall be applied by 
                        including transfers by truck or rail in excess 
                        of such minimum quantities as the Secretary 
                        shall prescribe.''
                    (B) Paragraph (1) of section 4081(b) is amended by 
                inserting ``(other than fuel alcohol designated under 
                section 40(i))'' after ``taxable fuel''.
            (5) Repeal of reduced rates on alcohol fuels.--
                    (A) Section 4041 is amended by striking subsection 
                (k).
                    (B) Section 4081 is amended by striking subsection 
                (c).
                    (C) Section 4091 is amended by striking subsection 
                (c).
            (6) Conforming amendments.--
                    (A) Subsection (c) of section 40 is amended by 
                striking all that follows ``application of'' and 
                inserting ``the last sentence of section 4083(a)(4)''.
                    (B) Paragraph (4) of section 40(d) is amended to 
                read as follows:
            ``(4) Volume of alcohol.--For purposes of determining under 
        subsection (a) the number of gallons of alcohol with respect to 
        which a credit is allowable under subsection (a), the volume of 
        alcohol shall include the volume of any denaturant (including 
        gasoline) which is added under any formulas approved by the 
        Secretary to the extent that such denaturants do not exceed 5 
        percent of the volume of such alcohol (including 
        denaturants).''
                    (C) Paragraph (2) of section 4041(a) is amended by 
                adding at the end the following: ``No tax shall be 
                imposed by this paragraph on the sale or use of any 
                liquid if tax was imposed on such liquid under section 
                4081 and the tax thereon was not credited or 
                refunded.''
                    (D) Section 6427 is amended by striking subsection 
                (f).
                    (E) Subsection (i) of section 6427 is amended by 
                striking paragraph (3).
                    (F) Paragraph (2) of section 6427(k) is amended by 
                striking ``(3)''.
                    (G)(i) Paragraph (1) of section 6427(l) is amended 
                by striking ``or'' at the end of subparagraph (A), by 
                redesignating subparagraph (B) as subparagraph (C), and 
                by inserting after subparagraph (A) the following new 
                subparagraph:
                    ``(B) any fuel alcohol (as defined in section 4083) 
                on which tax has been imposed by section 4081, or''.
                    (ii) Paragraph (2) of section 6427(l) is amended by 
                striking ``and'' at the end of subparagraph (A), by 
                redesignating subparagraph (B) as subparagraph (C), and 
                by inserting after subparagraph (A) the following new 
                subparagraph:
                    ``(B) in the case of fuel alcohol (as so defined), 
                any use which is exempt from the tax imposed by section 
                4041(a)(2) other than by reason of a prior imposition 
                of tax, and''.
                    (iii) The heading of subsection (l) of section 6427 
                is amended by inserting ``, Fuel Alcohol,'' after 
                ``Diesel Fuel''.
                    (H) Sections 9503(b)(1)(E) and 9508(b)(2) are each 
                amended by striking ``and kerosene'' and inserting 
                ``kerosene, and fuel alcohol''.
                    (I) Section 9502 is amended by striking subsection 
                (e) and by redesignating subsection (f) as subsection 
                (e).
                    (J) Subsection (e) of section 9502 (as redesignated 
                by subparagraph (I)) is amended by striking paragraph 
                (2) and by redesignating paragraph (3) as paragraph 
                (2).
                    (K) Subsection (b) of section 9503 is amended by 
                striking paragraph (5).
                    (L) Paragraph (3) of section 9503(f) is amended to 
                read as follows:
            ``(3) Partially exempt methanol or ethanol fuel.--In the 
        case of a rate of tax determined under section 4041(m), the 
        Highway Trust Fund financing rate is the excess (if any) of the 
        rate so determined over--
                    ``(A) 5.55 cents per gallon after September 30, 
                1993, and before October 1, 1995, and
                    ``(B) 4.3 cents per gallon after September 30, 
                1995.''
    (f) Increase in Small Ethanol Producer Credit.--Subparagraph (A) of 
section 40(b)(4) is amended by striking ``10 cents'' and inserting ``13 
cents''.
    (g) Effective Date.--
            (1) Amendments relating to credit.--The amendments made by 
        subsections (a), (b), (c), and (f) shall apply to alcohol 
        produced after December 31, 1995, in taxable years ending after 
        such date.
            (2) Amendments relating to excise taxes.--The amendments 
        made by subsections (d) and (e) shall take effect on January 1, 
        1996.
            (3) Stills placed in service pursuant to binding 
        contracts.--For purposes of subsections (d)(1)(A)(iii) and 
        (i)(3)(A) of section 40 of the Internal Revenue Code of 1986, 
        as amended by this section, a still (or other distilling 
        apparatus) shall be treated as placed in service before 
        September 14, 1995, if such still (or other apparatus)--
                    (A) is constructed or acquired by the taxpayer 
                pursuant to a written contract which was binding on 
                September 13, 1995, and at all times thereafter before 
                such construction or acquisition, and
                    (B) is placed in service before September 14, 1996.
    (h) Floor Stock Taxes.--
            (1) Imposition of tax.--In the case of fuel alcohol which 
        is held on January 1, 1996, by any person, there is hereby 
        imposed a floor stocks tax of 18.4 cents per gallon.
            (2) Liability for tax and method of payment.--
                    (A) Liability for tax.--A person holding fuel 
                alcohol on January 1, 1996, to which the tax imposed by 
                paragraph (1) applies shall be liable for such tax.
                    (B) Method of payment.--The tax imposed by 
                paragraph (1) shall be paid in such manner as the 
                Secretary shall prescribe.
                    (C) Time for payment.--The tax imposed by paragraph 
                (1) shall be paid on or before June 30, 1996.
            (3) Definitions.--For purposes of this subsection--
                    (A) Fuel alcohol.--The term ``fuel alcohol'' has 
                the meaning given such term by section 4083 of the 
                Internal Revenue Code of 1986, as amended by this 
                section.
                    (B) Held by a person.--Fuel alcohol shall be 
                considered as ``held by a person'' if title thereto has 
                passed to such person (whether or not delivery to the 
                person has been made).
                    (C) Secretary.--The term ``Secretary'' means the 
                Secretary of the Treasury or his delegate.
            (4) Exception for exempt uses.--The tax imposed by 
        paragraph (1) shall not apply to fuel alcohol held by any 
        person exclusively for any use to the extent a credit or refund 
        of the tax imposed by section 4081 of the Internal Revenue Code 
        of 1986 is allowable for such use.
            (5) Exception for fuel held in vehicle tank.--No tax shall 
        be imposed by paragraph (1) on fuel alcohol held in the tank of 
        a motor vehicle or motorboat.
            (6) Exception for certain amounts of fuel.--
                    (A) In general.--No tax shall be imposed by 
                paragraph (1) on fuel alcohol held on January 1, 1996, 
                by any person if the aggregate amount of fuel alcohol 
                held by such person on such date does not exceed 2,000 
                gallons. The preceding sentence shall apply only if 
                such person submits to the Secretary (at the time and 
                in the manner required by the Secretary) such 
                information as the Secretary shall require for purposes 
                of this paragraph.
                    (B) Exempt fuel.--For purposes of subparagraph (A), 
                there shall not be taken into account fuel held by any 
                person which is exempt from the tax imposed by 
                paragraph (1) by reason of paragraph (4) or (5).
                    (C) Controlled groups.--For purposes of this 
                paragraph--
                            (i) Corporations.--
                                    (I) In general.--All persons 
                                treated as a controlled group shall be 
                                treated as 1 person.
                                    (II) Controlled group.--The term 
                                ``controlled group'' has the meaning 
                                given to such term by subsection (a) of 
                                section 1563 of such Code; except that 
                                for such purposes the phrase ``more 
                                than 50 percent'' shall be substituted 
                                for the phrase ``at least 80 percent'' 
                                each place it appears in such 
                                subsection.
                            (ii) Nonincorporated persons under common 
                        control.--Under regulations prescribed by the 
                        Secretary, principles similar to the principles 
                        of clause (i) shall apply to a group of persons 
                        under common control where 1 or more of such 
                        persons is not a corporation.
            (7) Other laws applicable.--All provisions of law, 
        including penalties, applicable with respect to the taxes 
        imposed by section 4081 of such Code shall, insofar as 
        applicable and not inconsistent with the provisions of this 
        subsection, apply with respect to the floor stock taxes imposed 
        by paragraph (1) to the same extent as if such taxes were 
        imposed by such section 4081.

SEC. 13623. EXCLUSION FOR ENERGY CONSERVATION SUBSIDIES LIMITED TO 
                    SUBSIDIES WITH RESPECT TO DWELLING UNITS.

    (a) In General.--Paragraph (1) of section 136(c) (defining energy 
conservation measure) is amended by striking ``energy demand--'' and 
all that follows and inserting ``energy demand with respect to a 
dwelling unit.''
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 136 is amended to read as 
        follows:
    ``(a) Exclusion.--Gross income shall not include the value of any 
subsidy provided (directly or indirectly) by a public utility to a 
customer for the purchase or installation of any energy conservation 
measure.''
            (2) Paragraph (2) of section 136(c) is amended--
                    (A) by striking subparagraph (A) and by 
                redesignating subparagraphs (B) and (C) as 
                subparagraphs (A) and (B), respectively, and
                    (B) by striking ``and special rules'' in the 
                paragraph heading.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts received after September 13, 1995, unless received 
pursuant to a written binding contract in effect on September 13, 1995, 
and at all times thereafter.

         PART V--REFORMS RELATING TO NONRECOGNITION PROVISIONS

SEC. 13626. BASIS ADJUSTMENT TO PROPERTY HELD BY CORPORATION WHERE 
                    STOCK IN CORPORATION IS REPLACEMENT PROPERTY UNDER 
                    INVOLUNTARY CONVERSION RULES.

    (a) In General.--Subsection (b) of section 1033 is amended to read 
as follows:
    ``(b) Basis of Property Acquired Through Involuntary Conversion.--
            ``(1) Conversions described in subsection (a)(1).--If the 
        property was acquired as the result of a compulsory or 
        involuntary conversion described in subsection (a)(1), the 
        basis shall be the same as in the case of the property so 
        converted--
                    ``(A) decreased in the amount of any money received 
                by the taxpayer which was not expended in accordance 
                with the provisions of law (applicable to the year in 
                which such conversion was made) determining the taxable 
                status of the gain or loss upon such conversion, and
                    ``(B) increased in the amount of gain or decreased 
                in the amount of loss to the taxpayer recognized upon 
                such conversion under the law applicable to the year in 
                which such conversion was made.
            ``(2) Conversions described in subsection (a)(2).--In the 
        case of property purchased by the taxpayer in a transaction 
        described in subsection (a)(2) which resulted in the 
        nonrecognition of any part of the gain realized as the result 
        of a compulsory or involuntary conversion, the basis shall be 
        the cost of such property decreased in the amount of the gain 
        not so recognized; and if the property purchased consists of 
        more than 1 piece of property, the basis determined under this 
        sentence shall be allocated to the purchased properties in 
        proportion to their respective costs.
            ``(3) Property held by corporation the stock of which is 
        replacement property.--
                    ``(A) In general.--If the basis of stock in a 
                corporation is decreased under paragraph (2), an amount 
                equal to such decrease shall also be applied to reduce 
                the basis of property held by the corporation at the 
                time the taxpayer acquired control (as defined in 
                subsection (a)(2)(E)) of such corporation.
                    ``(B) Limitation.--Subparagraph (A) shall not apply 
                to the extent that it would (but for this subparagraph) 
                require a reduction in the aggregate adjusted bases of 
                the property of the corporation below the taxpayer's 
                adjusted basis of the stock in the corporation 
                (determined immediately after such basis is decreased 
                under paragraph (2)).
                    ``(C) Allocation of basis reduction.--The decrease 
                required under subparagraph (A) shall be allocated--
                            ``(i) first to property which is similar or 
                        related in service or use to the converted 
                        property,
                            ``(ii) second to depreciable property (as 
                        defined in section 1017(b)(3)(B)) not described 
                        in clause (i), and
                            ``(iii) then to other property.
                    ``(D) Special rules.--
                            ``(i) Reduction not to exceed adjusted 
                        basis of property.--No reduction in the basis 
                        of any property under this paragraph shall 
                        exceed the adjusted basis of such property 
                        (determined without regard to such reduction).
                            ``(ii) Allocation of reduction among 
                        properties.--If more than 1 property is 
                        described in a clause of subparagraph (C), the 
                        reduction under this paragraph shall be 
                        allocated among such property in proportion to 
                        the adjusted bases of such property (determined 
                        without regard to such reduction).''
    (b) Effective Date.--The amendment made by this section shall apply 
to involuntary conversions occurring after September 13, 1995.

SEC. 13627. EXPANSION OF REQUIREMENT THAT INVOLUNTARILY CONVERTED 
                    PROPERTY BE REPLACED WITH PROPERTY ACQUIRED FROM AN 
                    UNRELATED PERSON.

    (a) In General.--Subsection (i) of section 1033 is amended to read 
as follows:
    ``(i) Replacement Property Must Be Acquired From Unrelated Person 
in Certain Cases.--
            ``(1) In general.--If the property which is involuntarily 
        converted is held by a taxpayer to which this subsection 
        applies, subsection (a) shall not apply if the replacement 
        property or stock is acquired from a related person. The 
        preceding sentence shall not apply to the extent that the 
        related person acquired the replacement property or stock from 
        an unrelated person during the period applicable under 
        subsection (a)(2)(B).
            ``(2) Taxpayers to which subsection applies.--This 
        subsection shall apply to--
                    ``(A) a C corporation,
                    ``(B) a partnership in which 1 or more C 
                corporations own, directly or indirectly (determined in 
                accordance with section 707(b)(3)), more than 50 
                percent of the capital interest, or profits interest, 
                in such partnership at the time of the involuntary 
                conversion, and
                    ``(C) any other taxpayer if, with respect to 
                property which is involuntarily converted during the 
                taxable year, the aggregate of the amount of realized 
                gain on such property on which there is realized gain 
                exceeds $100,000.
        In the case of a partnership, subparagraph (C) shall apply with 
        respect to the partnership and with respect to each partner. A 
        similar rule shall apply in the case of an S corporation and 
        its shareholders.
            ``(3) Related person.--For purposes of this subsection, a 
        person is related to another person if the person bears a 
        relationship to the other person described in section 267(b) or 
        707(b)(1).''
    (b) Effective Date.--The amendment made by this section shall apply 
to involuntary conversions occurring after September 13, 1995.

SEC. 13628. NO ROLLOVER OR EXCLUSION OF GAIN ON SALE OF PRINCIPAL 
                    RESIDENCE WHICH IS ATTRIBUTABLE TO DEPRECIATION 
                    DEDUCTIONS.

    (a) In General.--Subsection (d) of section 1034 (relating to 
limitations) is amended by adding at the end the following new 
paragraph:
            ``(3) Recognition of gain attributable to depreciation.--
        Subsection (a) shall not apply to so much of the gain from the 
        sale of any residence as does not exceed the portion of the 
        depreciation adjustments (as defined in section 1250(b)(3)) 
        attributable to periods after December 31, 1995, in respect of 
        such residence.''
    (b) Comparable Treatment Under 1-Time Exclusion of Gain on Sale of 
Principal Residence.--Subsection (d) of section 121 is amended by 
adding at the end the following new paragraph:
            ``(10) Recognition of gain attributable to depreciation.--
                    ``(A) In general.--Subsection (a) shall not apply 
                to so much of the gain from the sale of any property as 
                does not exceed the portion of the depreciation 
                adjustments (as defined in section 1250(b)(3)) 
                attributable to periods after December 31, 1995, in 
                respect of such property.
                    ``(B) Coordination with paragraph (5).--If this 
                section does not apply to gain attributable to a 
                portion of a residence by reason of paragraph (5), 
                subparagraph (A) shall not apply to depreciation 
                adjustments attributable to such portion.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 1995.

SEC. 13629. NONRECOGNITION OF GAIN ON SALE OF PRINCIPAL RESIDENCE BY 
                    NONCITIZENS LIMITED TO NEW RESIDENCES LOCATED IN 
                    THE UNITED STATES.

    (a) In General.--Subsection (d) of section 1034 (relating to 
limitations) (as amended by section 13628) is amended by adding at the 
end the following new paragraph:
            ``(4) New residence must be located in united states in 
        certain cases.--
                    ``(A) In general.--In the case of a sale of an old 
                residence by a taxpayer--
                            ``(i) who is not a citizen of the United 
                        States at the time of sale, and
                            ``(ii) who is not a citizen or resident of 
                        the United States on the date which is 2 years 
                        after the date of the sale of such old 
                        residence,
                subsection (a) shall apply only if the new residence is 
                located in the United States or a possession of the 
                United States.
                    ``(B) Property held jointly by husband and wife.--
                Subparagraph (A) shall not apply if--
                            ``(i) the old residence is held by a 
                        husband and wife as joint tenants, tenants by 
                        the entirety, or community property,
                            ``(ii) such husband and wife make a joint 
                        return for the taxable year of the sale or 
                        exchange, and
                            ``(iii) one spouse is a citizen of the 
                        United States at the time of sale.''
    (b) Effective Date.--
            (1) In general.--The amendment made by this section shall 
        apply to sales of old residences after December 31, 1995.
            (2) Treatment of purchases of new residences.--The 
        amendment made by this section shall not apply to new 
        residences--
                    (A) purchased before September 13, 1995, or
                    (B) purchased on or after such date pursuant to a 
                binding contract in effect on such date and at all 
                times thereafter before such purchase.
            (3) Certain rules to apply.--For purposes of this 
        subsection, the rules of paragraphs (1), (2), and (3) of 
        section 1034(c) of the Internal Revenue Code of 1986 shall 
        apply.

             PART VI--REFORMS RELATING TO GAMING ACTIVITIES

SEC. 13631. TREATMENT OF INDIAN GAMING ACTIVITIES UNDER UNRELATED 
                    BUSINESS INCOME TAX.

    (a) In General.--Paragraph (2) of section 511(a) (relating to 
imposition of tax on unrelated business income of charitable, etc., 
organizations) is amended by adding at the end the following new 
subparagraph:
                    ``(C) Gaming activities of indian tribes.--
                            ``(i) In general.--The tax imposed by 
                        paragraph (1) shall apply to any Indian tribal 
                        organization; except that, notwithstanding any 
                        other provision of this part, in the case of 
                        such an organization, the term `unrelated trade 
                        or business' means only a trade or business of 
                        conducting any class II or class III gaming 
                        activity (as defined in section 4 of the Indian 
                        Gaming Regulatory Act (25 U.S.C. 2701 et seq.), 
                        as in effect on the date of the enactment of 
                        this subparagraph), including a gaming activity 
                        described in section 513(a)(1).
                            ``(ii) Indian tribal organization.--For 
                        purposes of clause (i), the term `Indian tribal 
                        organization' means any Indian tribe and any 
                        organization which is immune or exempt from tax 
                        under this subtitle solely by reason of being 
                        owned or controlled by an Indian tribe.''
    (b) Treatment of Amounts Paid for Charitable Purposes, Etc., By 
Reason of State or Federal Law.--Subsection (b) of section 512 is 
amended by adding at the end the following new paragraph:
            ``(17) In the case of an Indian tribal organization (as 
        defined in section 511(a)(3)), if, by reason of State or 
        Federal law or of a contract with the United States or with any 
        State or political subdivision thereof, such organization is 
        required to use any portion of the net proceeds of any gaming 
        activity for specified purposes, the deduction for so using 
        such proceeds shall be treated as allowed under section 170 for 
        purposes of applying paragraph (10). The preceding sentence 
        shall not apply to such proceeds which are paid as general 
        revenues to the United States or to any State or political 
        subdivision thereof.''
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1996.
    (d) Study of Gambling Conducted by Tax-Exempt Organizations.--The 
Secretary of the Treasury or his delegate shall conduct a study on the 
nature and extent of gaming activities conducted by organizations 
exempt from tax under section 501(a) of the Internal Revenue Code of 
1986, including an examination of--
            (1) the types of gaming activities (including bingo, pull 
        tabs, and casino nights) engaged in by charities and other 
        nonprofit organizations and the frequency of such activities;
            (2) the dollar volume of such gaming activities;
            (3) the nature and extent of the involvement of for-profit 
        entities and private parties in the management or operation of 
        gaming activities of such organizations;
            (4) competition between taxable gaming activities and 
        gaming activities that are exempt from Federal income tax; and
            (5) an analysis of the present law tax treatment of gaming 
        activities of tax-exempt organizations.
The study may include any recommendations for change, including 
examination of the South End decision and the special exception for 
bingo games. The Secretary shall submit the results of the study to the 
Committee on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate not later than July 1, 1996.

SEC. 13632. REPEAL OF TARGETED EXEMPTION FROM TAX ON UNRELATED TRADE OR 
                    BUSINESS INCOME FROM GAMBLING IN CERTAIN STATES.

    (a) In General.--Section 311 of the Tax Reform Act of 1984 is 
hereby repealed.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to games of chance conducted after December 31, 1995, in taxable 
years ending after such date.

SEC. 13633. EXTENSION OF WITHHOLDING TO CERTAIN GAMBLING WINNINGS.

    (a) Repeal of Exemption for Bingo and Keno.--Paragraph (5) of 
section 3402(q) is amended to read as follows:
            ``(5) Exemption for slot machines.--The tax imposed under 
        paragraph (1) shall not apply to winnings from a slot 
        machine.''
    (b) Threshold Amount.--Paragraph (3) of section 3402(q) is 
amended--
            (1) by striking ``(B) and (C)'' in subparagraph (A) and 
        inserting ``(B), (C), and (D)'', and
            (2) by adding at the end the following new subparagraph:
                    ``(D) Bingo and keno.--Proceeds of more than $5,000 
                from a wager placed in a bingo or keno game.''
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1996.

                        PART VII--OTHER REFORMS

SEC. 13636. SUNSET OF LOW-INCOME HOUSING CREDIT.

    (a) Repeal of Reallocation of Unused Credits Among States.--
Subparagraph (D) of section 42(h)(3) is amended by adding at the end 
the following new clause:
                            ``(v) Termination.--No amount may be 
                        allocated under this paragraph for any calendar 
                        year after 1995.''
    (b) Termination.--Section 42 is amended by adding at the end the 
following new subsection:
    ``(o) Termination.--
            ``(1) In general.--Except as provided in paragraph (2)--
                    ``(A) clause (i) of subsection (h)(3)(C) shall not 
                apply to any amount allocated after December 31, 1997, 
                and
                    ``(B) subsection (h)(4) shall not apply to any 
                building placed in service after such date.
            ``(2) Exception for bond-financed buildings in progress.--
        For purposes of paragraph (1)(B), a building shall be treated 
        as placed in service before January 1, 1998, if--
                    ``(A) the bonds with respect to such building are 
                issued before such date,
                    ``(B) the taxpayer's basis in the project (of which 
                the building is a part) as of December 31, 1997, is 
                more than 10 percent of the taxpayer's reasonably 
                expected basis in such project as of December 31, 1999, 
                and
                    ``(C) such building is placed in service before 
                January 1, 2000.''

SEC. 13637. REPEAL OF CREDIT FOR CONTRIBUTIONS TO COMMUNITY DEVELOPMENT 
                    CORPORATIONS.

    (a) In General.--Section 13311 of the Revenue Reconciliation Act of 
1993 (relating to credit for contributions to certain community 
development corporations) is hereby repealed.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to contributions made after the date of the enactment of this Act 
(other than contributions made pursuant to a legally enforceable 
agreement which is effect on the date of the enactment of this Act).

SEC. 13638. REPEAL OF DIESEL FUEL TAX REBATE TO PURCHASERS OF DIESEL-
                    POWERED AUTOMOBILES AND LIGHT TRUCKS.

    (a) In General.--Section 6427 is amended by striking subsection 
(g).
    (b) Conforming Amendments.--
            (1) Paragraph (3) of section 34(a) is amended to read as 
        follows:
            ``(3) under section 6427 with respect to fuels used for 
        nontaxable purposes or resold during the taxable year 
        (determined without regard to section 6427(k)).''
            (2) Paragraphs (1) and (2)(A) of section 6427(i) are each 
        amended--
                    (A) by striking ``(g),'', and
                    (B) by striking ``(or a qualified diesel powered 
                highway vehicle purchased)'' each place it appears.
    (c) Effective Date.--The amendments made by this section shall 
apply to vehicles purchased after December 31, 1995.

SEC. 13639. APPLICATION OF FAILURE-TO-PAY PENALTY TO SUBSTITUTE 
                    RETURNS.

    (a) General Rule.--Section 6651 (relating to failure to file tax 
return or to pay tax) is amended by adding at the end the following new 
subsection:
    ``(g) Treatment of Returns Prepared by Secretary Under Section 
6020(b).--In the case of any return made by the Secretary under section 
6020(b)--
            ``(1) such return shall be disregarded for purposes of 
        determining the amount of the addition under paragraph (1) of 
        subsection (a), but
            ``(2) such return shall be treated as the return filed by 
        the taxpayer for purposes of determining the amount of the 
        addition under paragraphs (2) and (3) of subsection (a).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply in the case of any return the due date for which (determined 
without regard to extensions) is after the date of the enactment of 
this Act.

SEC. 13640. REPEAL OF SPECIAL RULE FOR RENTAL USE OF VACATION HOMES, 
                    ETC., FOR LESS THAN 15 DAYS.

    (a) In General.--Section 280A (relating to disallowance of certain 
expenses in connection with business use of home, rental of vacation 
homes, etc.) is amended by striking subsection (g).
    (b) No Basis Reduction Unless Depreciation Claimed.--Section 1016 
is amended by redesignating subsection (e) as subsection (f) and by 
inserting after subsection (d) the following new subsection:
    ``(e) Special Rule Where Rental Use of Vacation Home, Etc., for 
Less Than 15 Days.--If a dwelling unit is used during the taxable year 
by the taxpayer as a residence and such dwelling unit is actually 
rented for less than 15 days during the taxable year, the reduction 
under subsection (a)(2) by reason of such rental use in any taxable 
year beginning after December 31, 1995, shall not exceed the 
depreciation deduction allowed for such rental use.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 13641. ELECTION TO CEASE STATUS AS QUALIFIED SCHOLARSHIP FUNDING 
                    CORPORATION.

    (a) In General.--Subsection (d) of section 150 (relating to 
definitions and special rules) is amended by adding at the end thereof 
the following new paragraph:
            ``(3) Election to cease status as qualified scholarship 
        funding corporation.--
                    ``(A) In general.--Any qualified scholarship 
                funding bond, and qualified student loan bond, 
                outstanding on the date of the issuer's election under 
                this paragraph (and any bond (or series of bonds) 
                issued to refund such a bond) shall not fail to be a 
                tax-exempt bond solely because the issuer ceases to be 
                described in subparagraphs (A) and (B) of paragraph (2) 
                if the issuer meets the requirements of subparagraphs 
                (B) and (C) of this paragraph.
                    ``(B) Assets and liabilities of issuer transferred 
                to taxable subsidiary.--The requirements of this 
                subparagraph are met by an issuer if--
                            ``(i) all of the student loan notes of the 
                        issuer and other assets pledged to secure the 
                        repayment of qualified scholarship funding bond 
                        indebtedness of the issuer are transferred to 
                        another corporation within a reasonable period 
                        after the election is made under this 
                        paragraph;
                            ``(ii) such transferee corporation assumes 
                        or otherwise provides for the payment of all of 
                        the qualified scholarship funding bond 
                        indebtedness of the issuer within a reasonable 
                        period after the election is made under this 
                        paragraph;
                            ``(iii) to the extent permitted by law, 
                        such transferee corporation assumes all of the 
                        responsibilities, and succeeds to all of the 
                        rights, of the issuer under the issuer's 
                        agreements with the Secretary of Education in 
                        respect of student loans;
                            ``(iv) immediately after such transfer, the 
                        issuer, together with any other issuer which 
                        has made an election under this paragraph in 
                        respect of such transferee, hold all of the 
                        senior stock in such transferee corporation; 
                        and
                            ``(v) such transferee corporation is not 
                        exempt from tax under this chapter.
                    ``(C) Issuer to operate as independent organization 
                described in section 501(c)(3).--The requirements of 
                this subparagraph are met by an issuer if, within a 
                reasonable period after the transfer referred to in 
                subparagraph (B)--
                            ``(i) the issuer is described in section 
                        501(c)(3) and exempt from tax under section 
                        501(a);
                            ``(ii) the issuer no longer is described in 
                        subparagraphs (A) and (B) of paragraph (2); and
                            ``(iii) at least 80 percent of the members 
                        of the board of directors of the issuer are 
                        independent members.
                    ``(D) Senior stock.--For purposes of this 
                paragraph, the term `senior stock' means stock--
                            ``(i) which participates pro rata and fully 
                        in the equity value of the corporation with all 
                        other common stock of the corporation but which 
                        has the right to payment of liquidation 
                        proceeds prior to payment of liquidation 
                        proceeds in respect of other common stock of 
                        the corporation;
                            ``(ii) which has a fixed right upon 
                        liquidation and upon redemption to an amount 
                        equal to the greater of--
                                    ``(I) the fair market value of such 
                                stock on the date of liquidation or 
                                redemption (whichever is applicable); 
                                or
                                    ``(II) the fair market value of all 
                                assets transferred in exchange for such 
                                stock and reduced by the amount of all 
                                liabilities of the corporation which 
                                has made an election under this 
                                paragraph assumed by the transferee 
                                corporation in such transfer;
                            ``(iii) the holder of which has the right 
                        to require the transferee corporation to redeem 
                        on a date that is not later than 10 years after 
                        the date on which an election under this 
                        paragraph was made and pursuant to such 
                        election such stock was issued; and
                            ``(iv) in respect of which, during the time 
                        such stock is outstanding, there is not 
                        outstanding any equity interest in the 
                        corporation having any liquidation, redemption 
                        or dividend rights in the corporation which are 
                        superior to those of such stock.
                    ``(E) Independent member.--The term `independent 
                member' means a member of the board of directors of the 
                issuer who (except for services as a member of such 
                board) receives no compensation directly or 
                indirectly--
                            ``(i) for services performed in connection 
                        with such transferee corporation, or
                            ``(ii) for services as a member of the 
                        board of directors or as an officer of such 
                        transferee corporation.
                For purposes of clause (ii), the term `officer' 
                includes any individual having powers or 
                responsibilities similar to those of officers.
                    ``(F) Coordination with certain private foundation 
                taxes.--For purposes of sections 4942 (relating to the 
                excise tax on a failure to distribute income) and 4943 
                (relating to the excise tax on excess business 
                holdings), the transferee corporation referred to in 
                subparagraph (B) shall be treated as a functionally 
                related business (within the meaning of section 
                4942(j)(4)) with respect to the issuer during the 
                period commencing with the date on which an election is 
                made under this paragraph and ending on the date that 
                is the earlier of--
                            ``(i) the last day of the last taxable year 
                        for which more than 50 percent of the gross 
                        income of such transferee corporation is 
                        derived from, or more than 50 percent of the 
                        assets (by value) of such transferee 
                        corporation consists of, student loan notes 
                        incurred under the Higher Education Act of 
                        1965; or
                            ``(ii) the last day of the taxable year of 
                        the issuer during which occurs the date which 
                        is 10 years after the date on which the 
                        election under this paragraph is made.
                    ``(G) Election.--An election under this paragraph 
                may be revoked only with the consent of the 
                Secretary.''
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 13642. CERTAIN AMOUNTS DERIVED FROM FOREIGN CORPORATIONS TREATED 
                    AS UNRELATED BUSINESS TAXABLE INCOME.

    (a) General Rule.--Subsection (b) of section 512 (relating to 
modifications) is amended by adding at the end thereof the following 
new paragraph:
            ``(18) Treatment of certain amounts derived from foreign 
        corporations.--
                    ``(A) In general.--Notwithstanding paragraph (1), 
                any amount included in gross income under section 
                951(a)(1)(A) shall be included as an item of gross 
                income derived from an unrelated trade or business to 
                the extent the amount so included is attributable to 
                insurance income (as defined in section 953) which, if 
                derived directly by the organization, would be treated 
                as gross income from an unrelated trade or business. 
                There shall be allowed all deductions directly 
                connected with amounts included in gross income under 
                the preceding sentence.
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                to income attributable to a policy of insurance or 
                reinsurance with respect to which the person (directly 
                or indirectly) insured is--
                            ``(i) such organization,
                            ``(ii) an affiliate of such organization 
                        which is exempt from tax under section 501(a), 
                        or
                            ``(iii) a director, officer, or employee of 
                        such organization or affiliate but only if the 
                        insurance covers solely risks associated with 
                        the performance of services for the benefit of 
                        such organization or affiliate.
                    ``(C) Regulations.--The Secretary shall prescribe 
                such regulations as may be necessary or appropriate to 
                carry out the purposes of this paragraph, including 
                regulations for the application of this paragraph in 
                the case of income paid through 1 or more entities or 
                between 2 or more chains of entities.''
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts included in gross income in any taxable year beginning after 
December 31, 1995.

      PART VIII--EXCISE TAX ON AMOUNTS OF PRIVATE EXCESS BENEFITS

SEC. 13646. EXCISE TAXES FOR FAILURE BY CERTAIN CHARITABLE 
                    ORGANIZATIONS TO MEET CERTAIN QUALIFICATION 
                    REQUIREMENTS.

    (a) In General.--Chapter 42 (relating to private foundations and 
certain other tax-exempt organizations) is amended by redesignating 
subchapter D as subchapter E and by inserting after subchapter C the 
following new subchapter:

  ``Subchapter D--Failure By Certain Charitable Organizations To Meet 
                   Certain Qualification Requirements

                              ``Sec. 4958. Taxes on excess benefit 
                                        transactions.

``SEC. 4958. TAXES ON EXCESS BENEFIT TRANSACTIONS.

    ``(a) Initial Taxes.--
            ``(1) On the disqualified person.--There is hereby imposed 
        on each excess benefit transaction a tax equal to 25 percent of 
        the excess benefit. The tax imposed by this paragraph shall be 
        paid by any disqualified person referred to in subsection 
        (f)(1) with respect to such transaction.
            ``(2) On the management.--In any case in which a tax is 
        imposed by paragraph (1), there is hereby imposed on the 
        participation of any organization manager in the excess benefit 
        transaction, knowing that it is such a transaction, a tax equal 
        to 10 percent of the excess benefit, unless such participation 
        is not willful and is due to reasonable cause. The tax imposed 
        by this paragraph shall be paid by any organization manager who 
        participated in the excess benefit transaction.
    ``(b) Additional Tax On the Disqualified Person.--In any case in 
which an initial tax is imposed by subsection (a)(1) on an excess 
benefit transaction and the excess benefit involved in such transaction 
is not corrected within the taxable period, there is hereby imposed a 
tax equal to 200 percent of the excess benefit involved. The tax 
imposed by this subsection shall be paid by any disqualified person 
referred to in subsection (f)(1) with respect to such transaction.
    ``(c) Excess Benefit Transaction; Excess Benefit.--For purposes of 
this section--
            ``(1) Excess benefit transaction.--
                    ``(A) In general.--The term `excess benefit 
                transaction' means any transaction in which an economic 
                benefit is provided by an applicable tax-exempt 
                organization directly or indirectly to or for the use 
                of any disqualified person if the value of the economic 
                benefit provided exceeds the value of the consideration 
                (including the performance of services) received for 
                providing such benefit. For purposes of the preceding 
                sentence, an economic benefit shall not be treated as 
                consideration for the performance of services unless 
                such organization clearly indicated its intent to so 
                treat such benefit.
                    ``(B) Excess benefit.--The term `excess benefit' 
                means the excess referred to in subparagraph (A).
            ``(2) Authority to include certain other private 
        inurement.--To the extent provided in regulations prescribed by 
        the Secretary, the term `excess benefit transaction' includes 
        any transaction in which the amount of any economic benefit 
        provided to or for the use of a disqualified person is 
        determined in whole or in part by the revenues of 1 or more 
        activities of the organization but only if such transaction 
        results in inurement not permitted under paragraph (3) or (4) 
        of section 501(c), as the case may be. In the case of any such 
        transaction, the excess benefit shall be the amount of the 
        inurement not so permitted.
    ``(d) Special Rules.--For purposes of this section--
            ``(1) Joint and several liability.--If more than 1 person 
        is liable for any tax imposed by subsection (a) or subsection 
        (b), all such persons shall be jointly and severally liable for 
        such tax.
            ``(2) Limit for management.--With respect to any 1 excess 
        benefit transaction, the maximum amount of the tax imposed by 
        subsection (a)(2) shall not exceed $10,000.
    ``(e) Applicable Tax-Exempt Organization.--For purposes of this 
subchapter, the term `applicable tax-exempt organization' means any 
organization which (without regard to any excess benefit) would be 
described in paragraph (3) or (4) of section 501(c) and exempt from tax 
under section 501(a). Such term shall not include a private foundation 
(as defined in section 509(a)).
    ``(f) Other Definitions.--For purposes of this section--
            ``(1) Disqualified person.--The term `disqualified person' 
        means, with respect to any transaction--
                    ``(A) any person who was, at any time during the 5-
                year period ending on the date of such transaction--
                            ``(i) an organization manager, or
                            ``(ii) an individual (other than an 
                        organization manager) in a position to exercise 
                        substantial influence over the affairs of the 
                        organization,
                    ``(B) a member of the family of an individual 
                described in subparagraph (A), and
                    ``(C) a 35-percent controlled entity.
            ``(2) Organization manager.--The term `organization 
        manager' means, with respect to any applicable tax-exempt 
        organization, any officer, director, or trustee of such 
        organization (or any individual having powers or 
        responsibilities similar to those of officers, directors, or 
        trustees of the organization).
            ``(3) 35-percent controlled entity.--
                    ``(A) In general.--The term `35-percent controlled 
                entity' means--
                            ``(i) a corporation in which persons 
                        described in subparagraph (A) or (B) of 
                        paragraph (1) own more than 35 percent of the 
                        total combined voting power,
                            ``(ii) a partnership in which such persons 
                        own more than 35 percent of the profits 
                        interest, and
                            ``(iii) a trust or estate in which such 
                        persons own more than 35 percent of the 
                        beneficial interest.
                    ``(B) Constructive ownership rules.--Rules similar 
                to the rules of paragraphs (3) and (4) of section 
                4946(a) shall apply for purposes of this paragraph.
            ``(4) Family members.--The members of an individual's 
        family shall be determined under section 4946(d); except that 
        such members also shall include the brothers and sisters 
        (whether by the whole or half blood) of the individual and 
        their spouses.
            ``(5) Taxable period.--The term `taxable period' means, 
        with respect to any excess benefit transaction, the period 
        beginning with the date on which the transaction occurs and 
        ending on the earliest of--
                    ``(A) the date of mailing a notice of deficiency 
                under section 6212 with respect to the tax imposed by 
                subsection (a)(1), or
                    ``(B) the date on which the tax imposed by 
                subsection (a)(1) is assessed.
            ``(6) Correction.--The terms `correction' and `correct' 
        mean, with respect to any excess benefit transaction, undoing 
        the excess benefit to the extent possible, and where fully 
        undoing the excess benefit is not possible, such additional 
        corrective action as is prescribed by the Secretary by 
        regulations.
    ``(g) Treatment of Previously Exempt Organizations.--
            ``(1) In general.--For purposes of this section, the status 
        of any organization as an applicable tax-exempt organization 
        shall be terminated only if--
                    ``(A)(i) such organization notifies the Secretary 
                (at such time and in such manner as the Secretary may 
                by regulations prescribe) of its intent to accomplish 
                such termination, or
                    ``(ii) there is a final determination by the 
                Secretary that such status has terminated, and
                    ``(B)(i) such organization pays the tax imposed by 
                paragraph (2) (or any portion not abated pursuant to 
                paragraph (3)), or
                    ``(ii) the entire amount of such tax is abated 
                pursuant to paragraph (3).
            ``(2) Imposition of tax.--There is hereby imposed on each 
        organization referred to in paragraph (1) a tax equal to the 
        lesser of--
                    ``(A) the amount which the organization 
                substantiates by adequate records or other 
                corroborating evidence as the aggregate tax benefit 
                resulting from its exemption from tax under section 
                501(a), or
                    ``(B) the value of the net assets of such 
                organization.
            ``(3) Abatement of tax.--The Secretary may abate the unpaid 
        portion of the assessment of any tax imposed by paragraph (2), 
        or any liability in respect thereof, if the applicable tax-
        exempt organization distributes all of its net assets to 1 or 
        more organizations each of which has been in existence, and 
        described in section 501(c)(3), for a continuous period of at 
        least 60 calendar months. If the distributing organization is 
        described in section 501(c)(4), the preceding sentence shall be 
        applied by treating the reference to section 501(c)(3) as 
        including a reference to section 501(c)(4).
            ``(4) Certain rules made applicable.--Rules similar to the 
        rules of subsections (d), (e), and (f) of section 507 shall 
        apply for purposes of this subsection.''
    (b) Application of Private Inurement Rule to Tax-Exempt 
Organizations Described in Section 501(c)(4).--Paragraph (4) of section 
501(c) is amended by inserting ``(A)'' after ``(4)'' and by adding at 
the end the following:
            ``(B) Subparagraph (A) shall not apply to an entity unless 
        no part of the net earnings of such entity inures to the 
        benefit of any private shareholder or individual.''
    (c) Technical and Conforming Amendments.--
            (1) Subsection (e) of section 4955 is amended--
                    (A) by striking ``Section 4945'' in the heading and 
                inserting ``Sections 4945 and 4958'', and
                    (B) by inserting before the period ``or an excess 
                benefit for purposes of section 4958''.
            (2) Subsections (a), (b), and (c) of section 4963 are each 
        amended by inserting ``4958,'' after ``4955,''.
            (3) Subsection (e) of section 6213 is amended by inserting 
        ``4958 (relating to private excess benefit),'' before ``4971''.
            (4) Paragraphs (2) and (3) of section 7422(g) are each 
        amended by inserting ``4958,'' after ``4955,''.
            (5) Subsection (b) of section 7454 is amended by inserting 
        ``or whether an organization manager (as defined in section 
        4958(f)(2)) has `knowingly' participated in an excess benefit 
        transaction (as defined in section 4958(c)),'' after ``section 
        4912(b),''.
            (6) The table of subchapters for chapter 42 is amended by 
        striking the last item and inserting the following:

                              ``Subchapter D. Failure by certain 
                                        charitable organizations to 
                                        meet certain qualification 
                                        requirements.
                              ``Subchapter E. Abatement of first and 
                                        second tier taxes in certain 
                                        cases.''

    (d) Effective Dates.--
            (1) In general.--The amendments made by this section (other 
        than subsection (b)) shall apply to excess benefit transactions 
        occurring on or after September 14, 1995.
            (2) Binding contracts for personal services.--The 
        amendments referred to in paragraph (1) shall not apply to any 
        transaction pursuant to any written contract for the 
        performance of personal services which was binding on September 
        13, 1995, and at all times thereafter before such transaction 
        occurred.
            (3) Application of private inurement rule to tax-exempt 
        organizations described in section 501(c)(4).--
                    (A) In general.--The amendment made by subsection 
                (b) shall apply to inurement occurring on or after 
                September 14, 1995.
                    (B) Binding contracts.--The amendment made by 
                subsection (b) shall not apply to any inurement 
                occurring before January 1, 1997, pursuant to a written 
                contract which was binding on September 13, 1995, and 
                at all times thereafter before such inurement occurred.

SEC. 13647. REPORTING OF CERTAIN EXCISE TAXES AND OTHER INFORMATION.

    (a) Reporting By Organizations Described in Section 501(c)(3).--
Subsection (b) of section 6033 (relating to certain organizations 
described in section 501(c)(3)) is amended by striking ``and'' at the 
end of paragraph (9), by redesignating paragraph (10) as paragraph 
(14), and by inserting after paragraph (9) the following new 
paragraphs:
            ``(10) the respective amounts (if any) of the taxes paid by 
        the organization during the taxable year under the following 
        provisions:
                    ``(A) section 4911 (relating to tax on excess 
                expenditures to influence legislation),
                    ``(B) section 4912 (relating to tax on 
                disqualifying lobbying expenditures of certain 
                organizations), and
                    ``(C) section 4955 (relating to taxes on political 
                expenditures of section 501(c)(3) organizations),
            ``(11) the respective amounts (if any) of the taxes paid by 
        the organization or any disqualified person during the taxable 
        year under section 4958 (relating to taxes on private excess 
        benefit from certain charitable organizations),
            ``(12) such information as the Secretary may require with 
        respect to any excess benefit transaction (as defined in 
        section 4958),
            ``(13) the name of each disqualified person who receives an 
        economic benefit from an applicable tax-exempt organization (as 
        defined in section 4958(e)) and such other information as the 
        Secretary may prescribe with respect to such benefit, and''.
    (b) Organizations Described in Section 501(c)(4).--Section 6033 is 
amended by redesignating subsection (f) as subsection (g) and by 
inserting after subsection (e) the following new subsection:
    ``(f) Certain Organizations Described in Section 501(c)(4).--Every 
organization described in section 501(c)(4) which is subject to the 
requirements of subsection (a) shall include on the return required 
under subsection (a) the information referred to in paragraphs (10), 
(11), (12) and (13) of subsection (b) with respect to such 
organization.''
    (c) Effective Date.--The amendments made by this section shall 
apply to returns for taxable years beginning after the date of the 
enactment of this Act.

SEC. 13648. EXEMPT ORGANIZATIONS REQUIRED TO PROVIDE COPY OF RETURN.

    (a) General Rule.--
            (1) Subparagraph (A) of section 6104(e)(1) (relating to 
        public inspection of annual returns) is amended to read as 
        follows:
                    ``(A) In general.--During the 3-year period 
                beginning on the filing date--
                            ``(i) a copy of the annual return filed 
                        under section 6033 (relating to returns by 
                        exempt organizations) by any organization to 
                        which this paragraph applies shall be made 
                        available by such organization for inspection 
                        during regular business hours by any individual 
                        at the principal office of such organization 
                        and, if such organization regularly maintains 1 
                        or more regional or district offices having 3 
                        or more employees, at each such regional or 
                        district office, and
                            ``(ii) upon request of an individual made 
                        at such principal office or such a regional or 
                        district office, a copy of such annual return 
                        shall be provided to such individual without 
                        charge other than a reasonable fee for any 
                        reproduction and mailing costs.
                If the request under clause (ii) is made in person, 
                such copy shall be provided immediately and, if made 
                other than in person, shall be provided within 30 
                days.''
            (2) Clause (ii) of section 6104(e)(2)(A) is amended by 
        inserting before the period at the end thereof the following: 
        ``(and, upon request of an individual made at such principal 
        office or such a regional or district office, a copy of the 
        material required to be available for inspection under this 
        subparagraph shall be provided (in accordance with the last 
        sentence of paragraph (1)(A)) to such individual without charge 
        other than a reasonable fee for any reproduction and mailing 
        costs)''.
            (3) Subsection (e) of section 6104 is amended by adding at 
        the end the following new paragraph:
            ``(3) Limitation.--Paragraph (1)(A)(ii) (and the 
        corresponding provision of paragraph (2)) shall not apply to 
        any request if the Secretary determines, upon application by an 
        organization, that such request is part of a harassment 
        campaign and that compliance with such request is not in the 
        public interest.''
    (b) Advertisements Etc., Required to Disclose Availability of 
Annual Return.--
            (1) Paragraph (1) of section 6104(e) is amended by adding 
        at the end thereof the following new subparagraph:
                    ``(E) Advertisements etc., required to disclose 
                availability of annual return.--In the case of an 
                organization required by subparagraph (A) to provide a 
                copy of its annual return under section 6033 upon 
                request to individuals, each written advertisement or 
                solicitation by (or on behalf of) such organization 
                shall contain an express statement (in a conspicuous 
                and easily recognizable format) that such return shall 
                be provided to individuals upon request.''
            (2) Section 6716, as added by section 13649 of this title, 
        is amended--
                    (A) by striking ``section 6116'' each place it 
                appears and inserting ``section 6116 or section 
                6104(e)(1)(E)'',
                    (B) by striking ``$1,000'' in subsection (a) and 
                inserting ``$1,000 ($100 in the case of a failure to 
                meet the requirements of 6104(e)(1)(E))'', and
                    (C) by inserting before the period at the end of 
                the section heading ``; failure of certain exempt 
                organizations to disclose availability of annual 
                return''.
            (3) Subparagraph (C) of section 6652(c)(1) is amended by 
        striking ``(e)(1)'' and inserting ``(e)(1) (other than 
        subparagraph (E))'', by striking ``$10'' and inserting ``$20'', 
        and by striking ``$5,000'' and inserting ``$10,000''.
            (4) Subparagraph (D) of section 6652(c)(1) is amended by 
        striking ``$10'' and inserting ``$20''.
            (5) The item relating to section 6716 in the table of 
        sections for part I of subchapter B of chapter 68 is amended by 
        inserting before the period ``; failure of certain exempt 
        organizations to disclose availability of annual return''.
    (c) Increase in Penalty for Willful Failure To Allow Public 
Inspection of Certain Returns, Etc.--Section 6685 is amended by 
striking ``$1,000'' and inserting ``$5,000''.
    (d) Copies of Returns of Exempt Organizations Available From 
Secretary in Certain Cases.--Subsection (b) of section 6104 is amended 
to read as follows:
    ``(b) Inspection of Annual Information Returns.--
            ``(1) In general.--The information required to be furnished 
        by sections 6033, 6034, and 6058, together with the names and 
        addresses of such organizations and trusts, shall be made 
        available to the public at such times and in such places as the 
        Secretary may prescribe. Nothing in this subsection shall 
        authorize the Secretary to disclose the name or address of any 
        contributor to any organization or trust (other than a private 
        foundation, as defined in section 509(a)) which is required to 
        furnish such information.
            ``(2) Copies provided of returns filed under section 6033 
        and applications filed under section 508 in certain cases.--The 
        Secretary shall provide copies of returns filed under section 
        6033 and applications for exemption filed under section 508 by 
        any organization to which subsection (d) or (e)(1) applies to 
        any person who agrees (subject to such conditions as the 
        Secretary shall prescribe)--
                    ``(A) to accept broad categories of such returns 
                and applications, and
                    ``(B) to provide electronic access to the provided 
                returns and applications on an electronic network 
                available to the general public.
        Such copies shall be provided without charge if such person 
        agrees to provide such access without charge. Otherwise, the 
        Secretary may impose a reasonable fee for any reproduction and 
        mailing costs.
            ``(3) Returns and applications filed before 1996.--
        Paragraph (2) shall apply to returns and applications filed 
        before January 1, 1996, only to the extent provided by the 
        Secretary.''
    (e) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1996 (or, if later, the 90th day after the date of 
the enactment of this Act).

SEC. 13649. CERTAIN ORGANIZATIONS REQUIRED TO DISCLOSE NONEXEMPT 
                    STATUS.

    (a) General Rule.--Subchapter B of chapter 61 (relating to 
miscellaneous provisions) is amended by redesignating section 6116 as 
section 6117 and by inserting after section 6115 the following new 
section:

``SEC. 6116. CERTAIN ORGANIZATIONS REQUIRED TO DISCLOSE NONEXEMPT 
                    STATUS.

    ``(a) In General.--If--
            ``(1) in an advertisement or solicitation by (or on behalf 
        of) an organization, such organization is referred to as being 
        nonprofit, and
            ``(2) such organization is not exempt from tax under 
        subtitle A,
such advertisement or solicitation shall contain an express statement 
(in a conspicuous and easily recognizable format) that such 
organization is not exempt from Federal income taxes.
    ``(b) Cross Reference.--

                  ``For penalties for violation of subsection (a), see 
section 6716.''

    (b) Penalty.--Part I of subchapter B of chapter 68 is amended by 
adding at the end thereof the following new section:

``SEC. 6716. FAILURE TO DISCLOSE NONEXEMPT STATUS.

    ``(a) Imposition of Penalty.--If there is a failure to meet the 
requirements of section 6116 with respect to any advertisement or 
solicitation by (or on behalf of) an organization, such organization 
shall pay a penalty of $1,000 for each day on which such a failure 
occurred. The maximum penalty imposed under this subsection on failures 
by any organization during any calendar year shall not exceed $10,000.
    ``(b) Reasonable Cause Exemption.--No penalty shall be imposed 
under this section with respect to any failure if it is shown that such 
failure is due to reasonable cause.
    ``(c) $10,000 Limitation Not To Apply Where Intentional 
Disregard.--If any failure to which subsection (a) applies is due to 
intentional disregard of the requirements of section 6116--
            ``(1) the penalty under subsection (a) for the day on which 
        failure occurred shall be the greater of--
                    ``(A) $1,000, or
                    ``(B) 50 percent of the aggregate cost of the 
                advertisements and solicitations which occurred on such 
                day and with respect to which there was such failure,
            ``(2) the $10,000 limitation of subsection (a) shall not 
        apply to any penalty under subsection (a) for the day on which 
        such failure occurred, and
            ``(3) such penalty shall not be taken into account in 
        applying such limitation to other penalties under subsection 
        (a).
    ``(d) Day on Which Failure Occurs.--For purposes of this section, 
rules similar to the rules of section 6710(d) shall apply in 
determining the day on which any failure occurs.''
    (c) Clerical Amendments.--
            (1) The table of sections for subchapter B of chapter 61 is 
        amended by striking the item relating to section 6116 and 
        inserting the following:

                                  ``Sec. 6116. Certain organizations 
                                        required to disclose nonexempt 
                                        status.
                                  ``Sec. 6117. Cross reference.''

            (2) The table of sections of part I of subchapter B of 
        chapter 68 is amended by adding at the end thereof the 
        following new item:

                                  ``Sec. 6716. Failure to disclose 
                                        nonexempt status.''

    (d) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1996 (or, if later, the 90th day after the date of 
the enactment of this Act).

SEC. 13650. INCREASE IN PENALTIES ON EXEMPT ORGANIZATIONS FOR FAILURE 
                    TO FILE COMPLETE AND TIMELY ANNUAL RETURNS.

    (a) In General.--Subparagraph (A) of section 6652(c)(1) (relating 
to annual returns under section 6033) is amended by striking ``$10'' 
and inserting ``$20'' and by striking ``$5,000'' and inserting 
``$10,000''.
    (b) Larger Penalty on Organizations Having Gross Receipts in Excess 
of $1,000,000.--Subparagraph (A) of section 6652(c)(1) is amended by 
adding at the end the following new sentence: ``In the case of an 
organization having gross receipts exceeding $1,000,000 for any year, 
with respect to the return required under section 6033 for such year, 
the first sentence of this subparagraph shall be applied by 
substituting `$100' for `$20' and, in lieu of applying the second 
sentence of this subparagraph, the maximum penalty under this 
subparagraph shall not exceed $50,000.''
    (c) Effective Date.--The amendments made by this section shall 
apply to returns for taxable years ending on or after December 31, 
1995.

SEC. 13651. STUDIES.

    (a) In General.--The Secretary of the Treasury or his delegate 
shall conduct a study of--
            (1) whether the statutory prohibition on private inurement, 
        and the provisions of section 4958 of the Internal Revenue Code 
        of 1986 (as added by this part), should apply to other tax-
        exempt organizations,
            (2) whether State officials responsible for overseeing 
        charitable organizations should be provided with Federal tax 
        information in addition to the information available under 
        section 6103 of such Code for purposes of such oversight, and
            (3) whether the return required to be filed by section 6033 
        of such Code should be modified to assure the return's utility 
        to such Secretary and to the public and to reduce any 
        unnecessary reporting burdens.
    (b) Report.--Not later than January 1, 1997, the report of such 
study shall be submitted to the Committee on Ways and Means of the 
House of Representatives and the Committee on Finance of the Senate.

           Subtitle G--Reform of the Earned Income Tax Credit

SEC. 13701. REPEAL OF EARNED INCOME CREDIT FOR INDIVIDUALS WITHOUT 
                    QUALIFYING CHILDREN; MODIFICATIONS TO CREDIT 
                    PHASEOUT.

    (a) Repeal of Credit for Individuals Without Children.--
Subparagraph (A) of section 32(c)(1) (defining eligible individual) is 
amended to read as follows:
                    ``(A) In general.--The term `eligible individual' 
                means any individual who has a qualifying child for the 
                taxable year.''
    (b) Modifications to Phaseout.--
            (1) Subsection (b) of section 32 is amended to read as 
        follows:
    ``(b) Percentages.--
            ``(1) In general.--The credit percentage and the phaseout 
        percentage shall be determined as follows:


                                                                                                                
    ``In the case of an eligible                                                                                
          individual with:                 The credit percentage is:            The phaseout percentage is:     
                                                                                                                
1 qualifying child.................  34..................................                    18                 
2 or more qualifying children......  40..................................                    23                 
                                                                                                                


            ``(2) Amounts.--The earned income amount and the phaseout 
        amount shall be determined as follows:


                                                                                                                
    ``In the case of an eligible                                                                                
          individual with:               The earned income amount is:             The phaseout amount is:       
                                                                                                                
1 qualifying child.................  $6,340..............................                 $11,630               
2 or more qualifying children......  $8,910..............................                $11,630.''             
                                                                                                                


            (2) Subsection (j) of section 32 is amended--
                    (A) by striking ``subsection (b)(2)(A)'' and 
                inserting ``subsection (b)(2)'',
                    (B) by striking ``1994'' and inserting ``1996'', 
                and
                    (C) by striking ``1993'' and inserting ``1995''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 13702. MODIFICATION OF ADJUSTED GROSS INCOME USED FOR PHASEOUT.

    (a) In General.--Subsections (a)(2)(B), (c)(1)(C), and (f)(2)(B) of 
section 32 are each amended by striking ``adjusted gross income'' each 
place it appears and inserting ``modified adjusted gross income''.
    (b) Modified Adjusted Gross Income.--Subsection (c) of section 32 
is amended by adding at the end the following new paragraph:
            ``(5) Modified adjusted gross income.--For purposes of this 
        section, the term `modified adjusted gross income' means 
        adjusted gross income increased by--
                    ``(A) any amount received as a pension or annuity, 
                and any distribution or payment received from an 
                individual retirement plan, by the taxpayer during the 
                taxable year to the extent not otherwise included in 
                gross income, and
                    ``(B) the social security benefits (as defined in 
                section 86(d)) received by the taxpayer during the 
                taxable year to the extent not included in gross 
                income.
        Any amount which is not includible in gross income by reason of 
        paragraph (3), (4), or (5) of section 408(d) or section 402(c), 
        403(a)(4), 403(b)(8), or 457(e)(10) shall be treated as not 
        described in subparagraph (A).''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 13703. EARNED INCOME TAX CREDIT DENIED TO INDIVIDUALS NOT 
                    AUTHORIZED TO BE EMPLOYED IN THE UNITED STATES.

    (a) In General.--Section 32(c)(1) (relating to individuals eligible 
to claim the earned income tax credit) is amended by adding at the end 
the following new subparagraph:
                    ``(F) Identification number requirement.--The term 
                `eligible individual' does not include any individual 
                who does not include on the return of tax for the 
                taxable year--
                            ``(i) such individual's taxpayer 
                        identification number, and
                            ``(ii) if the individual is married (within 
                        the meaning of section 7703), the taxpayer 
                        identification number of such individual's 
                        spouse.''
    (b) Special Identification Number.--Section 32 is amended by adding 
at the end the following new subsection:
    ``(l) Identification Numbers.--Solely for purposes of subsections 
(c)(1)(F) and (c)(3)(D), a taxpayer identification number means a 
social security number issued to an individual by the Social Security 
Administration (other than a social security number issued pursuant to 
clause (II) (or that portion of clause (III) that relates to clause 
(II)) of section 205(c)(2)(B)(i) of the Social Security Act).''
    (c) Extension of Procedures Applicable to Mathematical or Clerical 
Errors.--Section 6213(g)(2) (relating to the definition of mathematical 
or clerical errors) is amended by striking ``and' at the end of 
subparagraph (D), by striking the period at the end of subparagraph (E) 
and inserting a comma, and by inserting after subparagraph (E) the 
following new subparagraphs:
                    ``(F) an omission of a correct taxpayer 
                identification number required under section 32 
                (relating to the earned income tax credit) to be 
                included on a return, and
                    ``(G) an entry on a return claiming the credit 
                under section 32 with respect to net earnings from 
                self-employment described in section 32(c)(2)(A) to the 
                extent the tax imposed by section 1401 (relating to 
                self-employment tax) on such net earnings has not been 
                paid.''
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

               Subtitle H--Increase in Public Debt Limit

SEC. 13801. INCREASE IN PUBLIC DEBT LIMIT.

    Subsection (b) of section 3101 of title 31, United States Code, is 
amended by striking the dollar amount contained therein and inserting 
``$5,500,000,000,000''.

            Subtitle I--Coal Industry Retiree Health Equity

SEC. 13901. REPEAL OF REACHBACK PROVISIONS OF COAL INDUSTRY HEALTH 
                    BENEFIT SYSTEM.

    (a) Amendments Related to Definitions.--
            (1) Agreements.--
                    (A) In general.--Paragraph (1) of section 9701(b) 
                (relating to agreements) is amended to read as follows:
            ``(1) Coal wage agreements.--
                    ``(A) 1988 agreement.--The term `1988 agreement' 
                means the collective bargaining agreement between the 
                settlors which became effective on February 1, 1988.
                    ``(B) Coal wage agreement.--The term `coal wage 
                agreement' means any predecessor to the 1988 
                agreement.''
                    (B) Conforming amendment.--Section 9701(b) is 
                amended by striking paragraph (3).
            (2) Operators.--
                    (A) Signatory operator.--Paragraph (1) of section 
                9701(c) (relating to operators) is amended to read as 
                follows:
            ``(1) Signatory operator.--The term `signatory operator' 
        means a 1988 agreement operator.''
                    (B) 1988 agreement operator.--Paragraph (3) of 
                section 9701(c) is amended to read as follows:
            ``(3) 1988 agreement operator.--The term `1988 agreement 
        operator' means--
                    ``(A) an operator which was a signatory to the 1988 
                agreement, or
                    ``(B) a person in business which, during the term 
                of the 1988 agreement, was a signatory to an agreement 
                (other than the National Coal Mine Construction 
                Agreement and the Coal Haulers' Agreement) containing 
                pension and health care contribution and benefit 
                provisions which are the same as those contained in the 
                1988 agreement.
        Such term shall not include any operator who was assessed, and 
        did pay the full amount of, contractual withdrawal liability to 
        the 1950 UMWA Benefit Plan, the 1974 UMWA Benefit Plan, or the 
        Combined Fund.''
                    (C) Last signatory operator.--Section 9701(c)(4) is 
                amended by inserting ``bituminous'' before ``coal'' 
                each place it appears.
    (b) Combined Benefit Fund.--Section 9702(b)(1) is amended to read 
as follows:
    ``(b) Board of Trustees.--
            ``(1) In general.--For purposes of subsection (a), the 
        board of trustees for the Combined Fund shall be appointed as 
        follows:
                    ``(A) two individuals who represent employers in 
                the coal mining industry shall be designated by the 
                BCOA;
                    ``(B) two individuals designated by the United Mine 
                Workers of America; and
                    ``(C) three persons selected by the persons 
                appointed under subparagraphs (A) and (B).''
    (c) Assignment of Eligible Beneficiaries.--Subsection (a) of 
section 9706 is amended by adding at the end the following new flush 
sentence:
``For purposes of assessing premiums on or after October 1, 1995, under 
this chapter, the Commissioner of Social Security shall, effective 
October 1, 1995, revoke all assignments previously made (and shall make 
no further assignments and shall terminate all unpaid liabilities for 
any pending assignments) to all persons other than signatory operators 
and shall deem each affected coal industry retiree who is an eligible 
beneficiary to be an unassigned beneficiary under section 9706. The 
preceding sentence shall not be construed to prevent any transfer, or 
any treatment of a successor as an assigned operator, under subsection 
(b)(2).''
    (d) 1992 UMWA Benefit Plan.--Section 9712(d) is amended--
            (1) by striking paragraph (3) and by redesignating 
        paragraphs (4), (5), and (6) as paragraphs (3), (4), and (5), 
        respectively, and
            (2) by striking ``or last signatory operator described in 
        paragraph (3),'' in paragraph (3) (as redesignated under 
        paragraph (1)).
    (e) Information Requirements.--
            (1) In general.--Subsection (h) of section 9704 is amended 
        by adding at the end the following new paragraph:
            ``(2) Information to contributors.--
                    ``(A) In general.--The trustees of the Combined 
                Fund shall, within 30 days of a written request, make 
                available to any person required to make contributions 
                to the Combined Fund, or their agent--
                            ``(i) all documents which reflect its 
                        financial and operational status, including 
                        documents under which it is operated, and
                            ``(ii) all documents prepared at the 
                        request of the trustees or staff of the 
                        Combined Fund which form the basis for any of 
                        its actions or reports, including the 
                        eligibility of participants in predecessor 
                        plans.
                    ``(B) Fees.--The trustees may charge reasonable 
                fees (not in excess of actual expenses) for providing 
                documents under this paragraph.''
            (2) Conforming amendment.--Subsection (h) of section 9704 
        is amended by striking ``(h) Information.--The'' and inserting 
        the following:
    ``(h) Information.--
            ``(1) Information to secretary.--The''.
    (f) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after September 30, 1995.

       TITLE XIV--COMMITTEE ON WAYS AND MEANS--TAX SIMPLIFICATION

SEC. 14001. SHORT TITLE; AMENDMENT TO 1986 CODE.

    (a) Short Title.--This title may be cited as the ``Tax 
Simplification Act of 1995''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this title an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--The table of contents for this title is as 
follows:

       TITLE XIV--COMMITTEE ON WAYS AND MEANS--TAX SIMPLIFICATION

Sec. 14001. Short title; amendment to 1986 Code.

             Subtitle A--Provisions Relating to Individuals

 Part I--Provisions Relating to Rollover of Gain on Sale of Principal 
                               Residence

Sec. 14101. Multiple sales within rollover period.
Sec. 14102. Special rules in case of divorce.
Sec. 14103. One-time exclusion of gain from sale of principal residence 
for certain spouses.

                       Part II--Other Provisions

Sec. 14111. Payment of tax by commercially acceptable means.
Sec. 14112. Simplified foreign tax credit limitation for individuals.
Sec. 14113. Treatment of personal transactions by individuals under 
foreign currency rules.
Sec. 14114. Treatment of certain reimbursed expenses of rural mail 
carriers.
Sec. 14115. Exclusion of combat pay from withholding limited to amount 
excludable from gross income.
Sec. 14116. Treatment of traveling expenses of certain Federal 
employees engaged in criminal investigations.

                   Subtitle B--Pension Simplification

                 Part I--Simplified Distribution Rules

Sec. 14201. Repeal of 5-year income averaging for lump-sum 
distributions.
Sec. 14202. Repeal of $5,000 exclusion of employees' death benefits.
Sec. 14203. Simplified method for taxing annuity distributions under 
certain employer plans.
Sec. 14204. Required distributions.

               Part II--Increased Access to Pension Plans

Sec. 14211. Modifications of simplified employee pensions.
Sec. 14212. State and local governments and tax-exempt organizations 
eligible under section 401(k).

                 Part III--Nondiscrimination Provisions

Sec. 14221. Definition of highly compensated employees.
Sec. 14222. Repeal of family aggregation rules.
Sec. 14223. Modification of additional participation requirements.
Sec. 14224. Nondiscrimination rules for qualified cash or deferred 
arrangements and matching contributions.

                 Part IV--Miscellaneous Simplification

Sec. 14231. Treatment of leased employees.
Sec. 14232. Plans covering self-employed individuals.
Sec. 14233. Elimination of special vesting rule for multiemployer 
plans.
Sec. 14234. Distributions under rural cooperative plans.
Sec. 14235. Treatment of governmental plans under section 415.
Sec. 14236. Uniform retirement age.
Sec. 14237. Uniform penalty provisions to apply to certain pension 
reporting requirements.
Sec. 14238. Contributions on behalf of disabled employees.
Sec. 14239. Treatment of deferred compensation plans of State and local 
governments and tax-exempt organizations.
Sec. 14240. Trust requirement for deferred compensation plans of State 
and local governments.
Sec. 14241. Transition rule for computing maximum benefits under 
section 415 limitations.
Sec. 14242. Multiple salary reduction agreements permitted under 
section 403(b).
Sec. 14243. Waiver of minimum period for joint and survivor annuity 
explanation before annuity starting date.
Sec. 14244. Repeal of limitation in case of defined benefit plan and 
defined contribution plan for same employee.
Sec. 14245. Date for adoption of plan amendments.

              Subtitle C--Treatment of Large Partnerships

                       Part I--General Provisions

Sec. 14301. Simplified flow-through for large partnerships.
Sec. 14302. Simplified audit procedures for large partnerships.
Sec. 14303. Due date for furnishing information to partners of large 
partnerships.
Sec. 14304. Returns may be required on magnetic media.
Sec. 14305. Treatment of partnership items of individual retirement 
accounts.
Sec. 14306. Effective date.

     Part II--Provisions Related to Certain Partnership Proceedings

Sec. 14311. Treatment of partnership items in deficiency proceedings.
Sec. 14312. Partnership return to be determinative of audit procedures 
to be followed.
Sec. 14313. Provisions relating to statute of limitations.
Sec. 14314. Expansion of small partnership exception.
Sec. 14315. Exclusion of partial settlements from 1-year limitation on 
assessment.
Sec. 14316. Extension of time for filing a request for administrative 
adjustment.
Sec. 14317. Availability of innocent spouse relief in context of 
partnership proceedings.
Sec. 14318. Determination of penalties at partnership level.
Sec. 14319. Provisions relating to court jurisdiction, etc.
Sec. 14320. Treatment of premature petitions filed by notice partners 
or 5-percent groups.
Sec. 14321. Bonds in case of appeals from certain proceeding.
Sec. 14322. Suspension of interest where delay in computational 
adjustment resulting from certain settlements.
Sec. 14323. Special rules for administrative adjustment requests with 
respect to bad debts or worthless securities.

                     Subtitle D--Foreign Provisions

   Part I--Modifications to Treatment of Passive Foreign Investment 
                               Companies

Sec. 14401. United States shareholders of controlled foreign 
corporations not subject to PFIC inclusion.
Sec. 14402. Election of mark to market for marketable stock in passive 
foreign investment company.
Sec. 14403. Modifications to definition of passive income.
Sec. 14404. Effective date.

         Part II--Treatment of Controlled Foreign Corporations

Sec. 14411. Gain on certain stock sales by controlled foreign 
corporations treated as dividends.
Sec. 14412. Miscellaneous modifications to subpart F.
Sec. 14413. Indirect foreign tax credit allowed for certain lower tier 
companies.
Sec. 14414. Repeal of inclusion of certain earnings invested in excess 
passive assets.

                       Part III--Other Provisions

Sec. 14421. Exchange rate used in translating foreign taxes.
Sec. 14422. Election to use simplified section 904 limitation for 
alternative minimum tax.
Sec. 14423. Modification of section 1491.
Sec. 14424. Modification of section 367(b).
Sec. 14425. Increase in filing thresholds for returns as to 
organization of foreign corporations and acquisitions of stock in such 
corporations.
Sec. 14426. Application of uniform capitalization rules to foreign 
persons.
Sec. 14427. Certain prizes and awards.
Sec. 14428. Treatment for estate tax purposes of short-term obligations 
held by nonresident aliens.

                Subtitle E--Other Income Tax Provisions

             Part I--Provisions Relating to S Corporations

Sec. 14501. S corporations permitted to have 75 shareholders.
Sec. 14502. Electing small business trusts.
Sec. 14503. Expansion of post-death qualification for certain trusts.
Sec. 14504. Financial institutions permitted to hold safe harbor debt.
Sec. 14505. Rules relating to inadvertent terminations and invalid 
elections.
Sec. 14506. Agreement to terminate year.
Sec. 14507. Expansion of post-termination transition period.
Sec. 14508. S corporations permitted to hold subsidiaries.
Sec. 14509. Treatment of distributions during loss years.
Sec. 14510. Treatment of S corporations under subchapter C.
Sec. 14511. Elimination of certain earnings and profits.
Sec. 14512. Carryover of disallowed losses and deductions under at-risk 
rules allowed.
Sec. 14513. Adjustments to basis of inherited S stock to reflect 
certain items of income.
Sec. 14514. S corporations eligible for rules applicable to real 
property subdivided for sale by noncorporate taxpayers.
Sec. 14515. Effective date.

     Part II--Provisions Relating to Regulated Investment Companies

Sec. 14521. Repeal of 30-percent gross income limitation.

     Part III--Provisions Relating to Real Estate Investment Trusts

Sec. 14531. Clarification of limitation on maximum number of 
shareholders.
Sec. 14532. De minimis rule for tenant services income.
Sec. 14533. Attribution rules applicable to tenant ownership.
Sec. 14534. Credit for tax paid by REIT on retained capital gains.
Sec. 14535. Repeal of 30-percent gross income requirement.
Sec. 14536. Modification of earnings and profits rules for determining 
whether REIT has earnings and profits from non-REIT year.
Sec. 14537. Treatment of foreclosure property.
Sec. 14538. Payments under hedging instruments.
Sec. 14539. Excess noncash income.
Sec. 14540. Prohibited transaction safe harbor.
Sec. 14541. Shared appreciation mortgages.
Sec. 14542. Wholly owned subsidiaries.
Sec. 14543. Effective date.

                     Part IV--Accounting Provisions

Sec. 14551. Modifications to look-back method for long-term contracts.
Sec. 14552. Application of mark to market accounting method to traders 
in securities.
Sec. 14553. Modification of ruling amounts for nuclear decommissioning 
costs.
Sec. 14554. Election of alternative taxable years by partnerships and S 
corporations.
Sec. 14555. Special rule for crop insurance proceeds and disaster 
payments.

                   Part V--Tax-Exempt Bond Provisions

Sec. 14561. Repeal of $100,000 limitation on unspent proceeds under 1-
year exception from rebate.
Sec. 14562. Exception from rebate for earnings on bona fide debt 
service fund under construction bond rules.
Sec. 14563. Repeal of debt service-based limitation on investment in 
certain nonpurpose investments.
Sec. 14564. Repeal of expired provisions.
Sec. 14565. Effective dates.

                     Part VI--Insurance Provisions

Sec. 14571. Treatment of certain insurance contracts on retired lives.
Sec. 14572. Treatment of modified guaranteed contracts.
Sec. 14573. Minimum tax treatment of certain property and casualty 
insurance companies.

                       Part VII--Other Provisions

Sec. 14581. Closing of partnership taxable year with respect to 
deceased partner, etc.
Sec. 14582. Credit for Social Security taxes paid with respect to 
employee cash tips.
Sec. 14583. Due date for first quarter estimated tax payments by 
private foundations.
Sec. 14584. Treatment of dues paid to agricultural or horticultural 
organizations.

                     Subtitle F--Estates and Trusts

                     Part I--Income Tax Provisions

Sec. 14601. Certain revocable trusts treated as part of estate.
Sec. 14602. Distributions during first 65 days of taxable year of 
estate.
Sec. 14603. Separate share rules available to estates.
Sec. 14604. Executor of estate and beneficiaries treated as related 
persons for disallowance of losses, etc.
Sec. 14605. Limitation on taxable year of estates.
Sec. 14606. Repeal of certain throwback rules applicable to domestic 
trusts.
Sec. 14607. Treatment of funeral trusts.

                Part II--Estate and Gift Tax Provisions

Sec. 14611. Clarification of waiver of certain rights of recovery.
Sec. 14612. Adjustments for gifts within 3 years of decedent's death.
Sec. 14613. Clarification of qualified terminable interest rules.
Sec. 14614. Transitional rule under section 2056A.
Sec. 14615. Opportunity to correct certain failures under section 
2032A.
Sec. 14616. Unified credit of decedent increased by unified credit of 
spouse used on split gift included in decedent's gross estate.
Sec. 14617. Reformation of defective bequests, etc. to spouse of 
decedent.
Sec. 14618. Gifts may not be revalued for estate tax purposes after 
expiration of statute of limitations.
Sec. 14619. Clarifications relating to disclaimers.
Sec. 14620. Clarification of treatment of survivor annuities under 
qualified terminable interest rules.
Sec. 14621. Treatment under qualified domestic trust rules of forms of 
ownership which are not trusts.
Sec. 14622. Authority to waive requirement of United States trustee for 
qualified domestic trusts.

              Part III--Generation-Skipping Tax Provisions

Sec. 14631. Severing of trusts holding property having an inclusion 
ratio of greater than zero.
Sec. 14632. Clarification of who is transferor where subsequent gift by 
reason of power of appointment.
Sec. 14633. Taxable termination not to include direct skips.
Sec. 14634. Expansion of exception from generation-skipping transfer 
tax for transfers to individuals with deceased parents.

                 Subtitle G--Excise Tax Simplification

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

Sec. 14701. Credit or refund for imported bottled distilled spirits 
returned to distilled spirits plant.
Sec. 14702. Authority to cancel or credit export bonds without 
submission of records.
Sec. 14703. Repeal of required maintenance of records on premises of 
distilled spirits plant.
Sec. 14704. Fermented material from any brewery may be received at a 
distilled spirits plant.
Sec. 14705. Repeal of requirement for wholesale dealers in liquors to 
post sign.
Sec. 14706. Refund of tax on wine returned to bond not limited to 
unmerchantable wine.
Sec. 14707. Use of additional ameliorating material in certain wines.
Sec. 14708. Domestically produced beer may be withdrawn free of tax for 
use of foreign embassies, legations, etc.
Sec. 14709. Beer may be withdrawn free of tax for destruction.
Sec. 14710. Authority to allow drawback on exported beer without 
submission of records.
Sec. 14711. Transfer to brewery of beer imported in bulk without 
payment of tax.

          Part II--Consolidation of Taxes on Aviation Gasoline

Sec. 14721. Consolidation of taxes on aviation gasoline.

                 Part III--Other Excise Tax Provisions

Sec. 14731. Authority to grant exemptions from registration 
requirements.
Sec. 14732. Certain combinations not treated as manufacture under 
retail sales tax on heavy trucks.
Sec. 14733. Exemption from diesel fuel dyeing requirements with respect 
to certain States.
Sec. 14734. Repeal of expired provisions.

                 Subtitle H--Administrative Provisions

                       Part I--General Provisions

Sec. 14801. Repeal of authority to disclose whether prospective juror 
has been audited.
Sec. 14802. Clarification of statute of limitations.
Sec. 14803. Certain notices disregarded under provision increasing 
interest rate on large corporate underpayments.
Sec. 14804. Clarification of authority to withhold Puerto Rico income 
taxes from salaries of Federal employees.

                     Part II--Tax Court Procedures

Sec. 14811. Overpayment determinations of tax court.
Sec. 14812. Awarding of administrative costs.
Sec. 14813. Redetermination of interest pursuant to motion.
Sec. 14814. Application of net worth requirement for awards of 
litigation costs.

         Part III--Authority for Certain Cooperative Agreements

Sec. 14821. Cooperative agreements with State tax authorities.

             Subtitle A--Provisions Relating to Individuals

 PART I--PROVISIONS RELATING TO ROLLOVER OF GAIN ON SALE OF PRINCIPAL 
                               RESIDENCE

SEC. 14101. MULTIPLE SALES WITHIN ROLLOVER PERIOD.

    (a) General Rule.--
            (1) Section 1034 (relating to rollover of gain on sale of 
        principal residence) is amended by striking subsection (d).
            (2) Paragraph (4) of section 1034(c) is amended to read as 
        follows:
            ``(4) If the taxpayer, during the period described in 
        subsection (a), purchases more than 1 residence which is used 
        by him as his principal residence at some time within 2 years 
        after the date of the sale of the old residence, only the first 
        of such residences so used by him after the date of such sale 
        shall constitute the new residence.''
            (3) Subsections (h)(1) and (k) of section 1034 are each 
        amended by striking ``(other than the 2 years referred to in 
        subsection (c)(4))''.
    (b) Effective Date.--The amendments made by this section shall 
apply to sales of old residences (within the meaning of section 1034 of 
the Internal Revenue Code of 1986) after the date of the enactment of 
this Act.

SEC. 14102. SPECIAL RULES IN CASE OF DIVORCE.

    (a) In General.--Subsection (c) of section 1034 is amended by 
adding at the end the following new paragraph:
            ``(5) If--
                    ``(A) a residence is sold by an individual pursuant 
                to a divorce or marital separation, and
                    ``(B) the taxpayer used such residence as his 
                principal residence at any time during the 2-year 
                period ending on the date of such sale,
        for purposes of this section, such residence shall be treated 
        as the taxpayer's principal residence at the time of such 
        sale.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to sales of old residences (within the meaning of section 1034 of 
the Internal Revenue Code of 1986) after the date of the enactment of 
this Act.

SEC. 14103. ONE-TIME EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE 
                    FOR CERTAIN SPOUSES.

    (a) In General.--Paragraph (2) of section 121(b) (relating to one-
time exclusion of gain from sale of principal residence by individual 
who has attained age 55) is amended by adding at the end the following 
new sentence: ``For purposes of applying the preceding sentence to 
individuals who are married to each other, an election by one 
individual with respect to a sale or exchange occurring before the 
marriage shall be disregarded for purposes of permitting an election 
with respect to property owned and used by the other individual as his 
principal residence throughout the 3-year period ending on the date of 
the marriage.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply for purposes of determining whether an election may be made under 
section 121 of the Internal Revenue Code of 1986 with respect to a sale 
or exchange occurring after September 13, 1995.

                       PART II--OTHER PROVISIONS

SEC. 14111. PAYMENT OF TAX BY COMMERCIALLY ACCEPTABLE MEANS.

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

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

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

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

    (b) Clerical Amendment.--The table of sections for subchapter B of 
chapter 64 is amended by striking the item relating to section 6311 and 
inserting the following:

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

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

SEC. 14112. SIMPLIFIED FOREIGN TAX CREDIT LIMITATION FOR INDIVIDUALS.

    (a) General Rule.--Section 904 (relating to limitations on foreign 
tax credit) is amended by redesignating subsection (j) as subsection 
(k) and by inserting after subsection (i) the following new subsection:
    ``(j) Simplified Limitation for Certain Individuals.--
            ``(1) In general.--In the case of an individual to whom 
        this subsection applies for any taxable year, the limitation of 
        subsection (a) shall be the lesser of--
                    ``(A) 25 percent of such individual's gross income 
                for the taxable year from sources without the United 
                States, or
                    ``(B) the amount of the creditable foreign taxes 
                paid or accrued by the individual during the taxable 
                year (determined without regard to subsection (c)).
        No taxes paid or accrued by the individual during such taxable 
        year may be deemed paid or accrued in any other taxable year 
        under subsection (c).
            ``(2) Individuals to whom subsection applies.--This 
        subsection shall apply to an individual for any taxable year 
        if--
                    ``(A) the entire amount of such individual's gross 
                income for the taxable year from sources without the 
                United States consists of qualified passive income,
                    ``(B) the amount of the creditable foreign taxes 
                paid or accrued by the individual during the taxable 
                year does not exceed $200 ($400 in the case of a joint 
                return), and
                    ``(C) such individual elects to have this 
                subsection apply for the taxable year.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Qualified passive income.--The term 
                `qualified passive income' means any item of gross 
                income if--
                            ``(i) such item of income is passive income 
                        (as defined in subsection (d)(2)(A) without 
                        regard to clause (iii) thereof), and
                            ``(ii) such item of income is shown on a 
                        payee statement furnished to the individual.
                    ``(B) Creditable foreign taxes.--The term 
                `creditable foreign taxes' means any taxes for which a 
                credit is allowable under section 901; except that such 
                term shall not include any tax unless such tax is shown 
                on a payee statement furnished to such individual.
                    ``(C) Payee statement.--The term `payee statement' 
                has the meaning given to such term by section 
                6724(d)(2).
                    ``(D) Estates and trusts not eligible.--This 
                subsection shall not apply to any estate or trust.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1995.

SEC. 14113. TREATMENT OF PERSONAL TRANSACTIONS BY INDIVIDUALS UNDER 
                    FOREIGN CURRENCY RULES.

    (a) General Rule.--Subsection (e) of section 988 (relating to 
application to individuals) is amended to read as follows:
    ``(e) Application to Individuals.--
            ``(1) In general.--The preceding provisions of this section 
        shall not apply to any section 988 transaction entered into by 
        an individual which is a personal transaction.
            ``(2) Exclusion for certain personal transactions.--If--
                    ``(A) nonfunctional currency is disposed of by an 
                individual in any transaction, and
                    ``(B) such transaction is a personal transaction,
        no gain shall be recognized for purposes of this subtitle by 
        reason of changes in exchange rates after such currency was 
        acquired by such individual and before such disposition. The 
        preceding sentence shall not apply if the gain which would 
        otherwise be recognized exceeds $200.
            ``(3) Personal transactions.--For purposes of this 
        subsection, the term `personal transaction' means any 
        transaction entered into by an individual, except that such 
        term shall not include any transaction to the extent that 
        expenses properly allocable to such transaction meet the 
        requirements of section 162 or 212 (other than that part of 
        section 212 dealing with expenses incurred in connection with 
        taxes).''
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 14114. TREATMENT OF CERTAIN REIMBURSED EXPENSES OF RURAL MAIL 
                    CARRIERS.

    (a) In General.--Section 162 (relating to trade or business 
expenses) is amended by redesignating subsection (o) as subsection (p) 
and by inserting after subsection (n) the following new subsection:
    ``(o) Treatment of Certain Reimbursed Expenses of Rural Mail 
Carriers.--
            ``(1) General rule.--In the case of any employee of the 
        United States Postal Service who performs services involving 
        the collection and delivery of mail on a rural route and who 
        receives qualified reimbursements for the expenses incurred by 
        such employee for the use of a vehicle in performing such 
        services--
                    ``(A) the amount allowable as a deduction under 
                this chapter for the use of a vehicle in performing 
                such services shall be equal to the amount of such 
                qualified reimbursements; and
                    ``(B) such qualified reimbursements shall be 
                treated as paid under a reimbursement or other expense 
                allowance arrangement for purposes of section 
                62(a)(2)(A) (and section 62(c) shall not apply to such 
                qualified reimbursements).
            ``(2) Definition of qualified reimbursements.--For purposes 
        of this subsection, the term `qualified reimbursements' means 
        the amounts paid by the United States Postal Service to 
        employees as an equipment maintenance allowance under the 1991 
        collective bargaining agreement between the United States 
        Postal Service and the National Rural Letter Carriers' 
        Association. Amounts paid as an equipment maintenance allowance 
        by such Postal Service under later collective bargaining 
        agreements that supersede the 1991 agreement shall be 
        considered qualified reimbursements if such amounts do not 
        exceed the amounts that would have been paid under the 1991 
        agreement, adjusted for changes in the Consumer Price Index (as 
        defined in section 1(f)(5)) since 1991.''
    (b) Technical Amendment.--Section 6008 of the Technical and 
Miscellaneous Revenue Act of 1988 is hereby repealed.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 14115. EXCLUSION OF COMBAT PAY FROM WITHHOLDING LIMITED TO AMOUNT 
                    EXCLUDABLE FROM GROSS INCOME.

    (a) In General.--Paragraph (1) of section 3401(a) (defining wages) 
is amended by inserting before the semicolon the following: ``to the 
extent remuneration for such service is excludable from gross income 
under such section''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to remuneration paid after December 31, 1995.

SEC. 14116. TREATMENT OF TRAVELING EXPENSES OF CERTAIN FEDERAL 
                    EMPLOYEES ENGAGED IN CRIMINAL INVESTIGATIONS.

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

                   Subtitle B--Pension Simplification

                 PART I--SIMPLIFIED DISTRIBUTION RULES

SEC. 14201. REPEAL OF 5-YEAR INCOME AVERAGING FOR LUMP-SUM 
                    DISTRIBUTIONS.

    (a) In General.--Subsection (d) of section 402 (relating to 
taxability of beneficiary of employees' trust) is amended by adding at 
the end the following new paragraph:
            ``(8) Termination.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), this subsection shall not apply to 
                any taxable year beginning after December 31, 1995.
                    ``(B) Retention of certain transition rules.--
                Subparagraph (A) shall not apply to any distribution 
                for which the taxpayer elects the benefits of section 
                1122 (h)(3) or (h)(5) of the Tax Reform Act of 1986.''

SEC. 14202. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES' DEATH BENEFITS.

    (a) In General.--Subsection (b) of section 101 is hereby repealed.
    (b) Conforming Amendments.--
            (1) Subsection (c) of section 101 is amended by striking 
        ``subsection (a) or (b)'' and inserting ``subsection (a)''.
            (2) Sections 406(e) and 407(e) are each amended by striking 
        paragraph (2) and by redesignating paragraph (3) as paragraph 
        (2).
            (3) Section 7701(a)(20) is amended by striking ``, for the 
        purposes of applying the provisions of section 101(b) with 
        respect to employees' death benefits''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 14203. SIMPLIFIED METHOD FOR TAXING ANNUITY DISTRIBUTIONS UNDER 
                    CERTAIN EMPLOYER PLANS.

    (a) General Rule.--Subsection (d) of section 72 (relating to 
annuities; certain proceeds of endowment and life insurance contracts) 
is amended to read as follows:
    ``(d) Special Rules for Qualified Employer Retirement Plans.--
            ``(1) Simplified method of taxing annuity payments.--
                    ``(A) In general.--In the case of any amount 
                received as an annuity under a qualified employer 
                retirement plan--
                            ``(i) subsection (b) shall not apply, and
                            ``(ii) the investment in the contract shall 
                        be recovered as provided in this paragraph.
                    ``(B) Method of recovering investment in 
                contract.--
                            ``(i) In general.--Gross income shall not 
                        include so much of any monthly annuity payment 
                        under a qualified employer retirement plan as 
                        does not exceed the amount obtained by 
                        dividing--
                                    ``(I) the investment in the 
                                contract (as of the annuity starting 
                                date), by
                                    ``(II) the number of anticipated 
                                payments determined under the table 
                                contained in clause (iii) (or, in the 
                                case of a contract to which subsection 
                                (c)(3)(B) applies, the number of 
                                monthly annuity payments under such 
                                contract).
                            ``(ii) Certain rules made applicable.--
                        Rules similar to the rules of paragraphs (2) 
                        and (3) of subsection (b) shall apply for 
                        purposes of this paragraph.
                            ``(iii) Number of anticipated payments.--

                         ``If the age of the
                                                                       
                           primary annuitant on
                                                             The number
                           the annuity starting
                                                         of anticipated
                           date is:
                                                           payments is:
                               Not more than 55......           300    
                               More than 55 but not             260    
                            more than 60.
                               More than 60 but not             240    
                            more than 65.
                               More than 65 but not             170    
                            more than 70.
                               More than 70..........           120    

                    ``(C) Adjustment for refund feature not 
                applicable.--For purposes of this paragraph, investment 
                in the contract shall be determined under subsection 
                (c)(1) without regard to subsection (c)(2).
                    ``(D) Special rule where lump sum paid in 
                connection with commencement of annuity payments.--If, 
                in connection with the commencement of annuity payments 
                under any qualified employer retirement plan, the 
                taxpayer receives a lump sum payment--
                            ``(i) such payment shall be taxable under 
                        subsection (e) as if received before the 
                        annuity starting date, and
                            ``(ii) the investment in the contract for 
                        purposes of this paragraph shall be determined 
                        as if such payment had been so received.
                    ``(E) Exception.--This paragraph shall not apply in 
                any case where the primary annuitant has attained age 
                75 on the annuity starting date unless there are fewer 
                than 5 years of guaranteed payments under the annuity.
                    ``(F) Adjustment where annuity payments not on 
                monthly basis.--In any case where the annuity payments 
                are not made on a monthly basis, appropriate 
                adjustments in the application of this paragraph shall 
                be made to take into account the period on the basis of 
                which such payments are made.
                    ``(G) Qualified employer retirement plan.--For 
                purposes of this paragraph, the term `qualified 
                employer retirement plan' means any plan or contract 
                described in paragraph (1), (2), or (3) of section 
                4974(c).
            ``(2) Treatment of employee contributions under defined 
        contribution plans.--For purposes of this section, employee 
        contributions (and any income allocable thereto) under a 
        defined contribution plan may be treated as a separate 
        contract.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply in cases where the annuity starting date is after December 31, 
1995.

SEC. 14204. REQUIRED DISTRIBUTIONS.

    (a) In General.--Section 401(a)(9)(C) (defining required beginning 
date) is amended to read as follows:
                    ``(C) Required beginning date.--For purposes of 
                this paragraph--
                            ``(i) In general.--The term `required 
                        beginning date' means April 1 of the calendar 
                        year following the later of--
                                    ``(I) the calendar year in which 
                                the employee attains age 70\1/2\, or
                                    ``(II) the calendar year in which 
                                the employee retires.
                            ``(ii) Exception.--Subclause (II) of clause 
                        (i) shall not apply--
                                    ``(I) except as provided in section 
                                409(d), in the case of an employee who 
                                is a 5-percent owner (as defined in 
                                section 416) with respect to the plan 
                                year ending in the calendar year in 
                                which the employee attains age 70\1/2\, 
                                or
                                    ``(II) for purposes of section 408 
                                (a)(6) or (b)(3).
                            ``(iii) Actuarial adjustment.--In the case 
                        of an employee to whom clause (i)(II) applies 
                        who retires in a calendar year after the 
                        calendar year in which the employee attains age 
                        70\1/2\, the employee's accrued benefit shall 
                        be actuarially increased to take into account 
                        the period after age 70\1/2\ in which the 
                        employee was not receiving any benefits under 
                        the plan.
                            ``(iv) Exception for governmental and 
                        church plans.--Clauses (ii) and (iii) shall not 
                        apply in the case of a governmental plan or 
                        church plan. For purposes of this clause, the 
                        term `church plan' means a plan maintained by a 
                        church for church employees, and the term 
                        `church' means any church (as defined in 
                        section 3121(w)(3)(A)) or qualified church-
                        controlled organization (as defined in section 
                        3121(w)(3)(B)).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to years beginning after December 31, 1995.

               PART II--INCREASED ACCESS TO PENSION PLANS

SEC. 14211. MODIFICATIONS OF SIMPLIFIED EMPLOYEE PENSIONS.

    (a) Increase in Number of Allowable Participants for Salary 
Reduction Arrangements.--Section 408(k)(6)(B) is amended by striking 
``25'' each place it appears in the text and heading thereof and 
inserting ``100''.
    (b) Repeal of Participation Requirement.--
            (1) In general.--Section 408(k)(6)(A) is amended by 
        striking clause (ii) and by redesignating clauses (iii) and 
        (iv) as clauses (ii) and (iii), respectively.
            (2) Conforming amendments.--Clause (ii) of section 
        408(k)(6)(C) and clause (ii) of section 408(k)(6)(F) are each 
        amended by striking ``subparagraph (A)(iii)'' and inserting 
        ``subparagraph (A)(ii)''.
    (c) Alternative Test.--Clause (ii) of section 408(k)(6)(A), as 
redesignated by subsection (b)(1), is amended by adding at the end the 
following new flush sentence:
                        ``The requirements of the preceding sentence 
                        are met if the employer makes contributions to 
                        the simplified employee pension meeting the 
                        requirements of sections 401(k)(11) (B) or (C), 
                        401(k)(11)(D), and 401(m)(10)(B).''
    (d) Year for Computing Nonhighly Compensated Employee Percentage.--
Clause (ii) of section 408(k)(6)(A), as redesignated by subsection 
(b)(1), is amended--
            (1) by striking ``such year'' in subclause (I) and 
        inserting ``the preceding year'', and
            (2) by adding at the end the following new flush sentence:
                        ``In the case of the first plan year for which 
                        an employer makes contributions to a simplified 
                        employee pension, rules similar to the rules of 
                        section 401(k)(3)(E) shall apply.''
    (e) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1995.

SEC. 14212. STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS 
                    ELIGIBLE UNDER SECTION 401(k).

    (a) In General.--Subparagraph (B) of section 401(k)(4) is amended 
to read as follows:
                    ``(B) Eligibility of state and local governments 
                and tax-exempt organizations.--Any--
                            ``(i) State or local government or 
                        political subdivision thereof, or any agency or 
                        instrumentality thereof, and
                            ``(ii) any organization exempt from tax 
                        under this subtitle,
                may include a qualified cash or deferred arrangement as 
                part of a plan maintained by it unless the entity 
                maintains an eligible deferred compensation plan (as 
                defined in section 457(b)). This subparagraph shall not 
                apply to a rural cooperative plan.''
    (b) Effective Date.--The amendment made by this section shall apply 
to plan years beginning after December 31, 1996, but shall not apply to 
any cash or deferred arrangement to which clause (i) or (ii) of section 
1116(f)(2)(B) of the Tax Reform Act of 1986 applies.

                 PART III--NONDISCRIMINATION PROVISIONS

SEC. 14221. DEFINITION OF HIGHLY COMPENSATED EMPLOYEES.

    (a) In General.--Paragraph (1) of section 414(q) (defining highly 
compensated employee) is amended to read as follows:
            ``(1) In general.--The term `highly compensated employee' 
        means any employee who--
                    ``(A) was a 5-percent owner at any time during the 
                year or the preceding year, or
                    ``(B) had compensation for the preceding year from 
                the employer in excess of $80,000.
        The Secretary shall adjust the $80,000 amount under 
        subparagraph (B) at the same time and in the same manner as 
        under section 415(d), except that the base period in applying 
        such section for purposes of this paragraph shall be the 
        calendar quarter ending September 30, 1995.''
    (b) Conforming Amendments.--
            (1)(A) Subsection (q) of section 414 is amended by striking 
        paragraphs (2), (4), (5), (8), and (12) and by redesignating 
        paragraphs (3), (6), (7), (9), (10), and (11) as paragraphs (2) 
        through (7), respectively.
            (B) Section 129(d)(8)(B), 401(a)(5)(D)(ii), 408(k)(2)(C), 
        and 416(i)(1)(D) are each amended by striking ``section 
        414(q)(7)'' and inserting ``section 414(q)(4)''.
            (C) Sections 401(a)(17) and 404(l) are each amended by 
        striking ``section 414(q)(6)'' and inserting ``section 
        414(q)(3)''.
            (D) Section 416(i)(1)(A) is amended by striking ``section 
        414(q)(8)'' and inserting ``section 414(r)(9)''.
            (2)(A) Section 414(r) is amended by adding at the end the 
        following new paragraph:
            ``(9) Excluded employees.--For purposes of paragraph 
        (2)(A), the following employees shall be excluded:
                    ``(A) Employees who have not completed 6 months of 
                service.
                    ``(B) Employees who normally work less than 17\1/2\ 
                hours per week.
                    ``(C) Employees who normally work not more than 6 
                months during any year.
                    ``(D) Employees who have not attained the age of 
                21.
                    ``(E) Except to the extent provided in regulations, 
                employees who are included in a unit of employees 
                covered by an agreement which the Secretary of Labor 
                finds to be a collective bargaining agreement between 
                employee representatives and the employer.
        Except as provided by the Secretary, the employer may elect to 
        apply subparagraph (A), (B), (C), or (D) by substituting a 
        shorter period of service, smaller number of hours or months, 
        or lower age for the period of service, number of hours or 
        months, or age (as the case may be) specified in such 
        subparagraph.''
            (B) Subparagraph (A) of section 414(r)(2) is amended by 
        striking ``subsection (q)(8)'' and inserting ``paragraph (9)''.
            (3) Section 1114(c)(4) of the Tax Reform Act of 1986 is 
        amended by adding at the end the following new sentence: ``Any 
        reference in this paragraph to section 414(q) shall be treated 
        as a reference to such section as in effect before the Tax 
        Simplification Act of 1995''.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1995.

SEC. 14222. REPEAL OF FAMILY AGGREGATION RULES.

    (a) In General.--Paragraph (6) of section 414(q) is hereby 
repealed.
    (b) Compensation Limit.--Subparagraph (A) of section 401(a)(17) is 
amended by striking the last sentence.
    (c) Deduction.--Subsection (l) of section 404 is amended by 
striking the last sentence.
    (d) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1995.

SEC. 14223. MODIFICATION OF ADDITIONAL PARTICIPATION REQUIREMENTS.

    (a) General Rule.--Section 401(a)(26)(A) (relating to additional 
participation requirements) is amended to read as follows:
                    ``(A) In general.--In the case of a trust which is 
                a part of a defined benefit plan, such trust shall not 
                constitute a qualified trust under this subsection 
                unless on each day of the plan year such trust benefits 
                at least the lesser of--
                            ``(i) 50 employees of the employer, or
                            ``(ii) the greater of--
                                    ``(I) 40 percent of all employees 
                                of the employer, or
                                    ``(II) 2 employees (or if there is 
                                only 1 employee, such employee).''
    (b) Separate Line of Business Test.--Section 401(a)(26)(G) 
(relating to separate line of business) is amended by striking 
``paragraph (7)'' and inserting ``paragraph (2)(A) or (7)''.
    (c) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 1995.

SEC. 14224. NONDISCRIMINATION RULES FOR QUALIFIED CASH OR DEFERRED 
                    ARRANGEMENTS AND MATCHING CONTRIBUTIONS.

    (a) Alternative Methods of Satisfying Section 401(k) 
Nondiscrimination Tests.--Section 401(k) (relating to cash or deferred 
arrangements) is amended by adding at the end the following new 
paragraph:
            ``(11) Alternative methods of meeting nondiscrimination 
        requirements.--
                    ``(A) In general.--A cash or deferred arrangement 
                shall be treated as meeting the requirements of 
                paragraph (3)(A)(ii) if such arrangement--
                            ``(i) meets the contribution requirements 
                        of subparagraph (B) or (C), and
                            ``(ii) meets the notice requirements of 
                        subparagraph (D).
                    ``(B) Matching contributions.--
                            ``(i) In general.--The requirements of this 
                        subparagraph are met if, under the arrangement, 
                        the employer makes matching contributions on 
                        behalf of each employee who is not a highly 
                        compensated employee in an amount equal to--
                                    ``(I) 100 percent of the elective 
                                contributions of the employee to the 
                                extent such elective contributions do 
                                not exceed 3 percent of the employee's 
                                compensation, and
                                    ``(II) 50 percent of the elective 
                                contributions of the employee to the 
                                extent that such elective contributions 
                                exceed 3 percent but do not exceed 5 
                                percent of the employee's compensation.
                            ``(ii) Rate for highly compensated 
                        employees.--The requirements of this 
                        subparagraph are not met if, under the 
                        arrangement, the matching contribution with 
                        respect to any elective contribution of a 
                        highly compensated employee at any level of 
                        compensation is greater than that with respect 
                        to an employee who is not a highly compensated 
                        employee.
                            ``(iii) Alternative plan designs.--If the 
                        matching contribution with respect to any 
                        elective contribution at any specific level of 
                        compensation is not equal to the percentage 
                        required under clause (i), an arrangement shall 
                        not be treated as failing to meet the 
                        requirements of clause (i) if--
                                    ``(I) the level of an employer's 
                                matching contribution does not increase 
                                as an employee's elective contributions 
                                increase, and
                                    ``(II) the aggregate amount of 
                                matching contributions with respect to 
                                elective contributions not in excess of 
                                such level of compensation is at least 
                                equal to the amount of matching 
                                contributions which would be made if 
                                matching contributions were made on the 
                                basis of the percentages described in 
                                clause (i).
                    ``(C) Nonelective contributions.--The requirements 
                of this subparagraph are met if, under the arrangement, 
                the employer is required, without regard to whether the 
                employee makes an elective contribution or employee 
                contribution, to make a contribution to a defined 
                contribution plan on behalf of each employee who is not 
                a highly compensated employee and who is eligible to 
                participate in the arrangement in an amount equal to at 
                least 3 percent of the employee's compensation.
                    ``(D) Notice requirement.--An arrangement meets the 
                requirements of this paragraph if, under the 
                arrangement, each employee eligible to participate is, 
                within a reasonable period before any year, given 
                written notice of the employee's rights and obligations 
                under the arrangement which--
                            ``(i) is sufficiently accurate and 
                        comprehensive to apprise the employee of such 
                        rights and obligations, and
                            ``(ii) is written in a manner calculated to 
                        be understood by the average employee eligible 
                        to participate.
                    ``(E) Other requirements.--
                            ``(i) Withdrawal and vesting 
                        restrictions.--An arrangement shall not be 
                        treated as meeting the requirements of 
                        subparagraph (B) or (C) unless the requirements 
                        of subparagraphs (B) and (C) of paragraph (2) 
                        are met with respect to all employer 
                        contributions (including matching 
                        contributions).
                            ``(ii) Social security and similar 
                        contributions not taken into account.--An 
                        arrangement shall not be treated as meeting the 
                        requirements of subparagraph (B) or (C) unless 
                        such requirements are met without regard to 
                        subsection (l), and, for purposes of subsection 
                        (l), employer contributions under subparagraph 
                        (B) or (C) shall not be taken into account.
                    ``(F) Other plans.--An arrangement shall be treated 
                as meeting the requirements under subparagraph (A)(i) 
                if any other plan maintained by the employer meets such 
                requirements with respect to employees eligible under 
                the arrangement.''
    (b) Alternative Methods of Satisfying Section 401(m) 
Nondiscrimination Tests.--Section 401(m) (relating to nondiscrimination 
test for matching contributions and employee contributions) is amended 
by redesignating paragraph (10) as paragraph (11) and by adding after 
paragraph (9) the following new paragraph:
            ``(10) Alternative method of satisfying tests.--
                    ``(A) In general.--A defined contribution plan 
                shall be treated as meeting the requirements of 
                paragraph (2) with respect to matching contributions if 
                the plan--
                            ``(i) meets the contribution requirements 
                        of subparagraph (B) or (C) of subsection 
                        (k)(11),
                            ``(ii) meets the notice requirements of 
                        subsection (k)(11)(D), and
                            ``(iii) meets the requirements of 
                        subparagraph (B).
                    ``(B) Limitation on matching contributions.--The 
                requirements of this subparagraph are met if--
                            ``(i) matching contributions on behalf of 
                        any employee may not be made with respect to an 
                        employee's contributions or elective deferrals 
                        in excess of 6 percent of the employee's 
                        compensation,
                            ``(ii) the level of an employer's matching 
                        contribution does not increase as an employee's 
                        contributions or elective deferrals increase, 
                        and
                            ``(iii) the matching contribution with 
                        respect to any highly compensated employee at a 
                        specific level of compensation is not greater 
                        than that with respect to an employee who is 
                        not a highly compensated employee.''
    (c) Year for Computing Nonhighly Compensated Employee Percentage.--
            (1) Cash or deferred arrangements.--Clause (ii) of section 
        401(k)(3)(A) is amended--
                    (A) by striking ``such year'' and inserting ``the 
                plan year'', and
                    (B) by striking ``for such plan year'' and 
                inserting ``the preceding plan year''.
            (2) Matching and employee contributions.--Section 
        401(m)(2)(A) is amended--
                    (A) by inserting ``for such plan year'' after 
                ``highly compensated employees'', and
                    (B) by inserting ``for the preceding plan year'' 
                after ``eligible employees'' each place it appears in 
                clause (i) and clause (ii).
    (d) Special Rule for Determining Average Deferral Percentage for 
First Plan Year, Etc.--
            (1) Paragraph (3) of section 401(k) is amended by adding at 
        the end the following new subparagraph:
                    ``(E) For purposes of this paragraph, in the case 
                of the first plan year of any plan, the amount taken 
                into account as the actual deferral percentage of 
                nonhighly compensated employees for the preceding plan 
                year shall be--
                            ``(i) 3 percent, or
                            ``(ii) if the employer makes an election 
                        under this subclause, the actual deferral 
                        percentage of nonhighly compensated employees 
                        determined for such first plan year.''
            (2) Paragraph (3) of section 401(m) is amended by adding at 
        the end the following: ``Rules similar to the rules of 
        subsection (k)(3)(E) shall apply for purposes of this 
        subsection.''
    (e) Distribution of Excess Contributions.--
            (1) Subparagraph (C) of section 401(k)(8) (relating to 
        arrangement not disqualified if excess contributions 
        distributed) is amended by striking ``on the basis of the 
        respective portions of the excess contributions attributable to 
        each of such employees'' and inserting ``on the basis of the 
        amount of contributions by, or on behalf of, each of such 
        employees''.
            (2) Subparagraph (C) of section 401(m)(6) (relating to 
        method of distributing excess aggregate contributions) is 
        amended by striking ``on the basis of the respective portions 
        of such amounts attributable to each of such employees'' and 
        inserting ``on the basis of the amount of contributions on 
        behalf of, or by, each such employee''.
    (f) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1995.

                 PART IV--MISCELLANEOUS SIMPLIFICATION

SEC. 14231. TREATMENT OF LEASED EMPLOYEES.

    (a) General Rule.--Subparagraph (C) of section 414(n)(2) (defining 
leased employee) is amended to read as follows:
                    ``(C) such services are performed under significant 
                direction or control by the recipient.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to years beginning after December 31, 1995, but shall not apply 
to any relationship determined under an Internal Revenue Service ruling 
issued before the date of the enactment of this Act pursuant to section 
414(n)(2)(C) of the Internal Revenue Code of 1986 (as in effect on the 
day before such date) not to involve a leased employee.

SEC. 14232. PLANS COVERING SELF-EMPLOYED INDIVIDUALS.

    (a) Aggregation Rules.--Section 401(d) (relating to additional 
requirements for qualification of trusts and plans benefiting owner-
employees) is amended to read as follows:
    ``(d) Contribution Limit on Owner-Employees.--A trust forming part 
of a pension or profit-sharing plan which provides contributions or 
benefits for employees some or all of whom are owner-employees shall 
constitute a qualified trust under this section only if, in addition to 
meeting the requirements of subsection (a), the plan provides that 
contributions on behalf of any owner-employee may be made only with 
respect to the earned income of such owner-employee which is derived 
from the trade or business with respect to which such plan is 
established.''
    (b) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 1995.

SEC. 14233. ELIMINATION OF SPECIAL VESTING RULE FOR MULTIEMPLOYER 
                    PLANS.

    (a) In General.--Paragraph (2) of section 411(a) (relating to 
minimum vesting standards) is amended--
            (1) by striking ``subparagraph (A), (B), or (C)'' and 
        inserting ``subparagraph (A) or (B)''; and
            (2) by striking subparagraph (C).
    (b) Effective Date.--The amendments made by this section shall 
apply to plan years beginning on or after the earlier of--
            (1) the later of--
                    (A) January 1, 1996, or
                    (B) the date on which the last of the collective 
                bargaining agreements pursuant to which the plan is 
                maintained terminates (determined without regard to any 
                extension thereof after the date of the enactment of 
                this Act), or
            (2) January 1, 1998.
Such amendments shall not apply to any individual who does not have 
more than 1 hour of service under the plan on or after the 1st day of 
the 1st plan year to which such amendments apply.

SEC. 14234. DISTRIBUTIONS UNDER RURAL COOPERATIVE PLANS.

    (a) Distributions After Certain Age.--Section 401(k)(7) is amended 
by adding at the end the following new subparagraph:
                    ``(C) Special rule for certain distributions.--A 
                rural cooperative plan which includes a qualified cash 
                or deferred arrangement shall not be treated as 
                violating the requirements of section 401(a) merely by 
                reason of a distribution to a participant after 
                attainment of age 59\1/2\.''
    (b) Effective Date.--The amendment made by this section shall apply 
to distributions after December 31, 1995.

SEC. 14235. TREATMENT OF GOVERNMENTAL PLANS UNDER SECTION 415.

    (a) Definition of Compensation.--Subsection (k) of section 415 
(regarding limitations on benefits and contributions under qualified 
plans) is amended by adding immediately after paragraph (2) the 
following new paragraph:
            ``(3) Definition of compensation for governmental plans.--
        For purposes of this section, in the case of a governmental 
        plan (as defined in section 414(d)), the term `compensation' 
        includes, in addition to the amounts described in subsection 
        (c)(3)--
                    ``(A) any elective deferral (as defined in section 
                402(g)(3)), and
                    ``(B) any amount which is contributed by the 
                employer at the election of the employee and which is 
                not includible in the gross income of an employee under 
                section 125 or 457.''
    (b) Compensation Limit.--Subsection (b) of section 415 is amended 
by adding immediately after paragraph (10) the following new paragraph:
            ``(11) Special limitation rule for governmental plans.--In 
        the case of a governmental plan (as defined in section 414(d)), 
        subparagraph (B) of paragraph (1) shall not apply.''
    (c) Treatment of Certain Excess Benefit Plans.--
            (1) In general.--Section 415 is amended by adding at the 
        end the following new subsection:
    ``(m) Treatment of Qualified Governmental Excess Benefit 
Arrangements.--
            ``(1) Governmental plan not affected.--In determining 
        whether a governmental plan (as defined in section 414(d)) 
        meets the requirements of this section, benefits provided under 
        a qualified governmental excess benefit arrangement shall not 
        be taken into account. Income accruing to a governmental plan 
        (or to a trust that is maintained solely for the purpose of 
        providing benefits under a qualified governmental excess 
        benefit arrangement) in respect of a qualified governmental 
        excess benefit arrangement shall constitute income derived from 
        the exercise of an essential governmental function upon which 
        such governmental plan (or trust) shall be exempt from tax 
        under section 115.
            ``(2) Taxation of participant.--For purposes of this 
        chapter--
                    ``(A) the taxable year or years for which amounts 
                in respect of a qualified governmental excess benefit 
                arrangement are includible in gross income by a 
                participant, and
                    ``(B) the treatment of such amounts when so 
                includible by the participant,
        shall be determined as if such qualified governmental excess 
        benefit arrangement were treated as a plan for the deferral of 
        compensation which is maintained by a corporation not exempt 
        from tax under this chapter and which does not meet the 
        requirements for qualification under section 401.
            ``(3) Qualified governmental excess benefit arrangement.--
        For purposes of this subsection, the term `qualified 
        governmental excess benefit arrangement' means a portion of a 
        governmental plan if--
                    ``(A) such portion is maintained solely for the 
                purpose of providing to participants in the plan that 
                part of the participant's annual benefit otherwise 
                payable under the terms of the plan that exceeds the 
                limitations on benefits imposed by this section,
                    ``(B) under such portion no election is provided at 
                any time to the participant (directly or indirectly) to 
                defer compensation, and
                    ``(C) benefits described in subparagraph (A) are 
                not paid from a trust forming a part of such 
                governmental plan unless such trust is maintained 
                solely for the purpose of providing such benefits.''
            (2) Coordination with section 457.--Subsection (e) of 
        section 457 is amended by adding at the end the following new 
        paragraph:
            ``(15) Treatment of qualified governmental excess benefit 
        arrangements.--Subsections (b)(2) and (c)(1) shall not apply to 
        any qualified governmental excess benefit arrangement (as 
        defined in section 415(m)(3)), and benefits provided under such 
        an arrangement shall not be taken into account in determining 
        whether any other plan is an eligible deferred compensation 
        plan.''
            (3) Conforming amendment.--Paragraph (2) of section 457(f) 
        is amended by striking ``and'' at the end of subparagraph (C), 
        by striking the period at the end of subparagraph (D) and 
        inserting ``, and'', and by inserting immediately thereafter 
        the following new subparagraph:
                    ``(E) a qualified governmental excess benefit 
                arrangement described in section 415(m).''
    (d) Exemption for Survivor and Disability Benefits.--Paragraph (2) 
of section 415(b) is amended by adding at the end the following new 
subparagraph:
                    ``(I) Exemption for survivor and disability 
                benefits provided under governmental plans.--
                Subparagraph (B) of paragraph (1), subparagraph (C) of 
                this paragraph, and paragraph (5) shall not apply to--
                            ``(i) income received from a governmental 
                        plan (as defined in section 414(d)) as a 
                        pension, annuity, or similar allowance as the 
                        result of the recipient becoming disabled by 
                        reason of personal injuries or sickness, or
                            ``(ii) amounts received from a governmental 
                        plan by the beneficiaries, survivors, or the 
                        estate of an employee as the result of the 
                        death of the employee.''
    (e) Revocation of Grandfather Election.--
            (1) In general.--Subparagraph (C) of section 415(b)(10) is 
        amended by adding at the end the following new clause:
                            ``(ii) Revocation of election.--An election 
                        under clause (i) may be revoked not later than 
                        the last day of the third plan year beginning 
                        after the date of the enactment of this clause. 
                        The revocation shall apply to all plan years to 
                        which the election applied and to all 
                        subsequent plan years. Any amount paid by a 
                        plan in a taxable year ending after the 
                        revocation shall be includible in income in 
                        such taxable year under the rules of this 
                        chapter in effect for such taxable year, except 
                        that, for purposes of applying the limitations 
                        imposed by this section, any portion of such 
                        amount which is attributable to any taxable 
                        year during which the election was in effect 
                        shall be treated as received in such taxable 
                        year.''
            (2) Conforming amendment.--Subparagraph (C) of section 
        415(b)(10) is amended by striking ``This'' and inserting:
                            ``(i) In general.--This''.
    (f) Effective Date.--
            (1) In general.--The amendments made by subsections (a), 
        (b), (c), and (d) shall apply to taxable years beginning on or 
        after the date of the enactment of this Act. The amendment made 
        by subsection (e) shall apply with respect to election 
        revocations adopted after the date of the enactment of this 
        Act.
            (2) Treatment for years beginning before date of 
        enactment.--In the case of a governmental plan (as defined in 
        section 414(d) of the Internal Revenue Code of 1986), such plan 
        shall be treated as satisfying the requirements of section 415 
        of such Code for all taxable years beginning before the date of 
        the enactment of this Act.

SEC. 14236. UNIFORM RETIREMENT AGE.

    (a) Discrimination Testing.--Paragraph (5) of section 401(a) 
(relating to special rules relating to nondiscrimination requirements) 
is amended by adding at the end the following new subparagraph:
                    ``(F) Social security retirement age.--For purposes 
                of testing for discrimination under paragraph (4)--
                            ``(i) the social security retirement age 
                        (as defined in section 415(b)(8)) shall be 
                        treated as a uniform retirement age, and
                            ``(ii) subsidized early retirement benefits 
                        and joint and survivor annuities shall not be 
                        treated as being unavailable to employees on 
                        the same terms merely because such benefits or 
                        annuities are based in whole or in part on an 
                        employee's social security retirement age (as 
                        so defined).''
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 1995.

SEC. 14237. UNIFORM PENALTY PROVISIONS TO APPLY TO CERTAIN PENSION 
                    REPORTING REQUIREMENTS.

    (a) Penalties.--
            (1) Statements.--Paragraph (1) of section 6724(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 new subparagraph:
                    ``(C) any statement of the amount of payments to 
                another person required to be made to the Secretary 
                under--
                            ``(i) section 408(i) (relating to reports 
                        with respect to individual retirement accounts 
                        or annuities), or
                            ``(ii) section 6047(d) (relating to reports 
                        by employers, plan administrators, etc.).''
            (2) Reports.--Paragraph (2) of section 6724(d) is amended 
        by striking ``or'' at the end of subparagraph (S), by striking 
        the period at the end of subparagraph (T) and inserting a 
        comma, and by inserting after subparagraph (T) the following 
        new subparagraphs:
                    ``(U) section 408(i) (relating to reports with 
                respect to individual retirement plans) to any person 
                other than the Secretary with respect to the amount of 
                payments made to such person, or
                    ``(V) section 6047(d) (relating to reports by plan 
                administrators) to any person other than the Secretary 
                with respect to the amount of payments made to such 
                person.''
    (b) Modification of Reportable Designated Distributions.--
            (1) Section 408.--Subsection (i) of section 408 (relating 
        to individual retirement account reports) is amended by 
        inserting ``aggregating $10 or more in any calendar year'' 
        after ``distributions''.
            (2) Section 6047.--Paragraph (1) of section 6047(d) 
        (relating to reports by employers, plan administrators, etc.) 
        is amended by adding at the end the following new sentence: 
        ``No return or report may be required under the preceding 
        sentence with respect to distributions to any person during any 
        year unless such distributions aggregate $10 or more.''
    (c) Qualifying Rollover Distributions.--Section 6652(i) is 
amended--
            (1) by striking ``the $10'' and inserting ``$100'', and
            (2) by striking ``$5,000'' and inserting ``$50,000''.
    (d) Conforming Amendments.--
            (1) Paragraph (1) of section 6047(f) is amended to read as 
        follows:

                  ``(1) For provisions relating to penalties for 
failures to file returns and reports required under this section, see 
sections 6652(e), 6721, and 6722.''

            (2) Subsection (e) of section 6652 is amended by adding at 
        the end the following new sentence: ``This subsection shall not 
        apply to any return or statement which is an information return 
        described in section 6724(d)(1)(C)(ii) or a payee statement 
        described in section 6724(d)(2)(U).''
            (3) Subsection (a) of section 6693 is amended by adding at 
        the end the following new sentence: ``This subsection shall not 
        apply to any report which is an information return described in 
        section 6724(d)(1)(C)(i) or a payee statement described in 
        section 6724(d)(2)(T).''
    (e) Effective Date.--The amendments made by this section shall 
apply to returns, reports, and other statements the due date for which 
(determined without regard to extensions) is after December 31, 1995.

SEC. 14238. CONTRIBUTIONS ON BEHALF OF DISABLED EMPLOYEES.

    (a) All Disabled Participants Receiving Contributions.--Section 
415(c)(3)(C) is amended by adding at the end the following: ``If a 
defined contribution plan provides for the continuation of 
contributions on behalf of all participants described in clause (i) for 
a fixed or determinable period, this subparagraph shall be applied 
without regard to clauses (ii) and (iii).''
    (b) Effective Date.--The amendment made by this section shall apply 
to years beginning after December 31, 1995.

SEC. 14239. TREATMENT OF DEFERRED COMPENSATION PLANS OF STATE AND LOCAL 
                    GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.

    (a) Special Rules for Plan Distributions.--Paragraph (9) of section 
457(e) (relating to other definitions and special rules) is amended to 
read as follows:
            ``(9) Benefits not treated as made available by reason of 
        certain elections, etc.--
                    ``(A) Total amount payable is $3,500 or less.--The 
                total amount payable to a participant under the plan 
                shall not be treated as made available merely because 
                the participant may elect to receive such amount (or 
                the plan may distribute such amount without the 
                participant's consent) if--
                            ``(i) such amount does not exceed $3,500, 
                        and
                            ``(ii) such amount may be distributed only 
                        if--
                                    ``(I) no amount has been deferred 
                                under the plan with respect to such 
                                participant during the 2-year period 
                                ending on the date of the distribution, 
                                and
                                    ``(II) there has been no prior 
                                distribution under the plan to such 
                                participant to which this subparagraph 
                                applied.
                A plan shall not be treated as failing to meet the 
                distribution requirements of subsection (d) by reason 
                of a distribution to which this subparagraph applies.
                    ``(B) Election to defer commencement of 
                distributions.--The total amount payable to a 
                participant under the plan shall not be treated as made 
                available merely because the participant may elect to 
                defer commencement of distributions under the plan if--
                            ``(i) such election is made after amounts 
                        may be available under the plan in accordance 
                        with subsection (d)(1)(A) and before 
                        commencement of such distributions, and
                            ``(ii) the participant may make only 1 such 
                        election.''
    (b) Cost-of-Living Adjustment of Maximum Deferral Amount.--
Subsection (e) of section 457 is amended by adding at the end the 
following new paragraph:
            ``(14) Cost-of-living adjustment of maximum deferral 
        amount.--The Secretary shall adjust the $7,500 amount specified 
        in subsections (b)(2) and (c)(1) at the same time and in the 
        same manner as under section 415(d) (determined without regard 
        to paragraph (4)), except that the base period in applying such 
        section for purposes of this paragraph shall be the calendar 
        quarter ending September 30, 1994.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 14240. TRUST REQUIREMENT FOR DEFERRED COMPENSATION PLANS OF STATE 
                    AND LOCAL GOVERNMENTS.

    (a) In General.--Section 457 is amended by adding at the end the 
following new subsection:
    ``(g) Governmental Plans Must Maintain Set Asides for Exclusive 
Benefit of Participants.--
            ``(1) In general.--A plan maintained by an eligible 
        employer described in subsection (e)(1)(A) shall not be treated 
        as an eligible deferred compensation plan unless all assets and 
        income of the plan described in subsection (b)(6) are held in 
        trust for the exclusive benefit of participants and their 
        beneficiaries.
            ``(2) Taxability of trusts and participants.--For purposes 
        of this title--
                    ``(A) a trust described in paragraph (1) shall be 
                treated as an organization exempt from taxation under 
                section 501(a), and
                    ``(B) notwithstanding any other provision of this 
                title, amounts in the trust shall be includible in the 
                gross income of participants and beneficiaries only to 
                the extent, and at the time, provided in this section.
            ``(3) Custodial accounts and contracts.--For purposes of 
        this subsection, custodial accounts and contracts described in 
        section 401(f) shall be treated as trusts under rules similar 
        to the rules under section 401(f).''
    (b) Conforming Amendment.--Paragraph (6) of section 457(b) is 
amended by inserting ``except as provided in subsection (g),'' before 
``which provides that''.
    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to assets and 
        income described in section 457(b)(6) of the Internal Revenue 
        Code of 1986 held by a plan on and after the date of the 
        enactment of this Act.
            (2) Transition rule.--In the case of assets and income 
        described in paragraph (1) held by a plan before the 90th day 
        after the date of the enactment of this Act, a trust need not 
        be established by reason of the amendments made by this section 
        before such 90th day.

SEC. 14241. TRANSITION RULE FOR COMPUTING MAXIMUM BENEFITS UNDER 
                    SECTION 415 LIMITATIONS.

    (a) In General.--Subparagraph (A) of section 767(d)(3) of the 
Uruguay Round Agreements Act is amended to read as follows:
                    ``(A) Exception.--A plan that was adopted and in 
                effect before December 8, 1994, shall not be required 
                to apply the amendments made by subsection (b) with 
                respect to benefits accrued before the earlier of--
                            ``(i) the later of the date a plan 
                        amendment applying such amendment is adopted or 
                        made effective, or
                            ``(ii) the first day of the first 
                        limitation year beginning after December 31, 
                        1999.
                Determinations under section 415(b)(2)(E) of the 
                Internal Revenue Code of 1986 shall be made with 
                respect to such benefits on the basis of such section 
                as in effect on December 7, 1994, and the provisions of 
                the plan as in effect on December 7, 1994, but only if 
                such provisions of the plan meet the requirements of 
                such section (as so in effect).''
    (b) Effective Date.--The amendment made by this section shall take 
effect as if included in the provisions of section 767 of the Uruguay 
Round Agreements Act.
    (c) Transitional Rule.--In the case of a plan that was adopted and 
in effect before December 8, 1994, if--
            (1) a plan amendment was adopted or made effective on or 
        before the date of the enactment of this Act applying the 
        amendments made by section 767(b) of the Uruguay Round 
        Agreements Act, and
            (2) within 1 year after the date of the enactment of this 
        Act, a plan amendment is adopted which repeals the amendment 
        referred to in paragraph (1),
the amendment referred to in paragraph (1) shall not be taken into 
account in applying section 767(d)(3)(A) of the Uruguay Round 
Agreements Act, as amended by subsection (a).

SEC. 14242. MULTIPLE SALARY REDUCTION AGREEMENTS PERMITTED UNDER 
                    SECTION 403(b).

    (a) General Rule.--For purposes of section 403(b) of the Internal 
Revenue Code of 1986, the frequency that an employee is permitted to 
enter into a salary reduction agreement, the salary to which such an 
agreement may apply, and the ability to revoke such an agreement shall 
be determined under the rules applicable to cash or deferred elections 
under section 401(k) of such Code.
    (b) Effective Date.--Subsection (a) shall apply to taxable years 
beginning after December 31, 1995.

SEC. 14243. WAIVER OF MINIMUM PERIOD FOR JOINT AND SURVIVOR ANNUITY 
                    EXPLANATION BEFORE ANNUITY STARTING DATE.

    (a) General Rule.--For purposes of section 417(a)(3)(A) of the 
Internal Revenue Code of 1986 (relating to plan to provide written 
explanations), the minimum period prescribed by the Secretary of the 
Treasury between the date that the explanation referred to in such 
section is provided and the annuity starting date shall not apply if 
waived by the participant and, if applicable, the participant's spouse.
    (b) Effective Date.--Subsection (a) shall apply to plan years 
beginning after December 31, 1995.

SEC. 14244. REPEAL OF LIMITATION IN CASE OF DEFINED BENEFIT PLAN AND 
                    DEFINED CONTRIBUTION PLAN FOR SAME EMPLOYEE.

    (a) In General.--Section 415(e) is repealed.
    (b) Conforming Amendments.--
            (1) Subparagraph (B) of section 415(b)(5) is amended by 
        striking ``and subsection (e)''.
            (2) Paragraph (1) of section 415(f) is amended by striking 
        ``subsections (b), (c), and (e)'' and inserting ``subsections 
        (b) and (c)''.
            (3) Subsection (g) of section 415 is amended by striking 
        ``subsections (e) and (f)'' in the last sentence and inserting 
        ``subsection (f)''.
            (4) Clause (i) of section 415(k)(2)(A) is amended to read 
        as follows:
                            ``(i) any contribution made directly by an 
                        employee under such an arrangement shall not be 
                        treated as an annual addition for purposes of 
                        subsection (c), and''.
            (5) Clause (ii) of section 415(k)(2)(A) is amended by 
        striking ``subsections (c) and (e)'' and inserting ``subsection 
        (c)''.
            (6) Section 416 is amended by striking subsection (h).
    (c) Effective Date.--The amendments made by this section shall 
apply to limitation years beginning after December 31, 1996.

SEC. 14245. DATE FOR ADOPTION OF PLAN AMENDMENTS.

    If any amendment made by this title requires an amendment to any 
plan, such plan amendment shall not be required to be made before the 
first day of the first plan year beginning on or after January 1, 1997, 
if--
            (1) during the period after such amendment takes effect and 
        before such first plan year, the plan is operated in accordance 
        with the requirements of such amendment, and
            (2) such plan amendment applies retroactively to such 
        period.

              Subtitle C--Treatment of Large Partnerships

                       PART I--GENERAL PROVISIONS

SEC. 14301. SIMPLIFIED FLOW-THROUGH FOR LARGE PARTNERSHIPS.

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

            ``PART IV--SPECIAL RULES FOR LARGE PARTNERSHIPS

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

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

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

``SEC. 772. SIMPLIFIED FLOW-THROUGH.

    ``(a) General Rule.--In determining the income tax of a partner of 
a large partnership, such partner shall take into account separately 
such partner's distributive share of the partnership's--
            ``(1) taxable income or loss from passive loss limitation 
        activities,
            ``(2) taxable income or loss from other activities,
            ``(3) net capital gain (or net capital loss)--
                    ``(A) to the extent allocable to passive loss 
                limitation activities, and
                    ``(B) to the extent allocable to other activities,
            ``(4) tax-exempt interest,
            ``(5) applicable net AMT adjustment separately computed 
        for--
                    ``(A) passive loss limitation activities, and
                    ``(B) other activities,
            ``(6) general credits,
            ``(7) low-income housing credit determined under section 
        42,
            ``(8) rehabilitation credit determined under section 47,
            ``(9) foreign income taxes,
            ``(10) the credit allowable under section 29, and
            ``(11) other items to the extent that the Secretary 
        determines that the separate treatment of such items is 
        appropriate.
    ``(b) Separate Computations.--In determining the amounts required 
under subsection (a) to be separately taken into account by any 
partner, this section and section 773 shall be applied separately with 
respect to such partner by taking into account such partner's 
distributive share of the items of income, gain, loss, deduction, or 
credit of the partnership.
    ``(c) Treatment at Partner Level.--
            ``(1) In general.--Except as provided in this subsection, 
        rules similar to the rules of section 702(b) shall apply to any 
        partner's distributive share of the amounts referred to in 
        subsection (a).
            ``(2) Income or loss from passive loss limitation 
        activities.--For purposes of this chapter, any partner's 
        distributive share of any income or loss described in 
        subsection (a)(1) shall be treated as an item of income or loss 
        (as the case may be) from the conduct of a trade or business 
        which is a single passive activity (as defined in section 469). 
        A similar rule shall apply to a partner's distributive share of 
        amounts referred to in paragraphs (3)(A) and (5)(A) of 
        subsection (a).
            ``(3) Income or loss from other activities.--
                    ``(A) In general.--For purposes of this chapter, 
                any partner's distributive share of any income or loss 
                described in subsection (a)(2) shall be treated as an 
                item of income or expense (as the case may be) with 
                respect to property held for investment.
                    ``(B) Deductions for loss not subject to section 
                67.--The deduction under section 212 for any loss 
                described in subparagraph (A) shall not be treated as a 
                miscellaneous itemized deduction for purposes of 
                section 67.
            ``(4) Treatment of net capital gain or loss.--For purposes 
        of this chapter, any partner's distributive share of any gain 
        or loss described in subsection (a)(3) shall be treated as a 
        long-term capital gain or loss, as the case may be.
            ``(5) Minimum tax treatment.--In determining the 
        alternative minimum taxable income of any partner, such 
        partner's distributive share of any applicable net AMT 
        adjustment shall be taken into account in lieu of making the 
        separate adjustments provided in sections 56, 57, and 58 with 
        respect to the items of the partnership. Except as provided in 
        regulations, the applicable net AMT adjustment shall be 
        treated, for purposes of section 53, as an adjustment or item 
        of tax preference not specified in section 53(d)(1)(B)(ii).
            ``(6) General credits.--A partner's distributive share of 
        the amount referred to in paragraph (6) of subsection (a) shall 
        be taken into account as a current year business credit.
    ``(d) Operating Rules.--For purposes of this section--
            ``(1) Passive loss limitation activity.--The term `passive 
        loss limitation activity' means--
                    ``(A) any activity which involves the conduct of a 
                trade or business, and
                    ``(B) any rental activity.
        For purposes of the preceding sentence, the term `trade or 
        business' includes any activity treated as a trade or business 
        under paragraph (5) or (6) of section 469(c).
            ``(2) Tax-exempt interest.--The term `tax-exempt interest' 
        means interest excludable from gross income under section 103.
            ``(3) Applicable net amt adjustment.--
                    ``(A) In general.--The applicable net AMT 
                adjustment is--
                            ``(i) with respect to taxpayers other than 
                        corporations, the net adjustment determined by 
                        using the adjustments applicable to 
                        individuals, and
                            ``(ii) with respect to corporations, the 
                        net adjustment determined by using the 
                        adjustments applicable to corporations.
                    ``(B) Net adjustment.--The term `net adjustment' 
                means the net adjustment in the items attributable to 
                passive loss activities or other activities (as the 
                case may be) which would result if such items were 
                determined with the adjustments of sections 56, 57, and 
                58.
            ``(4) Treatment of certain separately stated items.--
                    ``(A) Exclusion for certain purposes.--In 
                determining the amounts referred to in paragraphs (1) 
                and (2) of subsection (a), any net capital gain or net 
                capital loss (as the case may be), and any item 
                referred to in subsection (a)(11), shall be excluded.
                    ``(B) Allocation rules.--The net capital gain shall 
                be treated--
                            ``(i) as allocable to passive loss 
                        limitation activities to the extent the net 
                        capital gain does not exceed the net capital 
                        gain determined by only taking into account 
                        gains and losses from sales and exchanges of 
                        property used in connection with such 
                        activities, and
                            ``(ii) as allocable to other activities to 
                        the extent such gain exceeds the amount 
                        allocated under clause (i).
                A similar rule shall apply for purposes of allocating 
                any net capital loss.
                    ``(C) Net capital loss.--The term `net capital 
                loss' means the excess of the losses from sales or 
                exchanges of capital assets over the gains from sales 
                or exchange of capital assets.
            ``(5) General credits.--The term `general credits' means 
        any credit other than the low-income housing credit, the 
        rehabilitation credit, the foreign tax credit, and the credit 
        allowable under section 29.
            ``(6) Foreign income taxes.--The term `foreign income 
        taxes' means taxes described in section 901 which are paid or 
        accrued to foreign countries and to possessions of the United 
        States.
    ``(e) Special Rule for Unrelated Business Tax.--In the case of a 
partner which is an organization subject to tax under section 511, such 
partner's distributive share of any items shall be taken into account 
separately to the extent necessary to comply with the provisions of 
section 512(c)(1).
    ``(f) Special Rules for Applying Passive Loss Limitations.--If any 
person holds an interest in a large partnership other than as a limited 
partner--
            ``(1) paragraph (2) of subsection (c) shall not apply to 
        such partner, and
            ``(2) such partner's distributive share of the partnership 
        items allocable to passive loss limitation activities shall be 
        taken into account separately to the extent necessary to comply 
        with the provisions of section 469.
The preceding sentence shall not apply to any items allocable to an 
interest held as a limited partner.

``SEC. 773. COMPUTATIONS AT PARTNERSHIP LEVEL.

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

``SEC. 774. OTHER MODIFICATIONS.

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

``SEC. 775. LARGE PARTNERSHIP DEFINED.

    ``(a) General Rule.--For purposes of this part--
            ``(1) In general.--Except as otherwise provided in this 
        section or section 776, the term `large partnership' means, 
        with respect to any partnership taxable year, any partnership 
        if the number of persons who were partners in such partnership 
        in any preceding partnership taxable year beginning after 
        December 31, 1995, equaled or exceeded 250. To the extent 
        provided in regulations, a partnership shall cease to be 
        treated as a large partnership for any partnership taxable year 
        if in such taxable year fewer than 100 persons were partners in 
        such partnership.
            ``(2) Election for partnerships with at least 100 
        partners.--If a partnership makes an election under this 
        paragraph, paragraph (1) shall be applied by substituting `100' 
        for `250'. Such an election shall apply to the taxable year for 
        which made and all subsequent taxable years unless revoked with 
        the consent of the Secretary.
    ``(b) Special Rules for Certain Service Partnerships.--
            ``(1) Certain partners not counted.--For purposes of this 
        section, the term `partner' does not include any individual 
        performing substantial services in connection with the 
        activities of the partnership and holding an interest in such 
        partnership, or an individual who formerly performed 
        substantial services in connection with such activities and who 
        held an interest in such partnership at the time the individual 
        performed such services.
            ``(2) Exclusion.--For purposes of this part, the term 
        `large partnership' does not include any partnership if 
        substantially all the partners of such partnership--
                    ``(A) are individuals performing substantial 
                services in connection with the activities of such 
                partnership or are personal service corporations (as 
                defined in section 269A(b)) the owner-employees (as 
                defined in section 269A(b)) of which perform such 
                substantial services,
                    ``(B) are retired partners who had performed such 
                substantial services, or
                    ``(C) are spouses of partners who are performing 
                (or had previously performed) such substantial 
                services.
            ``(3) Special rule for lower tier partnerships.--For 
        purposes of this subsection, the activities of a partnership 
        shall include the activities of any other partnership in which 
        the partnership owns directly an interest in the capital and 
        profits of at least 80 percent.
    ``(c) Exclusion of Commodity Pools.--For purposes of this part, the 
term `large partnership' does not include any partnership the principal 
activity of which is the buying and selling of commodities (not 
described in section 1221(1)), or options, futures, or forwards with 
respect to such commodities.
    ``(d) Secretary May Rely on Treatment on Return.--If, on the 
partnership return of any partnership, such partnership is treated as a 
large partnership, such treatment shall be binding on such partnership 
and all partners of such partnership but not on the Secretary.

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

    ``(a) Exception for Partnerships Holding Significant Oil and Gas 
Properties.--
            ``(1) In general.--For purposes of this part, the term 
        `large partnership' shall not include any partnership if the 
        average percentage of assets (by value) held by such 
        partnership during the taxable year which are oil or gas 
        properties is at least 25 percent. For purposes of the 
        preceding sentence, any interest held by a partnership in 
        another partnership shall be disregarded, except that the 
        partnership shall be treated as holding its proportionate share 
        of the assets of such other partnership.
            ``(2) Election to waive exception.--Any partnership may 
        elect to have paragraph (1) not apply. Such an election shall 
        apply to the partnership taxable year for which made and all 
        subsequent partnership taxable years unless revoked with the 
        consent of the Secretary.
    ``(b) Special Rules Where Part Applies.--
            ``(1) Computation of percentage depletion.--In the case of 
        a large partnership, except as provided in paragraph (2)--
                    ``(A) the allowance for depletion under section 611 
                with respect to any partnership oil or gas property 
                shall be computed at the partnership level without 
                regard to any provision of section 613A requiring such 
                allowance to be computed separately by each partner,
                    ``(B) such allowance shall be determined without 
                regard to the provisions of section 613A(c) limiting 
                the amount of production for which percentage depletion 
                is allowable and without regard to paragraph (1) of 
                section 613A(d), and
                    ``(C) paragraph (3) of section 705(a) shall not 
                apply.
            ``(2) Treatment of certain partners.--
                    ``(A) In general.--In the case of a disqualified 
                person, the treatment under this chapter of such 
                person's distributive share of any item of income, 
                gain, loss, deduction, or credit attributable to any 
                partnership oil or gas property shall be determined 
                without regard to this part. Such person's distributive 
                share of any such items shall be excluded for purposes 
                of making determinations under sections 772 and 773.
                    ``(B) Disqualified person.--For purposes of 
                subparagraph (A), the term `disqualified person' means, 
                with respect to any partnership taxable year--
                            ``(i) any person referred to in paragraph 
                        (2) or (4) of section 613A(d) for such person's 
                        taxable year in which such partnership taxable 
                        year ends, and
                            ``(ii) any other person if such person's 
                        average daily production of domestic crude oil 
                        and natural gas for such person's taxable year 
                        in which such partnership taxable year ends 
                        exceeds 500 barrels.
                    ``(C) Average daily production.--For purposes of 
                subparagraph (B), a person's average daily production 
                of domestic crude oil and natural gas for any taxable 
                year shall be computed as provided in section 
                613A(c)(2)--
                            ``(i) by taking into account all production 
                        of domestic crude oil and natural gas 
                        (including such person's proportionate share of 
                        any production of a partnership),
                            ``(ii) by treating 6,000 cubic feet of 
                        natural gas as a barrel of crude oil, and
                            ``(iii) by treating as 1 person all persons 
                        treated as 1 taxpayer under section 613A(c)(8) 
                        or among whom allocations are required under 
                        such section.

``SEC. 777. REGULATIONS.

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

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

SEC. 14302. SIMPLIFIED AUDIT PROCEDURES FOR LARGE PARTNERSHIPS.

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

            ``Subchapter D--Treatment of Large Partnerships

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

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

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

``SEC. 6240. APPLICATION OF SUBCHAPTER.

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

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

    ``(a) General Rule.--A partner of any large partnership shall, on 
the partner's return, treat each partnership item attributable to such 
partnership in a manner which is consistent with the treatment of such 
partnership item on the partnership return.
    ``(b) Underpayment Due to Inconsistent Treatment Assessed as Math 
Error.--Any underpayment of tax by a partner by reason of failing to 
comply with the requirements of subsection (a) shall be assessed and 
collected in the same manner as if such underpayment were on account of 
a mathematical or clerical error appearing on the partner's return. 
Paragraph (2) of section 6213(b) shall not apply to any assessment of 
an underpayment referred to in the preceding sentence.
    ``(c) Adjustments Not To Affect Prior Year of Partners.--
            ``(1) In general.--Except as provided in paragraph (2), 
        subsections (a) and (b) shall apply without regard to any 
        adjustment to the partnership item under part II.
            ``(2) Certain changes in distributive share taken into 
        account by partner.--
                    ``(A) In general.--To the extent that any 
                adjustment under part II involves a change under 
                section 704 in a partner's distributive share of the 
                amount of any partnership item shown on the partnership 
                return, such adjustment shall be taken into account in 
                applying this title to such partner for the partner's 
                taxable year for which such item was required to be 
                taken into account.
                    ``(B) Coordination with deficiency procedures.--
                            ``(i) In general.--Subchapter B shall not 
                        apply to the assessment or collection of any 
                        underpayment of tax attributable to an 
                        adjustment referred to in subparagraph (A).
                            ``(ii) Adjustment not precluded.--
                        Notwithstanding any other law or rule of law, 
                        nothing in subchapter B (or in any proceeding 
                        under subchapter B) shall preclude the 
                        assessment or collection of any underpayment of 
                        tax (or the allowance of any credit or refund 
                        of any overpayment of tax) attributable to an 
                        adjustment referred to in subparagraph (A) and 
                        such assessment or collection or allowance (or 
                        any notice thereof) shall not preclude any 
                        notice, proceeding, or determination under 
                        subchapter B.
                    ``(C) Period of limitations.--The period for--
                            ``(i) assessing any underpayment of tax, or
                            ``(ii) filing a claim for credit or refund 
                        of any overpayment of tax,
                attributable to an adjustment referred to in 
                subparagraph (A) shall not expire before the close of 
                the period prescribed by section 6248 for making 
                adjustments with respect to the partnership taxable 
                year involved.
                    ``(D) Tiered structures.--If the partner referred 
                to in subparagraph (A) is another partnership or an S 
                corporation, the rules of this paragraph shall also 
                apply to persons holding interests in such partnership 
                or S corporation (as the case may be); except that, if 
                such partner is a large partnership, the adjustment 
                referred to in subparagraph (A) shall be taken into 
                account in the manner provided by section 6242.
    ``(d) Addition to Tax for Failure To Comply With Section.--

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

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

    ``(a) Adjustments Flow Through to Partners for Year in Which 
Adjustment Takes Effect.--
            ``(1) In general.--If any partnership adjustment with 
        respect to any partnership item takes effect (within the 
        meaning of subsection (d)(2)) during any partnership taxable 
        year and if an election under paragraph (2) does not apply to 
        such adjustment, such adjustment shall be taken into account in 
        determining the amount of such item for the partnership taxable 
        year in which such adjustment takes effect. In applying this 
        title to any person who is (directly or indirectly) a partner 
        in such partnership during such partnership taxable year, such 
        adjustment shall be treated as an item actually arising during 
        such taxable year.
            ``(2) Partnership liable in certain cases.--If--
                    ``(A) a partnership elects under this paragraph to 
                not take an adjustment into account under paragraph 
                (1),
                    ``(B) a partnership does not make such an election 
                but in filing its return for any partnership taxable 
                year fails to take fully into account any partnership 
                adjustment as required under paragraph (1), or
                    ``(C) any partnership adjustment involves a 
                reduction in a credit which exceeds the amount of such 
                credit determined for the partnership taxable year in 
                which the adjustment takes effect,
        the partnership shall pay to the Secretary an amount determined 
        by applying the rules of subsection (b)(4) to the adjustments 
        not so taken into account and any excess referred to in 
        subparagraph (C). A partnership may make an election under 
        subparagraph (A) only if such partnership meets such 
        requirements as the Secretary may prescribe to assure payment 
        of such amount.
            ``(3) Offsetting adjustments taken into account.--If a 
        partnership adjustment requires another adjustment in a taxable 
        year after the adjusted year and before the partnership taxable 
        year in which such partnership adjustment takes effect, such 
        other adjustment shall be taken into account under this 
        subsection for the partnership taxable year in which such 
        partnership adjustment takes effect.
            ``(4) Coordination with part ii.--Amounts taken into 
        account under this subsection for any partnership taxable year 
        shall continue to be treated as adjustments for the adjusted 
        year for purposes of determining whether such amounts may be 
        readjusted under part II.
    ``(b) Partnership Liable for Interest and Penalties.--
            ``(1) In general.--If a partnership adjustment takes effect 
        during any partnership taxable year and such adjustment results 
        in an imputed underpayment for the adjusted year, the 
        partnership--
                    ``(A) shall pay to the Secretary interest computed 
                under paragraph (2), and
                    ``(B) shall be liable for any penalty, addition to 
                tax, or additional amount as provided in paragraph (3).
            ``(2) Determination of amount of interest.--The interest 
        computed under this paragraph with respect to any partnership 
        adjustment is the interest which would be determined under 
        chapter 67--
                    ``(A) on the imputed underpayment determined under 
                paragraph (4) with respect to such adjustment,
                    ``(B) for the period beginning on the day after the 
                return due date for the adjusted year and ending on the 
                return due date for the partnership taxable year in 
                which such adjustment takes effect (or, if earlier, in 
                the case of any adjustment to which subsection (a)(2) 
                applies, the date on which the payment under subsection 
                (a)(2) is made).
        Proper adjustments in the amount determined under the preceding 
        sentence shall be made for adjustments required for partnership 
        taxable years after the adjusted year and before the year in 
        which the partnership adjustment takes effect by reason of such 
        partnership adjustment.
            ``(3) Penalties.--A partnership shall be liable for any 
        penalty, addition to tax, or additional amount for which it 
        would have been liable if such partnership had been an 
        individual subject to tax under chapter 1 for the adjusted year 
        and the imputed underpayment determined under paragraph (4) 
        were an actual underpayment (or understatement) for such year.
            ``(4) Imputed underpayment.--For purposes of this 
        subsection, the imputed underpayment determined under this 
        paragraph with respect to any partnership adjustment is the 
        underpayment (if any) which would result--
                    ``(A) by netting all adjustments to items of 
                income, gain, loss, or deduction and by treating any 
                net increase in income as an underpayment equal to the 
                amount of such net increase multiplied by the highest 
                rate of tax in effect under section 1 or 11 for the 
                adjusted year, and
                    ``(B) by taking adjustments to credits into account 
                as increases or decreases (whichever is appropriate) in 
                the amount of tax.
        For purposes of the preceding sentence, any net decrease in a 
        loss shall be treated as an increase in income and a similar 
        rule shall apply to a net increase in a loss.
    ``(c) Administrative Provisions.--
            ``(1) In general.--Any payment required by subsection 
        (a)(2) or (b)(1)(A)--
                    ``(A) shall be assessed and collected in the same 
                manner as if it were a tax imposed by subtitle C, and
                    ``(B) shall be paid on or before the return due 
                date for the partnership taxable year in which the 
                partnership adjustment takes effect.
            ``(2) Interest.--For purposes of determining interest, any 
        payment required by subsection (a)(2) or (b)(1)(A) shall be 
        treated as an underpayment of tax.
            ``(3) Penalties.--
                    ``(A) In general.--In the case of any failure by 
                any partnership to pay on the date prescribed therefor 
                any amount required by subsection (a)(2) or (b)(1)(A), 
                there is hereby imposed on such partnership a penalty 
                of 10 percent of the underpayment. For purposes of the 
                preceding sentence, the term `underpayment' means the 
                excess of any payment required under this section over 
                the amount (if any) paid on or before the date 
                prescribed therefor.
                    ``(B) Accuracy-related and fraud penalties made 
                applicable.--For purposes of part II of subchapter A of 
                chapter 68, any payment required by subsection (a)(2) 
                shall be treated as an underpayment of tax.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Partnership adjustment.--The term `partnership 
        adjustment' means any adjustment in the amount of any 
        partnership item of a large partnership.
            ``(2) When adjustment takes effect.--A partnership 
        adjustment takes effect--
                    ``(A) in the case of an adjustment pursuant to the 
                decision of a court in a proceeding brought under part 
                II, when such decision becomes final,
                    ``(B) in the case of an adjustment pursuant to any 
                administrative adjustment request under section 6251, 
                when such adjustment is allowed by the Secretary, or
                    ``(C) in any other case, when such adjustment is 
                made.
            ``(3) Adjusted year.--The term `adjusted year' means the 
        partnership taxable year to which the item being adjusted 
        relates.
            ``(4) Return due date.--The term `return due date' means, 
        with respect to any taxable year, the date prescribed for 
        filing the partnership return for such taxable year (determined 
        without regard to extensions).
            ``(5) Adjustments involving changes in character.--Under 
        regulations, appropriate adjustments in the application of this 
        section shall be made for purposes of taking into account 
        partnership adjustments which involve a change in the character 
        of any item of income, gain, loss, or deduction.
    ``(e) Payments Nondeductible.--No deduction shall be allowed under 
subtitle A for any payment required to be made by a large partnership 
under this section.

                ``PART II--PARTNERSHIP LEVEL ADJUSTMENTS

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

                 ``Subpart A--Adjustments by Secretary

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

``SEC. 6245. SECRETARIAL AUTHORITY.

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

``SEC. 6246. RESTRICTIONS ON PARTNERSHIP ADJUSTMENTS.

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

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

    ``(a) General Rule.--Within 90 days after the date on which a 
notice of a partnership adjustment is mailed to the partnership with 
respect to any partnership taxable year, the partnership may file a 
petition for a readjustment of the partnership items for such taxable 
year with--
            ``(1) the Tax Court,
            ``(2) the district court of the United States for the 
        district in which the partnership's principal place of business 
        is located, or
            ``(3) the Claims Court.
    ``(b) Jurisdictional Requirement for Bringing Action in District 
Court or Claims Court.--
            ``(1) In general.--A readjustment petition under this 
        section may be filed in a district court of the United States 
        or the Claims Court only if the partnership filing the petition 
        deposits with the Secretary, on or before the date the petition 
        is filed, the amount for which the partnership would be liable 
        under section 6242(b) (as of the date of the filing of the 
        petition) if the partnership items were adjusted as provided by 
        the notice of partnership adjustment. The court may by order 
        provide that the jurisdictional requirements of this paragraph 
        are satisfied where there has been a good faith attempt to 
        satisfy such requirement and any shortfall of the amount 
        required to be deposited is timely corrected.
            ``(2) Interest payable.--Any amount deposited under 
        paragraph (1), while deposited, shall not be treated as a 
        payment of tax for purposes of this title (other than chapter 
        67).
    ``(c) Scope of Judicial Review.--A court with which a petition is 
filed in accordance with this section shall have jurisdiction to 
determine all partnership items of the partnership for the partnership 
taxable year to which the notice of partnership adjustment relates and 
the proper allocation of such items among the partners (and the 
applicability of any penalty, addition to tax, or additional amount for 
which the partnership may be liable under section 6242(b)).
    ``(d) Determination of Court Reviewable.--Any determination by a 
court under this section shall have the force and effect of a decision 
of the Tax Court or a final judgment or decree of the district court or 
the Claims Court, as the case may be, and shall be reviewable as such. 
The date of any such determination shall be treated as being the date 
of the court's order entering the decision.
    ``(e) Effect of Decision Dismissing Action.--If an action brought 
under this section is dismissed other than by reason of a rescission 
under section 6245(b)(3), the decision of the court dismissing the 
action shall be considered as its decision that the notice of 
partnership adjustment is correct, and an appropriate order shall be 
entered in the records of the court.

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

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

           ``Subpart B--Claims for Adjustments by Partnership

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

``SEC. 6251. ADMINISTRATIVE ADJUSTMENT REQUESTS.

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

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

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

               ``PART III--DEFINITIONS AND SPECIAL RULES

                              ``Sec. 6255. Definitions and special 
                                        rules.

``SEC. 6255. DEFINITIONS AND SPECIAL RULES.

    ``(a) Definitions.--For purposes of this subchapter--
            ``(1) Large partnership.--The term `large partnership' has 
        the meaning given to such term by section 775 without regard to 
        section 776(a).
            ``(2) Partnership item.--The term `partnership item' has 
        the meaning given to such term by section 6231(a)(3).
    ``(b) Partners Bound by Actions of Partnership, Etc.--
            ``(1) Designation of partner.--Each large partnership shall 
        designate (in the manner prescribed by the Secretary) a partner 
        (or other person) who shall have the sole authority to act on 
        behalf of such partnership under this subchapter. In any case 
        in which such a designation is not in effect, the Secretary may 
        select any partner as the partner with such authority.
            ``(2) Binding effect.--A large partnership and all partners 
        of such partnership shall be bound--
                    ``(A) by actions taken under this subchapter by the 
                partnership, and
                    ``(B) by any decision in a proceeding brought under 
                this subchapter.
    ``(c) Partnerships Having Principal Place of Business Outside the 
United States.--For purposes of sections 6247 and 6252, a principal 
place of business located outside the United States shall be treated as 
located in the District of Columbia.
    ``(d) Treatment Where Partnership Ceases To Exist.--If a 
partnership ceases to exist before a partnership adjustment under this 
subchapter takes effect, such adjustment shall be taken into account by 
the former partners of such partnership under regulations prescribed by 
the Secretary.
    ``(e) Date Decision Becomes Final.--For purposes of this 
subchapter, the principles of section 7481(a) shall be applied in 
determining the date on which a decision of a district court or the 
Claims Court becomes final.
    ``(f) Partnerships in Cases Under Title 11 of the United States 
Code.--The running of any period of limitations provided in this 
subchapter on making a partnership adjustment (or provided by section 
6501 or 6502 on the assessment or collection of any amount required to 
be paid under section 6242) shall, in a case under title 11 of the 
United States Code, be suspended during the period during which the 
Secretary is prohibited by reason of such case from making the 
adjustment (or assessment or collection) and--
            ``(1) for adjustment or assessment, 60 days thereafter, and
            ``(2) for collection, 6 months thereafter.
    ``(g) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary to carry out the provisions of this subchapter, 
including regulations--
            ``(1) to prevent abuse through manipulation of the 
        provisions of this subchapter, and
            ``(2) providing that this subchapter shall not apply to any 
        case described in section 6231(c)(1) (or the regulations 
        prescribed thereunder) where the application of this subchapter 
        to such a case would interfere with the effective and efficient 
        enforcement of this title.
In any case to which this subchapter does not apply by reason of 
paragraph (2), rules similar to the rules of sections 6229(f) and 
6255(f) shall apply.''
    (b) Clerical Amendment.--The table of subchapters for chapter 63 is 
amended by adding at the end the following new item:

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

SEC. 14303. DUE DATE FOR FURNISHING INFORMATION TO PARTNERS OF LARGE 
                    PARTNERSHIPS.

    (a) General Rule.--Subsection (b) of section 6031 (relating to 
copies to partners) is amended by adding at the end the following new 
sentence: ``In the case of a large partnership (as defined in sections 
775 and 776(a)), such information shall be furnished on or before the 
first March 15 following the close of such taxable year.''
    (b) Treatment as Information Return.--Section 6724 is amended by 
adding at the end the following new subsection:
    ``(e) Special Rule for Certain Partnership Returns.--If any 
partnership return under section 6031(a) is required under section 
6011(e) to be filed on magnetic media or in other machine-readable 
form, for purposes of this part, each schedule required to be included 
with such return with respect to each partner shall be treated as a 
separate information return.''

SEC. 14304. RETURNS MAY BE REQUIRED ON MAGNETIC MEDIA.

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

SEC. 14305. TREATMENT OF PARTNERSHIP ITEMS OF INDIVIDUAL RETIREMENT 
                    ACCOUNTS.

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

SEC. 14306. EFFECTIVE DATE.

    The amendments made by this part shall apply to partnership taxable 
years beginning after December 31, 1995.

     PART II--PROVISIONS RELATED TO CERTAIN PARTNERSHIP PROCEEDINGS

SEC. 14311. TREATMENT OF PARTNERSHIP ITEMS IN DEFICIENCY PROCEEDINGS.

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

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

    ``(a) General Rule.--If--
            ``(1) a taxpayer files an oversheltered return for a 
        taxable year,
            ``(2) the Secretary makes a determination with respect to 
        the treatment of items (other than partnership items) of such 
        taxpayer for such taxable year, and
            ``(3) the adjustments resulting from such determination do 
        not give rise to a deficiency (as defined in section 6211) but 
        would give rise to a deficiency if there were no net loss from 
        partnership items,
the Secretary is authorized to send a notice of adjustment reflecting 
such determination to the taxpayer by certified or registered mail.
    ``(b) Oversheltered Return.--For purposes of this section, the term 
`oversheltered return' means an income tax return which--
            ``(1) shows no taxable income for the taxable year, and
            ``(2) shows a net loss from partnership items.
    ``(c) Judicial Review in the Tax Court.--Within 90 days, or 150 
days if the notice is addressed to a person outside the United States, 
after the day on which the notice of adjustment authorized in 
subsection (a) is mailed to the taxpayer, the taxpayer may file a 
petition with the Tax Court for redetermination of the adjustments. 
Upon the filing of such a petition, the Tax Court shall have 
jurisdiction to make a declaration with respect to all items (other 
than partnership items and affected items which require partner level 
determinations as described in section 6230(a)(2)(A)(i)) for the 
taxable year to which the notice of adjustment relates, in accordance 
with the principles of section 6214(a). Any such declaration shall have 
the force and effect of a decision of the Tax Court and shall be 
reviewable as such.
    ``(d) Failure To File Petition.--
            ``(1) In general.--Except as provided in paragraph (2), if 
        the taxpayer does not file a petition with the Tax Court within 
        the time prescribed in subsection (c), the determination of the 
        Secretary set forth in the notice of adjustment that was mailed 
        to the taxpayer shall be deemed to be correct.
            ``(2) Exception.--Paragraph (1) shall not apply after the 
        date that the taxpayer--
                    ``(A) files a petition with the Tax Court within 
                the time prescribed in subsection (c) with respect to a 
                subsequent notice of adjustment relating to the same 
                taxable year, or
                    ``(B) files a claim for refund of an overpayment of 
                tax under section 6511 for the taxable year involved.
        If a claim for refund is filed by the taxpayer, then solely for 
        purposes of determining (for the taxable year involved) the 
        amount of any computational adjustment in connection with a 
        partnership proceeding under this subchapter (other than under 
        this section) or the amount of any deficiency attributable to 
        affected items in a proceeding under section 6230(a)(2), the 
        items that are the subject of the notice of adjustment shall be 
        presumed to have been correctly reported on the taxpayer's 
        return during the pendency of the refund claim (and, if within 
        the time prescribed by section 6532 the taxpayer commences a 
        civil action for refund under section 7422, until the decision 
        in the refund action becomes final).
    ``(e) Limitations Period.--
            ``(1) In general.--Any notice to a taxpayer under 
        subsection (a) shall be mailed before the expiration of the 
        period prescribed by section 6501 (relating to the period of 
        limitations on assessment).
            ``(2) Suspension when secretary mails notice of 
        adjustment.--If the Secretary mails a notice of adjustment to 
        the taxpayer for a taxable year, the period of limitations on 
        the making of assessments shall be suspended for the period 
        during which the Secretary is prohibited from making the 
        assessment (and, in any event, if a proceeding in respect of 
        the notice of adjustment is placed on the docket of the Tax 
        Court, until the decision of the Tax Court becomes final), and 
        for 60 days thereafter.
            ``(3) Restrictions on assessment.--Except as otherwise 
        provided in section 6851, 6852, or 6861, no assessment of a 
        deficiency with respect to any tax imposed by subtitle A 
        attributable to any item (other than a partnership item or any 
        item affected by a partnership item) shall be made--
                    ``(A) until the expiration of the applicable 90-day 
                or 150-day period set forth in subsection (c) for 
                filing a petition with the Tax Court, or
                    ``(B) if a petition has been filed with the Tax 
                Court, until the decision of the Tax Court has become 
                final.
    ``(f) Further Notices of Adjustment Restricted.--If the Secretary 
mails a notice of adjustment to the taxpayer for a taxable year and the 
taxpayer files a petition with the Tax Court within the time prescribed 
in subsection (c), the Secretary may not mail another such notice to 
the taxpayer with respect to the same taxable year in the absence of a 
showing of fraud, malfeasance, or misrepresentation of a material fact.
    ``(g) Coordination With Other Proceedings Under This Subchapter.--
            ``(1) In general.--The treatment of any item that has been 
        determined pursuant to subsection (c) or (d) shall be taken 
        into account in determining the amount of any computational 
        adjustment that is made in connection with a partnership 
        proceeding under this subchapter (other than under this 
        section), or the amount of any deficiency attributable to 
        affected items in a proceeding under section 6230(a)(2), for 
        the taxable year involved. Notwithstanding any other law or 
        rule of law pertaining to the period of limitations on the 
        making of assessments, for purposes of the preceding sentence, 
        any adjustment made in accordance with this section shall be 
        taken into account regardless of whether any assessment has 
        been made with respect to such adjustment.
            ``(2) Special rule in case of computational adjustment.--In 
        the case of a computational adjustment that is made in 
        connection with a partnership proceeding under this subchapter 
        (other than under this section), the provisions of paragraph 
        (1) shall apply only if the computational adjustment is made 
        within the period prescribed by section 6229 for assessing any 
        tax under subtitle A which is attributable to any partnership 
        item or affected item for the taxable year involved.
            ``(3) Conversion to deficiency proceeding.--If--
                    ``(A) after the notice referred to in subsection 
                (a) is mailed to a taxpayer for a taxable year but 
                before the expiration of the period for filing a 
                petition with the Tax Court under subsection (c) (or, 
                if a petition is filed with the Tax Court, before the 
                Tax Court makes a declaration for that taxable year), 
                the treatment of any partnership item for the taxable 
                year is finally determined, or any such item ceases to 
                be a partnership item pursuant to section 6231(b), and
                    ``(B) as a result of that final determination or 
                cessation, a deficiency can be determined with respect 
                to the items that are the subject of the notice of 
                adjustment,
        the notice of adjustment shall be treated as a notice of 
        deficiency under section 6212 and any petition filed in respect 
        of the notice shall be treated as an action brought under 
        section 6213.
            ``(4) Finally determined.--For purposes of this subsection, 
        the treatment of partnership items shall be treated as finally 
        determined if--
                    ``(A) the Secretary enters into a settlement 
                agreement (within the meaning of section 6224) with the 
                taxpayer regarding such items,
                    ``(B) a notice of final partnership administrative 
                adjustment has been issued and--
                            ``(i) no petition has been filed under 
                        section 6226 and the time for doing so has 
                        expired, or
                            ``(ii) a petition has been filed under 
                        section 6226 and the decision of the court has 
                        become final, or
                    ``(C) the period within which any tax attributable 
                to such items may be assessed against the taxpayer has 
                expired.
    ``(h) Special Rules if Secretary Incorrectly Determines Applicable 
Procedure.--
            ``(1) Special rule if secretary erroneously mails notice of 
        adjustment.--If the Secretary erroneously determines that 
        subchapter B does not apply to a taxable year of a taxpayer and 
        consistent with that determination timely mails a notice of 
        adjustment to the taxpayer pursuant to subsection (a) of this 
        section, the notice of adjustment shall be treated as a notice 
        of deficiency under section 6212 and any petition that is filed 
        in respect of the notice shall be treated as an action brought 
        under section 6213.
            ``(2) Special rule if secretary erroneously mails notice of 
        deficiency.--If the Secretary erroneously determines that 
        subchapter B applies to a taxable year of a taxpayer and 
        consistent with that determination timely mails a notice of 
        deficiency to the taxpayer pursuant to section 6212, the notice 
        of deficiency shall be treated as a notice of adjustment under 
        subsection (a) and any petition that is filed in respect of the 
        notice shall be treated as an action brought under subsection 
        (c).''
    (b) Treatment of Partnership Items in Deficiency Proceedings.--
Section 6211 (defining deficiency) is amended by adding at the end the 
following new subsection:
    ``(c) Coordination With Subchapter C.--In determining the amount of 
any deficiency for purposes of this subchapter, adjustments to 
partnership items shall be made only as provided in subchapter C.''
    (c) Clerical Amendment.--The table of sections for subchapter C of 
chapter 63 is amended by adding at the end the following new item:

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

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

SEC. 14312. PARTNERSHIP RETURN TO BE DETERMINATIVE OF AUDIT PROCEDURES 
                    TO BE FOLLOWED.

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

SEC. 14313. PROVISIONS RELATING TO STATUTE OF LIMITATIONS.

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

SEC. 14314. EXPANSION OF SMALL PARTNERSHIP EXCEPTION.

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

SEC. 14315. EXCLUSION OF PARTIAL SETTLEMENTS FROM 1-YEAR LIMITATION ON 
                    ASSESSMENT.

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

SEC. 14316. EXTENSION OF TIME FOR FILING A REQUEST FOR ADMINISTRATIVE 
                    ADJUSTMENT.

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

SEC. 14317. AVAILABILITY OF INNOCENT SPOUSE RELIEF IN CONTEXT OF 
                    PARTNERSHIP PROCEEDINGS.

    (a) In General.--Subsection (a) of section 6230 is amended by 
adding at the end the following new paragraph:
            ``(3) Special rule in case of assertion by partner's spouse 
        of innocent spouse relief.--
                    ``(A) Notwithstanding section 6404(b), if the 
                spouse of a partner asserts that section 6013(e) 
                applies with respect to a liability that is 
                attributable to any adjustment to a partnership item, 
                then such spouse may file with the Secretary within 60 
                days after the notice of computational adjustment is 
                mailed to the spouse a request for abatement of the 
                assessment specified in such notice. Upon receipt of 
                such request, the Secretary shall abate the assessment. 
                Any reassessment of the tax with respect to which an 
                abatement is made under this subparagraph shall be 
                subject to the deficiency procedures prescribed by 
                subchapter B. The period for making any such 
                reassessment shall not expire before the expiration of 
                60 days after the date of such abatement.
                    ``(B) If the spouse files a petition with the Tax 
                Court pursuant to section 6213 with respect to the 
                request for abatement described in subparagraph (A), 
                the Tax Court shall only have jurisdiction pursuant to 
                this section to determine whether the requirements of 
                section 6013(e) have been satisfied. For purposes of 
                such determination, the treatment of partnership items 
                under the settlement, the final partnership 
                administrative adjustment, or the decision of the court 
                (whichever is appropriate) that gave rise to the 
                liability in question shall be conclusive.
                    ``(C) Rules similar to the rules contained in 
                subparagraphs (B) and (C) of paragraph (2) shall apply 
                for purposes of this paragraph.''
    (b) Claims for Refund.--Subsection (c) of section 6230 is amended 
by adding at the end the following new paragraph:
            ``(5) Rules for seeking innocent spouse relief.--
                    ``(A) In general.--The spouse of a partner may file 
                a claim for refund on the ground that the Secretary 
                failed to relieve the spouse under section 6013(e) from 
                a liability that is attributable to an adjustment to a 
                partnership item.
                    ``(B) Time for filing claim.--Any claim under 
                subparagraph (A) shall be filed within 6 months after 
                the day on which the Secretary mails to the spouse the 
                notice of computational adjustment referred to in 
                subsection (a)(3)(A).
                    ``(C) Suit if claim not allowed.--If the claim 
                under subparagraph (B) is not allowed, the spouse may 
                bring suit with respect to the claim within the period 
                specified in paragraph (3).
                    ``(D) Prior determinations are binding.--For 
                purposes of any claim or suit under this paragraph, the 
                treatment of partnership items under the settlement, 
                the final partnership administrative adjustment, or the 
                decision of the court (whichever is appropriate) that 
                gave rise to the liability in question shall be 
                conclusive.''
    (c) Technical Amendments.--
            (1) Paragraph (1) of section 6230(a) is amended by striking 
        ``paragraph (2)'' and inserting ``paragraph (2) or (3)''.
            (2) Subsection (a) of section 6503 is amended by striking 
        ``section 6230(a)(2)(A)'' and inserting ``paragraph (2)(A) or 
        (3) of section 6230(a)''.
    (d) Effective Date.--The amendments made by this section shall take 
effect as if included in the amendments made by section 402 of the Tax 
Equity and Fiscal Responsibility Act of 1982.

SEC. 14318. DETERMINATION OF PENALTIES AT PARTNERSHIP LEVEL.

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

SEC. 14319. PROVISIONS RELATING TO COURT JURISDICTION, ETC.

    (a) Tax Court Jurisdiction To Enjoin Premature Assessments of 
Deficiencies Attributable to Partnership Items.--Subsection (b) of 
section 6225 is amended by striking ``the proper court.'' and inserting 
``the proper court, including the Tax Court. The Tax Court shall have 
no jurisdiction to enjoin any action or proceeding under this 
subsection unless a timely petition for a readjustment of the 
partnership items for the taxable year has been filed and then only in 
respect of the adjustments that are the subject of such petition.''
    (b) Jurisdiction To Consider Statute of Limitations With Respect to 
Partners.--Paragraph (1) of section 6226(d) is amended by adding at the 
end the following new sentence:
        ``Notwithstanding subparagraph (B), any person treated under 
        subsection (c) as a party to an action shall be permitted to 
        participate in such action (or file a readjustment petition 
        under subsection (b) or paragraph (2) of this subsection) 
        solely for the purpose of asserting that the period of 
        limitations for assessing any tax attributable to partnership 
        items has expired with respect to such person, and the court 
        having jurisdiction of such action shall have jurisdiction to 
        consider such assertion.''
    (c) Tax Court Jurisdiction To Determine Overpayments Attributable 
to Affected Items.--
            (1) Paragraph (6) of section 6230(d) is amended by striking 
        ``(or an affected item)''.
            (2) Paragraph (3) of section 6512(b) is amended by adding 
        at the end the following new sentence:
        ``In the case of a credit or refund relating to an affected 
        item (within the meaning of section 6231(a)(5)), the preceding 
        sentence shall be applied by substituting the periods under 
        sections 6229 and 6230(d) for the periods under section 
        6511(b)(2), (c), and (d).''
    (d) Venue on Appeal.--
            (1) Paragraph (1) of section 7482(b) is amended by striking 
        ``or'' at the end of subparagraph (D), by striking the period 
        at the end of subparagraph (E) and inserting ``, or'', and by 
        inserting after subparagraph (E) the following new 
        subparagraph:
                    ``(F) in the case of a petition under section 
                6234(c)--
                            ``(i) the legal residence of the petitioner 
                        if the petitioner is not a corporation, and
                            ``(ii) the place or office applicable under 
                        subparagraph (B) if the petitioner is a 
                        corporation.''
            (2) The last sentence of section 7482(b)(1) is amended by 
        striking ``or 6228(a)'' and inserting ``, 6228(a), or 
        6234(c)''.
    (e) Other Provisions.--
            (1) Subsection (c) of section 7459 is amended by striking 
        ``or section 6228(a)'' and inserting ``, 6228(a), or 6234(c)''.
            (2) Subsection (o) of section 6501 is amended by adding at 
        the end the following new paragraph:
            ``(3) For declaratory judgment relating to treatment of 
        items other than partnership items with respect to an 
        oversheltered return, see section 6234.''
    (f) Effective Date.--The amendments made by this section shall 
apply to partnership taxable years ending after the date of the 
enactment of this Act.

SEC. 14320. TREATMENT OF PREMATURE PETITIONS FILED BY NOTICE PARTNERS 
                    OR 5-PERCENT GROUPS.

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

SEC. 14321. BONDS IN CASE OF APPEALS FROM CERTAIN PROCEEDING.

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

SEC. 14322. SUSPENSION OF INTEREST WHERE DELAY IN COMPUTATIONAL 
                    ADJUSTMENT RESULTING FROM CERTAIN SETTLEMENTS.

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

SEC. 14323. SPECIAL RULES FOR ADMINISTRATIVE ADJUSTMENT REQUESTS WITH 
                    RESPECT TO BAD DEBTS OR WORTHLESS SECURITIES.

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

                     Subtitle D--Foreign Provisions

   PART I--MODIFICATIONS TO TREATMENT OF PASSIVE FOREIGN INVESTMENT 
                               COMPANIES

SEC. 14401. UNITED STATES SHAREHOLDERS OF CONTROLLED FOREIGN 
                    CORPORATIONS NOT SUBJECT TO PFIC INCLUSION.

    Section 1296 is amended by adding at the end the following new 
subsection:
    ``(e) Exception for United States Shareholders of Controlled 
Foreign Corporations.--
            ``(1) In general.--For purposes of this part, a corporation 
        shall not be treated with respect to a shareholder as a passive 
        foreign investment company during the qualified portion of such 
        shareholder's holding period with respect to stock in such 
        corporation.
            ``(2) Qualified portion.--For purposes of this subsection, 
        the term `qualified portion' means the portion of the 
        shareholder's holding period--
                    ``(A) which is after December 31, 1995, and
                    ``(B) during which the shareholder is a United 
                States shareholder (as defined in section 951(b)) of 
                the corporation and the corporation is a controlled 
                foreign corporation.
            ``(3) New holding period if qualified portion ends.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), if the qualified portion of a 
                shareholder's holding period with respect to any stock 
                ends after December 31, 1995, solely for purposes of 
                this part, the shareholder's holding period with 
                respect to such stock shall be treated as beginning as 
                of the first day following such period.
                    ``(B) Exception.--Subparagraph (A) shall not apply 
                if such stock was, with respect to such shareholder, 
                stock in a passive foreign investment company at any 
                time before the qualified portion of the shareholder's 
                holding period with respect to such stock and no 
                election under section 1298(b)(1) is made.''

SEC. 14402. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK IN PASSIVE 
                    FOREIGN INVESTMENT COMPANY.

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

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

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

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

    ``(a) General Rule.--In the case of marketable stock in a passive 
foreign investment company which is owned (or treated under subsection 
(g) as owned) by a United States person at the close of any taxable 
year of such person, at the election of such person--
            ``(1) If the fair market value of such stock as of the 
        close of such taxable year exceeds its adjusted basis, such 
        United States person shall include in gross income for such 
        taxable year an amount equal to the amount of such excess.
            ``(2) If the adjusted basis of such stock exceeds the fair 
        market value of such stock as of the close of such taxable 
        year, such United States person shall be allowed a deduction 
        for such taxable year equal to the lesser of--
                    ``(A) the amount of such excess, or
                    ``(B) the unreversed inclusions with respect to 
                such stock.
    ``(b) Basis Adjustments.--
            ``(1) In general.--The adjusted basis of stock in a passive 
        foreign investment company--
                    ``(A) shall be increased by the amount included in 
                the gross income of the United States person under 
                subsection (a)(1) with respect to such stock, and
                    ``(B) shall be decreased by the amount allowed as a 
                deduction to the United States person under subsection 
                (a)(2) with respect to such stock.
            ``(2) Special rule for stock constructively owned.--In the 
        case of stock in a passive foreign investment company which the 
        United States person is treated as owning under subsection 
        (g)--
                    ``(A) the adjustments under paragraph (1) shall 
                apply to such stock in the hands of the person actually 
                holding such stock but only for purposes of determining 
                the subsequent treatment under this chapter of the 
                United States person with respect to such stock, and
                    ``(B) similar adjustments shall be made to the 
                adjusted basis of the property by reason of which the 
                United States person is treated as owning such stock.
    ``(c) Character and Source Rules.--
            ``(1) Ordinary treatment.--
                    ``(A) Gain.--Any amount included in gross income 
                under subsection (a)(1), and any gain on the sale or 
                other disposition of marketable stock in a passive 
                foreign investment company (with respect to which an 
                election under this section is in effect), shall be 
                treated as ordinary income.
                    ``(B) Loss.--Any--
                            ``(i) amount allowed as a deduction under 
                        subsection (a)(2), and
                            ``(ii) loss on the sale or other 
                        disposition of marketable stock in a passive 
                        foreign investment company (with respect to 
                        which an election under this section is in 
                        effect) to the extent that the amount of such 
                        loss does not exceed the unreversed inclusions 
                        with respect to such stock,
                shall be treated as an ordinary loss. The amount so 
                treated shall be treated as a deduction allowable in 
                computing adjusted gross income.
            ``(2) Source.--The source of any amount included in gross 
        income under subsection (a)(1) (or allowed as a deduction under 
        subsection (a)(2)) shall be determined in the same manner as if 
        such amount were gain or loss (as the case may be) from the 
        sale of stock in the passive foreign investment company.
    ``(d) Unreversed Inclusions.--For purposes of this section, the 
term `unreversed inclusions' means, with respect to any stock in a 
passive foreign investment company, the excess (if any) of--
            ``(1) the amount included in gross income of the taxpayer 
        under subsection (a)(1) with respect to such stock for prior 
        taxable years, over
            ``(2) the amount allowed as a deduction under subsection 
        (a)(2) with respect to such stock for prior taxable years.
The amount referred to in paragraph (1) shall include any amount which 
would have been included in gross income under subsection (a)(1) with 
respect to such stock for any prior taxable year but for section 1291.
    ``(e) Marketable Stock.--For purposes of this section--
            ``(1) In general.--The term `marketable stock' means--
                    ``(A) any stock which is regularly traded on--
                            ``(i) a national securities exchange which 
                        is registered with the Securities and Exchange 
                        Commission or the national market system 
                        established pursuant to section 11A of the 
                        Securities and Exchange Act of 1934, or
                            ``(ii) any exchange or other market which 
                        the Secretary determines has rules adequate to 
                        carry out the purposes of this part,
                    ``(B) to the extent provided in regulations, stock 
                in any foreign corporation which is comparable to a 
                regulated investment company and which offers for sale 
                or has outstanding any stock of which it is the issuer 
                and which is redeemable at its net asset value, and
                    ``(C) to the extent provided in regulations, any 
                option on stock described in subparagraph (A) or (B).
            ``(2) Special rule for regulated investment companies.--In 
        the case of any regulated investment company which is offering 
        for sale or has outstanding any stock of which it is the issuer 
        and which is redeemable at its net asset value, all stock in a 
        passive foreign investment company which it owns directly or 
        indirectly shall be treated as marketable stock for purposes of 
        this section. Except as provided in regulations, similar 
        treatment as marketable stock shall apply in the case of any 
        other regulated investment company which publishes net asset 
        valuations at least annually.
    ``(f) Treatment of Controlled Foreign Corporations Which are 
Shareholders in Passive Foreign Investment Companies.--In the case of a 
foreign corporation which is a controlled foreign corporation and which 
owns (or is treated under subsection (g) as owning) stock in a passive 
foreign investment company--
            ``(1) this section (other than subsection (c)(2)) shall 
        apply to such foreign corporation in the same manner as if such 
        corporation were a United States person, and
            ``(2) for purposes of subpart F of part III of subchapter 
        N--
                    ``(A) any amount included in gross income under 
                subsection (a)(1) shall be treated as foreign personal 
                holding company income described in section 
                954(c)(1)(A), and
                    ``(B) any amount allowed as a deduction under 
                subsection (a)(2) shall be treated as a deduction 
                allocable to foreign personal holding company income so 
                described.
    ``(g) Stock Owned Through Certain Foreign Entities.--Except as 
provided in regulations--
            ``(1) In general.--For purposes of this section, stock 
        owned, directly or indirectly, by or for a foreign partnership 
        or foreign trust or foreign estate shall be considered as being 
        owned proportionately by its partners or beneficiaries. Stock 
        considered to be owned by a person by reason of the application 
        of the preceding sentence shall, for purposes of applying such 
        sentence, be treated as actually owned by such person.
            ``(2) Treatment of certain dispositions.--In any case in 
        which a United States person is treated as owning stock in a 
        passive foreign investment company by reason of paragraph (1)--
                    ``(A) any disposition by the United States person 
                or by any other person which results in the United 
                States person being treated as no longer owning such 
                stock, and
                    ``(B) any disposition by the person owning such 
                stock,
        shall be treated as a disposition by the United States person 
        of the stock in the passive foreign investment company.
    ``(h) Coordination With Section 851(b).--For purposes of paragraphs 
(2) and (3) of section 851(b), any amount included in gross income 
under subsection (a) shall be treated as a dividend.
    ``(i) Stock Acquired From a Decedent.--In the case of stock of a 
passive foreign investment company which is acquired by bequest, 
devise, or inheritance (or by the decedent's estate) and with respect 
to which an election under this section was in effect as of the date of 
the decedent's death, notwithstanding section 1014, the basis of such 
stock in the hands of the person so acquiring it shall be the adjusted 
basis of such stock in the hands of the decedent immediately before his 
death (or, if lesser, the basis which would have been determined under 
section 1014 without regard to this subsection).
    ``(j) Coordination With Section 1291 For First Year of Election.--
            ``(1) Taxpayers other than regulated investment 
        companies.--
                    ``(A) In general.--If the taxpayer elects the 
                application of this section with respect to any 
                marketable stock in a corporation after the beginning 
                of the taxpayer's holding period in such stock, and if 
                the requirements of subparagraph (B) are not satisfied, 
                section 1291 shall apply to--
                            ``(i) any distributions with respect to, or 
                        disposition of, such stock in the first taxable 
                        year of the taxpayer for which such election is 
                        made, and
                            ``(ii) any amount which, but for section 
                        1291, would have been included in gross income 
                        under subsection (a) with respect to such stock 
                        for such taxable year in the same manner as if 
                        such amount were gain on the disposition of 
                        such stock.
                    ``(B) Requirements.--The requirements of this 
                subparagraph are met if, with respect to each of such 
                corporation's taxable years for which such corporation 
                was a passive foreign investment company and which 
                begin after December 31, 1986, and included any portion 
                of the taxpayer's holding period in such stock, such 
                corporation was treated as a qualified electing fund 
                under this part with respect to the taxpayer.
            ``(2) Special rules for regulated investment companies.--
                    ``(A) In general.--If a regulated investment 
                company elects the application of this section with 
                respect to any marketable stock in a corporation after 
                the beginning of the taxpayer's holding period in such 
                stock, then, with respect to such company's first 
                taxable year for which such company elects the 
                application of this section with respect to such 
                stock--
                            ``(i) section 1291 shall not apply to such 
                        stock with respect to any distribution or 
                        disposition during, or amount included in gross 
                        income under this section for, such first 
                        taxable year, but
                            ``(ii) such regulated investment company's 
                        tax under this chapter for such first taxable 
                        year shall be increased by the aggregate amount 
                        of interest which would have been determined 
                        under section 1291(c)(3) if section 1291 were 
                        applied without regard to this subparagraph.
                Clause (ii) shall not apply if for the preceding 
                taxable year the company elected to mark to market the 
                stock held by such company as of the last day of such 
                preceding taxable year.
                    ``(B) Disallowance of deduction.--No deduction 
                shall be allowed to any regulated investment company 
                for the increase in tax under subparagraph (A)(ii).
    ``(k) Election.--This section shall apply to marketable stock in a 
passive foreign investment company which is held by a United States 
person only if such person elects to apply this section with respect to 
such stock. Such an election shall apply to the taxable year for which 
made and all subsequent taxable years unless--
            ``(1) such stock ceases to be marketable stock, or
            ``(2) the Secretary consents to the revocation of such 
        election.
    ``(l) Transition Rule for Individuals Becoming Subject to United 
States Tax.--If any individual becomes a United States person in a 
taxable year beginning after December 31, 1995, solely for purposes of 
this section, the adjusted basis (before adjustments under subsection 
(b)) of any marketable stock in a passive foreign investment company 
owned by such individual on the first day of such taxable year shall be 
treated as being the greater of its fair market value on such first day 
or its adjusted basis on such first day.''
    (b) Coordination With Interest Charge, Etc.--
            (1) Paragraph (1) of section 1291(d) is amended by adding 
        at the end the following new flush sentence:
        ``Except as provided in section 1296(j), this section also 
        shall not apply if an election under section 1296(k) is in 
        effect for the taxpayer's taxable year.''
            (2) The subsection heading for subsection (d) of section 
        1291 is amended by striking ``Subpart B'' and inserting 
        ``Subparts B and C''.
            (3) Subparagraph (A) of section 1291(a)(3) is amended to 
        read as follows:
                    ``(A) Holding period.--The taxpayer's holding 
                period shall be determined under section 1223; except 
                that--
                            ``(i) for purposes of applying this section 
                        to an excess distribution, such holding period 
                        shall be treated as ending on the date of such 
                        distribution, and
                            ``(ii) if section 1296 applied to such 
                        stock with respect to the taxpayer for any 
                        prior taxable year, such holding period shall 
                        be treated as beginning on the first day of the 
                        first taxable year beginning after the last 
                        taxable year for which section 1296 so 
                        applied.''
    (c) Conforming Amendments.--
            (1) Sections 532(b)(4) and 542(c)(10) are each amended by 
        striking ``section 1296'' and inserting ``section 1297''.
            (2) Subsection (f) of section 551 is amended by striking 
        ``section 1297(b)(5)'' and inserting ``section 1298(b)(5)''
            (3) Subsections (a)(1) and (d) of section 1293 are each 
        amended by striking ``section 1297(a)'' and inserting ``section 
        1298(a)''.
            (4) Paragraph (3) of section 1297(b), as redesignated by 
        subsection (a), is hereby repealed.
            (5) The table of sections for subpart D of part VI of 
        subchapter P of chapter 1, as redesignated by subsection (a), 
        is amended to read as follows:

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

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

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

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

SEC. 14403. MODIFICATIONS TO DEFINITION OF PASSIVE INCOME.

    (a) Exception for Same Country Income Not To Apply.--Paragraph (1) 
of section 1297(b) (defining passive income), as redesignated by 
section 14402, is amended by inserting before the period ``without 
regard to paragraph (3) thereof''.
    (b) Passive Income Not To Include FSC Income.--Paragraph (2) of 
section 1297(b), as so redesignated, is amended by striking ``or'' at 
the end of subparagraph (B), by striking the period at the end of 
subparagraph (C) and inserting ``, or'', and by inserting after 
subparagraph (C) the following new subparagraph:
                    ``(D) any foreign trade income of a FSC.''

SEC. 14404. EFFECTIVE DATE.

    The amendments made by this part shall apply to--
            (1) taxable years of United States persons beginning after 
        December 31, 1995, and
            (2) taxable years of foreign corporations ending with or 
        within such taxable years of United States persons.

         PART II--TREATMENT OF CONTROLLED FOREIGN CORPORATIONS

SEC. 14411. GAIN ON CERTAIN STOCK SALES BY CONTROLLED FOREIGN 
                    CORPORATIONS TREATED AS DIVIDENDS.

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

SEC. 14412. MISCELLANEOUS MODIFICATIONS TO SUBPART F.

    (a) Section 1248 Gain Taken Into Account in Determining Pro Rata 
Share.--
            (1) In general.--Paragraph (2) of section 951(a) (defining 
        pro rata share of subpart F income) is amended by adding at the 
        end the following new sentence: ``For purposes of subparagraph 
        (B), any gain included in the gross income of any person as a 
        dividend under section 1248 shall be treated as a distribution 
        received by such person with respect to the stock involved.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to dispositions after the date of the enactment of 
        this Act.
    (b) Basis Adjustments in Stock Held by Foreign Corporation.--
            (1) In general.--Section 961 (relating to adjustments to 
        basis of stock in controlled foreign corporations and of other 
        property) is amended by adding at the end the following new 
        subsection:
    ``(c) Basis Adjustments in Stock Held by Foreign Corporation.--
Under regulations prescribed by the Secretary, if a United States 
shareholder is treated under section 958(a)(2) as owning any stock in a 
controlled foreign corporation which is actually owned by another 
controlled foreign corporation, adjustments similar to the adjustments 
provided by subsections (a) and (b) shall be made to the basis of such 
stock in the hands of such other controlled foreign corporation, but 
only for the purposes of determining the amount included under section 
951 in the gross income of such United States shareholder (or any other 
United States shareholder who acquires from any person any portion of 
the interest of such United States shareholder by reason of which such 
shareholder was treated as owning such stock, but only to the extent of 
such portion, and subject to such proof of identity of such interest as 
the Secretary may prescribe by regulations).''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply for purposes of determining inclusions for taxable 
        years of United States shareholders beginning after December 
        31, 1995.
    (c) Determination of Previously Taxed Income in Section 304 
Distributions, Etc.--
            (1) In general.--Section 959 (relating to exclusion from 
        gross income of previously taxed earnings and profits) is 
        amended by adding at the end the following new subsection:
    ``(g) Adjustments for Certain Transactions.--If by reason of--
            ``(1) a transaction to which section 304 applies,
            ``(2) the structure of a United States shareholder's 
        holdings in controlled foreign corporations, or
            ``(3) other circumstances,
there would be a multiple inclusion of any item in income (or an 
inclusion or exclusion without an appropriate basis adjustment) by 
reason of this subpart, the Secretary may prescribe regulations 
providing such modifications in the application of this subpart as may 
be necessary to eliminate such multiple inclusion or provide such basis 
adjustment, as the case may be.''
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act.
    (d) Clarification of Treatment of Branch Tax Exemptions or 
Reductions.--
            (1) In general.--Subsection (b) of section 952 is amended 
        by adding at the end the following new sentence: ``For purposes 
        of this subsection, any exemption (or reduction) with respect 
        to the tax imposed by section 884 shall not be taken into 
        account.''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to taxable years beginning after December 31, 1986.

SEC. 14413. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR CERTAIN LOWER TIER 
                    COMPANIES.

    (a) Section 902 Credit.--
            (1) In general.--Subsection (b) of section 902 (relating to 
        deemed taxes increased in case of certain 2nd and 3rd tier 
        foreign corporations) is amended to read as follows:
    ``(b) Deemed Taxes Increased in Case of Certain Lower Tier 
Corporations.--
            ``(1) In general.--If--
                    ``(A) any foreign corporation is a member of a 
                qualified group, and
                    ``(B) such foreign corporation owns 10 percent or 
                more of the voting stock of another member of such 
                group from which it receives dividends in any taxable 
                year,
        such foreign corporation shall be deemed to have paid the same 
        proportion of such other member's post-1986 foreign income 
        taxes as would be determined under subsection (a) if such 
        foreign corporation were a domestic corporation.
            ``(2) Qualified group.--For purposes of paragraph (1), the 
        term `qualified group' means--
                    ``(A) the foreign corporation described in 
                subsection (a), and
                    ``(B) any other foreign corporation if--
                            ``(i) the domestic corporation owns at 
                        least 5 percent of the voting stock of such 
                        other foreign corporation indirectly through a 
                        chain of foreign corporations connected through 
                        stock ownership of at least 10 percent of their 
                        voting stock,
                            ``(ii) the foreign corporation described in 
                        subsection (a) is the first tier corporation in 
                        such chain, and
                            ``(iii) such other corporation is not below 
                        the sixth tier in such chain.
        The term `qualified group' shall not include any foreign 
        corporation below the third tier in the chain referred to in 
        clause (i) unless such foreign corporation is a controlled 
        foreign corporation (as defined in section 957) and the 
        domestic corporation is a United States shareholder (as defined 
        in section 951(b)) in such foreign corporation. Paragraph (1) 
        shall apply to those taxes paid by a member of the qualified 
        group below the third tier only with respect to periods during 
        which it was a controlled foreign corporation.''
            (2) Conforming amendments.--
                    (A) Subparagraph (B) of section 902(c)(3) is 
                amended by adding ``or'' at the end of clause (i) and 
                by striking clauses (ii) and (iii) and inserting the 
                following new clause:
                            ``(ii) the requirements of subsection 
                        (b)(2) are met with respect to such foreign 
                        corporation.''
                    (B) Subparagraph (B) of section 902(c)(4) is 
                amended by striking ``3rd foreign corporation'' and 
                inserting ``sixth tier foreign corporation''.
                    (C) The heading for paragraph (3) of section 902(c) 
                is amended by striking ``where domestic corporation 
                acquires 10 percent of foreign corporation'' and 
                inserting ``where foreign corporation first 
                qualifies''.
                    (D) Paragraph (3) of section 902(c) is amended by 
                striking ``ownership'' each place it appears.
    (b) Section 960 Credit.--Paragraph (1) of section 960(a) (relating 
to special rules for foreign tax credits) is amended to read as 
follows:
            ``(1) Deemed paid credit.--For purposes of subpart A of 
        this part, if there is included under section 951(a) in the 
        gross income of a domestic corporation any amount attributable 
        to earnings and profits of a foreign corporation which is a 
        member of a qualified group (as defined in section 902(b)) with 
        respect to the domestic corporation, then, except to the extent 
        provided in regulations, section 902 shall be applied as if the 
        amount so included were a dividend paid by such foreign 
        corporation (determined by applying section 902(c) in 
        accordance with section 904(d)(3)(B)).''
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxes of foreign corporations for taxable years of 
        such corporations beginning after the date of enactment of this 
        Act.
            (2) Special rule.--In the case of any chain of foreign 
        corporations described in clauses (i) and (ii) of section 
        902(b)(2)(B) of the Internal Revenue Code of 1986 (as amended 
        by this section), no liquidation, reorganization, or similar 
        transaction in a taxable year beginning after the date of the 
        enactment of this Act shall have the effect of permitting taxes 
        to be taken into account under section 902 of the Internal 
        Revenue Code of 1986 which could not have been taken into 
        account under such section but for such transaction.

SEC. 14414. REPEAL OF INCLUSION OF CERTAIN EARNINGS INVESTED IN EXCESS 
                    PASSIVE ASSETS.

    (a) In General.--
            (1) Repeal of inclusion.--Paragraph (1) of section 951(a) 
        (relating to amounts included in gross income of United States 
        shareholders) is amended by striking subparagraph (C), by 
        striking ``; and'' at the end of subparagraph (B) and inserting 
        a period, and by adding ``and'' at the end of subparagraph (A).
            (2) Repeal of inclusion amount.--Section 956A (relating to 
        earnings invested in excess passive assets) is repealed.
    (b) Conforming Amendments.--
            (1) Subparagraph (G) of section 904(d)(3) is amended by 
        striking ``subparagraph (B) or (C) of section 951(a)(1)'' and 
        inserting ``section 951(a)(1)(B)''.
            (2) Paragraph (1) of section 956(b) is amended to read as 
        follows:
            ``(1) Applicable earnings.--For purposes of this section, 
        the term `applicable earnings' means, with respect to any 
        controlled foreign corporation, the sum of--
                    ``(A) the amount (not including a deficit) referred 
                to in section 316(a)(1), and
                    ``(B) the amount referred to in section 316(a)(2),
        but reduced by distributions made during the taxable year.''
            (3) Paragraph (3) of section 956(b) is amended to read as 
        follows:
            ``(3) Special rule where corporation ceases to be 
        controlled foreign corporation.--If any foreign corporation 
        ceases to be a controlled foreign corporation during any 
        taxable year--
                    ``(A) the determination of any United States 
                shareholder's pro rata share shall be made on the basis 
                of stock owned (within the meaning of section 958(a)) 
                by such shareholder on the last day during the taxable 
                year on which the foreign corporation is a controlled 
                foreign corporation,
                    ``(B) the average referred to in subsection 
                (a)(1)(A) for such taxable year shall be determined by 
                only taking into account quarters ending on or before 
                such last day, and
                    ``(C) in determining applicable earnings, the 
                amount taken into account by reason of being described 
                in paragraph (2) of section 316(a) shall be the portion 
                of the amount so described which is allocable (on a pro 
                rata basis) to the part of such year during which the 
                corporation is a controlled foreign corporation.''
            (4) Subsection (a) of section 959 (relating to exclusion 
        from gross income of previously taxed earnings and profits) is 
        amended by adding ``or'' at the end of paragraph (1), by 
        striking ``or'' at the end of paragraph (2), and by striking 
        paragraph (3).
            (5) Subsection (a) of section 959 is amended by striking 
        ``paragraphs (2) and (3)'' in the last sentence and inserting 
        ``paragraph (2)''.
            (6) Subsection (c) of section 959 is amended by adding at 
        the end the following flush sentence:
``References in this subsection to section 951(a)(1)(C) and subsection 
(a)(3) shall be treated as references to such provisions as in effect 
on the day before the date of the enactment of the Tax Simplification 
Act of 1995.''
            (7) Paragraph (1) of section 959(f) is amended to read as 
        follows:
            ``(1) In general.--For purposes of this section, amounts 
        that would be included under subparagraph (B) of section 
        951(a)(1) (determined without regard to this section) shall be 
        treated as attributable first to earnings described in 
        subsection (c)(2), and then to earnings described in subsection 
        (c)(3).''
            (8) Paragraph (2) of section 959(f) is amended by striking 
        ``subparagraphs (B) and (C) of section 951(a)(1)'' and 
        inserting ``section 951(a)(1)(B)''.
            (9) Subsection (b) of section 989 is amended by striking 
        ``subparagraph (B) or (C) of section 951(a)(1)'' and inserting 
        ``section 951(a)(1)(B)''.
            (10) Paragraph (9) of section 1298(b), as redesignated by 
        section 14402, is amended by striking ``subparagraph (B) or (C) 
        of section 951(a)(1)'' and inserting ``section 951(a)(1)(B)''.
            (11) Subsections (d)(3)(B) and (e)(2)(B)(ii) of section 
        1298, as redesignated by section 14402, are each amended by 
        striking ``or section 956A''.
    (c) Clerical Amendment.--The table of sections for subpart F of 
part III of subchapter N of chapter 1 is amended by striking the item 
relating to section 956A.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after 
September 30, 1995, and to taxable years of United States shareholders 
within which or with which such taxable years of foreign corporations 
end.

                       PART III--OTHER PROVISIONS

SEC. 14421. EXCHANGE RATE USED IN TRANSLATING FOREIGN TAXES.

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

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

            ``(2) Translation of taxes to which paragraph (1) does not 
        apply.--For purposes of determining the amount of the foreign 
        tax credit, in the case of any foreign income taxes to which 
        subparagraph (A) of paragraph (1) does not apply--
                    ``(A) such taxes shall be translated into dollars 
                using the exchange rates as of the time such taxes were 
                paid to the foreign country or possession of the United 
                States, and
                    ``(B) any adjustment to the amount of such taxes 
                shall be translated into dollars using--
                            ``(i) except as provided in clause (ii), 
                        the exchange rate as of the time when such 
                        adjustment is paid to the foreign country or 
                        possession, or
                            ``(ii) in the case of any refund or credit 
                        of foreign income taxes, using the exchange 
                        rate as of the time of the original payment of 
                        such foreign income taxes.
            ``(3) Foreign income taxes.--For purposes of this 
        subsection, the term `foreign income taxes' means any income, 
        war profits, or excess profits taxes paid or accrued to any 
        foreign country or to any possession of the United States.''
            (2) Adjustment when not paid within 2 years after year to 
        which taxes relate.--Subsection (c) of section 905 is amended 
        to read as follows:
    ``(c) Adjustments to Accrued Taxes.--
            ``(1) In general.--If--
                    ``(A) accrued taxes when paid differ from the 
                amounts claimed as credits by the taxpayer,
                    ``(B) accrued taxes are not paid before the date 2 
                years after the close of the taxable year to which such 
                taxes relate, or
                    ``(C) any tax paid is refunded in whole or in part,
        the taxpayer shall notify the Secretary, who shall redetermine 
        the amount of the tax for the year or years affected.
            ``(2) Special rule for taxes not paid within 2 years.--In 
        making the redetermination under paragraph (1), no credit shall 
        be allowed for accrued taxes not paid before the date referred 
        to in subparagraph (B) of paragraph (1). Any such taxes if 
        subsequently paid shall be taken into account for the taxable 
        year in which paid and no redetermination under this section 
        shall be made on account of such payment.
            ``(3) Adjustments.--The amount of tax due on any 
        redetermination under paragraph (1) (if any) shall be paid by 
        the taxpayer on notice and demand by the Secretary, and the 
        amount of tax overpaid (if any) shall be credited or refunded 
        to the taxpayer in accordance with subchapter B of chapter 66 
        (section 6511 et seq.).
            ``(4) Bond requirements.--In the case of any tax accrued 
        but not paid, the Secretary, as a condition precedent to the 
        allowance of the credit provided in this subpart, may require 
        the taxpayer to give a bond, with sureties satisfactory to and 
        approved by the Secretary, in such sum as the Secretary may 
        require, conditioned on the payment by the taxpayer of any 
        amount of tax found due on any such redetermination. Any such 
        bond shall contain such further conditions as the Secretary may 
        require.
            ``(5) Other special rules.--In any redetermination under 
        paragraph (1) by the Secretary of the amount of tax due from 
        the taxpayer for the year or years affected by a refund, the 
        amount of the taxes refunded for which credit has been allowed 
        under this section shall be reduced by the amount of any tax 
        described in section 901 imposed by the foreign country or 
        possession of the United States with respect to such refund; 
        but no credit under this subpart, or deduction under section 
        164, shall be allowed for any taxable year with respect to any 
        such tax imposed on the refund. No interest shall be assessed 
        or collected on any amount of tax due on any redetermination by 
        the Secretary, resulting from a refund to the taxpayer, for any 
        period before the receipt of such refund, except to the extent 
        interest was paid by the foreign country or possession of the 
        United States on such refund for such period.''
    (b) Authority to Use Average Rates.--
            (1) In general.--Subsection (a) of section 986 (as amended 
        by subsection (a)) is amended by redesignating paragraph (3) as 
        paragraph (4) and inserting after paragraph (2) the following 
        new paragraph:
            ``(3) Authority to permit use of average rates.--To the 
        extent prescribed in regulations, the average exchange rate for 
        the period (specified in such regulations) during which the 
        taxes or adjustment is paid may be used instead of the exchange 
        rate as of the time of such payment.''
            (2) Determination of average rates.--Subsection (c) of 
        section 989 is amended by striking ``and'' at the end of 
        paragraph (4), by striking the period at the end of paragraph 
        (5) and inserting ``, and'', and by adding at the end the 
        following new paragraph:
            ``(6) setting forth procedures for determining the average 
        exchange rate for any period.''
            (3) Conforming amendments.--Subsection (b) of section 989 
        is amended by striking ``weighted'' each place it appears.
    (c) Effective Dates.--
            (1) In general.--The amendments made by subsections (a)(1) 
        and (b) shall apply to taxes paid or accrued in taxable years 
        beginning after December 31, 1995.
            (2) Subsection (a)(2).--The amendment made by subsection 
        (a)(2) shall apply to taxes which relate to taxable years 
        beginning after December 31, 1995.

SEC. 14422. ELECTION TO USE SIMPLIFIED SECTION 904 LIMITATION FOR 
                    ALTERNATIVE MINIMUM TAX.

    (a) General Rule.--Subsection (a) of section 59 (relating to 
alternative minimum tax foreign tax credit) is amended by adding at the 
end the following new paragraph:
            ``(3) Election to use simplified section 904 limitation.--
                    ``(A) In general.--In determining the alternative 
                minimum tax foreign tax credit for any taxable year to 
                which an election under this paragraph applies--
                            ``(i) subparagraph (B) of paragraph (1) 
                        shall not apply, and
                            ``(ii) the limitation of section 904 shall 
                        be based on the proportion which--
                                    ``(I) the taxpayer's taxable income 
                                (as determined for purposes of the 
                                regular tax) from sources without the 
                                United States (but not in excess of the 
                                taxpayer's entire alternative minimum 
                                taxable income), bears to
                                    ``(II) the taxpayer's entire 
                                alternative minimum taxable income for 
                                the taxable year.
                    ``(B) Election.--
                            ``(i) In general.--An election under this 
                        paragraph may be made only for the taxpayer's 
                        first taxable year which begins after December 
                        31, 1995, and for which the taxpayer claims an 
                        alternative minimum tax foreign tax credit.
                            ``(ii) Election revocable only with 
                        consent.--An election under this paragraph, 
                        once made, shall apply to the taxable year for 
                        which made and all subsequent taxable years 
                        unless revoked with the consent of the 
                        Secretary.''
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 14423. MODIFICATION OF SECTION 1491.

    (a) General Rule.--So much of chapter 5 (relating to tax on 
transfers to avoid income tax) as precedes section 1492 is amended to 
read as follows:

        ``CHAPTER 5--TREATMENT OF TRANSFERS TO AVOID INCOME TAX

                              ``Sec. 1491. Recognition of gain.
                              ``Sec. 1492. Exceptions.

``SEC. 1491. RECOGNITION OF GAIN.

    ``In the case of any transfer of property by a United States person 
to a foreign corporation as paid-in surplus or as a contribution to 
capital, to a foreign estate or trust, or to a foreign partnership, for 
purposes of this subtitle (other than for purposes of section 679), 
such transfer shall be treated as a sale or exchange for an amount 
equal to the fair market value of the property transferred, and the 
transferor shall recognize as gain the excess of--
            ``(1) the fair market value of the property so transferred, 
        over
            ``(2) the adjusted basis (for purposes of determining gain) 
        of such property in the hands of the transferor.''
    (b) Conforming Amendments.--
            (1) Section 1057 is hereby repealed.
            (2) Section 1492 is amended to read as follows:

``SEC. 1492. EXCEPTIONS.

    ``The provisions of section 1491 shall not apply--
            ``(1) If the transferee is an organization exempt from 
        income tax under part I of subchapter F of chapter 1 (other 
        than an organization described in section 401(a)),
            ``(2) To a transfer described in section 367, or
            ``(3) To any other transfer, to the extent provided in 
        regulations in accordance with principles similar to the 
        principles of section 367 or otherwise consistent with the 
        purpose of section 1491.''
            (3) Section 1494 is hereby repealed.
            (4) Paragraph (8) of section 6501(c) is amended by 
        inserting ``or on any transfer by reason of section 1491'' 
        after ``section 367''.
            (5) Subsection (a) of section 6038B is amended by striking 
        ``or'' at the end of paragraph (1), by adding ``or'' at the end 
        of paragraph (2), and by inserting after paragraph (2) the 
        following new paragraph:
            ``(3) makes any transfer described in section 1491,''.
            (6) The table of sections for part IV of subchapter O of 
        chapter 1 is amended by striking the item relating to section 
        1057.
            (7) The table of chapters for subtitle A is amended by 
        striking ``Tax on'' in the item relating to chapter 5 and 
        inserting ``Treatment of''.
    (c) Effective Date.--The amendments made by this section shall 
apply to transfers after December 31, 1995.

SEC. 14424. MODIFICATION OF SECTION 367(b).

    (a) General Rule.--Paragraph (1) of section 367(b) is amended to 
read as follows:
            ``(1) In general.--In the case of any transaction described 
        in section 332, 351, 354, 355, 356, or 361 in which the status 
        of a foreign corporation as a corporation is a general 
        condition for nonrecognition by 1 or more of the parties to the 
        transaction, income shall be required to be recognized to the 
        extent provided in regulations prescribed by the Secretary 
        which are necessary or appropriate to prevent the avoidance of 
        Federal income taxes. This subsection shall not apply to a 
        transaction in which the foreign corporation is not treated as 
        a corporation under subsection (a)(1).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to transfers after December 31, 1995.

SEC. 14425. INCREASE IN FILING THRESHOLDS FOR RETURNS AS TO 
                    ORGANIZATION OF FOREIGN CORPORATIONS AND 
                    ACQUISITIONS OF STOCK IN SUCH CORPORATIONS.

    (a) In General.--Subsection (a) of section 6046 (relating to 
returns as to organization or reorganization of foreign corporations 
and as to acquisitions of their stock) is amended to read as follows:
    ``(a) Requirement of return.--
            ``(1) In general.--A return complying with the requirements 
        of subsection (b) shall be made by--
                    ``(A) each United States citizen or resident who 
                becomes an officer or director of a foreign corporation 
                if a United States person (as defined in section 
                7701(a)(30)) meets the stock ownership requirements of 
                paragraph (2) with respect to such corporation,
                    ``(B) each United States person--
                            ``(i) who acquires stock which, when added 
                        to any stock owned on the date of such 
                        acquisition, meets the stock ownership 
                        requirements of paragraph (2) with respect to a 
                        foreign corporation, or
                            ``(ii) who acquires stock which, without 
                        regard to stock owned on the date of such 
                        acquisition, meets the stock ownership 
                        requirements of paragraph (2) with respect to a 
                        foreign corporation,
                    ``(C) each person (not described in subparagraph 
                (B)) who is treated as a United States shareholder 
                under section 953(c) with respect to a foreign 
                corporation, and
                    ``(D) each person who becomes a United States 
                person while meeting the stock ownership requirements 
                of paragraph (2) with respect to stock of a foreign 
                corporation.
        In the case of a foreign corporation with respect to which any 
        person is treated as a United States shareholder under section 
        953(c), subparagraph (A) shall be treated as including a 
        reference to each United States person who is an officer or 
        director of such corporation.
            ``(2) Stock ownership requirements.--A person meets the 
        stock ownership requirements of this paragraph with respect to 
        any corporation if such person owns 10 percent or more of--
                    ``(A) the total combined voting power of all 
                classes of stock of such corporation entitled to vote, 
                or
                    ``(B) the total value of the stock of such 
                corporation.''
    (b) Effective Date.--The amendment made by this section shall take 
effect on January 1, 1996.

SEC. 14426. APPLICATION OF UNIFORM CAPITALIZATION RULES TO FOREIGN 
                    PERSONS.

    (a) In General.--Section 263A(c) (relating to exceptions) is 
amended by adding at the end the following new paragraph:
            ``(7) Foreign persons.--This section shall apply to any 
        taxpayer who is not a United States person only for purposes 
        of--
                    ``(A) tax liability with respect to income which is 
                effectively connected with the conduct of a trade or 
                business in the United States, and
                    ``(B) tax liability of a United States shareholder 
                (as defined in section 951(b)) with respect to amounts 
                includible in gross income under section 951(a).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1995. Section 481 
of the Internal Revenue Code of 1986 shall not apply to any change in a 
method of accounting by reason of such amendment.

SEC. 14427. CERTAIN PRIZES AND AWARDS.

    (a) In General.--Section 863 (relating to special rules for 
determining source) is amended by adding at the end the following new 
subsection:
    ``(f) Certain Prizes and Awards Associated With Amateur Sports 
Competitions.--
            ``(1) In general.--A prize or award received by a 
        nonresident alien by reason of participating in an amateur 
        sports competition in the United States shall not be treated as 
        derived from sources within the United States if such alien 
        performs no services for such prize or award.
            ``(2) Amateur sports competition.--For purposes of 
        paragraph (1), the term `amateur sports competition' means any 
        competition in which the only prizes awarded by the sponsors of 
        the competition are of nominal value.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to prizes and awards granted after the date of the enactment of 
this Act.

SEC. 14428. TREATMENT FOR ESTATE TAX PURPOSES OF SHORT-TERM OBLIGATIONS 
                    HELD BY NONRESIDENT ALIENS.

    (a) In General.--Subsection (b) of section 2105 is amended by 
striking ``and'' at the end of paragraph (2), by striking the period at 
the end of paragraph (3) and inserting ``, and'', and by inserting 
after paragraph (3) the following new paragraph:
            ``(4) obligations which would be original issue discount 
        obligations as defined in section 871(g)(1) but for 
        subparagraph (B)(i) thereof, if any interest thereon (were such 
        interest received by the decedent at the time of his death) 
        would not be effectively connected with the conduct of a trade 
        or business within the United States.''
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying after the date of the enactment of this 
Act.

                Subtitle E--Other Income Tax Provisions

             PART I--PROVISIONS RELATING TO S CORPORATIONS

SEC. 14501. S CORPORATIONS PERMITTED TO HAVE 75 SHAREHOLDERS.

    Subparagraph (A) of section 1361(b)(1) (defining small business 
corporation) is amended by striking ``35 shareholders'' and inserting 
``75 shareholders''.

SEC. 14502. ELECTING SMALL BUSINESS TRUSTS.

    (a) General Rule.--Subparagraph (A) of section 1361(c)(2) (relating 
to certain trusts permitted as shareholders) is amended by inserting 
after clause (iv) the following new clause:
                            ``(v) An electing small business trust.''
    (b) Current Beneficiaries Treated as Shareholders.--Subparagraph 
(B) of section 1361(c)(2) is amended by adding at the end the following 
new clause:
                            ``(v) In the case of a trust described in 
                        clause (v) of subparagraph (A), each potential 
                        current beneficiary of such trust shall be 
                        treated as a shareholder; except that, if for 
                        any period there is no potential current 
                        beneficiary of such trust, such trust shall be 
                        treated as the shareholder during such 
                        period.''
    (c) Electing Small Business Trust Defined.--Section 1361 (defining 
S corporation) is amended by adding at the end the following new 
subsection:
    ``(e) Electing Small Business Trust Defined.--
            ``(1) Electing small business trust.--For purposes of this 
        section--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `electing small business 
                trust' means any trust if--
                            ``(i) such trust does not have as a 
                        beneficiary any person other than (I) an 
                        individual, (II) an estate, or (III) an 
                        organization described in paragraph (2), (3), 
                        (4), or (5) of section 170(c) which holds a 
                        contingent interest and is not a potential 
                        current beneficiary,
                            ``(ii) no interest in such trust was 
                        acquired by purchase, and
                            ``(iii) an election under this subsection 
                        applies to such trust.
                    ``(B) Certain trusts not eligible.--The term 
                `electing small business trust' shall not include--
                            ``(i) any qualified subchapter S trust (as 
                        defined in subsection (d)(3)) if an election 
                        under subsection (d)(2) applies to any 
                        corporation the stock of which is held by such 
                        trust, and
                            ``(ii) any trust exempt from tax under this 
                        subtitle.
                    ``(C) Purchase.--For purposes of subparagraph (A), 
                the term `purchase' means any acquisition if the basis 
                of the property acquired is determined under section 
                1012.
            ``(2) Potential current beneficiary.--For purposes of this 
        section, the term `potential current beneficiary' means, with 
        respect to any period, any person who at any time during such 
        period is entitled to, or at the discretion of any person may 
        receive, a distribution from the principal or income of the 
        trust. If a trust disposes of all of the stock which it holds 
        in an S corporation, then, with respect to such corporation, 
        the term `potential current beneficiary' does not include any 
        person who first met the requirements of the preceding sentence 
        during the 60-day period ending on the date of such 
        disposition.
            ``(3) Election.--An election under this subsection shall be 
        made by the trustee. Any such election shall apply to the 
        taxable year of the trust for which made and all subsequent 
        taxable years of such trust unless revoked with the consent of 
        the Secretary.
            ``(4) Cross reference.--

                  ``For special treatment of electing small business 
trusts, see section 641(d).''

    (d) Taxation of Electing Small Business Trusts.--Section 641 
(relating to imposition of tax on trusts) is amended by adding at the 
end the following new subsection:
    ``(d) Special Rules for Taxation of Electing Small Business 
Trusts.--
            ``(1) In general.--For purposes of this chapter--
                    ``(A) the portion of any electing small business 
                trust which consists of stock in 1 or more S 
                corporations shall be treated as a separate trust, and
                    ``(B) the amount of the tax imposed by this chapter 
                on such separate trust shall be determined with the 
                modifications of paragraph (2).
            ``(2) Modifications.--For purposes of paragraph (1), the 
        modifications of this paragraph are the following:
                    ``(A) Except as provided in section 1(h), the 
                amount of the tax imposed by section 1(e) shall be 
                determined by using the highest rate of tax set forth 
                in section 1(e).
                    ``(B) The exemption amount under section 55(d) 
                shall be zero.
                    ``(C) The only items of income, loss, deduction, or 
                credit to be taken into account are the following:
                            ``(i) The items required to be taken into 
                        account under section 1366.
                            ``(ii) Any gain or loss from the 
                        disposition of stock in an S corporation.
                            ``(iii) To the extent provided in 
                        regulations, State or local income taxes or 
                        administrative expenses to the extent allocable 
                        to items described in clauses (i) and (ii).
                No deduction or credit shall be allowed for any amount 
                not described in this paragraph, and no item described 
                in this paragraph shall be apportioned to any 
                beneficiary.
                    ``(D) No amount shall be allowed under paragraph 
                (1) or (2) of section 1211(b).
            ``(3) Treatment of remainder of trust and distributions.--
        For purposes of determining--
                    ``(A) the amount of the tax imposed by this chapter 
                on the portion of any electing small business trust not 
                treated as a separate trust under paragraph (1), and
                    ``(B) the distributable net income of the entire 
                trust,
        the items referred to in paragraph (2)(C) shall be excluded. 
        Except as provided in the preceding sentence, this subsection 
        shall not affect the taxation of any distribution from the 
        trust.
            ``(4) Treatment of unused deductions where termination of 
        separate trust.--If a portion of an electing small business 
        trust ceases to be treated as a separate trust under paragraph 
        (1), any carryover or excess deduction of the separate trust 
        which is referred to in section 642(h) shall be taken into 
        account by the entire trust.
            ``(5) Electing small business trust.--For purposes of this 
        subsection, the term `electing small business trust' has the 
        meaning given such term by section 1361(e)(1).''
    (e) Technical Amendment.--Paragraph (1) of section 1366(a) is 
amended by inserting ``, or of a trust or estate which terminates,'' 
after ``who dies''.

SEC. 14503. EXPANSION OF POST-DEATH QUALIFICATION FOR CERTAIN TRUSTS.

    Subparagraph (A) of section 1361(c)(2) (relating to certain trusts 
permitted as shareholders) is amended--
            (1) by striking ``60-day period'' each place it appears in 
        clauses (ii) and (iii) and inserting ``2-year period'', and
            (2) by striking the last sentence in clause (ii).

SEC. 14504. FINANCIAL INSTITUTIONS PERMITTED TO HOLD SAFE HARBOR DEBT.

    Clause (iii) of section 1361(c)(5)(B) (defining straight debt) is 
amended by striking ``or a trust described in paragraph (2)'' and 
inserting ``a trust described in paragraph (2), or a person which is 
actively and regularly engaged in the business of lending money.''

SEC. 14505. RULES RELATING TO INADVERTENT TERMINATIONS AND INVALID 
                    ELECTIONS.

    (a) General Rule.--Subsection (f) of section 1362 (relating to 
inadvertent terminations) is amended to read as follows:
    ``(f) Inadvertent Invalid Elections or Terminations.--If--
            ``(1) an election under subsection (a) by any corporation--
                    ``(A) was not effective for the taxable year for 
                which made (determined without regard to subsection 
                (b)(2)) by reason of a failure to meet the requirements 
                of section 1361(b) or to obtain shareholder consents, 
                or
                    ``(B) was terminated under paragraph (2) of 
                subsection (d),
            ``(2) the Secretary determines that the circumstances 
        resulting in such ineffectiveness or termination were 
        inadvertent,
            ``(3) no later than a reasonable period of time after 
        discovery of the circumstances resulting in such 
        ineffectiveness or termination, steps were taken--
                    ``(A) so that the corporation is a small business 
                corporation, or
                    ``(B) to acquire the required shareholder consents, 
                and
            ``(4) the corporation, and each person who was a 
        shareholder in the corporation at any time during the period 
        specified pursuant to this subsection, agrees to make such 
        adjustments (consistent with the treatment of the corporation 
        as an S corporation) as may be required by the Secretary with 
        respect to such period,
then, notwithstanding the circumstances resulting in such 
ineffectiveness or termination, such corporation shall be treated as an 
S corporation during the period specified by the Secretary.''
    (b) Late Elections.--Subsection (b) of section 1362 is amended by 
adding at the end the following new paragraph:
            ``(5) Authority to treat late elections as timely.--If--
                    ``(A) an election under subsection (a) is made for 
                any taxable year (determined without regard to 
                paragraph (3)) after the date prescribed by this 
                subsection for making such election for such taxable 
                year, and
                    ``(B) the Secretary determines that there was 
                reasonable cause for the failure to timely make such 
                election,
        the Secretary may treat such election as timely made for such 
        taxable year (and paragraph (3) shall not apply).''
    (c) Effective Date.--The amendments made by subsection (a) and (b) 
shall apply with respect to elections for taxable years beginning after 
December 31, 1982.

SEC. 14506. AGREEMENT TO TERMINATE YEAR.

    Paragraph (2) of section 1377(a) (relating to pro rata share) is 
amended to read as follows:
            ``(2) Election to terminate year.--
                    ``(A) In general.--Under regulations prescribed by 
                the Secretary, if any shareholder terminates the 
                shareholder's interest in the corporation during the 
                taxable year and all affected shareholders and the 
                corporation agree to the application of this paragraph, 
                paragraph (1) shall be applied to the affected 
                shareholders as if the taxable year consisted of 2 
                taxable years the first of which ends on the date of 
                the termination.
                    ``(B) Affected shareholders.--For purposes of 
                subparagraph (A), the term `affected shareholders' 
                means the shareholder whose interest is terminated and 
                all shareholders to whom such shareholder has 
                transferred shares during the taxable year. If such 
                shareholder has transferred shares to the corporation, 
                the term `affected shareholders' shall include all 
                persons who are shareholders during the taxable year.''

SEC. 14507. EXPANSION OF POST-TERMINATION TRANSITION PERIOD.

    (a) In General.--Paragraph (1) of section 1377(b) (relating to 
post-termination transition period) is amended by striking ``and'' at 
the end of subparagraph (A), by redesignating subparagraph (B) as 
subparagraph (C), and by inserting after subparagraph (A) the following 
new subparagraph:
                    ``(B) the 120-day period beginning on the date of 
                any determination pursuant to an audit of the taxpayer 
                which follows the termination of the corporation's 
                election and which adjusts a subchapter S item of 
                income, loss, or deduction of the corporation arising 
                during the S period (as defined in section 1368(e)(2)), 
                and''.
    (b) Determination Defined.--Paragraph (2) of section 1377(b) is 
amended by striking subparagraphs (A) and (B), by redesignating 
subparagraph (C) as subparagraph (B), and by inserting before 
subparagraph (B) (as so redesignated) the following new subparagraph:
                    ``(A) a determination as defined in section 
                1313(a), or''.
    (c) Repeal of Special Audit Provisions for Subchapter S Items.--
            (1) General rule.--Subchapter D of chapter 63 (relating to 
        tax treatment of subchapter S items) is hereby repealed.
            (2) Consistent treatment required.--Section 6037 (relating 
        to return of S corporation) is amended by adding at the end the 
        following new subsection:
    ``(c) Shareholder's Return Must Be Consistent With Corporate Return 
or Secretary Notified of Inconsistency.--
            ``(1) In general.--A shareholder of an S corporation shall, 
        on such shareholder's return, treat a subchapter S item in a 
        manner which is consistent with the treatment of such item on 
        the corporate return.
            ``(2) Notification of inconsistent treatment.--
                    ``(A) In general.--In the case of any subchapter S 
                item, if--
                            ``(i)(I) the corporation has filed a return 
                        but the shareholder's treatment on his return 
                        is (or may be) inconsistent with the treatment 
                        of the item on the corporate return, or
                            ``(II) the corporation has not filed a 
                        return, and
                            ``(ii) the shareholder files with the 
                        Secretary a statement identifying the 
                        inconsistency,
                paragraph (1) shall not apply to such item.
                    ``(B) Shareholder receiving incorrect 
                information.--A shareholder shall be treated as having 
                complied with clause (ii) of subparagraph (A) with 
                respect to a subchapter S item if the shareholder--
                            ``(i) demonstrates to the satisfaction of 
                        the Secretary that the treatment of the 
                        subchapter S item on the shareholder's return 
                        is consistent with the treatment of the item on 
                        the schedule furnished to the shareholder by 
                        the corporation, and
                            ``(ii) elects to have this paragraph apply 
                        with respect to that item.
            ``(3) Effect of failure to notify.--In any case--
                    ``(A) described in subparagraph (A)(i)(I) of 
                paragraph (2), and
                    ``(B) in which the shareholder does not comply with 
                subparagraph (A)(ii) of paragraph (2),
        any adjustment required to make the treatment of the items by 
        such shareholder consistent with the treatment of the items on 
        the corporate return shall be treated as arising out of 
        mathematical or clerical errors and assessed according to 
        section 6213(b)(1). Paragraph (2) of section 6213(b) shall not 
        apply to any assessment referred to in the preceding sentence.
            ``(4) Subchapter s item.--For purposes of this subsection, 
        the term `subchapter S item' means any item of an S corporation 
        to the extent that regulations prescribed by the Secretary 
        provide that, for purposes of this subtitle, such item is more 
        appropriately determined at the corporation level than at the 
        shareholder level.
            ``(5) Addition to tax for failure to comply with section.--

                  ``For addition to tax in the case of a shareholder's 
negligence in connection with, or disregard of, the requirements of 
this section, see part II of subchapter A of chapter 68.''

            (3) Conforming amendments.--
                    (A) Section 1366 is amended by striking subsection 
                (g).
                    (B) Subsection (b) of section 6233 is amended to 
                read as follows:
    ``(b) Similar Rules in Certain Cases.--If a partnership return is 
filed for any taxable year but it is determined that there is no entity 
for such taxable year, to the extent provided in regulations, rules 
similar to the rules of subsection (a) shall apply.''
                    (C) The table of subchapters for chapter 63 is 
                amended by striking the item relating to subchapter D.

SEC. 14508. S CORPORATIONS PERMITTED TO HOLD SUBSIDIARIES.

    (a) In General.--Paragraph (2) of section 1361(b) (defining 
ineligible corporation) is amended by striking subparagraph (A) and by 
redesignating subparagraphs (B), (C), (D), and (E) as subparagraphs 
(A), (B), (C), and (D), respectively.
    (b) Treatment of Certain Wholly Owned S Corporation Subsidiaries.--
Section 1361(b) (defining small business corporation) is amended by 
adding at the end the following new paragraph:
            ``(3) Treatment of certain wholly owned subsidiaries.--
                    ``(A) In general.--For purposes of this title--
                            ``(i) a corporation which is a qualified 
                        subchapter S subsidiary shall not be treated as 
                        a separate corporation, and
                            ``(ii) all assets, liabilities, and items 
                        of income, deduction, and credit of a qualified 
                        subchapter S subsidiary shall be treated as 
                        assets, liabilities, and such items (as the 
                        case may be) of the S corporation.
                    ``(B) Qualified subchapter s subsidiary.--For 
                purposes of this paragraph, the term `qualified 
                subchapter S subsidiary' means any domestic corporation 
                which is not an ineligible corporation (as defined in 
                paragraph (2)), if--
                            ``(i) 100 percent of the stock of such 
                        corporation is held by the S corporation, and
                            ``(ii) the S corporation elects to treat 
                        such corporation as a qualified subchapter S 
                        subsidiary.
                    ``(C) Treatment of terminations of qualified 
                subchapter s subsidiary status.--For purposes of this 
                title, if any corporation which was a qualified 
                subchapter S subsidiary ceases to meet the requirements 
                of subparagraph (B), such corporation shall be treated 
                as a new corporation acquiring all of its assets (and 
                assuming all of its liabilities) immediately before 
                such cessation from the S corporation in exchange for 
                its stock.''
    (c) Certain Dividends Not Treated as Passive Investment Income.--
Paragraph (3) of section 1362(d) is amended by adding at the end the 
following new subparagraph:
                    ``(F) Treatment of certain dividends.--If an S 
                corporation holds stock in a C corporation meeting the 
                requirements of section 1504(a)(2), the term `passive 
                investment income' shall not include dividends from 
                such C corporation to the extent such dividends are 
                attributable to the earnings and profits of such C 
                corporation derived from the active conduct of a trade 
                or business.''
    (d) Conforming Amendments.--
            (1) Subsection (c) of section 1361 is amended by striking 
        paragraph (6).
            (2) Subsection (b) of section 1504 (defining includible 
        corporation) is amended by adding at the end the following new 
        paragraph:
            ``(8) An S corporation.''

SEC. 14509. TREATMENT OF DISTRIBUTIONS DURING LOSS YEARS.

    (a) Adjustments for Distributions Taken Into Account Before 
Losses.--
            (1) Subparagraph (A) of section 1366(d)(1) (relating to 
        losses and deductions cannot exceed shareholder's basis in 
        stock and debt) is amended by striking ``paragraph (1)'' and 
        inserting ``paragraphs (1) and (2)(A)''.
            (2) Subsection (d) of section 1368 (relating to certain 
        adjustments taken into account) is amended by adding at the end 
        the following new sentence:
``In the case of any distribution made during any taxable year, the 
adjusted basis of the stock shall be determined with regard to the 
adjustments provided in paragraph (1) of section 1367(a) for the 
taxable year.''
    (b) Accumulated Adjustments Account.--Paragraph (1) of section 
1368(e) (relating to accumulated adjustments account) is amended by 
adding at the end the following new subparagraph:
            ``(C) Net loss for year disregarded.--
                    ``(i) In general.--In applying this section to 
                distributions made during any taxable year, the amount 
                in the accumulated adjustments account as of the close 
                of such taxable year shall be determined without regard 
                to any net negative adjustment for such taxable year.
                    ``(ii) Net negative adjustment.--For purposes of 
                clause (i), the term `net negative adjustment' means, 
                with respect to any taxable year, the excess (if any) 
                of--
                            ``(I) the reductions in the account for the 
                        taxable year (other than for distributions), 
                        over
                            ``(II) the increases in such account for 
                        such taxable year.''
    (c) Conforming Amendments.--Subparagraph (A) of section 1368(e)(1) 
is amended--
            (1) by striking ``as provided in subparagraph (B)'' and 
        inserting ``as otherwise provided in this paragraph'', and
            (2) by striking ``section 1367(b)(2)(A)'' and inserting 
        ``section 1367(a)(2)''.

SEC. 14510. TREATMENT OF S CORPORATIONS UNDER SUBCHAPTER C.

    Subsection (a) of section 1371 (relating to application of 
subchapter C rules) is amended to read as follows:
    ``(a) Application of Subchapter C Rules.--Except as otherwise 
provided in this title, and except to the extent inconsistent with this 
subchapter, subchapter C shall apply to an S corporation and its 
shareholders.''

SEC. 14511. ELIMINATION OF CERTAIN EARNINGS AND PROFITS.

    (a) In General.--If--
            (1) a corporation was an electing small business 
        corporation under subchapter S of chapter 1 of the Internal 
        Revenue Code of 1986 for any taxable year beginning before 
        January 1, 1983, and
            (2) such corporation is an S corporation under subchapter S 
        of chapter 1 of such Code for its first taxable year beginning 
        after December 31, 1995,
the amount of such corporation's accumulated earnings and profits (as 
of the beginning of such first taxable year) shall be reduced by an 
amount equal to the portion (if any) of such accumulated earnings and 
profits which were accumulated in any taxable year beginning before 
January 1, 1983, for which such corporation was an electing small 
business corporation under such subchapter S.
    (b) Conforming Amendments.--
            (1) Paragraph (3) of section 1362(d) is amended--
                    (A) by striking ``Subchapter C'' in the paragraph 
                heading and inserting ``Accumulated'',
                    (B) by striking ``subchapter C'' in subparagraph 
                (A)(i)(I) and inserting ``accumulated'', and
                    (C) by striking subparagraph (B) and redesignating 
                the following subparagraphs accordingly.
            (2)(A) Subsection (a) of section 1375 is amended by 
        striking ``subchapter C'' in paragraph (1) and inserting 
        ``accumulated''.
            (B) Paragraph (3) of section 1375(b) is amended to read as 
        follows:
            ``(3) Passive investment income, etc.--The terms `passive 
        investment income' and `gross receipts' have the same 
        respective meanings as when used in paragraph (3) of section 
        1362(d).''
            (C) The section heading for section 1375 is amended by 
        striking ``subchapter c'' and inserting 
        ``accumulated''.
            (D) The table of sections for part III of subchapter S of 
        chapter 1 is amended by striking ``subchapter C'' in the item 
        relating to section 1375 and inserting ``accumulated''.
            (3) Clause (i) of section 1042(c)(4)(A) is amended by 
        striking ``section 1362(d)(3)(D)'' and inserting ``section 
        1362(d)(3)(C)''.

SEC. 14512. CARRYOVER OF DISALLOWED LOSSES AND DEDUCTIONS UNDER AT-RISK 
                    RULES ALLOWED.

    Paragraph (3) of section 1366(d) (relating to carryover of 
disallowed losses and deductions to post-termination transition period) 
is amended by adding at the end the following new subparagraph:
                    ``(D) At-risk limitations.--To the extent that any 
                increase in adjusted basis described in subparagraph 
                (B) would have increased the shareholder's amount at 
                risk under section 465 if such increase had occurred on 
                the day preceding the commencement of the post-
                termination transition period, rules similar to the 
                rules described in subparagraphs (A) through (C) shall 
                apply to any losses disallowed by reason of section 
                465(a).''

SEC. 14513. ADJUSTMENTS TO BASIS OF INHERITED S STOCK TO REFLECT 
                    CERTAIN ITEMS OF INCOME.

    (a) In General.--Subsection (b) of section 1367 (relating to 
adjustments to basis of stock of shareholders, etc.) is amended by 
adding at the end the following new paragraph:
            ``(4) Adjustments in case of inherited stock.--
                    ``(A) In general.--If any person acquires stock in 
                an S corporation by reason of the death of a decedent 
                or by bequest, devise, or inheritance, section 691 
                shall be applied with respect to any item of income of 
                the S corporation in the same manner as if the decedent 
                had held directly his pro rata share of such item.
                    ``(B) Adjustments to basis.--The basis determined 
                under section 1014 of any stock in an S corporation 
                shall be reduced by the portion of the value of the 
                stock which is attributable to items constituting 
                income in respect of the decedent.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply in the case of decedents dying after the date of the enactment of 
this Act.

SEC. 14514. S CORPORATIONS ELIGIBLE FOR RULES APPLICABLE TO REAL 
                    PROPERTY SUBDIVIDED FOR SALE BY NONCORPORATE 
                    TAXPAYERS.

    (a) In General.--Subsection (a) of section 1237 (relating to real 
property subdivided for sale) is amended by striking ``other than a 
corporation'' in the material preceding paragraph (1) and inserting 
``other than a C corporation''.
    (b) Conforming Amendment.--Subparagraph (A) of section 1237(a)(2) 
is amended by inserting ``an S corporation which included the taxpayer 
as a shareholder,'' after ``controlled by the taxpayer,''.

SEC. 14515. EFFECTIVE DATE.

    (a) In General.--Except as otherwise provided in this part, the 
amendments made by this part shall apply to taxable years beginning 
after December 31, 1995.
    (b) Treatment of Certain Elections Under Prior Law.--For purposes 
of section 1362(g) of the Internal Revenue Code of 1986 (relating to 
election after termination), any termination under section 1362(d) of 
such Code in a taxable year beginning before January 1, 1996, shall not 
be taken into account.

     PART II--PROVISIONS RELATING TO REGULATED INVESTMENT COMPANIES

SEC. 14521. REPEAL OF 30-PERCENT GROSS INCOME LIMITATION.

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

     PART III--PROVISIONS RELATING TO REAL ESTATE INVESTMENT TRUSTS

SEC. 14531. CLARIFICATION OF LIMITATION ON MAXIMUM NUMBER OF 
                    SHAREHOLDERS.

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

SEC. 14532. DE MINIMIS RULE FOR TENANT SERVICES INCOME.

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

SEC. 14533. ATTRIBUTION RULES APPLICABLE TO TENANT OWNERSHIP.

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

SEC. 14534. CREDIT FOR TAX PAID BY REIT ON RETAINED CAPITAL GAINS.

    (a) General Rule.--Paragraph (3) of section 857(b) (relating to 
capital gains) is amended by redesignating subparagraph (D) as 
subparagraph (E) and by inserting after subparagraph (C) the following 
new subparagraph:
                    ``(D) Treatment by shareholders of undistributed 
                capital gains.--
                            ``(i) Every shareholder of a real estate 
                        investment trust at the close of the trust's 
                        taxable year shall include, in computing his 
                        long-term capital gains in his return for his 
                        taxable year in which the last day of the 
                        trust's taxable year falls, such amount as the 
                        trust shall designate in respect of such shares 
                        in a written notice mailed to its shareholders 
                        at any time prior to the expiration of 60 days 
                        after the close of its taxable year (or mailed 
                        to its shareholders or holders of beneficial 
                        interests with its annual report for the 
                        taxable year), but the amount so includible by 
                        any shareholder shall not exceed that part of 
                        the amount subjected to tax in subparagraph 
                        (A)(ii) which he would have received if all of 
                        such amount had been distributed as capital 
                        gain dividends by the trust to the holders of 
                        such shares at the close of its taxable year.
                            ``(ii) For purposes of this title, every 
                        such shareholder shall be deemed to have paid, 
                        for his taxable year under clause (i), the tax 
                        imposed by subparagraph (A)(ii) on the amounts 
                        required by this subparagraph to be included in 
                        respect of such shares in computing his long-
                        term capital gains for that year; and such 
                        shareholders shall be allowed credit or refund 
                        as the case may be, for the tax so deemed to 
                        have been paid by him.
                            ``(iii) The adjusted basis of such shares 
                        in the hands of the holder shall be increased 
                        with respect to the amounts required by this 
                        subparagraph to be included in computing his 
                        long-term capital gains, by the difference 
                        between the amount of such includible gains and 
                        the tax deemed paid by such shareholder in 
                        respect of such shares under clause (ii).
                            ``(iv) In the event of such designation, 
                        the tax imposed by subparagraph (A)(ii) shall 
                        be paid by the real estate investment trust 
                        within 30 days after the close of its taxable 
                        year.
                            ``(v) The earnings and profits of such real 
                        estate investment trust, and the earnings and 
                        profits of any such shareholder which is a 
                        corporation, shall be appropriately adjusted in 
                        accordance with regulations prescribed by the 
                        Secretary.
                            ``(vi) As used in this subparagraph, the 
                        terms `shares' and `shareholders' shall include 
                        beneficial interests and holders of beneficial 
                        interests, respectively.''
    (b) Conforming Amendments.--
            (1) Clause (i) of section 857(b)(7)(A) is amended by 
        striking ``subparagraph (B)'' and inserting ``subparagraph (B) 
        or (D)''.
            (2) Clause (iii) of section 852(b)(3)(D) is amended by 
        striking ``by 65 percent'' and all that follows and inserting 
        ``by the difference between the amount of such includible gains 
        and the tax deemed paid by such shareholder in respect of such 
        shares under clause (ii).''

SEC. 14535. REPEAL OF 30-PERCENT GROSS INCOME REQUIREMENT.

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

SEC. 14536. MODIFICATION OF EARNINGS AND PROFITS RULES FOR DETERMINING 
                    WHETHER REIT HAS EARNINGS AND PROFITS FROM NON-REIT 
                    YEAR.

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

SEC. 14537. TREATMENT OF FORECLOSURE PROPERTY.

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

SEC. 14538. PAYMENTS UNDER HEDGING INSTRUMENTS.

    Section 856(c)(5)(G) (relating to treatment of certain interest 
rate agreements), as redesignated by section 14535, is amended to read 
as follows:
                    ``(G) Treatment of certain hedging instruments.--
                Except to the extent provided by regulations, any--
                            ``(i) payment to a real estate investment 
                        trust under an interest rate swap or cap 
                        agreement, option, futures contract, forward 
                        rate agreement, or any similar financial 
                        instrument, entered into by the trust in a 
                        transaction to reduce the interest rate risks 
                        with respect to any indebtedness incurred or to 
                        be incurred by the trust to acquire or carry 
                        real estate assets, and
                            ``(ii) gain from the sale or other 
                        disposition of any such investment,
                shall be treated as income qualifying under paragraph 
                (2).''

SEC. 14539. EXCESS NONCASH INCOME.

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

SEC. 14540. PROHIBITED TRANSACTION SAFE HARBOR.

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

SEC. 14541. SHARED APPRECIATION MORTGAGES.

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

SEC. 14542. WHOLLY OWNED SUBSIDIARIES.

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

SEC. 14543. EFFECTIVE DATE.

    The amendments made by this part shall apply to taxable years 
beginning after the date of the enactment of this Act.

                     PART IV--ACCOUNTING PROVISIONS

SEC. 14551. MODIFICATIONS TO LOOK-BACK METHOD FOR LONG-TERM CONTRACTS.

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

SEC. 14552. APPLICATION OF MARK TO MARKET ACCOUNTING METHOD TO TRADERS 
                    IN SECURITIES.

    (a) In General.--Section 475 (relating to mark to market accounting 
method for dealers in securities) is amended by redesignating 
subsection (e) as subsection (f) and by inserting after subsection (d) 
the following new subsection:
    ``(e) Authority To Extend Method to Traders in Securities.--
            ``(1) In general.--A trader in securities may elect to have 
        the provisions of this section (other than subsection (d)(3)) 
        apply to securities held by the trader. Such election may be 
        made only with the consent of the Secretary.
            ``(2) Trader in securities.--For purposes of this 
        subsection, the term `trader in securities' means a taxpayer 
        who is regularly engaged in trading securities.''
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years ending on and after December 31, 1995.

SEC. 14553. MODIFICATION OF RULING AMOUNTS FOR NUCLEAR DECOMMISSIONING 
                    COSTS.

    (a) In General.--Section 468A(d) (relating to ruling amount) is 
amended by adding at the end the following new paragraph:
                    ``(4) Nonsubstantial modifications.--A taxpayer may 
                modify a schedule of ruling amounts under paragraph (1) 
                without a review under paragraph (3) if such 
                modification does not substantially modify the ruling 
                amount. The taxpayer shall notify the Secretary of any 
                such modification.''
    (b) Effective Date.--The amendment made by this section shall apply 
to modifications after the date of the enactment of this Act.

SEC. 14554. ELECTION OF ALTERNATIVE TAXABLE YEARS BY PARTNERSHIPS AND S 
                    CORPORATIONS.

    (a) Repeal of Limitation on What Taxable Year May Be Elected.--
            (1) In general.--Section 444(b) (relating to limitations on 
        taxable years which may be elected) is amended by adding at the 
        end the following new paragraph:
            ``(5) Limitations not to apply to certain partnerships and 
        s corporations.--
                    ``(A) In general.--In the case of a partnership or 
                an S corporation, this subsection shall not apply to an 
                election under subsection (a) for a taxable year 
                beginning after December 31, 1996.
                    ``(B) Special rule for existing elections.--
                            ``(i) In general.--If a partnership or S 
                        corporation has an election in effect for its 
                        last taxable year beginning before January 1, 
                        1997, the partnership or S corporation may 
                        elect to have this paragraph apply beginning 
                        with any taxable year beginning after December 
                        31, 1996. Such an election may be made without 
                        the consent of the Secretary and shall not be 
                        treated as a termination of an election for 
                        purposes of subsection (d).
                            ``(ii) Treatment of required payments.--A 
                        partnership or S corporation making an election 
                        under clause (i) may elect to have its net 
                        required payment balance (within the meaning of 
                        section 7519(e)(4))--
                                    ``(I) credited against its first 
                                estimated tax payment under section 
                                6654A for its first full taxable year 
                                for which such section applies, or
                                    ``(II) refunded to it at the time 
                                provided in section 7519(c)(3).''
            (2) Effect of election.--Paragraph (1) of section 444(c) 
        (relating to effect of election) is amended to read as follows:
            ``(1) in the case of a partnership or S corporation, such 
        entity shall--
                    ``(A) make the payments required by section 7519, 
                or
                    ``(B) if subsection (b)(5) applies to the election, 
                make the estimated tax payments described in section 
                6654A, and''.
    (b) Estimated Tax for Partnerships and S Corporations Making 
Taxable Year Elections.--Part I of subchapter A of chapter 68 (relating 
to additions to tax and additional amounts) is amended by inserting 
after section 6654 the following new section:

``SEC. 6654A. FAILURE BY ELECTING PARTNERSHIP OR S CORPORATION TO PAY 
                    ESTIMATED TAX.

    ``(a) Penalty.--Except as otherwise provided in this section, in 
the case of a partnership or S corporation with respect to which an 
election to which section 444(b)(5) applies is in effect (hereafter 
referred to as `the entity'), there is hereby imposed a penalty for 
each quarter for which there is an underpayment in an amount determined 
by applying--
            ``(1) the underpayment rate established under section 6621,
            ``(2) to the amount of the underpayment,
            ``(3) for the period of the underpayment.
    ``(b) Amount of Underpayment; Period of Underpayment.--For purposes 
of subsection (a)--
            ``(1) Amount.--The amount of the underpayment shall be the 
        excess of--
                    ``(A) the required installment, over
                    ``(B) the amount (if any) of the installment paid 
                on or before the due date for the installment.
            ``(2) Period of underpayment.--The period of the 
        underpayment shall run from the due date for the installment to 
        the earlier of--
                    ``(A) the first April 15 more than 3 months after 
                the close of the taxable year, or
                    ``(B) with respect to any portion of the 
                underpayment, the date on which such portion is paid.
            ``(3) Order of crediting payments.--For purposes of 
        paragraph (2)(B), a payment of estimated tax shall be credited 
        against unpaid required installments in the order in which the 
        installments are required to be paid.
    ``(c) Required Installments.--For purposes of this section--
            ``(1) Number and dates.--An entity shall make 4 required 
        installments which shall be due on the 15th day of the 3d, 5th, 
        8th, and 12th months of the taxable year.
            ``(2) No required payments where entity's liability is less 
        than $5,000.--An entity shall not be required to make estimated 
        payments under this section for any taxable year for which (but 
        for this paragraph) its aggregate liability under this section 
        would be less than $5,000.
            ``(3) Amount.--The amount of each required installment 
        shall be 25 percent of the product of--
                    ``(A) the entity's applicable income determined 
                under its applicable method for the quarter for which 
                the installment is being made, and
                    ``(B) the applicable rate.
            ``(4) Applicable rate.--
                    ``(A) In general.--The term `applicable rate' means 
                34 percent (39.6 percent in the case of an entity 
                described in subparagraph (B)).
                    ``(B) High average income entity.--
                            ``(i) In general.--An entity is described 
                        in this subparagraph if--
                                    ``(I) the average applicable income 
                                of 2-percent owners of the entity for 
                                its base year is $250,000 or more, or
                                    ``(II) in the case of a 
                                partnership, its applicable income for 
                                the base year is $10,000,000 or more.
                        An entity shall not be treated as so described 
                        if it has no base year.
                            ``(ii) 2-percent owner.--The term `2-
                        percent owner' means--
                                    ``(I) in the case of a partnership, 
                                any person who owns (or is considered 
                                as owning within the meaning of section 
                                318) on any day during the base year 
                                more than 2 percent of the capital 
                                interests of the partnerships, and
                                    ``(II) in the case of an S 
                                corporation, a 2-percent shareholder 
                                (as defined in section 1372(b)).
            ``(5) Adjustments under annualized income method.--An 
        entity using the annualized income method shall adjust its 
        required installment for any quarter to reflect any change in 
        its required installment for any prior quarter in the taxable 
        year which would have been required if the annualized 
        applicable income for the current quarter had been used for the 
        prior quarter.
    ``(d) Applicable Method.--For purposes of this section--
            ``(1) In general.--An entity shall determine its applicable 
        income on the basis of the 100-percent method.
            ``(2) Exceptions.--
                    ``(A) Elections.--An entity may determine its 
                applicable income--
                            ``(i) for all quarters in a taxable year on 
                        the basis of the 110-percent method if it 
                        elects such method on or before the due date 
                        for the first quarterly installment, or
                            ``(ii) for any quarter in a taxable year on 
                        the basis of the annualized income method if it 
                        elects such method on or before the due date 
                        for the quarterly installment for such quarter.
                An election under clause (ii) shall apply for the 
                quarter for which made and all subsequent quarters 
                during the taxable year.
                    ``(B) Large increase in income.--If an entity's 
                applicable income for the taxable year exceeds its 
                applicable income for the base year by more than 
                $750,000, the entity may not use the 110-percent method 
                for the taxable year.
            ``(3) Methods.--
                    ``(A) 100-percent method.--Under the 100-percent 
                method, an entity's applicable income shall be its 
                applicable income for the taxable year.
                    ``(B) 110-percent method.--Under the 110-percent 
                method, an entity's applicable income shall be 110 
                percent of its applicable income for the base year.
                    ``(C) Annualized income method.--Under the 
                annualized income method, the entity's applicable 
                income for purposes of determining the required 
                installment for any quarter shall be an amount equal to 
                the product of--
                            ``(i) its applicable income for the period 
                        consisting of the months in the taxable year 
                        ending before the due date for the quarter, and
                            ``(ii) a percentage equal to 12 divided by 
                        the number of such months.
    ``(e) Applicable Income.--
            ``(1) In general.--For purposes of this section, the 
        applicable income for any taxable year shall be the net amount 
        (not less than zero) determined--
                    ``(A) by taking into account the entity's items in 
                the manner and with the exceptions provided in section 
                703(a) or 1363(b), as the case may be, and
                    ``(B) by making the further adjustments provided in 
                paragraphs (2), (3), (4), and (5) of this subsection.
            ``(2) Certain deductions allowed.--In determining 
        applicable income, the following amounts shall be allowed as 
        deductions:
                    ``(A) The deduction allowable under section 170 for 
                charitable contributions of the entity.
                    ``(B) The deduction allowable under section 901 for 
                taxes described in section 901(c) paid or accrued to 
                foreign countries or possessions of the United States.
            ``(3) Certain limitations disregarded.--For purposes of 
        paragraphs (1) and (2), any limitation on the amount of any 
        item which may be taken into account for purposes of computing 
        the taxable income of a partner or shareholder shall be 
        disregarded.
            ``(4) Guaranteed payments to partners not deducted.--In 
        determining applicable income, a guaranteed payment to a 
        partner shall not be treated as an item of deduction.
            ``(5) Disproportionate applicable payments during deferral 
        period.--
                    ``(A) Deduction not allowed.--In determining 
                applicable income, no deduction shall be allowed for 
                disproportionate deferral period applicable payments.
                    ``(B) Disproportionate deferral period applicable 
                payments.--For purposes of subparagraph (A), the term 
                `disproportionate deferral period applicable payments' 
                means the excess (if any) of--
                            ``(i) the product of the deferral ratio and 
                        the aggregate applicable payments made to 
                        owners during the entity's entire taxable year, 
                        over
                            ``(ii) the aggregate applicable payments 
                        made to owners during the deferral period.
                    ``(C) Definitions.--For purposes of this 
                paragraph--
                            ``(i) the term `applicable payments' has 
                        the meaning given to such term by section 
                        7519(d)(3), except that in the case of an S 
                        corporation only payments to 2-percent 
                        shareholders (as defined in section 1372(b)) 
                        shall be taken into account,
                            ``(ii) the term `deferral period' means the 
                        months in the period beginning with the first 
                        day of the entity's taxable year and ending on 
                        December 31, and
                            ``(iii) the term `deferral ratio' means the 
                        ratio which the number of months in the 
                        deferral period bears to the total number of 
                        months in the taxable year.
            ``(6) Special rule where c corporation for base year.--In 
        applying the 110-percent method, if an S corporation was a C 
        corporation for the base year, the S corporation's applicable 
        income shall be the taxable income of the C corporation for the 
        base year.
    ``(f) Coordination Between Entity and Owners.--
            ``(1) Treatment of payments of required installments.--
                    ``(A) In general.--For purposes of this title, an 
                owner in an entity shall be treated as having paid, for 
                the owner's first taxable year ending with or after the 
                close of the entity's taxable year, an amount of tax 
                imposed by section 1 equal to the owner's allocable 
                share of the entity's payments of required installments 
                under this section (determined without regard to excess 
                payments described in subparagraph (C)(ii)(II) or 
                amounts the entity is treated as paying under paragraph 
                (2)).
                    ``(B) Coordination with owner's estimated tax.--For 
                purposes of section 6654, an individual shall be 
                treated as having paid on the due date for the 
                estimated tax installment for each quarter of the 
                individual's taxable year described in subparagraph 
                (A)--
                            ``(i) except as provided in clause (ii), 25 
                        percent of the tax deemed paid under 
                        subparagraph (A), or
                            ``(ii) if the annualized income method was 
                        used by the entity for any quarter of the 
                        entity's taxable year described in subparagraph 
                        (A), an amount for the corresponding quarter in 
                        the individuals's taxable year equal to the 
                        portion of such tax attributable to the 
                        individual's allocable share of the entity's 
                        applicable income for the entity's quarter.
                In no event shall the aggregate estimated tax payments 
                treated as paid under this subparagraph exceed the 
                amount of tax determined under subparagraph (A).
                    ``(C) Amounts determined on basis of return.--
                            ``(i) In general.--The determination of the 
                        amount of tax payments under subparagraph (A) 
                        shall be made on the basis of amounts shown on 
                        the entity's return for the taxable year.
                            ``(ii) Reconciliation of differences.--If, 
                        as of the first April 15 more than 3 months 
                        after the close of the entity's taxable year, 
                        the aggregate amounts paid as required 
                        installments under this section are less or 
                        more than the aggregate amounts described in 
                        clause (i) shown on the entity's return of tax 
                        for the taxable year, then--
                                    ``(I) subject to paragraph (2), 
                                there is hereby imposed on the entity 
                                under chapter 1 an additional tax equal 
                                to the amount of the shortfall, the due 
                                date for which is such April 15, or
                                    ``(II) the entity shall be treated 
                                as having made a payment of tax under 
                                chapter 1 on such April 15 in an amount 
                                equal to the excess.
            ``(2) Treatment of payments by owners.--For purposes of 
        subsection (b)(2)(B) and paragraph (1)(C), an entity shall be 
        treated as paying any portion of an underpayment attributable 
        to an owner's allocable share of applicable income at the time 
        the tax imposed by chapter 1 on the owner with respect to such 
        income is paid.
            ``(3) Allocable share.--For purposes of this subsection--
                    ``(A) In general.--An owner's allocable share of an 
                item for a taxable year shall be an amount which bears 
                the same ratio to the amount of such item as the 
                owner's applicable income for the taxable year bears to 
                the sum of the applicable incomes of all owners. For 
                purposes of this subparagraph, applicable income of an 
                owner shall be determined in the same manner as 
                subsection (e).
                    ``(B) Application other than on taxable year 
                basis.--If--
                            ``(i) the entity elects the annualized 
                        income method for any quarter, subparagraph (A) 
                        shall be applied on a quarter-by-quarter basis, 
                        or
                            ``(ii) there is an interim closing of the 
                        books of an entity under this title, 
                        subparagraph (A) shall be applied separately 
                        for the periods before and after the closing.
    ``(g) Special Rules for Short Year Created by Election.--
            ``(1) Additional required installment.--If, by reason of an 
        election under this section, an entity has a taxable year of 
        less than 12 months, the entity shall make a required 
        installment under this section for such taxable year--
                    ``(A) which shall be in an amount equal to the 
                applicable rate multiplied by the lesser of--
                            ``(i) the entity's applicable income for 
                        such taxable year as determined under 
                        subsection (e), or
                            ``(ii) 110 percent of the entity's 
                        applicable income for the base year (as so 
                        determined but ratably reduced to reflect the 
                        period of such taxable year), and
                    ``(B) the due date for which shall be the last day 
                for which an election under this section could be made 
                for the taxable year.
            ``(2) Treatment of losses.--Any net operating loss arising 
        in the taxable year described in paragraph (1) shall be treated 
        as arising one-third in such taxable year and each of the 2 
        following taxable years. This paragraph shall not apply to an 
        entity not in existence before such taxable year unless more 
        than one-half of the equity interests in the entity are held by 
        persons who owned another entity carrying on the same business 
        before such taxable year.
    ``(h) Other Definitions and Special Rules.--For purpose of this 
section--
            ``(1) Base year.--The term `base year' means the most 
        recent preceding taxable year containing 12 months.
            ``(2) Equity interest.--The term `equity interest' means--
                    ``(A) in the case of a partnership, the capital 
                interests, and
                    ``(B) in the case of an S corporation, the shares 
                of stock in the corporation (whether voting or 
                nonvoting).
            ``(3) Owner.--The term `owner' means a partner in a 
        partnership or a shareholder in an S corporation, whichever is 
        applicable.
            ``(4) Common control.--
                    ``(A) In general.--For purposes of subsections 
                (c)(2), (c)(4)(B), and (d)(2)(B), entities under common 
                control shall be treated as 1 entity.
                    ``(B) Common control.--Entities shall be treated as 
                under common control under subparagraph (A) if they are 
                treated as a single employee under subsection (a) or 
                (b) of section 52.
            ``(5) Waiver.--No penalty shall be imposed under subsection 
        (a) with respect to any underpayment to the extent the 
        Secretary determines that by reason of casualty, disaster, or 
        other unusual circumstances the imposition of the penalty would 
        be against equity and good conscience.''
    (c) Modification of Elections.--
            (1) Time for making.--Paragraph (1) of section 444(d) is 
        amended by adding at the end the following new sentence: ``Such 
        election may be made at any time on or before the 15th day of 
        the 3d month of the first taxable year of 12 months under the 
        election.''
            (2) Terminations.--Paragraph (2) of section 444(d) is 
        amended by striking subparagraph (B) and inserting:
                    ``(B) Terminations.--
                            ``(i) Revocation.--An election under 
                        subsection (a) may be terminated by revocation 
                        but only if owners of more than one-half of the 
                        equity interests in the entity on the date of 
                        the revocation consent to it.
                            ``(ii) Entity terminations.--In the case of 
                        a partnership or S corporation, an election 
                        under subsection (a) terminates when the 
                        partnership terminates under section 708(b)(1) 
                        or the corporation ceases to be an S 
                        corporation.
                    ``(C) Subsequent elections.--If an election under 
                subsection (a) has been terminated, no such election 
                may be made with respect to such entity or any 
                successor entity for any taxable year before its 5th 
                taxable year beginning after the 1st taxable year for 
                which the termination was effective, unless the 
                Secretary consents to the election.''
    (d) Conforming Amendments.--
            (1) Section 6665(b) is amended--
                    (A) by inserting ``6654A,'' after ``6654,'', and
                    (B) by striking ``6654 or'' and inserting ``6654, 
                6654A, or''.
            (2) The table of sections for part I of subchapter A of 
        chapter 68 is amended by inserting after the item relating to 
        section 6654 the following new item:

                              ``Sec. 6654A. Failure by electing 
                                        partnership or S corporation to 
                                        pay estimated tax.''

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

SEC. 14555. SPECIAL RULE FOR CROP INSURANCE PROCEEDS AND DISASTER 
                    PAYMENTS.

    (a) In General.--Section 451(d) of the Internal Revenue Code of 
1986 (relating to special rule for crop insurance proceeds and disaster 
payments) is amended to read as follows:
    ``(d) Special Rule for Crop Insurance Proceeds and Disaster 
Payments.--
            ``(1) General rule.--In the case of any payment described 
        in paragraph (2), a taxpayer reporting on the cash receipts and 
        disbursements method of accounting--
                    ``(A) may elect to treat any such payment received 
                in the taxable year of destruction or damage of crops 
                as having been received in the following taxable year 
                if the taxpayer establishes that, under the taxpayer's 
                practice, income from such crops involved would have 
                been reported in a following taxable year, or
                    ``(B) may elect to treat any such payment received 
                in a taxable year following the taxable year of the 
                destruction or damage of crops as having been received 
                in the taxable year of destruction or damage, if the 
                taxpayer establishes that, under the taxpayer's 
                practice, income from such crops involved would have 
                been reported in the taxable year of destruction or 
                damage.
            ``(2) Payments described.--For purposes of this subsection, 
        a payment is described in this paragraph if such payment--
                    ``(A) is insurance proceeds received on account of 
                destruction or damage to crops, or
                    ``(B) is disaster assistance received under any 
                Federal law as a result of--
                            ``(i) destruction or damage to crops caused 
                        by drought, flood, or other natural disaster, 
                        or
                            ``(ii) inability to plant crops because of 
                        such a disaster.''.
    (b) Effective Date.--The amendment made by subsection (a) applies 
to payments received after December 31, 1995, as a result of 
destruction or damage occurring after such date.

                   PART V--TAX-EXEMPT BOND PROVISIONS

SEC. 14561. REPEAL OF $100,000 LIMITATION ON UNSPENT PROCEEDS UNDER 1-
                    YEAR EXCEPTION FROM REBATE.

    Subclause (I) of section 148(f)(4)(B)(ii) (relating to additional 
period for certain bonds) is amended by striking ``the lesser of 5 
percent of the proceeds of the issue or $100,000'' and inserting ``5 
percent of the proceeds of the issue''.

SEC. 14562. EXCEPTION FROM REBATE FOR EARNINGS ON BONA FIDE DEBT 
                    SERVICE FUND UNDER CONSTRUCTION BOND RULES.

    Subparagraph (C) of section 148(f)(4) is amended by adding at the 
end the following new clause:
                            ``(xvii) Treatment of bona fide debt 
                        service funds.--If the spending requirements of 
                        clause (ii) are met with respect to the 
                        available construction proceeds of a 
                        construction issue, then paragraph (2) shall 
                        not apply to earnings on a bona fide debt 
                        service fund for such issue.''

SEC. 14563. REPEAL OF DEBT SERVICE-BASED LIMITATION ON INVESTMENT IN 
                    CERTAIN NONPURPOSE INVESTMENTS.

    Subsection (d) of section 148 (relating to special rules for 
reasonably required reserve or replacement fund) is amended by striking 
paragraph (3).

SEC. 14564. REPEAL OF EXPIRED PROVISIONS.

    (a) Paragraph (2) of section 148(c) is amended by striking 
subparagraph (B) and by redesignating subparagraphs (C), (D), and (E) 
as subparagraphs (B), (C), and (D), respectively.
    (b) Paragraph (4) of section 148(f) is amended by striking 
subparagraph (E).

SEC. 14565. EFFECTIVE DATES.

    The amendments made by this part shall apply to bonds issued after 
the date of the enactment of this Act.

                     PART VI--INSURANCE PROVISIONS

SEC. 14571. TREATMENT OF CERTAIN INSURANCE CONTRACTS ON RETIRED LIVES.

    (a) General Rule.--
            (1) Paragraph (2) of section 817(d) (defining variable 
        contract) is amended by striking ``or'' at the end of 
        subparagraph (A), by striking ``and'' at the end of 
        subparagraph (B) and inserting ``or'', and by inserting after 
        subparagraph (B) the following new subparagraph:
                    ``(C) provides for funding of insurance on retired 
                lives as described in section 807(c)(6), and''.
            (2) Paragraph (3) of section 817(d) is amended by striking 
        ``or'' at the end of subparagraph (A), by striking the period 
        at the end of subparagraph (B) and inserting ``, or'', and by 
        inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) in the case of funds held under a contract 
                described in paragraph (2)(C), the amounts paid in, or 
                the amounts paid out, reflect the investment return and 
                the market value of the segregated asset account.''
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 14572. TREATMENT OF MODIFIED GUARANTEED CONTRACTS.

    (a) General Rule.--Subpart E of part I of subchapter L of chapter 1 
(relating to definitions and special rules) is amended by inserting 
after section 817 the following new section:

``SEC. 817A. SPECIAL RULES FOR MODIFIED GUARANTEED CONTRACTS.

    ``(a) Computation of Reserves.--In the case of a modified 
guaranteed contract, clause (ii) of section 807(e)(1)(A) shall not 
apply.
    ``(b) Segregated Assets Under Modified Guaranteed Contracts Marked 
to Market.--
            ``(1) In general.--In the case of any life insurance 
        company, for purposes of this subtitle--
                    ``(A) Any gain or loss with respect to a segregated 
                asset shall be treated as ordinary income or loss, as 
                the case may be.
                    ``(B) If any segregated asset is held by such 
                company as of the close of any taxable year--
                            ``(i) such company shall recognize gain or 
                        loss as if such asset were sold for its fair 
                        market value on the last business day of such 
                        taxable year, and
                            ``(ii) any such gain or loss shall be taken 
                        into account for such taxable year.
                Proper adjustment shall be made in the amount of any 
                gain or loss subsequently realized for gain or loss 
                taken into account under the preceding sentence. The 
                Secretary may provide by regulations for the 
                application of this subparagraph at times other than 
                the times provided in this subparagraph.
            ``(2) Segregated asset.--For purposes of paragraph (1), the 
        term `segregated asset' means any asset held as part of a 
        segregated account referred to in subsection (d)(1) under a 
        modified guaranteed contract.
    ``(c) Special Rule in Computing Life Insurance Reserves.--For 
purposes of applying section 816(b)(1)(A) to any modified guaranteed 
contract, an assumed rate of interest shall include a rate of interest 
determined, from time to time, with reference to a market rate of 
interest.
    ``(d) Modified Guaranteed Contract Defined.--For purposes of this 
section, the term `modified guaranteed contract' means a contract not 
described in section 817--
            ``(1) all or part of the amounts received under which are 
        allocated to an account which, pursuant to State law or 
        regulation, is segregated from the general asset accounts of 
        the company and is valued from time to time with reference to 
        market values,
            ``(2) which--
                    ``(A) provides for the payment of annuities,
                    ``(B) is a life insurance contract, or
                    ``(C) is a pension plan contract which is not a 
                life, accident, or health, property, casualty, or 
                liability contract,
            ``(3) for which reserves are valued at market for annual 
        statement purposes, and
            ``(4) which provides for a net surrender value or a 
        policyholder's fund (as defined in section 807(e)(1)).
If only a portion of a contract is not described in section 817, such 
portion shall be treated for purposes of this section as a separate 
contract.
    ``(e) Regulations.--The Secretary may prescribe regulations--
            ``(1) to provide for the treatment of market value 
        adjustments under sections 72, 7702, 7702A, and 807(e)(1)(B),
            ``(2) to determine the interest rates applicable under 
        sections 807(c)(3), 807(d)(2)(B), and 812 with respect to a 
        modified guaranteed contract annually, in a manner appropriate 
        for modified guaranteed contracts and, to the extent 
        appropriate for such a contract, to modify or waive the 
        applicability of section 811(d),
            ``(3) to provide rules to limit ordinary gain or loss 
        treatment to assets constituting reserves for modified 
        guaranteed contracts (and not other assets) of the company,
            ``(4) to provide appropriate treatment of transfers of 
        assets to and from the segregated account, and
            ``(5) as may be necessary or appropriate to carry out the 
        purposes of this section.''
    (b) Clerical Amendment.--The table of sections for subpart E of 
part I of subchapter L of chapter 1 is amended by inserting after the 
item relating to section 817 the following new item:

                              ``Sec. 817A. Special rules for modified 
                                        guaranteed contracts.''

    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 1995.
            (2) Treatment of net adjustments.--In the case of any 
        taxpayer required by the amendments made by this section to 
        change its calculation of reserves to take into account market 
        value adjustments and to mark segregated assets to market for 
        any taxable year--
                    (A) such changes shall be treated as a change in 
                method of accounting initiated by the taxpayer,
                    (B) such changes shall be treated as made with the 
                consent of the Secretary, and
                    (C) the adjustments required by reason of section 
                481 of the Internal Revenue Code of 1986 shall be taken 
                into account as ordinary income or loss by the taxpayer 
                for the taxpayer's first taxable year beginning after 
                December 31, 1995.

SEC. 14573. MINIMUM TAX TREATMENT OF CERTAIN PROPERTY AND CASUALTY 
                    INSURANCE COMPANIES.

    (a) In General.--Clause (i) of section 56(g)(4)(B) (relating to 
inclusion of items included for purposes of computing earnings and 
profits) is amended by adding at the end the following new sentence: 
``In the case of any insurance company taxable under section 831(b), 
this clause shall not apply to any amount not described in section 
834(b).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1995.

                       PART VII--OTHER PROVISIONS

SEC. 14581. CLOSING OF PARTNERSHIP TAXABLE YEAR WITH RESPECT TO 
                    DECEASED PARTNER, ETC.

    (a) General Rule.--Subparagraph (A) of section 706(c)(2) (relating 
to disposition of entire interest) is amended to read as follows:
                    ``(A) Disposition of entire interest.--The taxable 
                year of a partnership shall close with respect to a 
                partner whose entire interest in the partnership 
                terminates (whether by reason of death, liquidation, or 
                otherwise).''
    (b) Clerical Amendment.--The paragraph heading for paragraph (2) of 
section 706(c) is amended to read as follows:
            ``(2) Treatment of dispositions.--''.
    (c) Effective Date.--The amendments made by this section shall 
apply to partnership taxable years beginning after December 31, 1995.

SEC. 14582. CREDIT FOR SOCIAL SECURITY TAXES PAID WITH RESPECT TO 
                    EMPLOYEE CASH TIPS.

    (a) Reporting Requirement Not Considered.--Subparagraph (A) of 
section 45B(b)(1) (relating to excess employer social security tax) is 
amended by inserting ``(without regard to whether such tips are 
reported under section 6053)'' after ``section 3121(q)''.
    (b) Taxes paid.--Subsection (d) of section 13443 of the Revenue 
Reconciliation Act of 1993 is amended by inserting ``, with respect to 
services performed before, on, or after such date'' after ``1993''.
    (c) Effective Date.--The amendments made by this section shall take 
effect as if included in the amendments made by, and the provisions of, 
section 13443 of the Revenue Reconciliation Act of 1993.

SEC. 14583. DUE DATE FOR FIRST QUARTER ESTIMATED TAX PAYMENTS BY 
                    PRIVATE FOUNDATIONS.

    (a) In General.--Paragraph (3) of section 6655(g) is amended by 
inserting after subparagraph (C) the following new subparagraph:
                    ``(D) In the case of any private foundation, 
                subsection (c)(2) shall be applied by substituting `May 
                15' for `April 15 ' ''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1995.

SEC. 14584. TREATMENT OF DUES PAID TO AGRICULTURAL OR HORTICULTURAL 
                    ORGANIZATIONS.

    (a) General Rule.--Section 512 (defining unrelated business taxable 
income) is amended by adding at the end thereof the following new 
subsection:
    ``(d) Treatment of Dues of Agricultural or Horticultural 
Organizations.--
            ``(1) In general.--If--
                    ``(A) an agricultural or horticultural organization 
                described in section 501(c)(5) requires annual dues to 
                be paid in order to be a member of such organization, 
                and
                    ``(B) the amount of such required annual dues does 
                not exceed $100,
        in no event shall any portion of such dues be treated as 
        derived by such organization from an unrelated trade or 
        business by reason of any benefits or privileges to which 
        members of such organization are entitled.
            ``(2) Indexation of $100 amount.--In the case of any 
        taxable year beginning in a calendar year after 1995, the $100 
        amount in paragraph (1) shall be increased by an amount equal 
        to--
                    ``(A) $100, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for the calendar year in which 
                the taxable year begins, by substituting `calendar year 
                1994' for `calendar year 1992' in subparagraph (B) 
                thereof.
            ``(3) Dues.--For purposes of this subsection, the term 
        `dues' includes any payment required to be made in order to be 
        recognized by the organization as a member of the 
        organization.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 1994.

                     Subtitle F--Estates and Trusts

                     PART I--INCOME TAX PROVISIONS

SEC. 14601. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF ESTATE.

    (a) In General.--Subpart A of part I of subchapter J (relating to 
estates, trusts, beneficiaries, and decedents) is amended by adding at 
the end the following new section:

``SEC. 646. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF ESTATE.

    ``(a) General Rule.--For purposes of this subtitle, if both the 
executor of an estate and the trustee of a qualified revocable trust 
elect the treatment provided in this section, such trust shall be 
treated and taxed as part of such estate (and not as a separate trust) 
for all taxable years of the estate ending after the date of the 
decedent's death and before the applicable date.
    ``(b) Definitions.--For purposes of subsection (a)--
            ``(1) Qualified revocable trust.--The term `qualified 
        revocable trust' means any trust all of which was treated under 
        section 676 as owned by the decedent of the estate referred to 
        in subsection (a).
            ``(2) Applicable date.--The term `applicable date' means--
                    ``(A) if no return of tax imposed by chapter 11 is 
                required to be filed, the date which is 2 years after 
                the date of the decedent's death, and
                    ``(B) if such a return is required to be filed, the 
                date which is 6 months after the date of the final 
                determination of the liability for tax imposed by 
                chapter 11.
    ``(c) Election.--The election under subsection (a) shall be made 
not later than the time prescribed for filing the return of tax imposed 
by this chapter for the first taxable year of the estate (determined 
with regard to extensions) and, once made, shall be irrevocable.''
    (b) Comparable Treatment Under Generation-Skipping Tax.--Paragraph 
(1) of section 2652(b) is amended by adding at the end the following 
new sentence: ``Such term shall not include any trust during any period 
the trust is treated as part of an estate under section 646.''
    (c) Clerical Amendment.--The table of sections for such subpart A 
is amended by adding at the end the following new item:

                              ``Sec. 646. Certain revocable trusts 
                                        treated as part of estate.''

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

SEC. 14602. DISTRIBUTIONS DURING FIRST 65 DAYS OF TAXABLE YEAR OF 
                    ESTATE.

    (a) In General.--Subsection (b) of section 663 (relating to 
distributions in first 65 days of taxable year) is amended by inserting 
``an estate or'' before ``a trust'' each place it appears.
    (b) Conforming Amendment.--Paragraph (2) of section 663(b) is 
amended by striking ``the fiduciary of such trust'' and inserting ``the 
executor of such estate or the fiduciary of such trust (as the case may 
be)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 14603. SEPARATE SHARE RULES AVAILABLE TO ESTATES.

    (a) In General.--Subsection (c) of section 663 (relating to 
separate shares treated as separate trusts) is amended--
            (1) by inserting before the last sentence the following new 
        sentence: ``Rules similar to the rules of the preceding 
        provisions of this subsection shall apply to treat 
        substantially separate and independent shares of different 
        beneficiaries in an estate having more than 1 beneficiary as 
        separate estates.'', and
            (2) by inserting ``or estates'' after ``trusts'' in the 
        last sentence.
    (b) Conforming Amendment.--The subsection heading of section 663(c) 
is amended by inserting ``Estates or'' before ``Trusts''.
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after the date of the enactment of 
this Act.

SEC. 14604. EXECUTOR OF ESTATE AND BENEFICIARIES TREATED AS RELATED 
                    PERSONS FOR DISALLOWANCE OF LOSSES, ETC.

    (a) Disallowance of Losses.--Subsection (b) of section 267 
(relating to losses, expenses, and interest with respect to 
transactions between related taxpayers) is amended by striking ``or'' 
at the end of paragraph (11), by striking the period at the end of 
paragraph (12) and inserting ``; or'', and by adding at the end the 
following new paragraph:
            ``(13) Except in the case of a sale or exchange in 
        satisfaction of a pecuniary bequest, an executor of an estate 
        and a beneficiary of such estate.''
    (b) Ordinary Income From Gain From Sale of Depreciable Property.--
Subsection (b) of section 1239 is amended by striking the period at the 
end of paragraph (2) and inserting ``, and'' and by adding at the end 
the following new paragraph:
            ``(3) except in the case of a sale or exchange in 
        satisfaction of a pecuniary bequest, an executor of an estate 
        and a beneficiary of such estate.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 14605. LIMITATION ON TAXABLE YEAR OF ESTATES.

    (a) In General.--Section 645 (relating to taxable year of trusts) 
is amended to read as follows:

``SEC. 645. TAXABLE YEAR OF ESTATES AND TRUSTS.

    ``(a) Estates.--For purposes of this subtitle, the taxable year of 
an estate shall be a year ending on October 31, November 30, or 
December 31.
    ``(b) Trusts.--
            ``(1) In general.--For purposes of this subtitle, the 
        taxable year of any trust shall be the calendar year.
            ``(2) Exception for trusts exempt from tax and charitable 
        trusts.--Paragraph (1) shall not apply to a trust exempt from 
        taxation under section 501(a) or to a trust described in 
        section 4947(a)(1).''
    (b) Clerical Amendment.--The table of sections for subpart A of 
part I of subchapter J of chapter 1 is amended by striking the item 
relating to section 645 and inserting the following new item:

                              ``Sec. 645. Taxable year of estates and 
                                        trusts.''

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

SEC. 14606. REPEAL OF CERTAIN THROWBACK RULES APPLICABLE TO DOMESTIC 
                    TRUSTS.

    (a) Accumulation Distributions.--
            (1) In general.--Section 665 is amended by adding at the 
        end the following new subsection:
    ``(f) Accumulation Distributions After 1995.--For purposes of this 
subpart, in the case of a trust other than a foreign trust, any 
distribution in any taxable year beginning after December 31, 1995, 
shall be computed without regard to any undistributed net income.''
            (2) Conforming amendment.--Subsection (b) of section 665 is 
        amended by inserting ``except as provided in subsection (f),'' 
        after ``subpart,''
    (b) Property Transferred to Trusts.--Subsection (e) of section 644 
is amended by striking ``or'' at the end of paragraph (3), by striking 
the period at the end of paragraph (4) and inserting ``, or '', and by 
adding at the end the following new paragraph:
            ``(5) in the case of a trust other than a foreign trust, 
        any sale or exchange of property after December 31, 1995.''
    (c) Effective Dates.--
            (1) Accumulation distribution.--The amendments made by 
        subsection (a) shall apply to distributions in taxable years 
        beginning after December 31, 1995.
            (2) Transferred property.--The amendments made by 
        subsection (b) shall apply to sales or exchanges after December 
        31, 1995.

SEC. 14607. TREATMENT OF FUNERAL TRUSTS.

    (a) In General.--Subpart F of part I of subchapter J of chapter 1 
is amended by adding at the end the following new section:

``SEC. 684. TREATMENT OF FUNERAL TRUSTS.

    ``(a) In General.--In the case of a qualified funeral trust--
            ``(1) subparts B, C, D, and E shall not apply, and
            ``(2) no deduction shall be allowed by section 642(b).
    ``(b) Qualified Funeral Trust.--For purposes of this subsection, 
the term `qualified funeral trust' means any trust (other than a 
foreign trust) if--
            ``(1) the trust arises as a result of a contract with a 
        person engaged in the trade or business of providing funeral or 
        burial services or property necessary to provide such services,
            ``(2) the sole purpose of the trust is to hold, invest, and 
        reinvest funds in the trust and to use such funds solely to 
        make payments for such services or property for the benefit of 
        the beneficiaries of the trust,
            ``(3) the only beneficiaries of such trust are individuals 
        who have entered into contracts described in paragraph (1) to 
        have such services or property provided at their death,
            ``(4) the only contributions to the trust are contributions 
        by or for the benefit of such beneficiaries,
            ``(5) the trustee elects the application of this 
        subsection, and
            ``(6) the trust would (but for the election described in 
        paragraph (5)) be treated as owned by the beneficiaries under 
        subpart E.
    ``(c) Dollar Limitation on Contributions.--
            ``(1) In general.--The term `qualified funeral trust' shall 
        not include any trust which accepts contributions by or for the 
        benefit of an individual in excess of $5,000.
            ``(2) Related trusts.--For purposes of paragraph (1), all 
        trusts having trustees which are related persons shall be 
        treated as 1 trust. For purposes of the preceding sentence, 
        persons are related if--
                    ``(A) the relationship between such persons would 
                result in the disallowance of losses under section 267 
                or 707(b),
                    ``(B) such persons are treated as a single employer 
                under subsection (a) or (b) of section 52, or
                    ``(C) the Secretary determines that treating such 
                persons as related is necessary to prevent avoidance of 
                the purposes of this section.
            ``(3) Inflation adjustment.--In the case of any contract 
        referred to in subsection (b)(1) which is entered into during 
        any calendar year after 1996, the dollar amount referred to 
        paragraph (1) shall be increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment determined 
                under section 1(f)(3) for such calendar year, by 
                substituting `calendar year 1995' for `calendar year 
                1992' in subparagraph (B) thereof.
        If any dollar amount after being increased under the preceding 
        sentence is not a multiple of $100, such dollar amount shall be 
        rounded to the nearest multiple of $100.
    ``(d) Application of Rate Schedule.--Section 1(e) shall be applied 
to each qualified funeral trust by treating each beneficiary's interest 
in each such trust as a separate trust.
    ``(e) Treatment of Amounts Refunded to Beneficiary on 
Cancellation.--No gain or loss shall be recognized to a beneficiary 
described in subsection (b)(3) of any qualified funeral trust by reason 
of any payment from such trust to such beneficiary by reason of 
cancellation of a contract referred to in subsection (b)(1). If any 
payment referred to in the preceding sentence consists of property 
other than money, the basis of such property in the hands of such 
beneficiary shall be the same as the trust's basis in such property 
immediately before the payment.
    ``(f) Simplified Reporting.--The Secretary may prescribe rules for 
simplified reporting of all trusts having a single trustee.''
    (b) Clerical Amendment.--The table of sections for subpart F of 
part I of subchapter J of chapter 1 is amended by adding at the end the 
following new item:

                              ``Sec. 684. Treatment of funeral 
                                        trusts.''

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

                PART II--ESTATE AND GIFT TAX PROVISIONS

SEC. 14611. CLARIFICATION OF WAIVER OF CERTAIN RIGHTS OF RECOVERY.

    (a) Amendment to Section 2207A.--Paragraph (2) of section 2207A(a) 
(relating to right of recovery in the case of certain marital deduction 
property) is amended to read as follows:
            ``(2) Decedent may otherwise direct.--Paragraph (1) shall 
        not apply with respect to any property to the extent that the 
        decedent in his will (or a revocable trust) specifically 
        indicates an intent to waive any right of recovery under this 
        subchapter with respect to such property.''
    (b) Amendment to Section 2207B.--Paragraph (2) of section 2207B(a) 
(relating to right of recovery where decedent retained interest) is 
amended to read as follows:
            ``(2) Decedent may otherwise direct.--Paragraph (1) shall 
        not apply with respect to any property to the extent that the 
        decedent in his will (or a revocable trust) specifically 
        indicates an intent to waive any right of recovery under this 
        subchapter with respect to such property.''
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to the estates of decedents dying after the date of 
the enactment of this Act.

SEC. 14612. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF DECEDENT'S DEATH.

    (a) General Rule.--Section 2035 is amended to read as follows:

``SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS MADE WITHIN 3 YEARS OF 
                    DECEDENT'S DEATH.

    ``(a) Inclusion of Certain Property in Gross Estate.--If--
            ``(1) the decedent made a transfer (by trust or otherwise) 
        of an interest in any property, or relinquished a power with 
        respect to any property, during the 3-year period ending on the 
        date of the decedent's death, and
            ``(2) the value of such property (or an interest therein) 
        would have been included in the decedent's gross estate under 
        section 2036, 2037, 2038, or 2042 if such transferred interest 
        or relinquished power had been retained by the decedent on the 
        date of his death,
the value of the gross estate shall include the value of any property 
(or interest therein) which would have been so included.
    ``(b) Inclusion of Gift Tax on Gifts Made During 3 Years Before 
Decedent's Death.--The amount of the gross estate (determined without 
regard to this subsection) shall be increased by the amount of any tax 
paid under chapter 12 by the decedent or his estate on any gift made by 
the decedent or his spouse during the 3-year period ending on the date 
of the decedent's death.
    ``(c) Other Rules Relating to Transfers Within 3 Years of Death.--
            ``(1) In general.--For purposes of--
                    ``(A) section 303(b) (relating to distributions in 
                redemption of stock to pay death taxes),
                    ``(B) section 2032A (relating to special valuation 
                of certain farms, etc., real property), and
                    ``(C) subchapter C of chapter 64 (relating to lien 
                for taxes),
        the value of the gross estate shall include the value of all 
        property to the extent of any interest therein of which the 
        decedent has at any time made a transfer, by trust or 
        otherwise, during the 3-year period ending on the date of the 
        decedent's death.
            ``(2) Coordination with section 6166.--An estate shall be 
        treated as meeting the 35 percent of adjusted gross estate 
        requirement of section 6166(a)(1) only if the estate meets such 
        requirement both with and without the application of paragraph 
        (1).
            ``(3) Marital and small transfers.--Paragraph (1) shall not 
        apply to any transfer (other than a transfer with respect to a 
        life insurance policy) made during a calendar year to any donee 
        if the decedent was not required by section 6019 (other than by 
        reason of section 6019(2)) to file any gift tax return for such 
        year with respect to transfers to such donee.
    ``(d) Exception.--Subsection (a) shall not apply to any bona fide 
sale for an adequate and full consideration in money or money's worth.
    ``(e) Treatment of Certain Transfers From Revocable Trusts.--For 
purposes of this section and section 2038, any transfer from any 
portion of a trust during any period that such portion was treated 
under section 676 as owned by the decedent shall be treated as a 
transfer made directly by the decedent.''
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter A of chapter 11 is amended by striking ``gifts'' in the item 
relating to section 2035 and inserting ``certain gifts''.
    (c) Effective Date.--The amendments made by this section shall 
apply to the estates of decedents dying after the date of the enactment 
of this Act.

SEC. 14613. CLARIFICATION OF QUALIFIED TERMINABLE INTEREST RULES.

    (a) General Rule.--
            (1) Estate tax.--Subparagraph (B) of section 2056(b)(7) 
        (defining qualified terminable interest property) is amended by 
        adding at the end the following new clause:
                            ``(vi) Treatment of certain income 
                        distributions.--An income interest shall not 
                        fail to qualify as a qualified income interest 
                        for life solely because income for the period 
                        after the last distribution date and on or 
                        before the date of the surviving spouse's death 
                        is not required to be distributed to the 
                        surviving spouse or to the estate of the 
                        surviving spouse.''
            (2) Gift tax.--Paragraph (3) of section 2523(f) is amended 
        by striking ``and (iv)'' and inserting ``(iv), and (vi)''.
    (b) Clarification of Subsequent Inclusions.--Section 2044 is 
amended by adding at the end the following new subsection:
    ``(d) Clarification of Inclusion of Certain Income.--The amount 
included in the gross estate under subsection (a) shall include the 
amount of any income from the property to which this section applies 
for the period after the last distribution date and on or before the 
date of the decedent's death if such income is not otherwise included 
in the decedent's gross estate.''
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply with respect to the estates of decedents dying, and gifts 
        made, after the date of the enactment of this Act.
            (2) Application of section 2044 to transfers before date of 
        enactment.--In the case of the estate of any decedent dying 
        after the date of the enactment of this Act, if there was a 
        transfer of property on or before such date--
                    (A) such property shall not be included in the 
                gross estate of the decedent under section 2044 of the 
                Internal Revenue Code of 1986 if no prior marital 
                deduction was allowed with respect to such a transfer 
                of such property to the decedent, but
                    (B) such property shall be so included if such a 
                deduction was allowed.

SEC. 14614. TRANSITIONAL RULE UNDER SECTION 2056A.

    (a) General Rule.--In the case of any trust created under an 
instrument executed before the date of the enactment of the Revenue 
Reconciliation Act of 1990, such trust shall be treated as meeting the 
requirements of paragraph (1) of section 2056A(a) of the Internal 
Revenue Code of 1986 if the trust instrument requires that all trustees 
of the trust be individual citizens of the United States or domestic 
corporations.
    (b) Effective Date.--The provisions of subsection (a) shall take 
effect as if included in the provisions of section 11702(g) of the 
Revenue Reconciliation Act of 1990.

SEC. 14615. OPPORTUNITY TO CORRECT CERTAIN FAILURES UNDER SECTION 
                    2032A.

    (a) General Rule.--Paragraph (3) of section 2032A(d) (relating to 
modification of election and agreement to be permitted) is amended to 
read as follows:
            ``(3) Modification of election and agreement to be 
        permitted.--The Secretary shall prescribe procedures which 
        provide that in any case in which the executor makes an 
        election under paragraph (1) (and submits the agreement 
        referred to in paragraph (2)) within the time prescribed 
        therefor, but--
                    ``(A) the notice of election, as filed, does not 
                contain all required information, or
                    ``(B) signatures of 1 or more persons required to 
                enter into the agreement described in paragraph (2) are 
                not included on the agreement as filed, or the 
                agreement does not contain all required information,
        the executor will have a reasonable period of time (not 
        exceeding 90 days) after notification of such failures to 
        provide such information or signatures.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to the estates of decedents dying after the date of the enactment 
of this Act.

SEC. 14616. UNIFIED CREDIT OF DECEDENT INCREASED BY UNIFIED CREDIT OF 
                    SPOUSE USED ON SPLIT GIFT INCLUDED IN DECEDENT'S 
                    GROSS ESTATE.

    (a) In General.--Section 2010 (relating to unified credit against 
estate tax) is amended by adding at the end the following new 
subsection:
    ``(d) Treatment of Unified Credit Used By Spouse on Split-Gift 
Included in Decedent's Gross Estate.--If--
            ``(1) the decedent was the donor of any gift one-half of 
        which was considered under section 2513 as made by the 
        decedent's spouse, and
            ``(2) the amount of such gift is includible in the gross 
        estate of the decedent by reason of section 2035, 2036, 2037, 
        or 2038,
the amount of the credit allowable by subsection (a) to the estate of 
the decedent shall be increased by the amount of the unified credit 
allowed against the tax imposed by section 2501 on the amount of such 
gift considered under section 2513 as made by such spouse.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to gifts made after the date of the enactment of this Act.

SEC. 14617. REFORMATION OF DEFECTIVE BEQUESTS, ETC. TO SPOUSE OF 
                    DECEDENT.

    (a) In General.--Subsection (b) of section 2056 (relating to 
bequests, etc., to surviving spouse) is amended by adding at the end 
the following new paragraph:
            ``(11) Reformations permitted.--
                    ``(A) In general.--In the case of any interest in 
                property with respect to which a deduction would be 
                allowable under subsection (a) but for a provision of 
                this subsection, if--
                            ``(i) the surviving spouse is entitled to 
                        all of the income from the property for life,
                            ``(ii) no person other than such spouse is 
                        entitled to any distribution of such property 
                        during such spouse's life, and
                            ``(iii) there is a change of a governing 
                        instrument (by reformation, amendment, 
                        construction, or otherwise) as of the 
                        applicable date which results in the 
                        satisfaction of the requirements of such 
                        provision as of the date of the decedent's 
                        death,
                the determination of whether such deduction is 
                allowable shall be made as of the applicable date.
                    ``(B) Special rule where timely commencement of 
                reformation.--Clauses (i) and (ii) of subparagraph (A) 
                shall not apply to any interest if, not later than the 
                date described in subparagraph (C)(i), a judicial 
                proceeding is commenced to change such interest into an 
                interest which satisfies the requirements of the 
                provision by reason of which (but for this paragraph) a 
                deduction would not be allowable under subsection (a) 
                for such interest.
                    ``(C) Applicable date.--For purposes of 
                subparagraph (A), the term `applicable date' means--
                            ``(i) the last date (including extensions) 
                        for filing the return of tax imposed by this 
                        chapter, or
                            ``(ii) if a judicial proceeding is 
                        commenced to comply with such provision, the 
                        time when the changes pursuant to such 
                        proceeding are made.
                    ``(D) Special rule.--If the change referred to in 
                subparagraph (A)(iii) is to qualify the passage of the 
                interest under paragraph (7), subparagraph (A) shall 
                apply only if the election under subparagraph (B) 
                thereof is made.
                    ``(E) Statute of limitations.--If a judicial 
                proceeding described in subparagraph (C)(ii) is 
                commenced with respect to any interest, the period for 
                assessing any deficiency of tax attributable to such 
                interest shall not expire before the date 1 year after 
                the date on which the Secretary is notified that such 
                provision has been complied with or that such 
                proceeding has been terminated.''
    (b) Comparable Rule for Gift Tax.--Section 2523 (relating to gift 
to spouse) is amended by adding at the end the following new 
subsection:
    ``(j) Reformations permitted.--Rules similar to the rules of 
section 2056(b)(11) shall apply for purposes of this section.''
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying, and gifts made, after the date of 
the enactment of this Act.

SEC. 14618. GIFTS MAY NOT BE REVALUED FOR ESTATE TAX PURPOSES AFTER 
                    EXPIRATION OF STATUTE OF LIMITATIONS.

    (a) In General.--Section 2001 (relating to imposition and rate of 
estate tax) is amended by adding at the end the following new 
subsection:
    ``(f) Valuation of Gifts.--If--
            ``(1) the time has expired within which a tax may be 
        assessed under chapter 12 (or under corresponding provisions of 
        prior laws) on the transfer of property by gift made during a 
        preceding calendar period (as defined in section 2502(b)), and
            ``(2) the value of such gift is shown on the return for 
        such preceding calendar period or is disclosed in such return, 
        or in a statement attached to the return, in a manner adequate 
        to apprise the Secretary of the nature of such gift,
the value of such gift shall, for purposes of computing the tax under 
this chapter, be the value of such gift as finally determined for 
purposes of chapter 12.''
    (b) Modification of Application of Statute of Limitations.--
Paragraph (9) of section 6501(c) is amended to read as follows:
            ``(9) Gift tax on certain gifts not shown on return.--If 
        any gift of property the value of which (or any increase in 
        taxable gifts required under section 2701(d)) is required to be 
        shown on a return of tax imposed by chapter 12 (without regard 
        to section 2503(b)), and is not shown on such return, any tax 
        imposed by chapter 12 on such gift may be assessed, or a 
        proceeding in court for the collection of such tax may be begun 
        without assessment, at any time. The preceding sentence shall 
        not apply to any item which is disclosed in such return, or in 
        a statement attached to the return, in a manner adequate to 
        apprise the Secretary of the nature of such item. The value of 
        any item which is so disclosed may not be redetermined by the 
        Secretary after the expiration of the period under subsection 
        (a).''
    (c) Declaratory Judgment Procedure for Determining Value of Gift.--
            (1) In general.--Part IV of subchapter C of chapter 76 is 
        amended by inserting after section 7476 the following new 
        section:

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

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

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

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

SEC. 14619. CLARIFICATIONS RELATING TO DISCLAIMERS.

    (a) Partial Transfer-Type Disclaimers Permitted.--Paragraph (3) of 
section 2518(c) (relating to certain transfers treated as disclaimers) 
is amended by inserting ``(or an undivided portion of such interest)'' 
after ``entire interest in the property''.
    (b) Retention of Interest by Decedent's Spouse Permitted in 
Transfer-Type Disclaimers.--Paragraph (3) of section 2518(c) is amended 
by adding at the end the following new flush sentence:
        ``For purposes of the preceding sentence, a written transfer by 
        the spouse of the decedent of property to a trust shall not 
        fail to be treated as a transfer of such spouse's interest in 
        such property by reason of such spouse having an interest in 
        such trust.''
    (c) Disclaimers Are Effective For Income Tax Purposes.--Subsection 
(a) of section 2518 is amended by inserting ``and subtitle A'' after 
``this subtitle'' each place it appears.
    (d) Effective Date.--The amendments made by this section shall 
apply to transfers creating an interest in the person disclaiming, and 
disclaimers, made after the date of the enactment of this Act.

SEC. 14620. CLARIFICATION OF TREATMENT OF SURVIVOR ANNUITIES UNDER 
                    QUALIFIED TERMINABLE INTEREST RULES.

    (a) In General.--Subparagraph (C) of section 2056(b)(7) is amended 
by inserting ``(or, in the case of an interest in an annuity arising 
under the community property laws of a State, included in the gross 
estate of the decedent under section 2033)'' after ``section 2039''.
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying after the date of the enactment of this 
Act.

SEC. 14621. TREATMENT UNDER QUALIFIED DOMESTIC TRUST RULES OF FORMS OF 
                    OWNERSHIP WHICH ARE NOT TRUSTS.

    (a) In General.--Subsection (c) of section 2056A (defining 
qualified domestic trust) is amended by adding at the end the following 
new paragraph:
            ``(3) Trust.--To the extent provided in regulations 
        prescribed by the Secretary, the term `trust' includes other 
        arrangements which have substantially the same effect as a 
        trust.''
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying after the date of the enactment of this 
Act.

SEC. 14622. AUTHORITY TO WAIVE REQUIREMENT OF UNITED STATES TRUSTEE FOR 
                    QUALIFIED DOMESTIC TRUSTS.

    (a) In General.--Subparagraph (A) of section 2056A(a)(1) is amended 
by inserting ``except as provided in regulations prescribed by the 
Secretary,'' before ``requires''.
    (b) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying after the date of the enactment of this 
Act.

              PART III--GENERATION-SKIPPING TAX PROVISIONS

SEC. 14631. SEVERING OF TRUSTS HOLDING PROPERTY HAVING AN INCLUSION 
                    RATIO OF GREATER THAN ZERO.

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

SEC. 14632. CLARIFICATION OF WHO IS TRANSFEROR WHERE SUBSEQUENT GIFT BY 
                    REASON OF POWER OF APPOINTMENT.

    (a) In General.--Paragraph (1) of section 2652(a) (defining 
transferor) is amended by adding at the end the following new sentence: 
``A transferor described in subparagraph (A) shall not be treated as 
the transferor of any property if another individual is treated as the 
transferor of such property under subparagraph (B) by reason of the 
exercise, release, or lapse of a general power of appointment with 
respect to such property.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to the exercise, release, or lapse of a general power of 
appointment after the date of the enactment of this Act.

SEC. 14633. TAXABLE TERMINATION NOT TO INCLUDE DIRECT SKIPS.

    (a) In General.--Paragraph (1) of section 2612(a) (defining taxable 
termination) is amended by adding at the end the following new flush 
sentence:
        ``Such term shall not include a direct skip.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to generation-skipping transfers (as defined in section 2611 of 
the Internal Revenue Code of 1986) after the date of the enactment of 
this Act.

SEC. 14634. EXPANSION OF EXCEPTION FROM GENERATION-SKIPPING TRANSFER 
                    TAX FOR TRANSFERS TO INDIVIDUALS WITH DECEASED 
                    PARENTS.

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

                 Subtitle G--Excise Tax Simplification

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

SEC. 14701. CREDIT OR REFUND FOR IMPORTED BOTTLED DISTILLED SPIRITS 
                    RETURNED TO DISTILLED SPIRITS PLANT.

    (a) In General.--Paragraph (1) of section 5008(c) (relating to 
distilled spirits returned to bonded premises) is amended by striking 
``withdrawn from bonded premises on payment or determination of tax'' 
and inserting ``on which tax has been determined or paid''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect at the beginning of the first calendar quarter beginning 
more than 180 days after the date of the enactment of this Act.

SEC. 14702. AUTHORITY TO CANCEL OR CREDIT EXPORT BONDS WITHOUT 
                    SUBMISSION OF RECORDS.

    (a) In General.--Subsection (c) of section 5175 (relating to export 
bonds) is amended by striking ``on the submission of'' and all that 
follows and inserting ``if there is such proof of exportation as the 
Secretary may by regulations require.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect at the beginning of the first calendar quarter beginning 
more than 180 days after the date of the enactment of this Act.

SEC. 14703. REPEAL OF REQUIRED MAINTENANCE OF RECORDS ON PREMISES OF 
                    DISTILLED SPIRITS PLANT.

    (a) In General.--Subsection (c) of section 5207 (relating to 
records and reports) is amended by striking ``shall be kept on the 
premises where the operations covered by the record are carried on 
and''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect at the beginning of the first calendar quarter beginning 
more than 180 days after the date of the enactment of this Act.

SEC. 14704. FERMENTED MATERIAL FROM ANY BREWERY MAY BE RECEIVED AT A 
                    DISTILLED SPIRITS PLANT.

    (a) In General.--Paragraph (2) of section 5222(b) (relating to 
production, receipt, removal, and use of distilling materials) is 
amended to read as follows:
            ``(2) beer conveyed without payment of tax from brewery 
        premises, beer which has been lawfully removed from brewery 
        premises upon determination of tax, or''.
    (b) Clarification of Authority To Permit Removal of Beer Without 
Payment of Tax for Use as Distilling Material.--Section 5053 (relating 
to exemptions) is amended by redesignating subsection (f) as subsection 
(i) and by inserting after subsection (e) the following new subsection:
    ``(f) Removal for Use as Distilling Material.--Subject to such 
regulations as the Secretary may prescribe, beer may be removed from a 
brewery without payment of tax to any distilled spirits plant for use 
as distilling material.''
    (c) Clarification of Refund and Credit of Tax.--Section 5056 
(relating to refund and credit of tax, or relief from liability) is 
amended--
            (1) by redesignating subsection (c) as subsection (d) and 
        by inserting after subsection (b) the following new subsection:
    ``(c) Beer Received at a Distilled Spirits Plant.--Any tax paid by 
any brewer on beer produced in the United States may be refunded or 
credited to the brewer, without interest, or if the tax has not been 
paid, the brewer may be relieved of liability therefor, under 
regulations as the Secretary may prescribe, if such beer is received on 
the bonded premises of a distilled spirits plant pursuant to the 
provisions of section 5222(b)(2), for use in the production of 
distilled spirits.'', and
            (2) by striking ``or rendering unmerchantable'' in 
        subsection (d) (as so redesignated) and inserting ``rendering 
        unmerchantable, or receipt on the bonded premises of a 
        distilled spirits plant''.
    (d) Effective Date.--The amendments made by this section shall take 
effect at the beginning of the first calendar quarter beginning more 
than 180 days after the date of the enactment of this Act.

SEC. 14705. REPEAL OF REQUIREMENT FOR WHOLESALE DEALERS IN LIQUORS TO 
                    POST SIGN.

    (a) In General.--Section 5115 (relating to sign required on 
premises) is hereby repealed.
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 5681 is amended by striking 
        ``, and every wholesale dealer in liquors,'' and by striking 
        ``section 5115(a) or''.
            (2) Subsection (c) of section 5681 is amended--
                    (A) by striking ``or wholesale liquor 
                establishment, on which no sign required by section 
                5115(a) or'' and inserting ``on which no sign required 
                by'', and
                    (B) by striking ``or wholesale liquor 
                establishment, or who'' and inserting ``or who''.
            (3) The table of sections for subpart D of part II of 
        subchapter A of chapter 51 is amended by striking the item 
        relating to section 5115.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 14706. REFUND OF TAX ON WINE RETURNED TO BOND NOT LIMITED TO 
                    UNMERCHANTABLE WINE.

    (a) In General.--Subsection (a) of section 5044 (relating to refund 
of tax on unmerchantable wine) is amended by striking ``as 
unmerchantable''.
    (b) Conforming Amendments.--
            (1) Section 5361 is amended by striking ``unmerchantable''.
            (2) The section heading for section 5044 is amended by 
        striking ``unmerchantable''.
            (3) The item relating to section 5044 in the table of 
        sections for subpart C of part I of subchapter A of chapter 51 
        is amended by striking ``unmerchantable''.
    (c) Effective Date.--The amendments made by this section shall take 
effect at the beginning of the first calendar quarter beginning more 
than 180 days after the date of the enactment of this Act.

SEC. 14707. USE OF ADDITIONAL AMELIORATING MATERIAL IN CERTAIN WINES.

    (a) In General.--Subparagraph (D) of section 5384(b)(2) (relating 
to ameliorated fruit and berry wines) is amended by striking 
``loganberries, currants, or gooseberries,'' and inserting ``any fruit 
or berry with a natural fixed acid of 20 parts per thousand or more 
(before any correction of such fruit or berry)''.
    (b) Effective Date.--The amendment made by this section shall take 
effect at the beginning of the first calendar quarter beginning more 
than 180 days after the date of the enactment of this Act.

SEC. 14708. DOMESTICALLY PRODUCED BEER MAY BE WITHDRAWN FREE OF TAX FOR 
                    USE OF FOREIGN EMBASSIES, LEGATIONS, ETC.

    (a) In General.--Section 5053 (relating to exemptions) is amended 
by inserting after subsection (f) the following new subsection:
    ``(g) Removals for Use of Foreign Embassies, Legations, Etc.--
            ``(1) In general.--Subject to such regulations as the 
        Secretary may prescribe--
                    ``(A) beer may be withdrawn from the brewery 
                without payment of tax for transfer to any customs 
                bonded warehouse for entry pending withdrawal therefrom 
                as provided in subparagraph (B), and
                    ``(B) beer entered into any customs bonded 
                warehouse under subparagraph (A) may be withdrawn for 
                consumption in the United States by, and for the 
                official and family use of, such foreign governments, 
                organizations, and individuals as are entitled to 
                withdraw imported beer from such warehouses free of 
                tax.
        Beer transferred to any customs bonded warehouse under 
        subparagraph (A) shall be entered, stored, and accounted for in 
        such warehouse under such regulations and bonds as the 
        Secretary may prescribe, and may be withdrawn therefrom by such 
        governments, organizations, and individuals free of tax under 
        the same conditions and procedures as imported beer.
            ``(2) Other rules to apply.--Rules similar to the rules of 
        paragraphs (2) and (3) of section 5362(e) of such section shall 
        apply for purposes of this subsection.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect at the beginning of the first calendar quarter beginning 
more than 180 days after the date of the enactment of this Act.

SEC. 14709. BEER MAY BE WITHDRAWN FREE OF TAX FOR DESTRUCTION.

    (a) In General.--Section 5053 is amended by inserting after 
subsection (g) the following new subsection:
    ``(h) Removals for Destruction.--Subject to such regulations as the 
Secretary may prescribe, beer may be removed from the brewery without 
payment of tax for destruction.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect at the beginning of the first calendar quarter beginning 
more than 180 days after the date of the enactment of this Act.

SEC. 14710. AUTHORITY TO ALLOW DRAWBACK ON EXPORTED BEER WITHOUT 
                    SUBMISSION OF RECORDS.

    (a) In General.--The first sentence of section 5055 (relating to 
drawback of tax on beer) is amended by striking ``found to have been 
paid'' and all that follows and inserting ``paid on such beer if there 
is such proof of exportation as the Secretary may by regulations 
require.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect at the beginning of the first calendar quarter beginning 
more than 180 days after the date of the enactment of this Act.

SEC. 14711. TRANSFER TO BREWERY OF BEER IMPORTED IN BULK WITHOUT 
                    PAYMENT OF TAX.

    (a) In General.--Part II of subchapter G of chapter 51 is amended 
by adding at the end the following new section:

``SEC. 5418. BEER IMPORTED IN BULK.

    ``Beer imported or brought into the United States in bulk 
containers may, under such regulations as the Secretary may prescribe, 
be withdrawn from customs custody and transferred in such bulk 
containers to the premises of a brewery without payment of the internal 
revenue tax imposed on such beer. The proprietor of a brewery to which 
such beer is transferred shall become liable for the tax on the beer 
withdrawn from customs custody under this section upon release of the 
beer from customs custody, and the importer, or the person bringing 
such beer into the United States, shall thereupon be relieved of the 
liability for such tax.''
    (b) Clerical Amendment.--The table of sections for such part II is 
amended by adding at the end the following new item:

                              ``Sec. 5418. Beer imported in bulk.''

    (c) Effective Date.--The amendments made by this section shall take 
effect at the beginning of the first calendar quarter beginning more 
than 180 days after the date of the enactment of this Act.

          PART II--CONSOLIDATION OF TAXES ON AVIATION GASOLINE

SEC. 14721. CONSOLIDATION OF TAXES ON AVIATION GASOLINE.

    (a) In General.--Subparagraph (A) of section 4081(a)(2) (relating 
to imposition of tax on gasoline and diesel fuel) is amended by 
redesignating clause (ii) as clause (iii) and by striking clause (i) 
and inserting the following:
                            ``(i) in the case of gasoline other than 
                        aviation gasoline, 18.3 cents per gallon,
                            ``(ii) in the case of aviation gasoline, 
                        19.3 cents per gallon, and''.
    (b) Termination.--Subsection (d) of section 4081 is amended by 
redesignating paragraph (2) as paragraph (3) and by inserting after 
paragraph (1) the following new paragraph:
            ``(2) Aviation gasoline.--On and after January 1, 1996, the 
        rate specified in subsection (a)(2)(A)(ii) shall be 4.3 cents 
        per gallon.''
    (c) Repeal of Retail Level Tax.--
            (1) Subsection (c) of section 4041 is amended by striking 
        paragraphs (2) and (3) and by redesignating paragraphs (4) and 
        (5) as paragraphs (2) and (3), respectively.
            (2) Paragraph (3) of section 4041(c), as redesignated by 
        paragraph (1), is amended by striking ``paragraphs (1) and 
        (2)'' and inserting ``paragraph (1)''.
    (d) Conforming Amendments.--
            (1) Paragraph (1) of section 4041(k) 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).
            (2) Paragraph (1) of section 4081(d) is amended by striking 
        ``each rate of tax specified in subsection (a)(2)(A)'' and 
        inserting ``the rates of tax specified in clauses (i) and (iii) 
        of subsection (a)(2)(A)''.
            (3) Sections 6421(f)(2)(A) and 9502(f)(1)(A) are each 
        amended by striking ``section 4041(c)(4)'' and inserting 
        ``section 4041(c)(2)''.
            (4) Paragraph (2) of section 9502(b) is amended by striking 
        ``14 cents'' and inserting ``15 cents''.
    (e) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1996.
    (f) Floor Stocks Tax.--
            (1) Imposition of tax.--In the case of aviation gasoline on 
        which tax was imposed under section 4081 of the Internal 
        Revenue Code of 1986 before January 1, 1996, and which is held 
        on such date by any person, there is hereby imposed a floor 
        stocks tax of 1 cent per gallon of such gasoline.
            (2) Liability for tax and method of payment.--
                    (A) Liability for tax.--A person holding aviation 
                gasoline on January 1, 1996, to which the tax imposed 
                by paragraph (1) applies shall be liable for such tax.
                    (B) Method of payment.--The tax imposed by 
                paragraph (1) shall be paid in such manner as the 
                Secretary shall prescribe.
                    (C) Time for payment.--The tax imposed by paragraph 
                (1) shall be paid on or before June 30, 1996.
            (3) Definitions.--For purposes of this subsection:
                    (A) Held by a person.--Gasoline shall be considered 
                as ``held by a person'' if title thereto has passed to 
                such person (whether or not delivery to the person has 
                been made).
                    (B) Secretary.--The term ``Secretary'' means the 
                Secretary of the Treasury or his delegate.
            (4) Exception for exempt uses.--The tax imposed by 
        paragraph (1) shall not apply to gasoline held by any person 
        exclusively for any use to the extent a credit or refund of the 
        tax imposed by section 4081 of such Code is allowable for such 
        use.
            (5) Exception for fuel held in aircraft tank.--No tax shall 
        be imposed by paragraph (1) on aviation gasoline held in the 
        tank of an aircraft.
            (6) Exception for certain amounts of fuel.--
                    (A) In general.--No tax shall be imposed by 
                paragraph (1) on aviation gasoline held on January 1, 
                1996, by any person if the aggregate amount of aviation 
                gasoline held by such person on such date does not 
                exceed 6,000 gallons. The preceding sentence shall 
                apply only if such person submits to the Secretary (at 
                the time and in the manner required by the Secretary) 
                such information as the Secretary shall require for 
                purposes of this paragraph.
                    (B) Exempt fuel.--For purposes of subparagraph (A), 
                there shall not be taken into account fuel held by any 
                person which is exempt from the tax imposed by 
                paragraph (1) by reason of paragraph (4) or (5).
                    (C) Controlled groups.--
                            (i) Corporations.--In the case of a 
                        controlled group, the 6,000 gallon amount in 
                        subparagraph (A) shall be apportioned among the 
                        component members of such group in such manner 
                        as the Secretary shall by regulations 
                        prescribe. For purposes of the preceding 
                        sentence, the term ``controlled group'' has the 
                        meaning given to such term by subsection (a) of 
                        section 1563 of such Code; except that for such 
                        purposes the phrase ``more than 50 percent'' 
                        shall be substituted for the phrase ``at least 
                        80 percent'' each place it appears in such 
                        subsection.
                            (ii) Nonincorporated persons under common 
                        control.--Under regulations prescribed by the 
                        Secretary, principles similar to the principles 
                        of clause (i) shall apply to a group under 
                        common control where 1 or more of the members 
                        is not a corporation.
            (7) Other laws applicable.--All provisions of law, 
        including penalties, applicable with respect to the taxes 
        imposed by section 4081 of such Code shall, insofar as 
        applicable and not inconsistent with the provisions of this 
        subsection, apply with respect to the floor stock taxes imposed 
        by paragraph (1) to the same extent as if such taxes were 
        imposed by such section 4081.

                 PART III--OTHER EXCISE TAX PROVISIONS

SEC. 14731. AUTHORITY TO GRANT EXEMPTIONS FROM REGISTRATION 
                    REQUIREMENTS.

    (a) In General.--The first sentence of section 4222 (relating to 
registration) is amended to read as follows: ``Except as provided in 
subsection (b), section 4221 shall not apply with respect to the sale 
of any article by or to any person who is required by the Secretary to 
be registered under this section and who is not so registered.''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply to sales after the 180th day after the date of the enactment of 
this Act.

SEC. 14732. CERTAIN COMBINATIONS NOT TREATED AS MANUFACTURE UNDER 
                    RETAIL SALES TAX ON HEAVY TRUCKS.

    (a) In General.--Paragraph (2) of section 4052(c) (relating to 
certain combinations not treated as manufacture) is amended by striking 
``or wood or metal floor'' and inserting ``wood or metal floor, or a 
power take-off and dump body''.
    (b) Removal of Fifth Wheel.--Paragraph (1) of section 4052(c) is 
amended by inserting before the period ``or the removal of any coupling 
device (including any fifth wheel)''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 14733. EXEMPTION FROM DIESEL FUEL DYEING REQUIREMENTS WITH RESPECT 
                    TO CERTAIN STATES.

    (a) In General.--Section 4082 (relating to exemptions for diesel 
fuel) is amended by redesignating subsections (c) and (d) as 
subsections (d) and (e), respectively, and by inserting after 
subsection (b) the following new subsection:
    ``(c) Exception to Dyeing Requirements.--Paragraph (2) of 
subsection (a) shall not apply with respect to any diesel fuel--
            ``(1) removed, entered, or sold in a State for ultimate 
        sale or use in an area of such State which is exempted from the 
        fuel dyeing requirements under subsection (i) of section 211 of 
        the Clean Air Act (as in effect on the date of the enactment of 
        this subsection) by the Administrator of the Environmental 
        Protection Agency under paragraph (4) of such subsection, and
            ``(2) the use of which is certified pursuant to regulations 
        issued by the Secretary.''
    (b) Effective Date.--The amendments made by this section shall take 
effect on the first day of the first calendar quarter beginning after 
the date of the enactment of this Act.

SEC. 14734. REPEAL OF EXPIRED PROVISIONS.

    (a) Piggy-Back Trailers.--Section 4051 is amended by striking 
subsection (d) and by redesignating subsection (e) as subsection (d).
    (b) Deep Seabed Mining.--
            (1) Subchapter F of chapter 36 (relating to tax on removal 
        of hard mineral resources from deep seabed) is hereby repealed.
            (2) The table of subchapters for chapter 36 is amended by 
        striking the item relating to subchapter F.

                 Subtitle H--Administrative Provisions

                       PART I--GENERAL PROVISIONS

SEC. 14801. REPEAL OF AUTHORITY TO DISCLOSE WHETHER PROSPECTIVE JUROR 
                    HAS BEEN AUDITED.

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

SEC. 14802. CLARIFICATION OF STATUTE OF LIMITATIONS.

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

SEC. 14803. CERTAIN NOTICES DISREGARDED UNDER PROVISION INCREASING 
                    INTEREST RATE ON LARGE CORPORATE UNDERPAYMENTS.

    (a) General Rule.--Subparagraph (B) of section 6621(c)(2) (defining 
applicable date) is amended by adding at the end the following new 
clause:
                            ``(iii) Exception for letters or notices 
                        involving small amounts.--For purposes of this 
                        paragraph, any letter or notice shall be 
                        disregarded if the amount of the deficiency or 
                        proposed deficiency (or the assessment or 
                        proposed assessment) set forth in such letter 
                        or notice is not greater than $100,000 
                        (determined by not taking into account any 
                        interest, penalties, or additions to tax).''
    (b) Effective Date.--The amendment made by subsection (a) shall 
apply for purposes of determining interest for periods after December 
31, 1995.

SEC. 14804. CLARIFICATION OF AUTHORITY TO WITHHOLD PUERTO RICO INCOME 
                    TAXES FROM SALARIES OF FEDERAL EMPLOYEES.

    (a) In General.--Subsection (c) of section 5517 of title 5, United 
States Code, is amended by striking ``or territory or possession'' and 
inserting ``, territory, possession, or commonwealth''.
    (b) Effective Date.--The amendment made by subsection (a) shall 
take effect on the date of the enactment of this Act.

                     PART II--TAX COURT PROCEDURES

SEC. 14811. OVERPAYMENT DETERMINATIONS OF TAX COURT.

    (a) Appeal of Order.--Paragraph (2) of section 6512(b) (relating to 
jurisdiction to enforce) is amended by adding at the end the following 
new sentence: ``An order of the Tax Court disposing of a motion under 
this paragraph shall be reviewable in the same manner as a decision of 
the Tax Court, but only with respect to the matters determined in such 
order.''
    (b) Denial of Jurisdiction Regarding Certain Credits and 
Reductions.--Subsection (b) of section 6512 (relating to overpayment 
determined by Tax Court) is amended by adding at the end the following 
new paragraph:
            ``(4) Denial of jurisdiction regarding certain credits and 
        reductions.--The Tax Court shall have no jurisdiction under 
        this subsection to restrain or review any credit or reduction 
        made by the Secretary under section 6402.''
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 14812. AWARDING OF ADMINISTRATIVE COSTS.

    (a) Right To Appeal Tax Court Decision.--Subsection (f) of section 
7430 (relating to right of appeal) is amended by adding at the end the 
following new paragraph:
            ``(3) Appeal of tax court decision.--An order of the Tax 
        Court disposing of a petition under paragraph (2) shall be 
        reviewable in the same manner as a decision of the Tax Court, 
        but only with respect to the matters determined in such 
        order.''
    (b) Period for Applying to IRS for Costs.--Subsection (b) of 
section 7430 (relating to limitations) is amended by adding at the end 
the following new paragraph:
            ``(5) Period for applying to irs for administrative 
        costs.--An award may be made under subsection (a) by the 
        Internal Revenue Service for reasonable administrative costs 
        only if the prevailing party files an application with the 
        Internal Revenue Service for such costs before the 91st day 
        after the date on which the final decision of the Internal 
        Revenue Service as to the determination of the tax, interest, 
        or penalty is mailed to such party.''
    (c) Period for Petitioning of Tax Court for Review of Denial of 
Costs.--Paragraph (2) of section 7430(f) (relating to right of appeal) 
is amended--
            (1) by striking ``appeal to'' and inserting ``the filing of 
        a petition for review with'', and
            (2) by adding at the end the following new sentence: ``If 
        the Secretary sends by certified or registered mail a notice of 
        such decision to the petitioner, no proceeding in the Tax Court 
        may be initiated under this paragraph unless such petition is 
        filed before the 91st day after the date of such mailing.''
    (d) Effective Date.--The amendments made by this section shall 
apply to civil actions or proceedings commenced after the date of the 
enactment of this Act.

SEC. 14813. REDETERMINATION OF INTEREST PURSUANT TO MOTION.

    (a) In General.--Paragraph (3) of section 7481(c) (relating to 
jurisdiction over interest determinations) is amended by striking 
``petition'' and inserting ``motion''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 14814. APPLICATION OF NET WORTH REQUIREMENT FOR AWARDS OF 
                    LITIGATION COSTS.

    (a) In General.--Paragraph (4) of section 7430(c) (defining 
prevailing party) is amended by adding at the end the following new 
subparagraph:
                    ``(C) Special rules for applying net worth 
                requirement.--In applying the requirements of section 
                2412(d)(2)(B) of title 28, United States Code, for 
                purposes of subparagraph (A)(iii) of this paragraph--
                            ``(i) the net worth limitation in clause 
                        (i) of such section shall apply to--
                                    ``(I) an estate but shall be 
                                determined as of the date of the 
                                decedent's death, and
                                    ``(II) a trust but shall be 
                                determined as of the last day of the 
                                taxable year involved in the 
                                proceeding, and
                            ``(ii) individuals filing a joint return 
                        shall be treated as 1 individual for purposes 
                        of clause (i) of such section, except in the 
                        case of a spouse relieved of liability under 
                        section 6013(e).''
    (b) Effective Date.--The amendment made by this section shall apply 
to proceedings commenced after the date of the enactment of this Act.

         PART III--AUTHORITY FOR CERTAIN COOPERATIVE AGREEMENTS

SEC. 14821. COOPERATIVE AGREEMENTS WITH STATE TAX AUTHORITIES.

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

``SEC. 7524. COOPERATIVE AGREEMENTS WITH STATE TAX AUTHORITIES.

    ``(a) Authorization of Agreements.--The Secretary is hereby 
authorized to enter into cooperative agreements with State tax 
authorities for purposes of enhancing joint tax administration. Such 
agreements may provide for--
            ``(1) joint filing of Federal and State income tax returns,
            ``(2) single processing of such returns,
            ``(3) joint collection of taxes (other than Federal income 
        taxes), and
            ``(4) such other provisions as may enhance joint tax 
        administration.
    ``(b) Services on Reimbursable Basis.--Any agreement under 
subsection (a) may require reimbursement for services provided by 
either party to the agreement.
    ``(c) Availability of Funds.--Any funds appropriated for purposes 
of the administration of this title shall be available for purposes of 
carrying out the Secretary's responsibility under an agreement entered 
into under subsection (a). Any reimbursement received pursuant to such 
an agreement shall be credited to the amount so appropriated.
    ``(d) State Tax Authority.--For purposes of this section, the term 
`State tax authority' means agency, body, or commission referred to in 
section 6103(d)(1).''
    (b) Clerical Amendment.--The table of sections for chapter 77 is 
amended by adding at the end the following new item:

                              ``Sec. 7524. Cooperative agreements with 
                                        State tax authorities.''

                           TITLE XV--MEDICARE

                         [Text to be inserted]

           TITLE XVI--TRANSFORMATION OF THE MEDICAID PROGRAM

SEC. 16000. SHORT TITLE.

    This title may be cited as the ``Medicaid Transformation Act of 
1995''.

SEC. 16001. TRANSFORMATION OF MEDICAID PROGRAM.

    The Social Security Act is amended by adding at the end the 
following new title:

 ``TITLE XXI--MEDIGRANT PROGRAM FOR LOW-INCOME INDIVIDUALS AND FAMILIES

                      ``table of contents of title

``Sec. 2100. Purpose; State MediGrant plans.

     ``Part A--Objectives, Goals, and Performance Under State Plans

``Sec. 2101. Description of strategic objectives and performance goals.
``Sec. 2102. Annual reports.
``Sec. 2103. Periodic, independent evaluations.
``Sec. 2104. Description of process for MediGrant plan development.
``Sec. 2105. Consultation in MediGrant plan development.
``Sec. 2106. MediGrant Task Force.

            ``Part B--Eligibility, Benefits, and Set-asides

``Sec. 2111. General description of eligibility and benefits.
``Sec. 2112. Set-asides of funds for population groups.
``Sec. 2113. Premiums and cost-sharing.
``Sec. 2114. Description of process for developing capitation payment 
rates.
``Sec. 2115. Construction.
``Sec. 2116. Limitations on causes of action.

                      ``Part C--Payments to States

``Sec. 2121. Allotment of funds among States.
``Sec. 2122. Payments to States.
``Sec. 2123. Limitation on use of funds; disallowance.

                ``Part D--Program Integrity and Quality

``Sec. 2131. Use of audits to achieve fiscal integrity.
``Sec. 2132. Fraud prevention program.
``Sec. 2133. Information concerning sanctions taken by State licensing 
authorities against health care practitioners and providers.
``Sec. 2134. State MediGrant fraud control units.
``Sec. 2135. Recoveries from third parties and others.
``Sec. 2136. Assignment of rights of payment.
``Sec. 2137. Quality assurance standards for nursing facilities.
``Sec. 2138. Other provisions promoting program integrity.

     ``Part E--Establishment and Amendment of State MediGrant Plans

``Sec. 2151. Submittal and approval of MediGrant plans.
``Sec. 2152. Submittal and approval of plan amendments.
``Sec. 2153. Process for State withdrawal from program.
``Sec. 2154. Sanctions for substantial noncompliance.
``Sec. 2155. Secretarial authority.

                      ``Part F--General Provisions

``Sec. 2171. Definitions.
``Sec. 2172. Treatment of territories.
``Sec. 2173. Description of treatment of Indian Health Service 
facilities.
``Sec. 2174. Application of certain general provisions.
``Sec. 2175. MediGrant master drug rebate agreements.

``SEC. 2100. PURPOSE; STATE MEDIGRANT PLANS.

    ``(a) Purpose.--The purpose of this title is to provide block 
grants to States to enable them to provide medical assistance to low-
income individuals and families in a more effective, efficient, and 
responsive manner.
    ``(b) State Plan Required.--A State is not eligible for payment 
under section 2122 of this title unless the State has submitted to the 
Secretary under part E a plan (in this title referred to as a 
`MediGrant plan') that--
            ``(1) sets forth how the State intends to use the funds 
        provided under this title to provide medical assistance to 
        needy individuals and families consistent with the provisions 
        of this title, and
            ``(2) is approved under such part.
    ``(c) Continued Approval.--An approved MediGrant plan shall 
continue in effect unless and until--
            ``(1) the State amends the plan under section 2152,
            ``(2) the State terminates participation under this title 
        under section 2153, or
            ``(3) the Secretary finds substantial noncompliance of the 
        plan with the requirements of this title under section 2154.
    ``(d) State Entitlement.--This title constitutes budget authority 
in advance of appropriations Acts, and represents the obligation of the 
Federal Government to provide for the payment to States of amounts 
provided under part C.

     ``Part A--Objectives, Goals, and Performance Under State Plans

``SEC. 2101. DESCRIPTION OF STRATEGIC OBJECTIVES AND PERFORMANCE GOALS.

    ``(a) Description.--A MediGrant plan shall include a description of 
the strategic objectives and performance goals the State has 
established for providing health care services to low-income 
populations under this title, including a general description of the 
manner in which the plan is designed to meet these objectives and 
goals.
    ``(b) Certain Objectives and Goals Required.--A MediGrant plan 
shall include strategic objectives and performance goals relating to 
rates of childhood immunizations and reductions in infant mortality and 
morbidity.
    ``(c) Considerations.--In specifying these objectives and goals the 
State may consider factors such as the following:
            ``(1) The State's priorities with respect to such areas as 
        providing assistance to low-income populations.
            ``(2) The State's priorities with respect to the general 
        public health and the health status of individuals eligible for 
        assistance under the MediGrant plan.
            ``(3) The State's financial resources, the particular 
        economic conditions in the State, and relative adequacy of the 
        health care infrastructure in different regions of the State.
    ``(d) Performance Measures.--To the extent practicable--
            ``(1) one or more performance goals shall be established by 
        the State for each strategic objective identified in the 
        MediGrant plan; and
            ``(2) the MediGrant plan shall describe, how program 
        performance will be--
                    ``(A) measured through objective, independently 
                verifiable means, and
                    ``(B) compared against performance goals, in order 
                to determine the State's performance under this title.
    ``(e) Period Covered.--
            ``(1) Strategic objectives.--The strategic objectives shall 
        cover a period of not less than 5 years and shall be updated 
        and revised at least every 3 years.
            ``(2) Performance goals.--The performance goals shall be 
        established for dates that are not more than 3 years apart.

``SEC. 2102. ANNUAL REPORTS.

    ``(a) In General.--In the case of a State with a MediGrant plan 
that is in effect for part or all of a fiscal year, no later than March 
31 following such fiscal year (or March 31, 1998, in the case of fiscal 
year 1996) the State shall prepare and submit to the Secretary and the 
Congress a report on program activities and performance under this 
title for such fiscal year.
    ``(b) Contents.--Each annual report under this section for a fiscal 
year shall include the following:
            ``(1) Expenditure and beneficiary summary.--
                    ``(A) Initial summary.--For the report for fiscal 
                year 1997 (and, if applicable, fiscal year 1996), a 
                summary of all expenditures under the MediGrant plan 
                during the fiscal year (and during any portions of 
                fiscal year 1996 during which the MediGrant plan was in 
                effect under this title) as follows:
                            ``(i) Aggregate medical assistance 
                        expenditures, disaggregated to the extent 
                        required to determine compliance with the set-
                        aside requirements of subsections (a) through 
                        (c) section 2112 and to compute the case mix 
                        index under section 2121(d)(3).
                            ``(ii) For each general category of 
                        eligible individuals (specified in subsection 
                        (c)(1), aggregate medical assistance 
                        expenditures and the total and average number 
                        of eligible individuals under the MediGrant 
                        plan.
                            ``(iii) By each general category of 
                        eligible individuals, total expenditures for 
                        each of the categories of health care items and 
                        services (specified in subsection (c)(2)) which 
                        are covered under the MediGrant plan and 
                        provided on a fee-for-service basis.
                            ``(iv) By each general category of eligible 
                        individuals, total expenditures for payments to 
                        capitated health care organizations (as defined 
                        in section 2114(c)(1)).
                            ``(v) Total administrative expenditures.
                    ``(B) Subsequent summaries.--For reports for each 
                succeeding fiscal year, a summary of--
                            ``(i) all expenditures under the MediGrant 
                        plan consistent with the reporting format 
                        specified by the MediGrant Task Force under 
                        section 2106(d)(1), and
                            ``(ii) the total and average number of 
                        eligible individuals under the MediGrant plan 
                        for each general category of eligible 
                        individuals..
            ``(2) Utilization summary.--
                    ``(A) Initial summary.--For the report for fiscal 
                year 1997 (and, if applicable, fiscal year 1996), 
                summary statistics on the utilization of health care 
                services under the MediGrant plan during the year (and 
                during any portions of fiscal year 1996 during which 
                the MediGrant plan was in effect under this title) as 
                follows:
                            ``(i) For each general category of eligible 
                        individuals and for each of the categories of 
                        health care items and services which are 
                        covered under the MediGrant plan and provided 
                        on a fee-for-service basis, the number and 
                        percentage of persons who received such a type 
                        of service or item during the period covered by 
                        the report.
                            ``(ii) Summary of health care utilization 
                        data reported to the State by capitated health 
                        care organizations.
                    ``(B) Subsequent summaries.--For reports for each 
                succeeding fiscal year, summary statistics on the 
                utilization of health care services under the MediGrant 
                plan consistent with the reporting format specified by 
                the MediGrant Task Force under section 2106(d)(1).
            ``(3) Achievement of performance goals.--With respect to 
        each performance goal established under section 2101 and 
        applicable to the year involved--
                    ``(A) a brief description of the goal;
                    ``(B) data on the actual performance with respect 
                to the goal;
                    ``(C) a review of the extent to which the goal was 
                achieved, based on such data; and
                    ``(D) where a performance goal has not been met--
                            ``(i) why the goal was not met, and
                            ``(ii) actions to be taken in response to 
                        such performance (including adjustments in 
                        performance goals or program activities for 
                        subsequent years).
            ``(4) Program evaluations.--A summary of the findings of 
        evaluations under section 2103 completed during the fiscal year 
        covered by the report.
            ``(5) Fraud and abuse and quality control activities.--A 
        general description of the State's activities under part D to 
        detect and deter fraud and abuse and to assure quality of 
        services provided under the program.
            ``(6) Plan administration.--
                    ``(A) A description of the administrative roles and 
                responsibilities of entities in the State responsible 
                for administration of this title.
                    ``(B) Organizational charts for each entity in the 
                State primarily responsible for activities under this 
                title.
                    ``(C) A brief description of each interstate 
                compact (if any) the State has entered into with other 
                States with respect to activities under this title.
                    ``(D) General citations to the State statutes and 
                administrative rules governing the State's activities 
                under this title.
            tech deg.``(7) Inpatient hospital payments.--With 
        respect to inpatient hospital services provided under the 
        MediGrant plan on a fee-for-service basis, a description of the 
        average amount paid per discharge in the fiscal year compared 
        either to the average charge for such services or to the 
        State's estimate of the average amount paid per discharge by 
        commercial health insurers in the State.
    ``(c) Definitions.--In this section:
            ``(1) Each of the following is a general category of 
        eligible individuals:
                    ``(A) Children.
                    ``(B) Blind or disabled adults under 65 years of 
                age.
                    ``(C) Persons 65 years of age or older.
                    ``(D) Other adults.
            ``(2) The health care items and services described in each 
        subparagraph of section 2171(a)(1) shall be considered a 
        separate category of health care items and services.

``SEC. 2103. PERIODIC, INDEPENDENT EVALUATIONS.

    ``(a) In General.--During fiscal year 1998 and every third fiscal 
year thereafter, each State shall provide for an evaluation of the 
operation of its MediGrant plan under this title.
    ``(b) Independent.--Each such evaluation with respect to an 
activity under the MediGrant plan shall be conducted by an entity that 
is neither responsible under State law for the submission of the State 
plan (or part thereof) nor responsible for administering (or 
supervising the administration of) the activity. If consistent with the 
previous sentence, such an entity may be a college or university, a 
State agency, a legislative branch agency in a State, or an independent 
contractor.
    ``(c) Research Design.--Each such evaluation shall be conducted in 
accordance with a research design that is based on generally accepted 
models of survey design and sampling and statistical analysis.

``SEC. 2104. DESCRIPTION OF PROCESS FOR MEDIGRANT PLAN DEVELOPMENT.

    ``Each MediGrant plan shall include a description of the process 
under which the plan shall be developed and implemented in the State 
(consistent with section 2105).

``SEC. 2105. CONSULTATION IN MEDIGRANT PLAN DEVELOPMENT.

    ``(a) Public Notice Process.--
            ``(1) In general.--Before submitting a MediGrant plan or a 
        plan amendment described in paragraph (3) to the Secretary 
        under part E, a State shall provide--
                    ``(A) public notice respecting the submittal of the 
                proposed plan or amendment, including a general 
                description of the plan or amendment;
                    ``(B) a means for the public to inspect or obtain a 
                copy (at reasonable charge) of the proposed plan or 
                amendment; and
                    ``(C) an opportunity for submittal and 
                consideration of public comments on the proposed plan 
                or amendment.
        The previous sentence shall not apply to a revision of a 
        MediGrant plan (or revision of an amendment to a plan) made by 
        a State under section 2154(c)(1) or to a plan amendment 
        withdrawal described in section 2152(c)(4).
            ``(2) Contents of notice.--A notice under paragraph (1)(A) 
        for a proposed plan or amendment shall include a description 
        of--
                    ``(A) the general purpose of the proposed plan or 
                amendment (including applicable effective dates),
                    ``(B) where the public may inspect the proposed 
                plan or amendment,
                    ``(C) how the public may obtain a copy of the 
                proposed plan or amendment and the applicable charge 
                (if any) for the copy, and
                    ``(D) how the public may submit comments on the 
                proposed plan or amendment, including any deadlines 
                applicable to consideration of such comments.
            ``(3) Amendments described.--An amendment to a MediGrant 
        plan described in this paragraph is an amendment which makes a 
        material and substantial change in eligibility under the 
        MediGrant plan or the benefits provided under the plan.
            ``(4) Publication.--Notices under this subsection may be 
        published (as selected by the State) in one or more daily 
        newspapers of general circulation in the State or in any 
        publication used by the State to publish State statutes or 
        rules.
            ``(5) Comparable process.--A separate notice, or notices, 
        shall not be required under this subsection for a State if 
        notice of the MediGrant plan or an amendment to the plan will 
        be provided under a process specified in State law that is 
        substantially equivalent to the notice process specified in 
        this subsection.
    ``(b) Advisory Committee.--
            ``(1) In general.--Each State with a MediGrant plan shall 
        establish and maintain an advisory committee.
            ``(2) Consultation.--The State shall periodically consult 
        with the advisory committee in the development, revision, and 
        monitoring the performance of the MediGrant plan, including--
                    ``(A) the development of strategic objectives and 
                performance goals under section 2101,
                    ``(B) the annual report under section 2102, and
                    ``(C) the research design under section 2103(c).
            ``(3) Geographic diversity.--The composition of the 
        advisory committee shall be chosen in a manner that assures 
        some representation on the advisory committee of the different 
        general geographic regions of the State. Nothing in the 
        previous sentence shall be construed as requiring proportional 
        representation of geographic areas in a State.
            ``(4) Construction.--Nothing in this title shall be 
        construed as preventing a State from establishing more than one 
        advisory committee, including specialized advisory committees 
        that represent the interests of specific population groups, 
        provider groups, or geographic areas.

``SEC. 2106. MEDIGRANT TASK FORCE.

    ``(a) In General.--The Secretary shall provide for the 
establishment of a MediGrant Task Force (in this section referred to as 
the `Task Force').
    ``(b) Composition.--The Task Force shall consist of 6 members 
appointed by the chair of the National Governors Association and 6 
members appointed by the vice chair of the National Governors 
Association.
    ``(c) Advisory Group for Task Force.--The Secretary shall provide 
for the establishment of an advisory group to assist the Task Force in 
carrying out its duties under this section, consisting of one 
representative appointed by each of the following associations:
            ``(1) National Committee for Quality Assurance.
            ``(2) Joint Commission for the Accreditation of Healthcare 
        Organizations.
            ``(3) Group Health Association of America.
            ``(4) American Managed Care and Review Association.
            ``(5) Association of State and Territorial Health Officers.
            ``(6) American Medical Association.
            ``(7) American Hospital Association.
            tech deg.``(8) American Dental Association.
            ``(9) American College of Gerontology.
            ``(10) American Health Care Association.
            ``(11) An association identified by the Secretary as 
        representing the interests of disabled individuals.
            ``(12) An association identified by the Secretary as 
        representing the interests of children.
            tech deg.``(13) An association identified by the 
        Secretary as representing the interests of the elderly.
            tech deg.``(14) An association identified by the 
        Secretary as representing the interests of mentally ill 
        individuals.
Any reference in this subsection to a particular group shall be deemed 
a reference to any successor to such group.
    ``(d) Duties.--
            ``(1) Format for expenditure and utilization summaries.--
        The Task Force shall specify, by not later than December 31, 
        1996, the format of expenditure summaries and utilization 
        summaries required under section 2102. Such format may provide 
        for the reporting of different information from that required 
        under section 2102(a), but shall include the reporting of at 
        least the information described in section 2102(b)(1)(A)(i).
            ``(2) Models and suggestions.--The Task Force shall study 
        and report to Congress and the States, by not later than April 
        1, 1997, recommendations on the following:
                    ``(A) Recommended models for strategic objectives 
                and performance goals for consideration by States in 
                the development of such objectives and goals under 
                section 2102, including alternative models for each of 
                the objectives and goals described in section 2101(b).
                    ``(B) For each suggested model for a strategic 
                objective or performance goal suggested methodologies 
                for States to consider in measuring and verifying the 
                objective or goal.
                    ``(C) An assessment of the potential usefulness to 
                States of quality assurance safeguards, utilization 
                data sets, and accreditation programs that are used or 
                under development in the private sector.
                    ``(D) Recommended designs and evaluation 
                methodologies for consideration by States in providing 
                for independent evaluations under section 2103.
            ``(3) Construction.--Nothing in this subsection shall be 
        construed as requiring a State to adopt any of the strategic 
        objectives or performance goals suggested under paragraph (2).
    ``(e) Administrative Assistance.--Administrative support for the 
Task Force shall be provided by the Agency for Health Care Policy and 
Research (or, in the absence of such Agency, the Secretary).

            ``Part B--Eligibility, Benefits, and Set-asides

``SEC. 2111. GENERAL DESCRIPTION OF ELIGIBILITY AND BENEFITS.

    ``(a) In General.--Each MediGrant plan shall include a description 
(consistent with this title) of the following:
            ``(1) Eligible population.--The population eligible for 
        medical assistance under the plan, including--
                    ``(A) any limitations on categories of such 
                individuals;
                    ``(B) any limitations as to the duration of 
                eligibility;
                    ``(C) any eligibility standards relating to age, 
                income (including any standards relating to 
                spenddowns), residency, resources, disability status, 
                immigration status, or employment status of 
                individuals;
                    ``(D) methods of establishing (and continuing) 
                eligibility and enrollment (including the methodology 
                for computing family income);
                    Deal/Bilirakis; bilira.001 deg.``(E) the 
                eligibility standards in the plan that protect the 
                income and resources of a married individual who is 
                living in the community and whose spouse is residing in 
                an institution in order to prevent the impoverishment 
                of the community spouse; and
                    ``(F) any other standards relating to eligibility 
                for medical assistance under the plan.
            ``(2) Scope of assistance.--The amount, duration, and scope 
        of health care services and items covered under the plan, 
        including differences among different eligible population 
        groups.
            ``(3) Delivery method.--The State's approach to delivery of 
        medical assistance, including a general description of--
                    ``(A) the use (or intended use) of vouchers, fee-
                for-service, or managed care arrangements (such as 
                capitated health care plans, case management, and case 
                coordination), and
                    ``(B) utilization control systems.
            ``(4) Fee-for-service benefits.--To the extent that medical 
        assistance is furnished on a fee-for-service basis--
                    ``(A) how the State determines the qualifications 
                of health care providers eligible to provide such 
                assistance, and
                    ``(B) how the State determines rates of 
                reimbursement for providing such assistance.
            ``(5) Cost-sharing.--Beneficiary cost-sharing (if any), 
        including variations in such cost-sharing by population group 
        or type of service and financial responsibilities of parents of 
        recipients under 21 years of age and the spouses of recipients.
            ``(6) Utilization incentives.--Incentives or requirements 
        (if any) to encourage the appropriate utilization of services.
            tauzin; mntlhlth.001 deg.``(7) Treatment of health 
        centers.--
                    ``(A) In general.--In the case of a State in which 
                one or more health centers is located, the MediGrant 
                plan shall include a description of--
                            ``(i) what provision (if any) has been made 
                        for payment for items and services furnished by 
                        health centers, and
                            ``(ii) the manner in which medical 
                        assistance for low-income eligible individuals 
                        who received health care services at health 
                        centers on or before the date of the enactment 
                        of this title may be provided, as determined by 
                        the State in consultation with the health 
                        centers in the State.
                    ``(B) Health center defined.--For purposes of 
                subparagraph (A), the term `health center' means an 
                entity that--
                            ``(i) is receiving a grant under section 
                        329, 330, 340, or 340A of the Public Health 
                        Service Act; or
                            ``(ii) based on the recommendation of the 
                        Health Resources and Services Administration 
                        within the Public Health Service, was 
                        determined by the Secretary to meet the 
                        requirements to receive such a grant.
            eshoo deg.``(8) Support for certain hospitals.--
                    ``(A) In general.--With respect to hospitals 
                described in subparagraph (B) located in the State, the 
                MediGrant plan shall includes a description--
                            ``(i) of the extent to which provisions 
                        have been made for expenditures for items and 
                        services furnished by such hospitals and 
                        covered under the plan, and
                            ``(ii) for individuals who (I) are enrolled 
                        for benefits for covered services under the 
                        MediGrant plan and (II) were previously 
                        receiving benefits for such services under the 
                        medicaid program by or through such hospitals, 
                        where or how they will receive benefits for 
                        such services under the MediGrant plan if the 
                        MediGrant plan does not permit such individuals 
                        to obtain benefits for those services by or 
                        through such hospitals.
                    ``(B) Hospitals described.--For purposes of 
                subparagraph (A), a hospital described in this 
                subparagraph is a subsection (d) hospital (as defined 
                in section 1886(d)(1)(B)) that is described in clauses 
                (i) and (ii) of section 340B(a)(4)(L) of the Public 
                Health Service Act.
    ``(b) Immunizations for Children.--The MediGrant plan shall provide 
medical assistance for immunizations for children eligible for any 
medical assistance under the MediGrant plan, in accordance with a 
schedule for immunizations established by the Health Department of the 
State in consultation with the individuals and entities in the State 
responsible for the administration of the plan.
    Ganske deg.``(c) Equal Payment Rates for Rural 
Providers.--A State with a MediGrant plan shall establish payment rates 
for all services of rural providers that are comparable to the payment 
rates established for like services of such type of providers not in 
rural areas; except that a State may provide for incentive payments to 
attract and retain providers to medically underserved areas.
    Studds deg.``(d) Preexisting Condition Exclusions.--
Notwithstanding any other provision of this title--
            ``(1) a MediGrant plan may not deny or exclude coverage of 
        any item or service for an eligible individual for benefits 
        under the MediGrant plan for such item or service on the basis 
        of a preexisting condition; and
            ``(2) if a State contracts or makes other arrangements 
        (through the eligible individual or through another entity) 
        with a capitated health care organization, insurer, or other 
        entity, for the provision of items or services to eligible 
        individuals under the MediGrant plan and the State permits such 
        organization, insurer, or other entity to exclude coverage of a 
        covered item or service on the basis of a preexisting 
        condition, the State shall provide, through its MediGrant plan, 
        for such coverage (through direct payment or otherwise) for any 
        such covered item or service denied or excluded on the basis of 
        a preexisting condition.

``SEC. 2112. SET-ASIDES OF FUNDS FOR POPULATION GROUPS.

    ``(a) For Targeted Low-Income Families.--
            ``(1) In general.--Subject to subsection (e), a MediGrant 
        plan shall provide that the amount of funds expended under the 
        plan for medical assistance for targeted low-income families 
        (as defined in paragraph (3)) for a fiscal year shall be not 
        less than the minimum low-income-family percentage specified in 
        paragraph (2) of the total funds expended under the plan for 
        all medical assistance for the fiscal year.
            ``(2) Minimum low-income-family percentage.--The minimum 
        low-income-family percentage specified in this paragraph for a 
        State is equal to 85 percent of the average percentage of the 
        expenditures under title XIX for medical assistance in the 
        State during Federal fiscal years 1992 through 1994 which were 
        attributable to expenditures for medical assistance for 
        mandated benefits (as defined in subsection (h)) furnished to 
        individuals--
                    ``(A) who (at the time of furnishing the 
                assistance) were under 65 years of age,
                    ``(B) whose coverage (at such time) under a State 
                plan under title XIX was required under Federal law, 
                and
                    ``(C) whose eligibility for such coverage (at such 
                time) was not on a basis directly related to disability 
                status (including being blind).
            ``(3) Targeted low-income family defined.--In this 
        subsection, the term `targeted low-income family' means a 
        family (which may be an individual)--
                    ``(A) which includes a child or a pregnant woman, 
                and
                    ``(B) the income of which does not exceed 185 
                percent of the poverty line applicable to a family of 
                the size involved.
    ``(b) For Low-Income Elderly.--
            ``(1) Set-asides.--Subject to subsection (e)--
                    ``(A) General set-aside.--A MediGrant plan shall 
                provide that the amount of funds expended under the 
                plan for medical assistance for eligible low-income 
                individuals 65 years of age or older for a fiscal year 
                shall be not less than the minimum low-income-elderly 
                percentage specified in paragraph (2)(A) of the total 
                funds expended under the plan for all medical 
                assistance for the fiscal year.
                    ``(B) Set-aside for medicare premium assistance.--A 
                MediGrant plan shall provide that the amount of funds 
                expended under the plan for medical assistance for 
                medicare cost-sharing described in section 2171(c)(1) 
                for a fiscal year shall be not less than the minimum 
                medicare premium assistance percentage specified in 
                paragraph (2)(B) of the total funds expended under the 
                plan for all medical assistance for the fiscal year.
            ``(2) Minimum percentages.--
                    ``(A) For general set-aside.--The minimum low-
                income-elderly percentage specified in this 
                subparagraph for a State is equal to 85 percent of the 
                average percentage of the expenditures under title XIX 
                for medical assistance in the State during Federal 
                fiscal years 1992 through 1994 which was attributable 
                to expenditures for medical assistance for mandated 
                benefits furnished to individuals--
                            ``(i) whose eligibility for such assistance 
                        was based on their being 65 years of age or 
                        older; and
                            ``(ii)(I) whose coverage (at such time) 
                        under a State plan under title XIX was required 
                        under Federal law, or (II) who (at such time) 
                        were residents of a nursing facility.
                    ``(B) For set-aside for medicare premium 
                assistance.--The minimum medicare premium assistance 
                percentage specified in this subparagraph for a State 
                is equal to 85 percent of the average percentage of the 
                expenditures under title XIX for medical assistance in 
                the State during Federal fiscal years 1992 through 1994 
                which was attributable to expenditures for medical 
                assistance for medicare premiums described in section 
                1905(p)(3)(A) for individuals whose coverage (at such 
                time) for such assistance for such premiums under a 
                State plan under title XIX was required under Federal 
                law.
    ``(c) For Low-Income Disabled Persons.--
            ``(1) In general.--Subject to subsection (e), a MediGrant 
        plan shall provide that the percentage of funds expended under 
        the plan for medical assistance for eligible low-income 
        individuals who are under 65 years of age and are eligible for 
        such assistance on the basis of a disability (including being 
        blind) for a fiscal year is not less than the minimum low-
        income-disabled percentage specified in paragraph (2) of the 
        total funds expended under the plan for medical assistance for 
        the fiscal year.
            ``(2) Minimum low-income-disabled percentage.--The minimum 
        low-income-disabled percentage specified in this paragraph for 
        a State is equal to 85 percent of the average percentage of the 
        expenditures under title XIX for medical assistance in the 
        State during Federal fiscal years 1992 through 1994 which was 
        attributable to expenditures for medical assistance for 
        mandated benefits furnished to individuals--
                    ``(A) whose coverage (at such time) under a State 
                plan under title XIX was required under Federal law, 
                and
                    ``(B) whose coverage (at such time) was on a basis 
                directly related to disability status (including being 
                blind).
    ``(d) Use of Residual Funds.--
            ``(1) In general.--Subject to limitations on payment under 
        section 2123tech deg., any funds not required to be 
        expended under the set-asides under the previous subsections 
        may be expended under the MediGrant plan for any of the 
        following:
                    ``(A) Additional medical assistance.--Medical 
                assistance for eligible low-income individuals (as 
                defined in section 2171(b)), in addition to any medical 
                assistance made available under a previous subsection.
                    ``(B) Medically-related services.--Payment for 
                medically-related services (as defined in paragraph 
                (2)).
                    ``(C) Administration.--Payment for the 
                administration of the MediGrant plan.
            ``(2) Medically-related services defined.--In this title, 
        the term `medically-related services' means services reasonably 
        related to, or in direct support of, the State's attainment of 
        one or more of the strategic objectives and performance goals 
        established under section 2101, but does not include items and 
        services included on the list under section 2171(a)(1) 
        (relating to the definition of medical assistance).
    ``(e) Exceptions to Minimum Set-Asides.--
            ``(1) Alternative minimum set-asides.--
                    ``(A) In general.--A State may provide in its 
                MediGrant plan (through an amendment to the plan) for a 
                lower dollar amount of expenditures than the minimum 
                amounts specified in any (or all) of paragraphs (2) of 
                subsections (a), (b), and (c) if State determines (and 
                certifies to the Secretary) that--
                            ``(i) the health care needs of the low-
                        income populations described in paragraph (1) 
                        of the respective subsection who are eligible 
                        for medical assistance under the plan during 
                        the previous fiscal year (or medicare premium 
                        assistance needs described in subsection 
                        (b)(1)(B)) can be reasonably met without the 
                        expenditure of the amounts otherwise required 
                        to be expended, and
                            ``(ii) the performance goals established 
                        under section 2101 relating to the respective 
                        population can reasonably be met with such 
                        lower amount of funds expended.
                    ``(B) Period of application.--The determination and 
                certification under subparagraph (A) shall be made for 
                such period as a State may request, but may not be made 
                for a period of more than 3 consecutive Federal fiscal 
                years (beginning with the first fiscal year for which 
                the lower amount is sought). A new determination and 
                certification must be made under such paragraph for any 
                subsequent period.
                    ``(C) No exception permitted before fiscal year 
                1998.--This paragraph may not apply with respect to a 
                State for a fiscal year before fiscal year 1998.
            ``(2) Independent certification of compliance with goals.--
                    ``(A) In general.--For purposes of section 2151(c), 
                a MediGrant plan shall not be considered to be in 
                substantial violation of the requirements of this 
                section if the amount of actual State expenditures 
                specified in any (or all) of paragraphs (1) of 
                subsections (a), (b), and (c) is lower than the minimum 
                amounts specified in any (or all) of paragraphs (2) of 
                subsections (a), (b), and (c) if an independent actuary 
                determines and certifies to the State that the 
                MediGrant plan is reasonably designed to result in a 
                level of expenditures which is consistent with the 
                requirements of such subsections.
                    ``(B) Limit on variation.--Subparagraph (A) shall 
                not apply in the case of a MediGrant plan for which the 
                actual State expenditures described in any (or all) of 
                paragraphs (1) of subsections (a), (b), and (c) are 
                less than 95 percent of the expenditures which would be 
                made if the amount of State expenditures specified in 
                any (or all) of such paragraphs was equal to the 
                applicable minimum amount specified in any (or all) of 
                paragraphs (2) of subsections (a), (b), and (c).
            ``(3) Treatment of states with no optional benefits.--In 
        the case of a State for which all expenditures under title XIX 
        for medical assistance in the State during Federal fiscal years 
        1992 through 1994 were expenditures for medical assistance for 
        mandated benefits, `75 percent' shall be substituted for `85 
        percent' each place it appears in paragraphs (2) of subsections 
        (a), (b), and (c).
    ``(f) Computations.--
            ``(1) Minimum percentages.--States shall calculate the 
        minimum percentages under subsections (a)(2), (b)(2), and 
        (c)(2) in a reasonable manner consistent with reports submitted 
        to the Secretary for the fiscal years involved.
            ``(2) Exclusion of payments for certain aliens.--For 
        purposes of this section, medical assistance attributable to 
        the exception provided under section 1903(v)(2) shall not be 
        considered to be expenditures for medical assistance.
    ``(g) Benefits Included for Purposes of Computing Set Asides.--In 
this section, the term `mandated benefits'--
            ``(1) means medical assistance for items and services 
        described in section 1905(a) to the extent such assistance with 
        respect to such items and services was required to be provided 
        under title XIX,
            ``(2) includes medical assistance for medicare cost-sharing 
        only to the extent such assistance was required to be provided 
        under section 1902(a)(10)(E), and
            ``(3) does not include medical assistance attributable to 
        disproportionate share payment adjustments described in section 
        1923.

``SEC. 2113. PREMIUMS AND COST-SHARING.

    ``(a) In General.--Subject to subsection (b), if any charges are 
imposed under the MediGrant plan for cost-sharing (as defined in 
subsection (d)), such cost-sharing shall be pursuant to a public cost-
sharing schedule.
    ``(b) Limitation on Premium and Certain Cost-Sharing for Low-Income 
Families Including Children or Pregnant Women.--
            ``(1) In general.--In the case of a family described in 
        paragraph (2)--
                    ``(A) the plan shall not impose any premium, and
                    ``(B) the plan shall not (except as provided in 
                subsection (c)(1)) impose any cost-sharing with respect 
                to primary and preventive care services (as defined by 
                the State) covered under the MediGrant plan for 
                children or pregnant women unless such cost-sharing is 
                nominal in nature.
            ``(2) Family described.--A family described in this 
        paragraph is a family (which may be an individual) which--
                    ``(A) includes a child or a pregnant woman,
                    ``(B) is made eligible for medical assistance under 
                the MediGrant plan, and
                    ``(C) the income of which does not exceed 100 
                percent of the poverty line applicable to a family of 
                the size involved.
    ``(c) Certain Cost-Sharing Permitted.--Nothing in this section 
shall be construed as preventing a MediGrant plan (consistent with 
subsection (b))--
            ``(1) from imposing cost-sharing to discourage the 
        inappropriate use of emergency medical services (delivered 
        through a hospital emergency room, a medical transportation 
        provider, or otherwise);
            ``(2) from imposing premiums and cost-sharing 
        differentially in order to encourage the use of primary and 
        preventive care and discourage unnecessary or less economical 
        care;
            ``(3) from scaling cost-sharing in a manner that reflects 
        economic factors, employment status, and family size;
            ``(4) from scaling cost-sharing based on the availability 
        to the individual or family of other health insurance coverage; 
        or
            ``(5) from scaling cost-sharing based on participation in 
        employment training program, drug or alcohol abuse treatment, 
        counseling programs, or other programs promoting personal 
        responsibility.
    ``(d) Cost-Sharing Defined.--In this section, the term `cost-
sharing' includes copayments, deductibles, coinsurance, and other 
charges for the provision of health care services.

``SEC. 2114. DESCRIPTION OF PROCESS FOR DEVELOPING CAPITATION PAYMENT 
                    RATES.

    ``(a) In General.--If a State contracts (or intends to contract) 
with a capitated health care organization (as defined in subsection 
(c)(1)) under which the State makes a capitation payment (as defined in 
subsection (c)(2)) to the organization for providing or arranging for 
the provision of medical assistance under the MediGrant plan for a 
group of services (including at least inpatient hospital services and 
physicians' services), the plan shall include a description of the 
following:
            ``(1) Use of actuarial science.--The extent and manner in 
        which the State uses actuarial science--
                    ``(A) to analyze and project health care 
                expenditures and utilization for individuals enrolled 
                (or to be enrolled) in such an organization under the 
                MediGrant plan, and
                    ``(B) to develop capitation payment rates, 
                including a brief description of the general 
                methodologies used by actuaries.
            ``(2) Qualifications of organizations.--The general 
        qualifications (including any accreditation, State licensure or 
        certification, or provider network standards) required by the 
        State for participation of capitated health care organizations 
        under the MediGrant plan.
            ``(3) Dissemination process.--The process used by the State 
        under subsection (b) and otherwise to disseminate, before 
        entering into contracts with capitated health care 
        organizations, actuarial information to such organizations on 
        the historical fee-for-service costs (or, if not available, 
        other recent financial data associated with providing covered 
        services) and utilization associated with individuals described 
        in paragraph (1)(A).
    ``(b) Public Notice and Comment.--Under the MediGrant plan the 
State shall provide a process for providing, before the beginning of 
each contract year--
            ``(1) public notice of--
                    ``(A) the amounts of the capitation payments (if 
                any) made under the plan for the contract year 
                preceding the public notice, and
                    ``(B)(i) the information described under subsection 
                (a)(1) with respect to capitation payments for the 
                contract year involved or (ii) the amounts of the 
                capitation payments the State expects to make for the 
                contract year involved,
        unless such information is designated as proprietary and not 
        subject to public disclosure under State law; and
            ``(2) an opportunity for receiving public comment on the 
        amounts and information for which notice is provided under 
        paragraph (1).
    ``(c) Definitions.--In this title:
            ``(1) Capitated health care organization.--The term 
        `capitated health care organization' means a health maintenance 
        organization or any other entity (including a health insuring 
        organization, managed care organization, prepaid health plan, 
        integrated service network, or similar entity) which under 
        State law is permitted to accept capitation payments for 
        providing (or arranging for the provision of) a group of items 
        and services including at least inpatient hospital services and 
        physicians' services.
            ``(2) Capitation payment.--The term `capitation payment' 
        means, with respect to payment, payment on a prepaid capitation 
        basis or any other risk basis to an entity for the entity's 
        provision (or arranging for the provision) of a group of items 
        and services (including at least inpatient hospital services 
        and physicians' services).

``SEC. 2115. CONSTRUCTION.

    ``(a) No Federal Entitlement.--Nothing in this title (including 
section 2112) shall be construed as creating an entitlement under 
Federal law in any individual or category of individuals for medical 
assistance under a MediGrant plan.
    ``(b) State Flexibility in Benefits, Provider Payments, 
Geographical Coverage Area, and Selection of Providers.--Nothing in 
this title (other than section 2111(b)) shall be construed as requiring 
a State--
            ``(1) to provide medical assistance for any particular 
        items or services;
            ``(2) subject to section 2111(c), to provide for any 
        payments with respect to any specific health care providers or 
        any level of payments for any services;
            ``(3) to provide for the same medical assistance in all 
        geographical areas or political subdivisions of the State;
            ``(4) to provide that the medical assistance made available 
        to any individual eligible for medical assistance must not be 
        less in amount, duration, or scope than the medical assistance 
        made available to any other such individual; or
            ``(5) to provide that any individual eligible for medical 
        assistance with respect to an item or service may choose to 
        obtain such assistance from any institution, agency, or person 
        qualified to provide the item or service.
    ``(c) State Flexibility with Respect to Managed Care.--Nothing in 
this title shall be construed--
            ``(1) to limit a State's ability to contract with, on a 
        capitated basis or otherwise, health care plans or individual 
        health care providers for the provision or arrangement of 
        medical assistance;
            ``(2) to limit a State's ability to contract with health 
        care plans or other entities for case management services or 
        for coordination of medical assistance; or
            ``(3) to restrict a State from establishing capitation 
        rates on the basis of competition among health care plans or 
        negotiations between the State and one or more health care 
        plans.

``SEC. 2116. LIMITATIONS ON CAUSES OF ACTION.

    ``(a) In General.--Notwithstanding any other provision of this Act 
(including section 1130A), no person (including an applicant, 
beneficiary, provider, or health plan) shall have a cause of action 
under Federal law against a State in relation to a State's compliance 
(or failure to comply) with the provisions of this title or of a 
MediGrant plan.
    ``(b) No Effect on State Law.--Nothing in subsection (a) may be 
construed as affecting any actions brought under State law.

                      ``Part C--Payments to States

``SEC. 2121. ALLOTMENT OF FUNDS AMONG STATES.

    ``(a) Allotments.--
            ``(1) Computation.--The Secretary shall provide for the 
        computation of State obligation and outlay allotments in 
        accordance with this section for each fiscal year beginning 
        with fiscal year 1996.
            ``(2) Limitation on obligations.--
                    ``(A) In general.--Subject to subparagraph (B), 
                tech deg.the Secretary shall not enter into 
                obligations with any State under this title for a 
                fiscal year in excess of the obligation allotment for 
                that State for the fiscal year under paragraph (4). The 
                sum of such obligation allotments for all States in any 
                fiscal year (excluding amounts carried over under 
                subparagraph (B) and excluding changes in allotments 
                effected under paragraph (4)(D)) shall not exceed the 
                aggregate limit on new obligation authority specified 
                in paragraph (3) for that fiscal year.
                    ``(B) Adjustments.--
                            ``(i) Carryover of allotment permitted.--If 
                        the amount of obligations entered into under 
                        this part with a State for quarters in a fiscal 
                        year is less than the amount of the obligation 
                        allotment under this section to the State for 
                        the fiscal year, the amount of the difference 
                        shall be added to the amount of the State 
                        obligation allotment otherwise provided under 
                        this section for the succeeding fiscal year.
                            ``(ii) Reduction for post-enactment new 
                        obligations under title xix in fiscal year 
                        1996.--The amount of the obligation allotment 
                        otherwise provided under this section for 
                        fiscal year 1996 for a State shall be reduced 
                        by the amount tech deg.of the 
                        obligations entered into with respect to the 
                        State under section 1903(a) 
                        tech deg.after the date of the 
                        enactment of this Act.
            ``(3) Aggregate limit on new obligation authority.--
                    ``(A) In general.--For purposes of this subsection, 
                subject to subparagraph (C), the `aggregate limit on 
                new obligation authority', for a fiscal year, is the 
                pool amount under subsection (b) for the fiscal year, 
                divided by the payout adjustment factor (described in 
                subparagraph (B)) for the fiscal year.
                    ``(B) Payout adjustment factor.--For purposes of 
                this subsection, the `payout adjustment factor'--
                            ``(i) for fiscal year 1996 is .950,
                            ``(ii) for fiscal year 1997 is .986, and
                            ``(iii) for a subsequent fiscal year is 
                        .998.
                    ``(C) Transitional adjustment for pre-enactment-
                obligation outlays.--In order to account for pre-
                enactment-obligation outlays described in paragraph 
                (4)(C)(iv), in determining the aggregate limit on new 
                obligation authority under subparagraph (A) for fiscal 
                year 1996, the pool amount for such fiscal year is 
                equal to--
                            ``(i) the pool amount for such year, 
                        reduced by
                            ``(ii) $24.624 billion.
            ``(4) Obligation allotments.--
                    ``(A) General rule for 50 states and the district 
                of columbia.--Except as provided in this paragraph, the 
                `obligation allotment' for any of the 50 States or the 
                District of Columbia for a fiscal year (beginning with 
                fiscal year 1997) is an amount that bears the same 
                ratio to the outlay allotment under subsection (c)(2) 
                for such State or District (not taking into account any 
                adjustment due to an election under paragraph (4)) for 
                the fiscal year as the ratio of--
                            ``(i) the aggregate limit on new obligation 
                        authority (less the total of the obligation 
                        allotments under subparagraph (B)) for the 
                        fiscal year, to
                            ``(ii) the pool amount (less the sum of the 
                        outlay allotments for the territories) for such 
                        fiscal year.
                    ``(B) Territories.--The obligation allotment for 
                each of the Commonwealths and territories for a fiscal 
                year is the outlay allotment for such Commonwealth or 
                territory (as determined under subsection (c)(5)) for 
                the fiscal year divided by the payout adjustment factor 
                for the fiscal year (as defined in paragraph (3)(B)).
                    ``(C) Transitional rule for fiscal year 1996.--
                            ``(i) In general.--The obligation amount 
                        for fiscal year 1996 for any State (including 
                        the District, a Commonwealth, or territory) is 
                        determined according to the formula: A=(B-C)/D, 
                        where--
                                    ``(I) `A' is the obligation amount 
                                for such State;
                                    ``(II) `B' is the outlay allotment 
                                of such State for fiscal year 1996, as 
                                determined under subsection (c);
                                    ``(III) `C' is the amount of the 
                                pre-enactment-obligation outlays (as 
                                established for such State under clause 
                                (ii)); and
                                    ``(IV) `D' is the payout adjustment 
                                factor for such fiscal year (as defined 
                                in paragraph (3)(B)).
                            ``(ii) Pre-enactment-obligation outlay 
                        amounts.--Within 30 days after the date of the 
                        enactment of this title, the Secretary shall 
                        estimate (based on the best data available) and 
                        publish in the Federal Register the amount of 
                        the pre-enactment-obligation outlays (as 
                        defined in clause (iv)) for each State 
                        (including the District, Commonwealths, and 
                        territories). The total of such amounts shall 
                        equal the dollar amount specified in paragraph 
                        (3)(C)(ii).
                            ``(iii) Agreement.--The submission of a 
                        MediGrant plan by a State under this title is 
                        deemed to constitute the State's acceptance of 
                        the obligation allotment limitations under this 
                        subsection (including the formula for computing 
                        the amount of such obligation allotment).
                            ``(iv) Pre-enactment-obligation outlays 
                        defined.--In this subsection, the term `pre-
                        enactment-obligation outlays' means, for a 
                        State, the outlays of the Federal Government 
                        that result from obligations that have been 
                        incurred under title XIX with respect to the 
                        State before the date of the enactment of this 
                        title, but for which payments to States have 
                        not been made as of such date of enactment.
                    ``(D) Adjustment to reflect adoption of alternative 
                growth formula.--Any State that has elected an 
                alternative growth formula under subsection (c)(4) 
                which increases or decreases the dollar amount of an 
                outlay allotment for a fiscal year is deemed to have 
                increased or decreased, respectively, its obligation 
                amount for such fiscal year by the amount of such 
                increase or decrease.
    ``(b) Pool of Available Funds.--
            ``(1) In general.--For purposes of this section, the `pool 
        amount' under this subsection for--
                    ``(A) fiscal year 1996 is $95.673 billion;
                    ``(B) fiscal year 1997 is $102.135 billion;
                    ``(C) fiscal year 1998 is $106.221 billion;
                    ``(D) fiscal year 1999 is $110.469 billion;
                    ``(E) fiscal year 2000 is $114.888 billion;
                    ``(F) fiscal year 2001 is $119.483 billion;
                    ``(G) fiscal year 2002 is $124.263 billion; and
                    ``(H) each subsequent fiscal year is the pool 
                amount under this paragraph for the previous fiscal 
                year increased by the lesser of 4 percent or the annual 
                percentage increase in the consumer price index for all 
                urban consumers (U.S. city average) for the 12-month 
                period ending in June before the beginning of that 
                subsequent fiscal year.
            ``(2) National medigrant growth percentage.--For purposes 
        of this section for a fiscal year (beginning with fiscal year 
        1997), the `national MediGrant growth percentage' is the 
        percentage by which--
                    ``(A) the pool amount under paragraph (1) for the 
                fiscal year, exceeds
                    ``(B) such pool amount for the previous fiscal 
                year.
    ``(c) State tech deg.Outlay Allotments.--
            ``(1) Fiscal year 1996.--
                    ``(A) In general.--For each of the 50 States and 
                the District of Columbia, the amount of the State 
                outlay allotment under this subsection for fiscal year 
                1996 is, subject to paragraph (4), equal to--
                            ``(i) the total amount of Federal 
                        expenditures made to the State under title XIX 
                        for the 4 quarters in fiscal year 1994, 
                        increased by
                            ``(ii) the percentage by which (I) 
                        $95,529,490,500 (which represents the total 
                        amount of outlay allotments for such States and 
                        District for fiscal year 1996), exceeds (II) 
                        $83,213,431,458 (which represents Federal 
                        medicaid expenditures for such States and 
                        District for fiscal year 1994).
                    ``(B) Computation of expenditures.--The amount of 
                Federal expenditures described in subparagraph (A)(i) 
                shall be computed, using data reported on the HCFA Form 
                64 as of September 1, 1995, based on--
                            ``(i) the amount reported on line 11, or
                            ``(ii) on the amount reported on line 6 
                        multiplied by the ratio of (I) the sum of the 
                        amounts so reported on line 11 of such Form for 
                        fiscal year 1994 for the 50 States and the 
                        District of Columbia, to (II) the sum of the 
                        amounts so reported on line 6 of such Form for 
                        fiscal year 1994 for such States and District,
                whichever is greater.
                    ``(C) Limitation on adjustment.--The amount 
                computed under subparagraph (B) shall not be subject to 
                adjustment (based on any subsequent disallowances or 
                otherwise).
            ``(2) Computation of state outlay allotments.--
                    ``(A) In general.--Subject to the succeeding 
                provisions of this subsection, the amount of the State 
                outlay allotment under this subsection for one of the 
                50 States and the District of Columbia for a fiscal 
                year (beginning with fiscal year 1997) is equal to the 
                product of--
                            ``(i) the needs-based amount determined 
                        under subparagraph (B) for the State for the 
                        fiscal year, and
                            ``(ii) the scalar factor described in 
                        subparagraph (C) for the fiscal year.
                    ``(B) Needs-based amount.--The needs-based amount 
                under this subparagraph for a State for a fiscal year 
                is equal to the product of--
                            ``(i) the State's aggregate expenditure 
                        need for the fiscal year (as determined under 
                        subsection (d)), and
                            ``(ii) the State's old Federal medical 
                        assistance percentage (as defined in section 
                        2122(d)) for the previous fiscal year (or, in 
                        the case of fiscal year 1997, the Federal 
                        medical assistance percentage determined under 
                        section 1905(b) for fiscal year 1996).
                    ``(C) Scalar factor.--The scalar factor under this 
                subparagraph for a fiscal year is such proportion so 
                that, when it is applied under subparagraph (A)(ii) for 
                the fiscal year (taking into account the floors and 
                ceilings under paragraph (3)), the total of the outlay 
                allotments under this subsection for all the 50 States 
                and the District of Columbia for the fiscal year (not 
                taking into account any increase in an outlay allotment 
                for a fiscal year attributable to the election of an 
                alternative growth formula under paragraph (4)) is 
                equal to the amount by which (i) the pool amount for 
                the fiscal year (as determined under subsection (b)), 
                exceeds (ii) the sum of the outlay allotments provided 
                under paragraph (5) for the Commonwealths and 
                territories for the fiscal year.
            ``(3) Floors and ceilings.--
                    ``(A) Floors.--In no case shall the amount of the 
                State outlay allotment under paragraph (2) for a fiscal 
                year be less than the following:
                            ``(i) Floor based on previous year's outlay 
                        allotment.--102 percent of the amount of the 
                        State outlay allotment under this subsection 
                        for the previous fiscal year.
                            ``(ii) Floor based on outlay allotment 
                        growth rate in first year.--Beginning with 
                        fiscal year 1998, in the case of a State for 
                        which the outlay allotment under this 
                        subsection for fiscal year 1997 exceeded its 
                        outlay allotment under this subsection for the 
                        previous fiscal year by--
                                    ``(I) more than 125 percent of the 
                                national MediGrant growth percentage 
                                for fiscal year 1997, 104 percent of 
                                the amount of the State outlay 
                                allotment under this subsection for the 
                                previous fiscal year; or
                                    ``(II) less than 125 percent (but 
                                more than 75 percent) of the national 
                                MediGrant growth percentage for fiscal 
                                year 1997, 103 percent of the amount of 
                                the State outlay allotment under this 
                                subsection for the previous fiscal 
                                year.
                    ``(B) Ceiling.--
                            ``(i) In general.--Subject to clause (ii), 
                        in no case shall the amount of the State outlay 
                        allotment under paragraph (2) for a fiscal year 
                        be greater than the product of--
                                    ``(I) the State outlay allotment 
                                under this subsection for the State for 
                                the preceding fiscal year, and
                                    ``(II) 133 percent of the national 
                                MediGrant growth percentage (as 
                                determined under subsection (b)(2)) for 
                                the fiscal year involved.
                            ``(ii) Special rule.--For a fiscal year 
                        after fiscal year 1997, in the case of a State 
                        (among the 50 States and the District of 
                        Columbia) that is one of the 10 States with the 
                        lowest Federal MediGrant spending per resident-
                        in-poverty rates (as determined under clause 
                        (iii)) for the fiscal year, the reference in 
                        clause (i)(II) to `133 percent' is deemed a 
                        reference to `150 percent'.
                            ``(iii) Determination of federal medigrant 
                        spending per resident-in-poverty rate.--For 
                        purposes of clause (ii), the `Federal MediGrant 
                        spending per resident-in-poverty rate' for a 
                        State for a fiscal year is equal to--
                                    ``(I) the State's outlay allotment 
                                under this subsection for the previous 
                                fiscal year (determined without regard 
                                to paragraph (4)), divided by
                                    ``(II) the average annual number of 
                                residents of the State in poverty (as 
                                defined in subsection (d)(2)) with 
                                respect to the fiscal year.
            ``(4) Election of alternative growth formula.--
                    ``(A) Election.--In order to reduce variations in 
                increases in outlay allotments over time, any of the 50 
                States or the District of Columbia may elect (by notice 
                provided to the Secretary by not later than April 1, 
                1996) to adopt an alternative growth rate formula under 
                this paragraph for the determination of the State's 
                outlay allotment in fiscal year 1996 and for the 
                increase in the amount of such allotment in subsequent 
                fiscal years.
                    ``(B) Formula.--The alternative growth formula 
                under this paragraph may be any formula under which a 
                portion of the State outlay allotment for fiscal year 
                1996 under paragraph (1) is deferred and applied to 
                increase the amount of its outlay allotment for one or 
                more subsequent fiscal years, so long as the total 
                amount of such increases for all such subsequent fiscal 
                years does not exceed the amount of the outlay 
                allotment deferred from fiscal year 1996.
            ``(5) Commonwealths and territories.--The outlay allotment 
        for each of the Commonwealths and territories for a fiscal year 
        is the maximum amount that could have been certified under 
        section 1108(c) with respect to the Commonwealth or territory 
        for the fiscal year with respect to title XIX, if the national 
        MediGrant growth percentage (as determined under subsection 
        (b)(2)) for the fiscal year had been substituted (beginning 
        with fiscal year 1997) for the percentage increase referred to 
        in section 1108(c)(1)(B).
    ``(d) State Aggregate Expenditure Need Determined.--
            ``(1) In general.--For purposes of subsection (c), the 
        `State aggregate expenditure need' for a State for a fiscal 
        year is equal to the product of the following 4 factors:
                    ``(A) Residents in poverty.--The average annual 
                number of residents in poverty of the State with 
                respect to the fiscal year (as determined under 
                paragraph (2)).
                    ``(B) Case mix index.--The average of the case mix 
                indexes for the State (as determined under paragraph 
                (3)) for the 3 most recent fiscal years for which data 
                are available, but in no case less than .9 or greater 
                than 1.15.
                    ``(C) Input cost index.--The average of the input 
                cost indexes for the State (as determined under 
                paragraph (4)) for the 3 most recent fiscal years for 
                which data are available.
                    ``(D) National average spending per resident in 
                poverty.--The national average spending per resident in 
                poverty (as determined under paragraph (5)).
            ``(2) Residents in poverty.--In this section--
                    ``(A) In general.--The term `average annual number 
                of residents in poverty' means, with respect to a State 
                and a fiscal year, the average annual number of 
                residents in poverty (as defined in subparagraph (B)) 
                in the State (based on data made generally available by 
                the Bureau of the Census from the Current Population 
                Survey) for the most recent 3-calendar-year period 
                (ending before the fiscal year) for which such data are 
                available.
                    ``(B) Resident in poverty defined.--The term 
                `resident in poverty' means an individual whose family 
                income does not exceed the poverty threshold (as such 
                terms are defined by the Office of Management and 
                Budget and are generally interpreted and applied by the 
                Bureau of the Census for the year involved).
            ``(3) Case mix index.--
                    ``(A) In general.--In this subsection, the `case 
                mix index' for a State for a fiscal year is equal to--
                            ``(i) the sum of--
                                    ``(I) the projected per recipient 
                                expenditures with respect to elderly 
                                individuals in the State for the fiscal 
                                year (determined under subparagraph 
                                (B)),
                                    ``(II) the projected per recipient 
                                expenditures with respect to the blind 
                                and disabled individuals in the State 
                                for the fiscal year (determined under 
                                subparagraph (C)), and
                                    ``(III) the projected per recipient 
                                expenditures with respect to other 
                                individuals in the State (determined 
                                under subparagraph (D));
                divided by--
                            ``(ii) the national average spending per 
                        recipient determined under subparagraph (E) for 
                        the fiscal year involved.
                    ``(B) Projected per recipient expenditures for the 
                elderly.--For purposes of subparagraph (A)(I)(i), the 
                `projected per recipient expenditures with respect to 
                elderly individuals' in a State for a fiscal year is 
                equal to the product of--
                            ``(i) the national average per recipient 
                        expenditures under this title in the 50 States 
                        and the District of Columbia for the most 
                        recent fiscal year for which data are available 
                        for individuals who are 65 years of age or 
                        older, and
                            ``(ii) the proportion, of all individuals 
                        who received medical assistance under this 
                        title in the State in the most recent fiscal 
                        year referred to in clause (i), that were 
                        individuals described in such clause.
                    ``(C) Projected per recipient expenditures for the 
                blind and disabled.--For purposes of subparagraph 
                (A)(i)(II), the `projected per recipient expenditures 
                with respect to blind and disabled individuals' in a 
                State for a fiscal year is equal to the product of--
                            ``(i) the national average per recipient 
                        expenditures under this title in the 50 States 
                        and the District of Columbia for the most 
                        recent fiscal year for which data are available 
                        for individuals who are eligible for medical 
                        assistance because they are blind or disabled 
                        and under 65 years of age, and
                            ``(ii) the proportion, of all individuals 
                        who received medical assistance under this 
                        title in the State in the most recent fiscal 
                        year referred to in clause (i), that were 
                        individuals described in such clause.
                    ``(D) Projected per recipient expenditures for 
                other individuals.--For purposes of subparagraph 
                (A)(i)(III), the `projected per recipient expenditures 
                with respect to other individuals' in a State for a 
                fiscal year is equal to the product of--
                            ``(i) the national average per recipient 
                        expenditures under this title in the 50 States 
                        and the District of Columbia for the most 
                        recent fiscal year for which data are available 
                        for individuals who are not described in 
                        subparagraph (B)(i) or (C)(i), and
                            ``(ii) the proportion, of all individuals 
                        who received medical assistance under this 
                        title in the State in the most recent fiscal 
                        year referred to in clause (i), that were 
                        individuals described in such clause.
                    ``(E) National average spending per recipient.--For 
                purposes of this paragraph, the `national average 
                expenditures per recipient' for a fiscal year is equal 
                to the sum of--
                            ``(i) the product of (I) the national 
                        average described in subparagraph (B)(i), and 
                        (II) the proportion, of all individuals who 
                        received medical assistance under this title in 
                        any of the 50 States or the District of 
                        Columbia in the fiscal year referred to in such 
                        subparagraph, who are described in such 
                        subparagraph;
                            ``(ii) the product of (I) the national 
                        average described in subparagraph (C)(i), and 
                        (II) the proportion, of all individuals who 
                        received medical assistance under this title in 
                        any of the 50 States or the District of 
                        Columbia in the fiscal year referred to in such 
                        subparagraph, who are described in such 
                        subparagraph; and
                            ``(iii) the product of (I) the national 
                        average described in subparagraph (D)(i), and 
                        (II) the proportion, of all individuals who 
                        received medical assistance under this title in 
                        any of the 50 States or the District of 
                        Columbia in the fiscal year referred to in such 
                        subparagraph, who are described in such 
                        subparagraph.
                    ``(F) Determination of national averages and 
                proportions.--
                            ``(i) In general.--The national averages 
                        per recipient and the proportions referred to 
                        in clauses (i) and (ii), respectively, of 
                        subparagraphs (B), (C), and (D) and 
                        subparagraph (E) shall be determined by the 
                        Secretary using the most recent data available.
                            ``(ii) Use of medicaid data.--If for a 
                        fiscal year there is inadequate data to compute 
                        such averages and proportions based on 
                        expenditures and numbers of individuals 
                        receiving medical assistance under this title, 
                        the Secretary may compute such averages based 
                        on expenditures and numbers of such individuals 
                        under title XIX for the most recent fiscal year 
                        for which data are available and, for this 
                        purpose--
                                    ``(I) any reference in subparagraph 
                                (B)(i) to `individuals 65 years of age 
                                or older' is deemed a reference to 
                                `individuals whose eligibility for 
                                medical assistance is based on being 65 
                                years of age or older',
                                    ``(II) the reference in 
                                subparagraph (C)(i) to `and under 65 
                                years of age' shall be considered to be 
                                deleted, and
                                    ``(III) individuals whose basis for 
                                eligibility for medical assistance was 
                                reported as unknown shall not be 
                                counted as individuals under 
                                subparagraph (D)(i).
            ``(4) Input cost index.--
                    ``(A) In general.--In this section, the `input cost 
                index' for a State for a fiscal year is the sum of--
                            ``(i) 0.15, and
                            ``(ii) 0.85 multiplied by the ratio of (I) 
                        the annual average wages for hospital employees 
                        in the State for the fiscal year (as determined 
                        under subparagraph (B)), to (II) the annual 
                        average wages for hospital employees in the 50 
                        States and the District of Columbia for such 
                        year (as determined under such subparagraph).
                    ``(B) Determination of annual average wages of 
                hospital employees.--The Secretary shall provide for 
                the determination of annual average deg. wages 
                for hospital employees in a State and, collectively, in 
                the 50 States and the District of Columbia for a fiscal 
                year based on the area wage index applicable to 
                hospitals under 1886(d)(2)(E) (or, if such index no 
                longer exists, a comparable index of hospital wages) 
                for discharges occurring during the fiscal year 
                involved.
            ``(5) National average spending per resident in poverty.--
        For purposes of this subsection, the `national average spending 
        per resident in poverty'--
                    ``(A) for fiscal year 1997 is equal to--
                            ``(i) the sum (for each of the 50 States 
                        and the District of Columbia) of the total of 
                        the Federal and State expenditures under title 
                        XIX for calendar quarters in fiscal year 1994, 
                        increased by the percentage specified in 
                        subsection (c)(1)(A)(ii), divided by
                            ``(ii) the sum of the number of residents 
                        in poverty (as defined in paragraph (2)(A)) for 
                        all of the 50 States and the District of 
                        Columbia for fiscal year 1994;
                    ``(B) for a succeeding fiscal year is equal to the 
                national average spending per resident in poverty under 
                this paragraph for the preceding fiscal year increased 
                by the national MediGrant growth percentage (as defined 
                in subsection (b)(2)) for the fiscal year involved.
    ``(e) Publication of Obligation and Outlay Allotments.--
            ``(1) Notice of preliminary allotments.--Not later than 
        April 1 before the beginning of each fiscal year (beginning 
        with fiscal year 1997), the Secretary shall initially compute, 
        after consultation with the Comptroller General, and publish in 
        the Federal Register notice of the proposed obligation and 
        outlay allotments for each State under this section (not taking 
        into account subsection (a)(2)(B)) for the fiscal year. The 
        Secretary shall include in the notice a description of the 
        methodology and data used in deriving such allotments for the 
        year.
            ``(2) Review by gao.--The Comptroller General shall submit 
        to Congress by not later than May 15 of each such fiscal year, 
        a report analyzing such allotments and the extent to which they 
        comply with the precise requirements of this section.
            ``(3) Notice of final allotments.--Not later than July 1 
        before the beginning of each such fiscal year, the Secretary, 
        taking into consideration the analysis contained in the report 
        of the Comptroller General under paragraph (2), shall compute 
        and publish in the Federal Register notice of the final 
        allotments under this section (confusing deg.both 
        taking into account and not taking into account subsection 
        (a)(2)(B)) for the fiscal year. The Secretary shall include in 
        the notice a description of any changes in such allotments from 
        the initial allotments published under paragraph (1) for the 
        fiscal year and the reasons for such changes. Once published 
        under this paragraph, the Secretary is not authorized to change 
        such allotments.
            ``(4) GAO report on final allotments.--The Comptroller 
        General shall submit to Congress by not later than August 1 of 
        each such fiscal year, a report analyzing the final allotments 
        under paragraph (3) and the extent to which they comply with 
        the precise requirements of this section.

``SEC. 2122. PAYMENTS TO STATES.

    ``(a) Amount of Payment.--From the allotment of a State under 
section 2121 for a fiscal year, subject to the succeeding provisions of 
this title, the Secretary shall pay to each State which has a MediGrant 
plan approved under part E, for each quarter in the fiscal year--
            ``(1) an amount equal to the applicable Federal medical 
        assistance percentage (as defined in subsection (c)) of the 
        total amount expended during such quarter as medical assistance 
        under the plan; plus
            ``(2) an amount equal to the applicable Federal medical 
        assistance percentage of the total amount expended during such 
        quarter for medically-related services (as defined in section 
        2112(e)(2)); plus
            ``(3) subject to section 2123(c)--
                    ``(A) an amount equal to 90 percent of the amounts 
                expended during such quarter for the design, 
                development, and installation of information systems 
                and for providing incentives to promote the enforcement 
                of medical support orders, plus
                    ``(B) an amount equal to 75 percent of the amounts 
                expended during such quarter for medical personnel, 
                administrative support of medical personnel, operation 
                and maintenance of information systems, modification of 
                information systems, quality assurance activities, 
                utilization review, medical and peer review, anti-fraud 
                activities, independent evaluations, coordination of 
                benefits, and meeting reporting requirements under this 
                title, plus
                    ``(C) an amount equal to 50 percent of so much of 
                the remainder of the amounts expended during such 
                quarter as are expended by the State in the 
                administration of the State plan.
    ``(b) Payment Process.--
            ``(1) Quarterly estimates.--Prior to the beginning of each 
        quarter, the Secretary shall estimate the amount to which a 
        State will be entitled under subsection (a) for such quarter, 
        such estimates to be based on (A) a report filed by the State 
        containing its estimate of the total sum to be expended in such 
        quarter in accordance with the provisions of such subsections, 
        and stating the amount appropriated or made available by the 
        State and its political subdivisions for such expenditures in 
        such quarter, and if such amount is less than the State's 
        proportionate share of the total sum of such estimated 
        expenditures, the source or sources from which the difference 
        is expected to be derived, and (B) such other investigation as 
        the Secretary may find necessary.
            ``(2) Payment.--
                    ``(A) In general.--The Secretary shall then pay to 
                the State, in such installments as the Secretary may 
                determine and in accordance with section 6503(a) of 
                title 31, United States Code, the amount so estimated, 
                reduced or increased to the extent of any overpayment 
                or underpayment which the Secretary determines was made 
                under this section (or section 1903) to such State for 
                any prior quarter and with respect to which adjustment 
                has not already been made under this subsection (or 
                under section 1903(d)).
                    ``(B) Treatment as overpayments.--Expenditures for 
                which payments were made to the State under subsection 
                (a) shall be treated as an overpayment to the extent 
                that the State or local agency administering such plan 
                has been reimbursed for such expenditures by a third 
                party pursuant to the provisions of its plan in 
                compliance with section 2135.
                    ``(C) Recovery of overpayments.--For purposes of 
                this subsection, when an overpayment is discovered, 
                which was made by a State to a person or other entity, 
                the State shall have a period of 60 days in which to 
                recover or attempt to recover such overpayment before 
                adjustment is made in the Federal payment to such State 
                on account of such overpayment. Except as otherwise 
                provided in subparagraph (D), the adjustment in the 
                Federal payment shall be made at the end of the 60 
                days, whether or not recovery was made.
                    ``(D) No adjustment for uncollectables.--In any 
                case where the State is unable to recover a debt which 
                represents an overpayment (or any portion thereof) made 
                to a person or other entity on account of such debt 
                having been discharged in bankruptcy or otherwise being 
                uncollectable, no adjustment shall be made in the 
                Federal payment to such State on account of such 
                overpayment (or portion thereof).
            ``(3) Federal share of recoveries.--The pro rata share to 
        which the United States is equitably entitled, as determined by 
        the Secretary, of the net amount recovered during any quarter 
        by the State or any political subdivision thereof with respect 
        to medical assistance furnished under the State plan shall be 
        considered an overpayment to be adjusted under this subsection.
            ``(4) Timing of obligation of funds.--Upon the making of 
        any estimate by the Secretary under this subsection, any 
        appropriations available for payments under this section shall 
        be deemed obligated.
            ``(5) Disallowances.--In any case in which the Secretary 
        estimates that there has been an overpayment under this section 
        to a State on the basis of a claim by such State that has been 
        disallowed by the Secretary under section 1116(d), and such 
        State disputes such disallowance, the amount of the Federal 
        payment in controversy shall, at the option of the State, be 
        retained by such State or recovered by the Secretary pending a 
        final determination with respect to such payment amount. If 
        such final determination is to the effect that any amount was 
        properly disallowed, and the State chose to retain payment of 
        the amount in controversy, the Secretary shall offset, from any 
        subsequent payments made to such State under this title, an 
        amount equal to the proper amount of the disallowance plus 
        interest on such amount disallowed for the period beginning on 
        the date such amount was disallowed and ending on the date of 
        such final determination at a rate (determined by the 
        Secretary) based on the average of the bond equivalent of the 
        weekly 90-day treasury bill auction rates during such period.
    ``(c) Applicable Federal Medical Assistance Percentage Defined.--In 
this section, except as provided in subsection (f), the term 
`applicable Federal medical assistance percentage' means, with respect 
to one of the 50 States or the District of Columbia, at the State's or 
District's option deg.--
            ``(1) the old Federal medical assistance percentage (as 
        determined in subsection (d)), or
            ``(2) the new Federal medical assistance percentage (as 
        determined under subsection (e)) or, if less, the old Federal 
        medical assistance percentage plus 10 percentage points.
    ``(d) Old Federal Medical Assistance Percentage.--
            ``(1) In general.--Except as provided in paragraph (2) and 
        subsection (f), the term `old Federal medical assistance 
        percentage' for any State is 100 percent less the State 
        percentage; and the State percentage is that percentage which 
        bears the same ratio to 45 percent as the square of the per 
        capita income of such State bears to the square of the per 
        capita income of the continental United States (including 
        Alaska) and Hawaii.
            ``(2) Limitation on range.--In no case shall the old 
        Federal medical assistance percentage be less than 50 percent 
        or more than 83 percent.
            ``(3) Promulgation.--The old Federal medical assistance 
        percentage for any State shall be determined and promulgated in 
        accordance with the provisions of section 1101(a)(8)(B).
    ``(e) New Federal Medical Assistance Percentage Defined.--
            ``(1) In general.--
                    ``(A) Term defined.--Except as provided in 
                paragraph (3) and subsection (f), the term `new Federal 
                medical assistance percentage' means, for each of the 
                50 States and the District of Columbia, 100 percent 
                reduced by the product 0.39 and the ratio of--
                            ``(i)(I) for each of the 50 States, the 
                        total taxable resources (TTR) ratio of the 
                        State specified in subparagraph (B), or
                            ``(II) for the District of Columbia, the 
                        per capita income ratio specified in 
                        subparagraph (C),
                to--
                            ``(ii) the aggregate expenditure need ratio 
                        of the State or District, as described in 
                        subparagraph (D).
                    ``(B) Total taxable resources (ttr) ratio.--For 
                purposes of subparagraph (A)(i)(I), the total taxable 
                resources (TTR) ratio for each of the 50 States is--
                            ``(i) an amount equal to the most recent 3-
                        year average of the total taxable resources 
                        (TTR) of the State, as determined by the 
                        Secretary of the Treasury, divided by
                            ``(ii) an amount equal to the sum of the 3-
                        year averages determined under clause (i) for 
                        each of the 50 States.
                    ``(C) Per capita income ratio.--For purposes of 
                subparagraph (A)(i)(II), the per capita income ratio of 
                the District of Columbia is--
                            ``(i) an amount equal to the most recent 3-
                        year average of the total personal income of 
                        the District of Columbia, as determined in 
                        accordance with the provisions of section 
                        1101(a)(8)(B), divided by
                            ``(ii) an amount equal to the total 
                        personal income of the continental United 
                        States (including Alaska) and Hawaii, as 
                        determined under section 1101(a)(8)(B).
                    ``(D) Aggregate expenditure need ratio.--For 
                purposes of subparagraph (A), with respect to each of 
                the 50 States and the District of Columbia for a fiscal 
                year, the aggregate expenditure need ratio is--
                            ``(i) the State aggregate expenditure need 
                        (as defined in section 2121(d)) for the State 
                        for the fiscal year, divided by
                            ``(ii) the such of such State aggregate 
                        expenditure needs for the 50 States and the 
                        District of Columbia for the fiscal year.
            ``(2) Limitation on range.--Except as provided in 
        subsection (f), the new Federal medical assistance percentage 
        shall in no case be less than 40 percent or greater than 83 
        percent.
            ``(3) Promulgation.--The new Federal medical assistance 
        percentage for any State shall be promulgated in a timely 
        manner consistent with the promulgation of the old Federal 
        medical assistance percentage under section 1101(a)(8)(B).
    ``(f) Special Rules.--For purposes of this title--
            ``(1) Commonwealths and territories.--In the case of Puerto 
        Rico, the Virgin Islands, Guam, the Northern Mariana Islands, 
        and American Samoa, the old and new Federal medical assistance 
        percentages are 50 percent.
            ``(2) Indian health service facilities.--
                    ``(A) In general.--The old and new Federal medical 
                assistance percentages shall be 100 percent with 
                respect to the amounts expended as medical assistance 
                for services which are received through a facility 
                described in subparagraph (B) of an Indian tribe or 
                tribal organization or through an Indian Health Service 
                facility whether operated by the Indian Health Service 
                or by an Indian tribe or tribal organization (as 
                defined in section 4 of the Indian Health Care 
                Improvement Act).
                    Coburn: deg.``(B) Facility described.--For 
                purposes of subparagraph (A), a facility described in 
                this subparagraph is a facility of an Indian tribe if--
                            ``(i) the facility is located in a State 
                        which, as of the date of the enactment of this 
                        title, was not operating its State plan under 
                        title XIX pursuant to a Statewide waiver 
                        approved under section 1115,
                            ``(ii) the facility is not an Indian Health 
                        Service facility,
                            ``(iii) the tribe owns at least 2 such 
                        facilities, and
                            ``(iv) the tribe has at least 50,000 
                        members (as of the date of the enactment of 
                        this title).
            ``(3) No state matching required for certain 
        expenditures.--In applying subsection (a)(1) with respect to 
        medical assistance provided to unlawful aliens pursuant to the 
        exception specified in section 2123(e)(2), payment shall be 
        made for the amount of such assistance without regard to any 
        need for a State match.

``SEC. 2123. LIMITATION ON USE OF FUNDS; DISALLOWANCE.

    ``(a) In General.--Funds provided to a State under this title shall 
only be used to carry out the purposes of this title.
    ``(b) Disallowances for Excluded Providers.--
            ``(1) In general.--Payment shall not be made to a State 
        under this part for expenditures for items and services 
        furnished--
                    ``(A) by a provider who was excluded from 
                participation under title V, XVIII, or XX or under this 
                title pursuant to section 1128, 1128A, 1156, or 
                1842(j)(2), or
                    ``(B) under the medical direction or on the 
                prescription of a physician who was so excluded, if the 
                provider of the services knew or had reason to know of 
                the exclusion.
            ``(2) Exception for emergency services.--Paragraph (1) 
        shall not apply to emergency items or services, not including 
        hospital emergency room services.
    ``(c) Limitations.--
            ``(1) In general.--No Federal financial assistance is 
        available for expenditures under the MediGrant plan for--
                    ``(A) medically-related services for a quarter to 
                the extent such expenditures exceed 5 percent of the 
                total expenditures under the plan for the quarter; or
                    ``(B) total administrative expenses (other than 
                expenses described in paragraph (2) during the first 8 
                quarters in which the plan is in effect under this 
                title) for quarters in a fiscal year to the extent such 
                expenditures exceed the sum of $20,000,000 plus 10 
                percent of the total expenditures under the plan for 
                the year.
            ``(2) Administrative expenses not subject to limitation.--
        The administrative expenses referred to in this paragraph are 
        expenditures under the MediGrant plan for the following 
        activities:
                    ``(A) Quality assurance.
                    ``(B) The development and operation of the 
                certification program for nursing facilities and 
                intermediate care facilities for the mentally retarded 
                under section 2137(a)(2).
                    ``(C) Utilization review activities, including 
                medical activities and activities of peer review 
                organizations.
                    ``(D) Inspection and oversight of providers and 
                capitated health care organizations.
                    ``(E) Anti-fraud activities.
                    ``(F) Independent evaluations.
                    ``(G) Activities required to meet reporting 
                requirements under this title.
    ``(d) Treatment of Third Party Liability.--No payment shall be made 
to a State under this part for expenditures for medical assistance 
provided for an individual under its MediGrant plan to the extent that 
a private insurer (as defined by the Secretary by regulation and 
including a group health plan (as defined in section 607(1) of the 
Employee Retirement Income Security Act of 1974), a service benefit 
plan, and a health maintenance organization) would have been obligated 
to provide such assistance but for a provision of its insurance 
contract which has the effect of limiting or excluding such obligation 
because the individual is eligible for or is provided medical 
assistance under the plan.
    ``(e) Limitation on Payments to Emergency Services for Nonlawful 
Aliens.--
            ``(1) In general.--Notwithstanding the preceding provisions 
        of this section, except as provided in paragraph (2), no 
        payment may be made to a State under this part for medical 
        assistance furnished to an alien who is not lawfully admitted 
        for permanent residence or otherwise permanently residing in 
        the United States under color of law.
            ``(2) Exception for emergency services.--Payment may be 
        made under this section for care and services that are 
        furnished to an alien described in paragraph (1) only if--
                    ``(A) such care and services are necessary for the 
                treatment of an emergency medical condition of the 
                alien,
                    ``(B) such alien otherwise meets the eligibility 
                requirements for medical assistance under the MediGrant 
                plan (other than a requirement of the receipt of aid or 
                assistance under title IV, supplemental security income 
                benefits under title XVI, or a State supplementary 
                payment), and
                    ``(C) such care and services are not related to an 
                organ transplant procedure.
            ``(3) Emergency medical condition defined.--For purposes of 
        this subsection, the term `emergency medical condition' means a 
        medical condition (including emergency labor and delivery) 
        manifesting itself by acute symptoms of sufficient severity 
        (including severe pain) such that the absence of immediate 
        medical attention could reasonably be expected to result in--
                    ``(A) placing the patient's health in serious 
                jeopardy,
                    ``(B) serious impairment to bodily functions, or
                    ``(C) serious dysfunction of any bodily organ or 
                part.
    ``(f) Limitation on Payment for Certain Outpatient Prescription 
Drugs.--
            ``(1) In General.--No payment may be made to a State under 
        this part for medical assistance for covered outpatient drugs 
        (as defined in section 2175(i)(2)) of a manufacturer provided 
        under the MediGrant plan unless the manufacturer (as defined in 
        section 2175(i)(4)) of the drug--
                    ``(A) has entered into a MediGrant master rebate 
                agreement with the Secretary under section 2175; and
                    ``(B) is complying with the provisions of section 
                8126 of title 38, United States Code, including the 
                requirement of entering into a master agreement with 
                the Secretary of Veterans Affairs under such section.
            ``(2) Construction.--Nothing in this subsection shall be 
        construed as requiring a State to participate in the MediGrant 
        master rebate agreement under section 2175.
            ``(3) Effect of subsequent amendments.--For purposes of 
        paragraph (1)(B), in determining whether a manufacturer is in 
        compliance with the requirements of section 8126 of title 38, 
        United States Code--
                    ``(A) the Secretary shall not take into account any 
                amendments to such section that are enacted after the 
                enactment of title VI of the Veterans Health Care Act 
                of 1992; and
                    ``(B) a manufacturer is deemed to meet such 
                requirements if the manufacturer establishes to the 
                satisfaction of the Secretary that the manufacturer 
                would comply (and has offered to comply) with the 
                provisions of section 8126 of title 38, United States 
                Code (as in effect immediately after the enactment of 
                the Veterans Health Care Act of 1992) and would have 
                entered into an agreement under such section (as such 
                section was in effect at such time), but for a 
                legislative change in such section after the date of 
                the enactment of the Veterans Health Care Act of 1992.
    ``(g) Limitation on Payment for Abortions.--
            ``(1) In general.--Payment shall not be made to a State 
        under this part for any amount expended under the MediGrant 
        plan to pay for any abortion or to assist in the purchase, in 
        whole or in part, of health benefit coverage that includes 
        coverage of abortion.
            ``(2) Exception.--Paragraph (1) shall not apply to an 
        abortion--
                    ``(A) if the pregnancy is the result of an act of 
                rape or incest, or
                    ``(B) in the case where a woman suffers from a 
                physical disorder, illness, or injury that would, as 
                certified by a physician, place the woman in danger of 
                death unless an abortion is performed.
    ``(h) Limitation on Payment for Assisting Deaths.--Payment shall 
not be made to a State under this part for amounts expended under the 
MediGrant plan to pay for, or to assist in the purchase, in whole or in 
part, of health benefit coverage that includes payment for any drug, 
biological product, or service which was furnished for the purpose of 
causing, or assisting in causing, the death, suicide, euthanasia, or 
mercy killing of a person.

                ``Part D--Program Integrity and Quality

``SEC. 2131. USE OF AUDITS TO ACHIEVE FISCAL INTEGRITY.

    ``(a) Financial Audits of Program.--
            ``(1) In general.--Each MediGrant plan shall provide for an 
        annual audit of the State's expenditures from amounts received 
        under this title, in compliance with chapter 75 of title 31, 
        United States Code.
            ``(2) Verification audits.--If, after consultation with the 
        State and the Comptroller General and after a fair hearing, the 
        Secretary determines that a State's audit under paragraph (1) 
        was performed in substantial violation of chapter 75 of title 
        31, United States Code, the Secretary may--
                    ``(A) require that the State provide for a 
                verification audit in compliance with such chapter, or
                    ``(B) conduct such a verification audit.
            ``(3) Availability of audit reports.--Within 30 days after 
        completion of each audit or verification audit under this 
        subsection, the State shall--
                    ``(A) provide the Secretary with a copy of the 
                audit report, including the State's response to any 
                recommendations of the auditor, and
                    ``(B) make the audit report available for public 
                inspection in the same manner as proposed MediGrant 
                plan amendments are made available under section 2105.
    ``(b) Fiscal Controls.--
            ``(1) In general.--With respect to the accounting and 
        expenditure of funds under this title, each State shall adopt 
        and maintain such fiscal controls, accounting procedures, and 
        data processing safeguards as the State deems reasonably 
        necessary to assure the fiscal integrity of the State's 
        activities under this title.
            ``(2) Consistency with generally accepted accounting 
        principles.--Such controls and procedures shall be generally 
        consistent with generally accepted accounting principles as 
        recognized by the Governmental Accounting Standards Board or 
        the Comptroller General.
    ``(c) Audits of Providers.--Each MediGrant plan shall provide that 
the records of any entity providing items or services for which payment 
may be made under the plan may be audited as necessary to ensure that 
proper payments are made under the plan.

``SEC. 2132. FRAUD PREVENTION PROGRAM.

    ``(a) Establishment.--Each MediGrant plan shall provide for the 
establishment and maintenance of an effective program for the detection 
and prevention of fraud and abuse by beneficiaries, providers, and 
others in connection with the operation of the program.
    ``(b) Program Requirements.--The program established pursuant to 
subsection (a) shall include at least the following requirements:
            ``(1) Disclosure of information.--Any disclosing entity (as 
        defined in section 1124(a)) receiving payments under the 
        MediGrant plan shall comply with the requirements of section 
        1124.
            ``(2) Supply of information.--An entity (other than an 
        individual practitioner or a group of practitioners) that 
        furnishes, or arranges for the furnishing of, an item or 
        service under the MediGrant plan shall supply upon request 
        specifically addressed to the entity by the Secretary or the 
        State agency the information described in section 1128(b)(9).
            ``(3) Exclusion.--
                    ``(A) In general.--The MediGrant plan shall exclude 
                any specified individual or entity from participation 
                in the plan for the period specified by the Secretary 
                when required by the Secretary to do so pursuant to 
                section 1128 or section 1128A, and provide that no 
                payment may be made under the plan with respect to any 
                item or service furnished by such individual or entity 
                during such period.
                    ``(B) Authority.--In addition to any other 
                authority, a State may exclude any individual or entity 
                for purposes of participating under the MediGrant plan 
                for any reason for which the Secretary could exclude 
                the individual or entity from participation in a 
                program under title XVIII or under section 1128, 1128A, 
                or 1866(b)(2).
            ``(4) Notice.--The MediGrant plan shall provide that 
        whenever a provider of services or any other person is 
        terminated, suspended, or otherwise sanctioned or prohibited 
        from participating under the plan, the State agency responsible 
        for administering the plan shall promptly notify the Secretary 
        and, in the case of a physician, the State medical licensing 
        board of such action.
            ``(5) Access to information.--The MediGrant plan shall 
        provide that the State will provide information and access to 
        certain information respecting sanctions taken against health 
        care practitioners and providers by State licensing authorities 
        in accordance with section 2133.

``SEC. 2133. INFORMATION CONCERNING SANCTIONS TAKEN BY STATE LICENSING 
                    AUTHORITIES AGAINST HEALTH CARE PRACTITIONERS AND 
                    PROVIDERS.

    ``(a) Information Reporting Requirement.--The requirement referred 
to in section 2132(b)(5) is that the State must provide for the 
following:
            ``(1) Information reporting system.--The State must have in 
        effect a system of reporting the following information with 
        respect to formal proceedings (as defined by the Secretary in 
        regulations) concluded against a health care practitioner or 
        entity by any authority of the State (or of a political 
        subdivision thereof) responsible for the licensing of health 
        care practitioners (or any peer review organization or private 
        accreditation entity reviewing the services provided by health 
        care practitioners) or entities:
                    ``(A) Any adverse action taken by such licensing 
                authority as a result of the proceeding, including any 
                revocation or suspension of a license (and the length 
                of any such suspension), reprimand, censure, or 
                probation.
                    ``(B) Any dismissal or closure of the proceedings 
                by reason of the practitioner or entity surrendering 
                the license or leaving the State or jurisdiction.
                    ``(C) Any other loss of the license of the 
                practitioner or entity, whether by operation of law, 
                voluntary surrender, or otherwise.
                    ``(D) Any negative action or finding by such 
                authority, organization, or entity regarding the 
                practitioner or entity.
            ``(2) Access to documents.--The State must provide the 
        Secretary (or an entity designated by the Secretary) with 
        access to such documents of the authority described in 
        paragraph (1) as may be necessary for the Secretary to 
        determine the facts and circumstances concerning the actions 
        and determinations described in such paragraph for the purpose 
        of carrying out this Act.
    ``(b) Form of Information.--The information described in subsection 
(a)(1) shall be provided to the Secretary (or to an appropriate private 
or public agency, under suitable arrangements made by the Secretary 
with respect to receipt, storage, protection of confidentiality, and 
dissemination of information) in such a form and manner as the 
Secretary determines to be appropriate in order to provide for 
activities of the Secretary under this Act and in order to provide, 
directly or through suitable arrangements made by the Secretary, 
information--
            ``(1) to agencies administering Federal health care 
        programs, including private entities administering such 
        programs under contract,
            ``(2) to licensing authorities described in subsection 
        (a)(1),
            ``(3) to State agencies administering or supervising the 
        administration of State health care programs (as defined in 
        section 1128(h)),
            ``(4) to utilization and quality control peer review 
        organizations described in part B of title XI and to 
        appropriate entities with contracts under section 1154(a)(4)(C) 
        with respect to eligible organizations reviewed under the 
        contracts,
            ``(5) to State MediGrant fraud control units (as defined in 
        section 2134),
            ``(6) to hospitals and other health care entities (as 
        defined in section 431 of the Health Care Quality Improvement 
        Act of 1986), with respect to physicians or other licensed 
        health care practitioners that have entered (or may be 
        entering) into an employment or affiliation relationship with, 
        or have applied for clinical privileges or appointments to the 
        medical staff of, such hospitals or other health care entities 
        (and such information shall be deemed to be disclosed pursuant 
        to section 427 of, and be subject to the provisions of, that 
        Act),
            ``(7) to the Attorney General and such other law 
        enforcement officials as the Secretary deems appropriate, and
            ``(8) upon request, to the Comptroller General,
        in order for such authorities to determine the fitness of 
        individuals to provide health care services, to protect the 
        health and safety of individuals receiving health care through 
        such programs, and to protect the fiscal integrity of such 
        programs.
    ``(c) Confidentiality of Information Provided.--The Secretary shall 
provide for suitable safeguards for the confidentiality of the 
information furnished under subsection (a). Nothing in this subsection 
shall prevent the disclosure of such information by a party which is 
otherwise authorized, under applicable State law, to make such 
disclosure.
    ``(d) Appropriate Coordination.--The Secretary shall provide for 
the maximum appropriate coordination in the implementation of 
subsection (a) of this section and section 422 of the Health Care 
Quality Improvement Act of 1986.

``SEC. 2134. STATE MEDIGRANT FRAUD CONTROL UNITS.

    ``(a) In General.--Each MediGrant plan shall provide for a State 
MediGrant fraud control unit described in subsection (b) that 
effectively carries out the functions and requirements described in 
such subsection, unless the State demonstrates to the satisfaction of 
the Secretary that the effective operation of such a unit in the State 
would not be cost-effective because minimal fraud exists in connection 
with the provision of covered services to eligible individuals under 
the plan, and that beneficiaries under the plan will be protected from 
abuse and neglect in connection with the provision of medical 
assistance under the plan without the existence of such a unit
    ``(b) Units Described.--For purposes of this subsection, the term 
`State MediGrant fraud control unit' means a single identifiable entity 
of the State government which meets the following requirements:
            ``(1) Organization.--The entity--
                    ``(A) is a unit of the office of the State Attorney 
                General or of another department of State government 
                which possesses statewide authority to prosecute 
                individuals for criminal violations;
                    ``(B) is in a State the constitution of which does 
                not provide for the criminal prosecution of individuals 
                by a statewide authority and has formal procedures 
                that--
                            ``(i) assure its referral of suspected 
                        criminal violations relating to the program 
                        under this title to the appropriate authority 
                        or authorities in the State for prosecution, 
                        and
                            ``(ii) assure its assistance of, and 
                        coordination with, such authority or 
                        authorities in such prosecutions; or
                    ``(C) has a formal working relationship with the 
                office of the State Attorney General and has formal 
                procedures (including procedures for its referral of 
                suspected criminal violations to such office) which 
                provide effective coordination of activities between 
                the entity and such office with respect to the 
                detection, investigation, and prosecution of suspected 
                criminal violations relating to the program under this 
                title.
            ``(2) Independence.--The entity is separate and distinct 
        from any State agency that has principal responsibilities for 
        administering or supervising the administration of the 
        MediGrant plan.
            ``(3) Function.--The entity's function is conducting a 
        statewide program for the investigation and prosecution of 
        violations of all applicable State laws regarding any and all 
        aspects of fraud in connection with any aspect of the provision 
        of medical assistance and the activities of providers of such 
        assistance under the MediGrant plan.
            ``(4) Review of complaints.--The entity has procedures for 
        reviewing complaints of the abuse and neglect of patients of 
        health care facilities which receive payments under the 
        MediGrant plan under this title, and, where appropriate, for 
        acting upon such complaints under the criminal laws of the 
        State or for referring them to other State agencies for action.
            ``(5) Overpayments.--The entity provides for the 
        collection, or referral for collection to a single State 
        agency, of overpayments that are made under the MediGrant plan 
        to health care providers and that are discovered by the entity 
        in carrying out its activities.
            ``(6) Personnel.--The entity employs such auditors, 
        attorneys, investigators, and other necessary personnel and is 
        organized in such a manner as is necessary to promote the 
        effective and efficient conduct of the entity's activities.

``SEC. 2135. RECOVERIES FROM THIRD PARTIES AND OTHERS.

    ``(a) Third Party Liability.--Each MediGrant plan shall provide for 
reasonable steps--
            ``(1) to ascertain the legal liability of third parties to 
        pay for care and services available under the plan, including 
        the collection of sufficient information to enable States to 
        pursue claims against third parties; and
            ``(2) to seek reimbursement for medical assistance provided 
        to the extent legal liability is establish where the amount 
        expected to be recovered exceeds the costs of the recovery.
    ``(b) Beneficiary Protection.--
            ``(1) In general.--Each MediGrant plan shall provide that 
        in the case of a person furnishing services under the plan for 
        which a third party may be liable for payment--
                    ``(A) the person may not seek to collect from the 
                individual (or financially responsible relative) 
                payment of an amount for the service more than could be 
                collected under the plan in the absence of such third 
                party liability, and
                    ``(B) may not refuse to furnish services to such an 
                individual because of a third party's potential 
                liability for payment for the service.
            ``(2) Penalty.--A MediGrant plan may provide for a 
        reduction of any payment amount otherwise due with respect to a 
        person who furnishes services under the plan in an amount equal 
        to up to three times the amount of any payment sought to be 
        collected by that person in violation of paragraph (1)(A).
    ``(c) General Liability.--The State shall prohibit any health 
insurer (including a group health plan as defined in section 607 of the 
Employee Retirement Income Security Act of 1974, a service benefit 
plan, or a health maintenance organization), in enrolling an individual 
or in making any payments for benefits to the individual or on the 
individual's behalf, from taking into account that the individual is 
eligible for or is provided medical assistance under a MediGrant plan 
for any State.
    ``(d) Acquisition of Rights of Beneficiaries.--To the extent that 
payment has been made under a MediGrant plan in any case where a third 
party has a legal liability to make payment for such assistance, the 
State shall have in effect laws under which, to the extent that payment 
has been made under the plan for health care items or services 
furnished to an individual, the State is considered to have acquired 
the rights of such individual to payment by any other party for such 
health care items or services.
    ``(e) Assignment of Medical Support Rights.--The MediGrant plan 
shall provide for mandatory assignment of rights of payment for medical 
support and other medical care owed to recipients in accordance with 
section 2136.
    ``(f) Required Laws Relating to Medical Child Support.--
            ``(1) In general.-- Each State with a MediGrant plan shall 
        have in effect the following laws:
                    ``(A) A law that prohibits an insurer from denying 
                enrollment of a child under the health coverage of the 
                child's parent on the ground that--
                            ``(i) the child was born out of wedlock,
                            ``(ii) the child is not claimed as a 
                        dependent on the parent's Federal income tax 
                        return, or
                            ``(iii) the child does not reside with the 
                        parent or in the insurer's service area.
                    ``(B) In any case in which a parent is required by 
                a court or administrative order to provide health 
                coverage for a child and the parent is eligible for 
                family health coverage through an insurer, a law that 
                requires such insurer--
                            ``(i) to permit such parent to enroll under 
                        such family coverage any such child who is 
                        otherwise eligible for such coverage (without 
                        regard to any enrollment season restrictions);
                            ``(ii) if such a parent is enrolled but 
                        fails to make application to obtain coverage of 
                        such child, to enroll such child under such 
                        family coverage upon application by the child's 
                        other parent or by the State agency 
                        administering the program under this title or 
                        part D of title IV; and
                            ``(iii) not to disenroll (or eliminate 
                        coverage of) such a child unless the insurer is 
                        provided satisfactory written evidence that--
                                    ``(I) such court or administrative 
                                order is no longer in effect, or
                                    ``(II) the child is or will be 
                                enrolled in comparable health coverage 
                                through another insurer which will take 
                                effect not later than the effective 
                                date of such disenrollment.
                    ``(C) In any case in which a parent is required by 
                a court or administrative order to provide health 
                coverage for a child and the parent is eligible for 
                family health coverage through an employer doing 
                business in the State, a law that requires such 
                employer--
                            ``(i) to permit such parent to enroll under 
                        such family coverage any such child who is 
                        otherwise eligible for such coverage (without 
                        regard to any enrollment season restrictions);
                            ``(ii) if such a parent is enrolled but 
                        fails to make application to obtain coverage of 
                        such child, to enroll such child under such 
                        family coverage upon application by the child's 
                        other parent or by the State agency 
                        administering the program under this title or 
                        part D of title IV; and
                            ``(iii) not to disenroll (or eliminate 
                        coverage of) any such child unless--
                                    ``(I) the employer is provided 
                                satisfactory written evidence that such 
                                court or administrative order is no 
                                longer in effect, or the child is or 
                                will be enrolled in comparable health 
                                coverage which will take effect not 
                                later than the effective date of such 
                                disenrollment, or
                                    ``(II) the employer has eliminated 
                                family health coverage for all of its 
                                employees; and
                            ``(iv) to withhold from such employee's 
                        compensation the employee's share (if any) of 
                        premiums for health coverage (except that the 
                        amount so withheld may not exceed the maximum 
                        amount permitted to be withheld under section 
                        303(b) of the Consumer Credit Protection Act), 
                        and to pay such share of premiums to the 
                        insurer, except that the Secretary may provide 
                        by regulation for appropriate circumstances 
                        under which an employer may withhold less than 
                        such employee's share of such premiums.
                    ``(D) A law that prohibits an insurer from imposing 
                requirements on a State agency, which has been assigned 
                the rights of an individual eligible for medical 
                assistance under this title and covered for health 
                benefits from the insurer, that are different from 
                requirements applicable to an agent or assignee of any 
                other individual so covered.
                    ``(E) A law that requires an insurer, in any case 
                in which a child has health coverage through the 
                insurer of a noncustodial parent--
                            ``(i) to provide such information to the 
                        custodial parent as may be necessary for the 
                        child to obtain benefits through such coverage;
                            ``(ii) to permit the custodial parent (or 
                        provider, with the custodial parent's approval) 
                        to submit claims for covered services without 
                        the approval of the noncustodial parent; and
                            ``(iii) to make payment on claims submitted 
                        in accordance with clause (ii) directly to such 
                        custodial parent, the provider, or the State 
                        agency.
                    ``(F) A law that permits the State agency under 
                this title to garnish the wages, salary, or other 
                employment income of, and requires withholding amounts 
                from State tax refunds to, any person who--
                            ``(i) is required by court or 
                        administrative order to provide coverage of the 
                        costs of health services to a child who is 
                        eligible for medical assistance under this 
                        title,
                            ``(ii) has received payment from a third 
                        party for the costs of such services to such 
                        child, but
                            ``(iii) has not used such payments to 
                        reimburse, as appropriate, either the other 
                        parent or guardian of such child or the 
                        provider of such services,
                to the extent necessary to reimburse the State agency 
                for expenditures for such costs under its plan under 
                this title, but any claims for current or past-due 
                child support shall take priority over any such claims 
                for the costs of such services.
            ``(2) Definition.--For purposes of this subsection, the 
        term `insurer' includes a group health plan, as defined in 
        section 607(1) of the Employee Retirement Income Security Act 
        of 1974, a health maintenance organization, and an entity 
        offering a service benefit plan.
    ``(g) Estate Recoveries and Liens Permitted.--A State may take such 
actions as it considers appropriate to adjust or recover from the 
individual or the individual's estate any amounts paid as medical 
assistance to or on behalf of the individual under the MediGrant plan, 
including through the imposition of liens against the property or 
estate of the individual.

``SEC. 2136. ASSIGNMENT OF RIGHTS OF PAYMENT.

    ``(a) In General.--For the purpose of assisting in the collection 
of medical support payments and other payments for medical care owed to 
recipients of medical assistance under the MediGrant plan, each 
MediGrant plan shall--
            ``(1) provide that, as a condition of eligibility for 
        medical assistance under the plan to an individual who has the 
        legal capacity to execute an assignment for himself, the 
        individual is required--
                    ``(A) to assign the State any rights, of the 
                individual or of any other person who is eligible for 
                medical assistance under the plan and on whose behalf 
                the individual has the legal authority to execute an 
                assignment of such rights, to support (specified as 
                support for the purpose of medical care by a court or 
                administrative order) and to payment for medical care 
                from any third party,
                    ``(B) to cooperate with the State (i) in 
                establishing the paternity of such person (referred to 
                in subparagraph (A)) if the person is a child born out 
                of wedlock, and (ii) in obtaining support and payments 
                (described in subparagraph (A)) for himself and for 
                such person, unless (in either case) the individual is 
                pregnant woman or the individual is found to have good 
                cause for refusing to cooperate as determined by the 
                State, and
                    ``(C) to cooperate with the State in identifying, 
                and providing information to assist the State in 
                pursuing, any third party who may be liable to pay for 
                care and services available under the plan, unless such 
                individual has good cause for refusing to cooperate as 
                determined by the State; and
            ``(2) provide for entering into cooperative arrangements 
        (including financial arrangements), with any appropriate agency 
        of any State (including, with respect to the enforcement and 
        collection of rights of payment for medical care by or through 
        a parent, with a State's agency established or designated under 
        section 454(3)) and with appropriate courts and law enforcement 
        officials, to assist the agency or agencies administering the 
        plan with respect to--
                    ``(A) the enforcement and collection of rights to 
                support or payment assigned under this section, and
                    ``(B) any other matters of common concern.
    ``(b) Use of Amounts Collected.--Such part of any amount collected 
by the State under an assignment made under the provisions of this 
section shall be retained by the State as is necessary to reimburse it 
for medical assistance payments made on behalf of an individual with 
respect to whom such assignment was executed (with appropriate 
reimbursement of the Federal Government to the extent of its 
participation in the financing of such medical assistance), and the 
remainder of such amount collected shall be paid to such individual.

``SEC. 2137. QUALITY ASSURANCE STANDARDS FOR NURSING FACILITIES.

    ``(a) Standards for and Certification of Certain Facilities.--
            ``(1) Standards for facilities.--
                    ``(A) In general.--Each MediGrant plan shall 
                provide for the establishment and maintenance of 
                standards consistent with the contents described in 
                subparagraph (B) for nursing facilities which furnish 
                services under the plan.
                    ``(B) Contents of standards.--The standards 
                established for facilities under this paragraph shall 
                contain provisions relating to the following items:
                            ``(i) The treatment of resident medical 
                        records.
                            ``(ii) Policies, procedures, and bylaws for 
                        operation.
                            ``(iii) Quality assurance systems.
                            ``(iv) Resident assessment procedures, 
                        including care planning and outcome evaluation.
                            ``(vi) The assurance of a safe and adequate 
                        physical plant for the facility.
                            ``(vii) Qualifications for staff sufficient 
                        to provide adequate care, as defined by the 
                        State.
                            ``(viii) Utilization review.
                            ``(ix) The protection and enforcement of 
                        resident rights described in subparagraph (C).
                    ``(C) Resident rights described.--The resident 
                rights described in this subparagraph are the rights of 
                residents to the following:
                            ``(i) To exercise the individual's rights 
                        as a resident of the facility and as a citizen 
                        or resident of the United States.
                            ``(ii) To receive notice of rights and 
                        services.
                            ``(iii) To be protected against the misuse 
                        of resident funds.
                            ``(iv) To be provided privacy and 
                        confidentiality.
                            ``(v) To voice grievances.
                            ``(vi) To examine the results of State 
                        certification program inspections.
                            ``(vii) To refuse to perform services for 
                        the facility.
                            ``(viii) To be provided privacy in 
                        communications and to receive mail.
                            ``(ix) To have the facility provide 
                        immediate access to any resident by any 
                        representative of the certification program, 
                        the resident's individual physician, the State 
                        long term care ombudsman, and any person the 
                        resident has designated as a visitor.
                            ``(x) To retain and use personal property.
                            ``(xi) To be free from abuse, including 
                        verbal, sexual, physical and mental abuse, 
                        corporal punishment, and involuntary seclusion.
                            ``(xii) To be provided with prior written 
                        notice of a pending transfer or discharge.
                    ``(D) Process for establishment.--The standards 
                established by the State for facilities under this 
                paragraph shall be promulgated either through the 
                State's legislative, regulatory, or other process, and 
                may only take effect after the State has provided the 
                public with notice and an opportunity for comment.
            ``(2) Certification program.--
                    ``(A) In general.--Each MediGrant plan shall 
                provide for the establishment and operation of a 
                program consistent with the requirements of 
                subparagraph (B) for the certification of nursing 
                facilities which meet the standards established under 
                paragraph (1) and the decertification of facilities 
                which fail to meet such standards.
                    ``(B) Requirements for program.--In addition to any 
                other requirements the State may impose, in 
                establishing and operating the certification program 
                under subparagraph (A), the State shall ensure the 
                following:
                            ``(i) The State shall ensure public access 
                        (as defined by the State) to the certification 
                        program's evaluations of participating 
                        facilities, including compliance records and 
                        enforcement actions and other reports by the 
                        State regarding the ownership, compliance 
                        histories, and services provided by certified 
                        facilities.
                            ``(ii) Not less often than every 4 years, 
                        the State shall audit its expenditures under 
                        the program, through an entity designated by 
                        the State which is not affiliated with the 
                        program, as designated by the State.
    ``(b) Intermediate Sanction Authority.--
            ``(1) Authority.--In addition to any other authority under 
        State law, where a State determines that a nursing facility 
        which is certified for participation under the MediGrant plan 
        no longer substantially meets the requirements for such a 
        facility under this title and further determines that the 
        facility's deficiencies--
                    ``(A) immediately jeopardize the health and safety 
                of its residents, the State shall at least provide for 
                the termination of the facility's certification for 
                participation under the plan, or
                    ``(B) do not immediately jeopardize the health and 
                safety of its residents, the State may, in lieu of 
                providing for terminating the facility's certification 
                for participation under the plan, provide lesser 
                sanctions including one that provides that no payment 
                will be made under the plan with respect to any 
                individual admitted to such facility after a date 
                specified by the State.
            ``(2) Notice.--The State shall not make such a decision 
        with respect to a facility until the facility has had a 
        reasonable opportunity, following the initial determination 
        that it no longer substantially meets the requirements for such 
        a facility under the plan, to correct its deficiencies, and, 
        following this period, has been given reasonable notice and 
        opportunity for a hearing.
            ``(3) Effectiveness.--The State's decision to deny payment 
        may be made effective only after such notice to the public and 
        to the facility as may be provided for by the State, and its 
        effectiveness shall terminate (A) when the State finds that the 
        facility is in substantial compliance (or is making good faith 
        efforts to achieve substantial compliance) with the 
        requirements for such a facility under this title, or (B) in 
        the case described in paragraph (1)(B), with the end of the 
        eleventh month following the month such decision is made 
        effective, whichever occurs first. If a facility to which 
        clause (B) of the previous sentence applies still fails to 
        substantially meet the provisions of the respective section on 
        the date specified in such clause, the State shall terminate 
        such facility's certification for participation under the 
        MediGrant plan effective with the first day of the first month 
        following the month specified in such clause.

``SEC. 2138. OTHER PROVISIONS PROMOTING PROGRAM INTEGRITY.

    ``(a) Public Access to Survey Results.--Each MediGrant plan shall 
provide that upon completion of a survey of any health care facility or 
organization by a State agency to carry out the plan, the agency shall 
make public in readily available form and place the pertinent findings 
of the survey relating to the compliance of the facility or 
organization with requirements of law.
    ``(b) Record Keeping.--Each MediGrant plan shall provide for 
agreements with persons or institutions providing services under the 
plan under which the person or institution agrees--
            ``(1) to keep such records (including ledgers, books, and 
        original evidence of costs) as are necessary to fully 
         deg.disclose the extent of the services provided to 
        individuals receiving assistance under the plan; and
            ``(2) to furnish the State agency with such information 
        regarding any payments claimed by such person or institution 
        for providing services under the plan, as the State agency may 
        from time to time request.

        ``Part E--Establishment and Amendment of MediGrant Plans

``SEC. 2151. SUBMITTAL AND APPROVAL OF MEDIGRANT PLANS.

    ``(a) Submittal.--As a condition of receiving funding under part C, 
each State shall submit to the Secretary a MediGrant plan that meets 
the applicable requirements of this title.
    ``(b) Approval.--Except as the Secretary may provide under section 
2154, a MediGrant plan submitted under subsection (a)--
            ``(1) shall be approved for purposes of this title, and
            ``(2) shall be effective beginning with a calendar quarter 
        that is specified in the plan, but in no case earlier than the 
        first calendar quarter that begins at least 60 days after the 
        date the plan is submitted.
    ``(c) Approval of Legislature for Submittal.--In the case of a 
State which has a State allotment under section 2121(c)(1) for fiscal 
year 1996 of more than $10 billion, the State may not submit a 
MediGrant plan under this section unless the State legislature, by law, 
has specifically authorized such submittal.

``SEC. 2152. SUBMITTAL AND APPROVAL OF PLAN AMENDMENTS.

    ``(a) Submittal of Amendments.--A State may amend, in whole or in 
part, its MediGrant plan at any time through transmittal of a plan 
amendment under this section.
    ``(b) Approval.--Except as the Secretary may provide under section 
2154, an amendment to a MediGrant plan submitted under subsection (a)--
            ``(1) shall be approved for purposes of this title, and
            ``(2) shall be effective as provided in subsection (c).
    ``(c) Effective Dates for Amendments.--
            ``(1) In general.--Subject to the succeeding provisions of 
        this subsection, an amendment to MediGrant plan shall take 
        effect on one or more effective dates specified in the 
        amendment.
            ``(2) Amendments relating to eligibility or benefits.--
        Except as provided in paragraph (4)--
                    ``(A) Notice requirement.--Any plan amendment that 
                eliminates or restricts eligibility or benefits under 
                the plan may not take effect unless the State certifies 
                that it has provided prior or contemporaneous public 
                notice of the change, in a form and manner provided 
                under applicable State law.
                    ``(B) Timely transmittal.--Any plan amendment that 
                eliminates or restricts eligibility or benefits under 
                the plan shall not be effective for longer than a 60 
                day period unless the amendment has been transmitted to 
                the Secretary before the end of such period.
            ``(3) Other amendments.--Subject to paragraph (4), any plan 
        amendment that is not described in paragraph (2) becomes 
        effective in a State fiscal year may not remain in effect after 
        the end of such fiscal year (or, if later, the end of the 90-
        day period on which it becomes effective) unless the amendment 
        has been transmitted to the Secretary.
            ``(4) Exception.--The requirements of paragraphs (2) and 
        (3) shall not apply to a plan amendment that is submitted on a 
        timely basis pursuant to a court order or an order of the 
        Secretary.

``SEC. 2153. PROCESS FOR STATE WITHDRAWAL FROM PROGRAM.

    ``(a) In General.--A State may rescind its MediGrant plan and 
discontinue participation in the program under this title at any time 
after providing--
            ``(1) the public with 90 days prior notice in a publication 
        in one or more daily newspapers of general circulation in the 
        State or in any publication used by the State to publish State 
        statutes or rules, and
            ``(2) the Secretary with 90 days prior written notice.
    ``(b) Effective Date.--Such discontinuation shall not apply to 
payments under part C for expenditures made for items and services 
furnished under the MediGrant plan before the effective date of the 
discontinuation.
    ``(c) Proration of Allotments.--In the case of any withdrawal under 
this section other than at the end of a Federal fiscal year, 
notwithstanding any provision of section 2121 to the contrary, the 
Secretary shall provide for such appropriate proration of the 
application of allotments under section 2121 as is appropriate.

``SEC. 2154. SANCTIONS FOR SUBSTANTIAL NONCOMPLIANCE.

    ``(a) Prompt Review of Plan Submittals.--The Secretary shall 
promptly review MediGrant plans and plan amendments submitted under 
this part to determine if they substantially comply with the 
requirements of this title.
    ``(b) Determinations of Substantial Noncompliance.--
            ``(1) At time of plan or amendment submittal.--
                    ``(A) In general.--If the Secretary, during the 30-
                day period beginning on the date of submittal of a 
                MediGrant plan or plan amendment--
                            ``(i) determines that the plan or amendment 
                        substantially violates (within the meaning of 
                        subsection (c)) a requirement of this title, 
                        and
                            ``(ii) provides written notice of such 
                        determination to the State,
                the Secretary shall issue an order specifying that the 
                plan or amendment, insofar as it is in substantial 
                violation of such a requirement, shall not be 
                effective, except as provided in subsection (c), 
                beginning at the end of a period of not less than 30 
                days, or 120 days in the case of the initial submission 
                of the MediGrant plan) specified in the order beginning 
                on the date of the notice of the determination.
                    ``(B) Extension of time periods.--The time periods 
                specified in subparagraph (A) may be extended by 
                written agreement of the Secretary and the State 
                involved.
            ``(2) Violations in administration of plan.--
                    ``(A) In general.--If the Secretary determines, 
                after reasonable notice and opportunity for a hearing 
                for the State, that in the administration of a 
                MediGrant plan there is a substantial violation of a 
                requirement of this title, the Secretary shall provide 
                the State with written notice of the determination and 
                with an order to remedy such violation. Such an order 
                shall become effective prospectively, as specified in 
                the order, after the date of receipt of such written 
                notice. Such an order may include the withholding of 
                funds, consistent with subsection (f), for parts of the 
                MediGrant plan affected by such violation, until the 
                Secretary is satisfied that the violation has been 
                corrected.
                    ``(B) Effectiveness.--If the Secretary issues 
                an deg. order under paragraph (1), the order 
                shall become effective, except as provided in 
                subsection (c), beginning at the end of a period (of 
                not less than 30 days) specified in the order beginning 
                on the date of the notice of the determination to the 
                State.
                    ``(C) Timeliness of determinations relating to 
                report-based compliance.--The Secretary shall make 
                determinations under this paragraph respecting 
                violations relating to information contained in an 
                annual report under section 2102, an independent 
                evaluation under section 2103, or an audit report under 
                section 2131 not later than 30 days after the date of 
                transmittal of the report or evaluation to the 
                Secretary.
            ``(3) Consultation with state.--Before making a 
        determination adverse to a State under this section, the 
        Secretary shall (within any time periods provided under this 
        section)--
                    ``(A) reasonably consult with the State involved,
                    ``(B) offer the State a reasonable opportunity to 
                clarify the submission and submit further information 
                to substantiate compliance with the requirements of 
                this title, and
                    ``(C) reasonably consider any such clarifications 
                and information submitted.
            ``(4) Justification of any inconsistencies in 
        determinations.--If the Secretary makes a determination under 
        this section that is, in whole or in part, inconsistent with 
        any previous determination issued by the Secretary under this 
        title, the Secretary shall include in the determination a 
        detailed explanation and justification for any such difference.
            ``(5) Substantial violation defined.--For purposes of this 
        title, a MediGrant plan (or amendment to such a plan) or the 
        administration of the MediGrant plan is considered to 
        `substantially violate' a requirement of this title if a 
        provision of the plan or amendment (or an omission from the 
        plan or amendment) or the administration of the plan--
                    ``(A) is material and substantial in nature and 
                effect, and
                    ``(B) is inconsistent with an express requirement 
                of this title.
        A failure to meet a strategic objective or performance goal (as 
        described in section 2101) shall not be considered to 
        substantially violate a requirement of this title.
    ``(c) State Response to Orders.--
            ``(1) State response by revising plan.--
                    ``(A) In general.--Insofar as an order under 
                subsection (b)(1) relates to a substantial violation by 
                a MediGrant plan or plan amendment, a State may respond 
                (before the date the order becomes effective) to such 
                an order by submitting a written revision of the plan 
                or plan amendment to substantially comply with the 
                requirements of this part.
                    ``(B) Review of revision.--In the case of 
                submission of such a revision, the Secretary shall 
                promptly review the submission and shall withhold any 
                action on the order during the period of such review.
                    ``(C) Secretarial response.--The revision shall be 
                considered to have corrected the deficiency (and the 
                order rescinded insofar as it relates to such 
                deficiency) unless the Secretary determines and 
                notifies the State in writing, within 15 days after the 
                date the Secretary receives the revision, that the plan 
                or amendment, as proposed to be revised, still 
                substantially violates a requirement of this title. In 
                such case the State may respond by seeking 
                reconsideration or a hearing under paragraph (2).
                    ``(D) Revision retroactive.--If the revision 
                provides for substantial compliance, the revision may 
                be treated, at the option of the State, as being 
                effective either as of the effective date of the 
                provision to which it relates or such later date as the 
                State and Secretary may agree.
            ``(2) State response by seeking reconsideration or an 
        administrative hearing.--A State may respond to an order under 
        subsection (b) by filing a request with the Secretary for--
                    ``(A) a reconsideration of the determination, 
                pursuant to subsection (d)(1), or
                    ``(B) a review of the determination through an 
                administrative hearing, pursuant to subsection (d)(2).
        In such case, the order shall not take effect before the 
        completion of the reconsideration or hearing.
            ``(3) State response by corrective action plan.--
                    ``(A) In general.--In the case of an order 
                described in subsection (b)(2) that relates to a 
                substantial violation in the administration of the 
                MediGrant plan, a State may respond to such an order by 
                submitting a corrective action plan with the Secretary 
                to correct deficiencies in the administration of the 
                plan which are the subject of the order.
                    ``(B) Review of corrective action plan.--In such 
                case, the Secretary shall withhold any action on the 
                order for a period (not to exceed 30 days) during which 
                the Secretary reviews the corrective action plan.
                    ``(C) Secretarial response.--The corrective action 
                plan shall be considered to have corrected the 
                deficiency (and the order rescinded insofar as it 
                relates to such deficiency) unless the Secretary 
                determines and notifies the State in writing, within 15 
                days after the date the Secretary receives the 
                corrective action plan, that the State's administration 
                of the MediGrant plan, as proposed to be corrected in 
                the plan, will still substantially violate a 
                requirement of this title. In such case the State may 
                respond by seeking reconsideration or a hearing under 
                paragraph (2).
            ``(4) State response by withdrawal of plan amendment; 
        failure to respond.--Insofar as an order relates to a 
        substantial violation in a plan amendment submitted, a State 
        may respond to such an order by withdrawing the plan amendment 
        and the MediGrant plan shall be treated as though the amendment 
        had not been made.
    ``(d) Administrative Review and Hearing.--
            ``(1) Reconsideration.--Within 30 days after the date of 
        receipt of a request under subsection (b)(2)(A), the Secretary 
        shall notify the State of the time and place at which a hearing 
        will be held for the purpose of reconsidering the Secretary's 
        determination. The hearing shall be held not less than 20 days 
        nor more than 60 days after the date notice of the hearing is 
        furnished to the State, unless the Secretary and the State 
        agree in writing to holding the hearing at another time. The 
        Secretary shall affirm, modify, or reverse the original 
        determination within 60 days of the conclusion of the hearing.
            ``(2) Administrative hearing.--Within 30 days after the 
        date of receipt of a request under subsection (b)(2)(B), an 
        administrative law judge shall schedule a hearing for the 
        purpose of reviewing the Secretary's determination. The hearing 
        shall be held not less than 20 days nor more than 60 days after 
        the date notice of the hearing is furnished to the State, 
        unless the Secretary and the State agree in writing to holding 
        the hearing at another time. The administrative law judge shall 
        affirm, modify, or reverse the determination within 60 days of 
        the conclusion of the hearing.
    ``(e) Judicial Review.--
            ``(1) In general.--A State which is dissatisfied with a 
        final determination made by the Secretary under subsection 
        (d)(1) or a final determination of an administrative law judge 
        under subsection (d)(2) may, within 60 days after it has been 
        notified of such determination, file with the United States 
        court of appeals for the circuit in which the State is located 
        a petition for review of such determination. A copy of the 
        petition shall be forthwith transmitted by the clerk of the 
        court to the Secretary and, in the case of a determination 
        under subsection (d)(2), to the administrative law judge 
        involved. The Secretary (or judge involved) thereupon shall 
        file in the court the record of the proceedings on which the 
        final determination was based, as provided in section 2112 of 
        title 28, United States Code.
            ``(2) Standard for review.--The findings of fact by the 
        Secretary or administrative law judge, if supported by 
        substantial evidence, shall be conclusive, but the court, for 
        good cause shown, may remand the case to the Secretary or judge 
        to take further evidence, and the Secretary or judge may 
        thereupon make new or modified findings of fact and may modify 
        a previous determination, and shall certify to the court the 
        transcript and record of the further proceedings. Such new or 
        modified findings of fact shall likewise be conclusive if 
        supported by substantial evidence.
            ``(3) Jurisdiction of appellate court.--The court shall 
        have jurisdiction to affirm the action of the Secretary or 
        judge or to set it aside, in whole or in part. The judgment of 
        the court shall be subject to review by the Supreme Court of 
        the United States upon certiorari or certification as provided 
        in section 1254 of title 28, United States Code.
    ``(f) Withholding of Funds.--
            ``(1) In general.--Any order under this section relating 
        to deg. the withholding of funds shall be effective 
        not earlier than the effective date of the order and shall only 
        relate to the portions of a MediGrant plan or administration 
        thereof which substantially violate a requirement of this 
        title. In the case of a failure to meet a set-aside requirement 
        under section 2112, any withholding shall only apply to the 
        extent of such failure.
            ``(2) Suspension of withholding.--The Secretary may suspend 
        withholding of funds under paragraph (1) during the period 
        reconsideration or administrative and judicial review is 
        pending under subsection (d) or (e).
            ``(3) Restoration of funds.--Any funds withheld under this 
        subsection under an order shall be immediately restored to a 
        State--
                    ``(A) to the extent and at the time the order is--
                            ``(i) modified or withdrawn by the 
                        Secretary upon reconsideration,
                            ``(ii) modified or reversed by an 
                        administrative law judge, or
                            ``(iii) set aside (in whole or in part) by 
                        an appellate court; or
                    ``(B) when the Secretary determines that the 
                deficiency which was the basis for the order is 
                corrected;
                    ``(C) when the Secretary determines that violation 
                which was the basis for the order is resolved or the 
                amendment which was the basis for the order is 
                withdrawn; or
                    ``(D) at any time upon the initiative of the 
                Secretary.

``SEC. 2155. SECRETARIAL AUTHORITY.

    ``(a) Negotiated Agreement and Dispute Resolution.--
            ``(1) Negotiations.--Nothing in this part shall be 
        construed as preventing the Secretary and a State from at any 
        time negotiating a satisfactory resolution to any dispute 
        concerning the approval of a MediGrant plan (or amendments to a 
        MediGrant plan) or the compliance of a MediGrant plan 
        (including its administration) with requirements of this title.
            ``(2) Cooperation.--The Secretary shall act in a 
        cooperative manner with the States in carrying out this title. 
        In the event of a dispute between a State and the Secretary, 
        the Secretary shall, whenever practicable, engage in informal 
        dispute resolution activities in lieu of formal enforcement or 
        sanctions under section 2154.
    ``(b) Limitations on Delegation of Decision-making Authority.--The 
Secretary may not delegate (other than to the Administrator of the 
Health Care Financing Administration) the authority to make 
determinations or reconsiderations respecting the approval of MediGrant 
plans (or amendments to such plans) or the compliance of a MediGrant 
plan (including its administration) with requirements of this title. 
Such Administrator may not further delegate such authority to any 
individual, including any regional official of such Administration.
    ``(c) Requiring Formal Rulemaking for Changes in Secretarial 
Administration.--The Secretary shall carry out the administration of 
the program under this title only through a prospective formal 
rulemaking process, including issuing notices of proposed rule making, 
publishing proposed rules or modifications to rules in the Federal 
Register, and soliciting public comment.

                      ``Part F--General Provisions

``SEC. 2171. DEFINITIONS.

    ``(a) Medical Assistance.--
            ``(1) In general.--For purposes of this title, except as 
        provided in paragraph (2), the term `medical assistance' means 
        payment of part or all the cost of any of the following for 
        eligible low-income individuals (as defined in subsection (b)) 
        as specified under the MediGrant plan:
                    ``(A) Inpatient hospital services.
                    ``(B) Outpatient hospital services.
                    ``(C) Physician services.
                    ``(D) Surgical services.
                    ``(E) Clinic services and other ambulatory health 
                care services.
                    ``(F) Nursing facility services.
                    ``(G) Intermediate care facility services for the 
                mentally retarded.
                    ``(H) Prescription drugs and biologicals.
                    ``(I) Over-the-counter medications.
                    ``(J) Laboratory and radiological services.
                    ``(K) Family planning services and supplies.
                    ``(L) Inpatient mental health services, including 
                services furnished in a State-operated mental hospital 
                tech deg.and including residential or other 
                24-hour therapeutically planned structured services in 
                the case of a child.
                    ``(M) Outpatient mental health services, including 
                services furnished in a State-operated mental hospital 
                and including community-based services in the case of a 
                child.
                    ``(N) Durable medical equipment and other 
                medically-related or remedial devices (such as 
                prosthetic devices, implants, eyeglasses, hearing aids, 
                dental devices, and adaptive devices).
                    ``(O) Disposable medical supplies.
                    ``(P) Home and community-based health care services 
                and related supportive services (such as home health 
                nursing services, home health aide services, personal 
                care, assistance with activities of daily living, chore 
                services, day care services, respite care services, and 
                training for family members).
                    ``(Q) Community supported living arrangements.
                    ``(R) Nursing care services (such as private duty 
                nursing care, nurse midwife services, respiratory care 
                services, pediatric nurse services, and advanced 
                practice nurse services) in a home, school, or other 
                setting.
                    ``(S) Dental services.
                    ``(T) Inpatient substance abuse treatment services 
                and residential substance abuse treatment services.
                    ``(U) Outpatient substance abuse treatment 
                services.
                    ``(V) Case management services.
                    ``(W) Care coordination services.
                    tech deg.``(X) Physical therapy, 
                occupational therapy, and services for individuals with 
                speech, hearing, and language disorders.
                    ``(Y) Hospice care.
                    ``(Z) Any other medical, diagnostic, screening, 
                preventive, restorative, remedial, therapeutic, or 
                rehabilitative services (whether in a facility, home, 
                school, or other setting) if recognized by State law 
                and if the service is--
                            ``(i) prescribed by or furnished by a 
                        physician or other licensed or registered 
                        practitioner within the scope of practice as 
                        defined by State law,
                            ``(ii) performed under the general 
                        supervision or at the direction of a physician, 
                        or
                            ``(iii) furnished by a health care facility 
                        that is operated by a State or local government 
                        or is licensed under State law and operating 
                        within the scope of the license.
                    ``(AA) Premiums for private health care insurance 
                coverage, including private long-term care insurance 
                coverage.
                    ``(BB) Medical transportation.
                    ``(CC) Medicare cost-sharing (as defined in 
                subsection (c)).
                    ``(DD) Enabling services (such as transportation, 
                translation, and outreach services) designed to 
                increase the accessibility of primary and preventive 
                health care services for eligible low-income 
                individuals.
                    ``(EE) Any other health care services or items 
                specified by the Secretary.
            ``(2) Exclusion of certain payments.--Such term does not 
        include the payment with respect to care or services for--
                    ``(A) any individual who is an inmate of a public 
                institution (except as a patient in a State psychiatric 
                hospital); and
                    ``(B) any individual who is not an eligible low-
                income individual.
    ``(b) Eligible Low-Income Individual.--The term `eligible low-
income individual' means an individual tech deg.who has been 
determined eligible by the State for medical assistance under the 
MediGrant plan and whose family income (as determined under the plan) 
does not exceed a percentage (specified in the MediGrant plan and not 
to exceed 300 percent) of the poverty line for a family of the size 
involved. In determining the amount of income under the previous 
sentence, a State may exclude costs incurred for medical care or other 
types of remedial care recognized by the State.
    ``(c) Medicare Cost-Sharing.--For purposes of this title, the term 
`medicare cost-sharing' means any of the following:
            ``(1)(A) Premiums under section 1839.
            ``(B) Premiums under section 1818 or 1818A.
            ``(2) Coinsurance under title XVIII (including coinsurance 
        described in section 1813).
            ``(3) Deductibles established under title XVIII (including 
        those described in section 1813 and section 1833(b)).
            ``(4) The difference between the amount that is paid under 
        section 1833(a) and the amount that would be paid under such 
        section if any reference to `80 percent' therein were deemed a 
        reference to `100 percent'.
            ``(5) Premiums for enrollment of an individual with an 
        eligible organization under section 1876 or with a MedicarePlus 
        organization under part C of title XVIII.
    ``(d) Additional Definitions.--For purposes of this title:
            ``(1) Child.--The term `child' means an individual under 19 
        years of age.
            ``(2) Poverty line defined.--The term `poverty line' means 
        the income official poverty line (as defined by the Office of 
        Management and Budget and revised annually in accordance with 
        section 673(2) of the Omnibus Budget Reconciliation Act of 
        1981).
            ``(3) Pregnant woman.--The term `pregnant woman' includes a 
        woman during the 60-day period beginning on the last day of the 
        pregnancy.

``SEC. 2172. TREATMENT OF TERRITORIES.

    ``Notwithstanding any other requirement of this title, the 
Secretary may waive or modify any requirement of this title with 
respect to the medical assistance program a State other than the 50 
States and the District of Columbia, other than a waiver of--
            ``(1) the applicable Federal medical assistance percentage,
            ``(2) the limitation on total payments in a fiscal year to 
        the amount of the allotment under section 2121(c), or
            ``(3) the requirement that payment may be made for medical 
        assistance only with respect to amounts expended by the State 
        for care and services described in paragraph (1) of section 
        2171(a) and medically-related services (as defined in section 
        2112(e)(2)).

``SEC. 2173. DESCRIPTION OF TREATMENT OF INDIAN HEALTH SERVICE 
                    FACILITIES.

    ``In the case of a State in which one or more facilities of the 
Indian Health Service are located, the MediGrant plan shall include a 
description of--
            ``(1) what provision (if any) has been made for payment for 
        items and services furnished by such facilities, and
            ``(2) the manner in which medical assistance for low-income 
        eligible individuals who are Indians will be provided, as 
        determined by the State in consultation with the appropriate 
        Indian tribes and tribal organizations.

``SEC. 2174. APPLICATION OF CERTAIN GENERAL PROVISIONS.

    ``The following sections in part A of title XI shall apply to 
States under this title in the same manner as they applied to a State 
under title XIX:
            ``(1) Section 1101(a)(1) (relating to definition of State).
            ``(2) Section 1116 (relating to administrative and judicial 
        review), but only insofar as consistent with the provisions of 
        part C.
            ``(3) Section 1124 (relating to disclosure of ownership and 
        related information).
            ``(4) Section 1126 (relating to disclosure of information 
        about certain convicted individuals).
            ``(5) Section 1132 (relating to periods within which claims 
        must be filed).

``SEC. 2175. MEDIGRANT MASTER DRUG REBATE AGREEMENTS.

    ``(a) Requirement for Manufacturer to Enter Into Agreement.--
            ``(1) In general.--Pursuant to section 2123(f), in order 
        for payment to be made to a State under part C for medical 
        assistance for covered outpatient drugs of a manufacturer, the 
        manufacturer shall enter into and have in effect an MediGrant 
        master rebate agreement described in subsection (b) with the 
        Secretary on behalf of States electing to participate in the 
        agreement.
            ``(2) State participation in master agreement optional.--
        Nothing in this section shall be construed to--
                    ``(A) require a State to participate in an 
                MediGrant master rebate agreement under this section; 
                or
                    ``(B) prohibit a State from entering into an 
                agreement with a manufacturer of covered outpatient 
                drugs (under such terms as the State and manufacturer 
                may agree upon) regarding the amount of payment for 
                such drugs under the MediGrant plan.
            ``(3) Coverage of drugs not covered under rebate 
        agreements.--Nothing in this section shall be construed to 
        prohibit a State in its discretion from providing coverage 
        under its MediGrant plan of a covered outpatient drug for which 
        no rebate agreement is in effect under this section.
            ``(4) Effect on existing agreements.--If a State has a 
        rebate agreement in effect with a manufacturer on the date of 
        the enactment of this section which provides for a minimum 
        aggregate rebate equal to or greater than the minimum aggregate 
        rebate which would otherwise be paid under the MediGrant master 
        agreement under this section, at the option of the State--
                    ``(A) such agreement shall be considered to meet 
                the requirements of the MediGrant master rebate 
                agreement; and
                    ``(B) the State shall be considered to have elected 
                to participate in the MediGrant master rebate 
                agreement.
    ``(b) Terms of Rebate Agreement.--
            ``(1) Periodic rebates.--The MediGrant master rebate 
        agreement under this section shall require the manufacturer to 
        provide, to the MediGrant plan of each State participating in 
        the agreement, a rebate for a rebate period in an amount 
        specified in subsection (c) for covered outpatient drugs of the 
        manufacturer dispensed after the effective date of the 
        agreement, for which payment was made under the plan for such 
        period. Such rebate shall be paid by the manufacturer not later 
        than 30 days after the date of receipt of the information 
        described in paragraph (2) for the period involved.
            ``(2) State provision of information.--
                    ``(A) State responsibility.--Each State 
                participating in the MediGrant master rebate agreement 
                shall report to each manufacturer not later than 60 
                days after the end of each rebate period and in a form 
                consistent with a standard reporting format established 
                by the Secretary, information on the total number of 
                units of each dosage form and strength and package size 
                of each covered outpatient drug, for which payment was 
                made under the MediGrant plan for the period, and shall 
                promptly transmit a copy of such report to the 
                Secretary.
                    ``(B) Audits.--A manufacturer may audit the 
                information provided (or required to be provided) under 
                subparagraph (A). Adjustments to rebates shall be made 
                to the extent that information indicates that 
                utilization was greater or less than the amount 
                previously specified.
            ``(3) Manufacturer provision of price information.--
                    ``(A) In general.--Each manufacturer which is 
                subject to the MediGrant master rebate agreement under 
                this section shall report to the Secretary--
                            ``(i) not later than 30 days after the last 
                        day of each rebate period under the agreement 
                        (beginning on or after January 1, 1991), on the 
                        average manufacturer price (as defined in 
                        subsection (i)(1)) and, for single source drugs 
                        and innovator multiple source drugs, the 
                        manufacturer's best price (as defined in 
                        subsection (c)(1)(C)) for each covered 
                        outpatient drug for the rebate period under the 
                        agreement, and
                            ``(ii) not later than 30 days after the 
                        date of entering into an agreement under this 
                        section, on the average manufacturer price (as 
                        defined in subsection (i)(1)) as of October 1, 
                        1990, for each of the manufacturer's covered 
                        outpatient drugs.
                    ``(B) Verification surveys of average manufacturer 
                price.--The Secretary may survey wholesalers and 
                manufacturers that directly distribute their covered 
                outpatient drugs, when necessary, to verify 
                manufacturer prices reported under subparagraph (A). 
                The Secretary may impose a civil monetary penalty in an 
                amount not to exceed $10,000 on a wholesaler, 
                manufacturer, or direct seller, if the wholesaler, 
                manufacturer, or direct seller of a covered outpatient 
                drug refuses a request for information by the Secretary 
                in connection with a survey under this subparagraph. 
                The provisions of section 1128A (other than subsections 
                (a) (with respect to amounts of penalties or additional 
                assessments) and (b)) shall apply to a civil money 
                penalty under this subparagraph in the same manner as 
                such provisions apply to a penalty or proceeding under 
                section 1128A(a).
                    ``(C) Penalties.--
                            ``(i) Failure to provide timely 
                        information.--In the case of a manufacturer 
                        which is subject to the MediGrant master rebate 
                        agreement that fails to provide information 
                        required under subparagraph (A) on a timely 
                        basis, the amount of the penalty shall be 
                        $10,000 for each day in which such information 
                        has not been provided and such amount shall be 
                        paid to the Treasury. If such information is 
                        not reported within 90 days of the deadline 
                        imposed, the agreement shall be suspended for 
                        services furnished after the end of such 90-day 
                        period and until the date such information is 
                        reported (but in no case shall such suspension 
                        be for a period of less than 30 days).
                            ``(ii) False information.--Any manufacturer 
                        which is subject to the MediGrant master rebate 
                        agreement, or a wholesaler or direct seller, 
                        that knowingly provides false information under 
                        subparagraph (A) or (B) is subject to a civil 
                        money penalty in an amount not to exceed 
                        $100,000 for each item of false information. 
                        Any such civil money penalty shall be in 
                        addition to other penalties as may be 
                        prescribed by law. The provisions of section 
                        1128A (other than subsections (a) and (b)) 
                        shall apply to a civil money penalty under this 
                        subparagraph in the same manner as such 
                        provisions apply to a penalty or proceeding 
                        under section 1128A(a).
                    ``(D) Confidentiality of information.--
                Notwithstanding any other provision of law, information 
                disclosed by manufacturers or wholesalers under this 
                paragraph or under an agreement with the Secretary of 
                Veterans Affairs described in section 2123(f) is 
                confidential and shall not be disclosed by the 
                Secretary or the Secretary of Veterans Affairs or a 
                State agency (or contractor therewith) in a form which 
                discloses the identity of a specific manufacturer or 
                wholesaler or the prices charged for drugs by such 
                manufacturer or wholesaler, except--
                            ``(i) as the Secretary determines to be 
                        necessary to carry out this section,
                            ``(ii) to permit the Comptroller General to 
                        review the information provided, and
                            ``(iii) to permit the Director of the 
                        Congressional Budget Office to review the 
                        information provided.
            ``(4) Length of agreement.--
                    ``(A) In general.--The MediGrant master rebate 
                agreement under this section shall be effective for an 
                initial period of not less than 1 year and shall be 
                automatically renewed for a period of not less than one 
                year unless terminated under subparagraph (B).
                    ``(B) Termination.--
                            ``(i) By the secretary.--The Secretary may 
                        provide for termination of the MediGrant master 
                        rebate agreement with respect to a manufacturer 
                        for violation of the requirements of the 
                        agreement or other good cause shown. Such 
                        termination shall not be effective earlier than 
                        60 days after the date of notice of such 
                        termination. The Secretary shall provide, upon 
                        request, a manufacturer with a hearing 
                        concerning such a termination, but such hearing 
                        shall not delay the effective date of the 
                        termination. Failure of a State to provide any 
                        advance notice of such a termination as 
                        required by regulation shall not affect the 
                        State's right to terminate coverage of the 
                        drugs affected by such termination as of the 
                        effective date of such termination.
                            ``(ii) By a manufacturer.--A manufacturer 
                        may terminate its participation in the 
                        MediGrant master rebate agreement under this 
                        section for any reason. Any such termination 
                        shall not be effective until the calendar 
                        quarter beginning at least 60 days after the 
                        date the manufacturer provides notice to the 
                        Secretary.
                            ``(iii) Effectiveness of termination.--Any 
                        termination under this subparagraph shall not 
                        affect rebates due under the agreement before 
                        the effective date of its termination.
                            ``(iv) Notice to states.--In the case of a 
                        termination under this subparagraph, the 
                        Secretary shall provide notice of such 
                        termination to the States within not less than 
                        30 days before the effective date of such 
                        termination.
                            ``(v) Application to terminations of other 
                        agreements.--The provisions of this 
                        subparagraph shall apply to the terminations of 
                        master agreements described in section 8126(a) 
                        of title 38, United States Code.
                    ``(C) Delay before reentry.--In the case of any 
                rebate agreement with a manufacturer under this section 
                which is terminated, another such agreement with the 
                manufacturer (or a successor manufacturer) may not be 
                entered into until a period of 1 calendar quarter has 
                elapsed since the date of the termination, unless the 
                Secretary finds good cause for an earlier reinstatement 
                of such an agreement.
    ``(c) Determination of Amount of Rebate.--
            ``(1) Basic rebate for single source drugs and innovator 
        multiple source drugs.--
                    ``(A) In general.--Except as provided in paragraph 
                (2), the amount of the rebate specified in this 
                subsection with respect to a State participating in the 
                MediGrant master rebate agreement for a rebate period 
                (as defined in subsection (i)(8)) with respect to each 
                dosage form and strength of a single source drug or an 
                innovator multiple source drug shall be equal to the 
                product of--
                            ``(i) the total number of units of each 
                        dosage form and strength paid for under the 
                        State plan in the rebate period (as reported by 
                        the State); and
                            ``(ii) the greater of--
                                    ``(I) the difference between the 
                                average manufacturer price and the best 
                                price (as defined in subparagraph (C)) 
                                for the dosage form and strength of the 
                                drug, or
                                    ``(II) the minimum rebate 
                                percentage (specified in subparagraph 
                                (B)) of such average manufacturer 
                                price,
                        for the rebate period.
                    ``(B) Minimum rebate percentage.--For purposes of 
                subparagraph (A)(ii)(II), the `minimum rebate 
                percentage' is 15.1 percent.
                    ``(C) Best price defined.--For purposes of this 
                section--
                            ``(i) In general.--The term `best price' 
                        means, with respect to a single source drug or 
                        innovator multiple source drug of a 
                        manufacturer, the lowest price available from 
                        the manufacturer during the rebate period to 
                        any wholesaler, retailer, provider, health 
                        maintenance organization, nonprofit entity, or 
                        governmental entity within the United States, 
                        excluding--
                                    ``(I) any prices charged on or 
                                after October 1, 1992, to the Indian 
                                Health Service, the Department of 
                                Veterans Affairs, a State home 
                                receiving funds under section 1741 of 
                                title 38, United States Code, the 
                                Department of Defense, the Public 
                                Health Service, or a covered entity 
                                described in section 340B(a)(4) of the 
                                Public Health Service Act;
                                    ``(II) any prices charged under the 
                                Federal Supply Schedule of the General 
                                Services Administration;
                                    ``(III) any prices used under a 
                                State pharmaceutical assistance 
                                program; and
                                    ``(IV) any depot prices and single 
                                award contract prices, as defined by 
                                the Secretary, of any agency of the 
                                Federal Government.
                            ``(ii) Special rules.--The term `best 
                        price'--
                                    ``(I) shall be inclusive of cash 
                                discounts, free goods that are 
                                contingent on any purchase requirement, 
                                volume discounts, and rebates (other 
                                than rebates under this section);
                                    ``(II) shall be determined without 
                                regard to special packaging, labeling, 
                                or identifiers on the dosage form or 
                                product or package;
                                    ``(III) shall not take into account 
                                prices that are merely nominal in 
                                amount; and
                                    ``(IV) shall exclude rebates paid 
                                under this section tech deg.or 
                                any other rebates paid to a State 
                                participating in the MediGrant master 
                                rebate agreement.
            ``(2) Additional rebate for single source and innovator 
        multiple source drugs.--
                    ``(A) In general.--The amount of the rebate 
                specified in this subsection with respect to a State 
                participating in the MediGrant master rebate agreement 
                for a rebate period, with respect to each dosage form 
                and strength of a single source drug or an innovator 
                multiple source drug, shall be increased by an amount 
                equal to the product of--
                            ``(i) the total number of units of such 
                        dosage form and strength dispensed after 
                        December 31, 1990, for which payment was made 
                        under the MediGrant plan for the rebate period; 
                        and
                            ``(ii) the amount (if any) by which--
                                    ``(I) the average manufacturer 
                                price for the dosage form and strength 
                                of the drug for the period, exceeds
                                    ``(II) the average manufacturer 
                                price for such dosage form and strength 
                                for the calendar quarter beginning July 
                                1, 1990 (without regard to whether or 
                                not the drug has been sold or 
                                transferred to an entity, including a 
                                division or subsidiary of the 
                                manufacturer, after the first day of 
                                such quarter), increased by the 
                                percentage by which the consumer price 
                                index for all urban consumers (United 
                                States city average) for the month 
                                before the month in which the rebate 
                                period begins exceeds such index for 
                                September 1990.
                    ``(B) Treatment of subsequently approved drugs.--In 
                the case of a covered outpatient drug approved by the 
                Food and Drug Administration after October 1, 1990, 
                clause (ii)(II) of subparagraph (A) shall be applied by 
                substituting `the first full calendar quarter after the 
                day on which the drug was first marketed' for `the 
                calendar quarter beginning July 1, 1990' and `the month 
                prior to the first month of the first full calendar 
                quarter after the day on which the drug was first 
                marketed' for `September 1990'.
            ``(3) Rebate for other drugs.--
                    ``(A) In general.--The amount of the rebate paid to 
                a State participating in the MediGrant master rebate 
                agreement for a rebate period with respect to each 
                dosage form and strength of covered outpatient drugs 
                (other than single source drugs and innovator multiple 
                source drugs) shall be equal to the product of--
                            ``(i) the applicable percentage (as 
                        described in subparagraph (B)) of the average 
                        manufacturer price for the dosage form and 
                        strength for the rebate period, and
                            ``(ii) the total number of units of such 
                        dosage form and strength dispensed after 
                        December 31, 1990, for which payment was made 
                        under the MediGrant plan for the rebate period.
                    ``(B) Applicable percentage defined.--For purposes 
                of subparagraph (A)(i), the `applicable percentage' is 
                11 percent.
            ``(4) Limitation on amount of rebate to amounts paid for 
        certain drugs.--Upon request of a manufacturer of a covered 
        outpatient drug for which a majority of the estimated number of 
        units of such dosage form and strength that are subject to 
        rebates under this section were dispensed to inpatients of 
        nursing facilities tech deg.(including drugs which are 
        exempt from the requirements of the MediGrant master rebate 
        agreement under this section under subsection (h)(1)(B)), the 
        Secretary shall limit the amount of the rebate under this 
        subsection with respect to a dosage form and strength of the 
        drug for a rebate period to the amount paid under the MediGrant 
        plan with respect to such dosage form and strength of the drug 
        in the rebate period (without consideration of any dispensing 
        fees paid).
    ``(d) Limitations on Coverage of Drugs by States Participating in 
Master Agreement.--
            ``(1) Permissible restrictions.--A State participating in 
        the MediGrant master rebate agreement under this section may--
                    ``(A) subject to prior authorization under its 
                MediGrant plan any covered outpatient drug so long as 
                any such prior authorization program complies with the 
                requirements of paragraph (5); and
                    ``(B) exclude or otherwise restrict coverage under 
                its plan of a covered outpatient drug if--
                            ``(i) the prescribed use is not for a 
                        medically accepted indication (as defined in 
                        subsection (i)(5));
                            ``(ii) the drug is contained in the list 
                        referred to in paragraph (2);
                            ``(iii) the drug is subject to such 
                        restrictions pursuant to the MediGrant master 
                        rebate agreement tech deg.or any 
                        agreement described in subsection (a)(4); or
                            ``(iv) the State has excluded coverage of 
                        the drug from its formulary established in 
                        accordance with paragraph (4).
            ``(2) List of drugs subject to restriction.--The following 
        drugs or classes of drugs, or their medical uses, may be 
        excluded from coverage or otherwise restricted by a State 
        participating in the MediGrant master rebate agreement:
                    ``(A) Agents when used for anorexia, weight loss, 
                or weight gain.
                    ``(B) Agents when used to promote fertility.
                    ``(C) Agents when used for cosmetic purposes or 
                hair growth.
                    ``(D) Agents when used for the symptomatic relief 
                of cough and colds.
                    ``(E) Agents when used to promote smoking 
                cessation.
                    ``(F) Prescription vitamins and mineral products, 
                except prenatal vitamins and fluoride preparations.
                    ``(G) Nonprescription drugs.
                    ``(H) Covered outpatient drugs which the 
                manufacturer seeks to require as a condition of sale 
                that associated tests or monitoring services be 
                purchased exclusively from the manufacturer or its 
                designee.
                    ``(I) Barbiturates.
                    ``(J) Benzodiazepines.
            ``(3) Additions to drug listings.--The Secretary shall, by 
        regulation, periodically update the list of drugs or classes of 
        drugs described in paragraph (2), or their medical uses, which 
        the Secretary has determined to be subject to clinical abuse or 
        inappropriate use.
            ``(4) Requirements for formularies.--A State participating 
        in the MediGrant master rebate agreement may establish a 
        formulary if the formulary meets the following requirements:
                    ``(A) The formulary is developed by a committee 
                consisting of physicians, pharmacists, and other 
                appropriate individuals appointed by the Governor of 
                the State.
                    ``(B) Except as provided in subparagraph (C), the 
                formulary includes the covered outpatient drugs of any 
                manufacturer which has entered into and complies with 
                the agreement under subsection (a) (other than any drug 
                excluded from coverage or otherwise restricted under 
                paragraph (2)).
                    ``(C) A covered outpatient drug may be excluded 
                with respect to the treatment of a specific disease or 
                condition for an identified population (if any) only 
                if, based on the drug's labeling (or, in the case of a 
                drug the prescribed use of which is not approved under 
                the Federal Food, Drug, and Cosmetic Act but is a 
                medically accepted indication, based on information 
                from the appropriate compendia described in subsection 
                (i)(5)), the excluded drug does not have a significant, 
                clinically meaningful therapeutic advantage in terms of 
                safety, effectiveness, or clinical outcome of such 
                treatment for such population over other drugs included 
                in the formulary and there is a written explanation 
                (available to the public) of the basis for the 
                exclusion.
                    ``(D) The State plan permits coverage of a drug 
                excluded from the formulary (other than any drug 
                excluded from coverage or otherwise restricted under 
                paragraph (2)) pursuant to a prior authorization 
                program that is consistent with paragraph (5).
                    ``(E) The formulary meets such other requirements 
                as the Secretary may impose in order to achieve program 
                savings consistent with protecting the health of 
                program beneficiaries.
        A prior authorization program established by a State under 
        paragraph (5) is not a formulary subject to the requirements of 
        this paragraph.
            ``(5) Requirements of prior authorization programs.--The 
        MediGrant plan of a State participating in the MediGrant master 
        rebate agreement may require, as a condition of coverage or 
        payment for a covered outpatient drug for which Federal 
        financial participation is available in accordance with this 
        section the approval of the drug before its dispensing for any 
        medically accepted indication (as defined in subsection (i)(5)) 
        only if the system providing for such approval--
                    ``(A) provides response by telephone or other 
                telecommunication device within 24 hours of a request 
                for prior authorization; and
                    ``(B) except with respect to the drugs on the list 
                referred to in paragraph (2), provides for the 
                dispensing of at least 72-hour supply of a covered 
                outpatient prescription drug in an emergency situation 
                (as defined by the Secretary).
            ``(6) Other permissible restrictions.--A State 
        participating in the MediGrant master rebate agreement may 
        impose limitations, with respect to all such drugs in a 
        therapeutic class, on the minimum or maximum quantities per 
        prescription or on the number of refills, if such limitations 
        are necessary to discourage waste, and may address instances of 
        fraud or abuse by individuals in any manner authorized under 
        this Act.
    ``(e) Drug Use Review.--
            ``(1) In general.--A State participating in the MediGrant 
        master rebate agreement may provide for a drug use review 
        program to educate physicians and pharmacists to identify and 
        reduce the frequency of patterns of fraud, abuse, gross 
        overuse, or inappropriate or medically unnecessary care, among 
        physicians, pharmacists, and patients, or associated with 
        specific drugs or groups of drugs, as well as potential and 
        actual severe adverse reactions to drugs.
            ``(2) Application of state standards.--A State with a drug 
        use review program under this subsection shall establish and 
        operate the program under such standards as it may establish.
    ``(f) Electronic Claims Management.--In accordance with chapter 35 
of title 44, United States Code (relating to coordination of Federal 
information policy), the Secretary shall encourage each State to 
establish, as its principal means of processing claims for covered 
outpatient drugs under its MediGrant plan, a point-of-sale electronic 
claims management system, for the purpose of performing on-line, real 
time eligibility verifications, claims data capture, adjudication of 
claims, and assisting pharmacists (and other authorized persons) in 
applying for and receiving payment.
    ``(g) Annual Report.--
            ``(1) In general.--Not later than May 1 of each year, the 
        Secretary shall transmit to the Committee on Finance of the 
        Senate, the Committee on Commerce of the House of 
        Representatives, and the Committee on Aging of the Senate a 
        report on the operation of this section in the preceding fiscal 
        year.
            ``(2) Details.--Each report shall include information on--
                    ``(A) ingredient costs paid under this title for 
                single source drugs, multiple source drugs, and 
                nonprescription covered outpatient drugs;
                    ``(B) the total value of rebates received and 
                number of manufacturers providing such rebates;
                    ``(C) the effect of inflation on the value of 
                rebates required under this section;
                    ``(D) trends in prices paid under this title for 
                covered outpatient drugs; and
                    ``(E) Federal and State administrative costs 
                associated with compliance with the provisions of this 
                title.
    ``(h) Exemption for Capitated Health Care Organizations, Hospitals, 
and Nursing Facilities.--
            ``(1) In general.--Except as provided in paragraph (2), the 
        requirements of the MediGrant master rebate agreement under 
        this section shall not apply with respect to covered outpatient 
        drugs dispensed by or through--
                    ``(A) a capitated health care organization (as 
                defined in section 2114(c)(1)); or
                    ``(B) a hospital or nursing facility that dispenses 
                covered outpatient drugs using a drug formulary system 
                and bills the State no more than the hospital's 
                purchasing costs for covered outpatient drugs.
            ``(2) Construction in determining best price.--Nothing in 
        paragraph (1) shall be construed as excluding amounts paid by 
        the entities described in such paragraph for covered outpatient 
        drugs from the determination of the best price (as defined in 
        subsection (c)(1)(C)) for such drugs.
    ``(i) Definitions.--In the section--
            ``(1) Average manufacturer price.--The term `average 
        manufacturer price' means, with respect to a covered outpatient 
        drug of a manufacturer for a rebate period, the average price 
        paid to the manufacturer for the drug in the United States by 
        wholesalers for drugs distributed to the retail pharmacy class 
        of trade, after deducting customary prompt pay discounts.
            ``(2) Covered outpatient drug.--Subject to the exceptions 
        in subparagraph (D), the term `covered outpatient drug' means--
                    ``(A) of those drugs which are treated as 
                prescribed drugs for purposes of section 2171(a)(1)(H), 
                a drug which may be dispensed only upon prescription 
                (except as provided in paragraph (7)), and--
                            ``(i) which is approved as a prescription 
                        drug under section 505 or 507 of the Federal 
                        Food, Drug, and Cosmetic Act;
                            ``(ii)(I) which was commercially used or 
                        sold in the United States before the date of 
                        the enactment of the Drug Amendments of 1962 or 
                        which is identical, similar, or related (within 
                        the meaning of section 310.6(b)(1) of title 21 
                        of the Code of Federal Regulations) to such a 
                        drug, and (II) which has not been the subject 
                        of a final determination by the Secretary that 
                        it is a `new drug' (within the meaning of 
                        section 201(p) of the Federal Food, Drug, and 
                        Cosmetic Act) or an action brought by the 
                        Secretary under section 301, 302(a), or 304(a) 
                        of such Act to enforce section 502(f) or 505(a) 
                        of such Act; or
                            ``(iii)(I) which is described in section 
                        107(c)(3) of the Drug Amendments of 1962 and 
                        for which the Secretary has determined there is 
                        a compelling justification for its medical 
                        need, or is identical, similar, or related 
                        (within the meaning of section 310.6(b)(1) of 
                        title 21 of the Code of Federal Regulations) to 
                        such a drug, and (II) for which the Secretary 
                        has not issued a notice of an opportunity for a 
                        hearing under section 505(e) of the Federal 
                        Food, Drug, and Cosmetic Act on a proposed 
                        order of the Secretary to withdraw approval of 
                        an application for such drug under such section 
                        because the Secretary has determined that the 
                        drug is less than effective for some or all 
                        conditions of use prescribed, recommended, or 
                        suggested in its labeling;
                    ``(B) a biological product, other than a vaccine 
                which--
                            ``(i) may only be dispensed upon 
                        prescription,
                            ``(ii) is licensed under section 351 of the 
                        Public Health Service Act, and
                            ``(iii) is produced at an establishment 
                        licensed under such section to produce such 
                        product;
                    ``(C) insulin certified under section 506 of the 
                Federal Food, Drug, and Cosmetic Act; and
                    ``(D) a drug which may be sold without a 
                prescription (commonly referred to as an `over-the-
                counter drug'), if the drug is prescribed by a 
                physician (or other person authorized to prescribe 
                under State law).
            ``(3) Limiting definition.--The term `covered outpatient 
        drug' does not include any drug, biological product, or insulin 
        provided as part of, or as incident to and in the same setting 
        as, any of the following (and for which payment may be made 
        under a MediGrant plan as part of payment for the following and 
        not as direct reimbursement for the drug):
                    ``(A) Inpatient hospital services.
                    ``(B) Hospice services.
                    ``(C) Dental services, except that drugs for which 
                the MediGrant plan authorizes direct reimbursement to 
                the dispensing dentist are covered outpatient drugs.
                    ``(D) Physicians' services.
                    ``(E) Outpatient hospital services.
                    ``(F) Nursing facility services and services 
                provided by an intermediate care facility for the 
                mentally retarded.
                    ``(G) Other laboratory and x-ray services.
                    ``(H) Renal dialysis services.
        Such term also does not include any such drug or product for 
        which a National Drug Code number is not required by the Food 
        and Drug Administration or a drug or biological used for a 
        medical indication which is not a medically accepted 
        indication. Any drug, biological product, or insulin excluded 
        from the definition of such term as a result of this paragraph 
        shall be treated as a covered outpatient drug for purposes of 
        determining the best price (as defined in subsection (c)(1)(C)) 
        for such drug, biological product, or insulin.
            ``(4) Manufacturer.--The term `manufacturer' means, with 
        respect to a covered outpatient drug, the entity holding legal 
        title to or possession of the National Drug Code number for 
        such drug.
            ``(5) Medically accepted indication.--The term `medically 
        accepted indication' means any use for a covered outpatient 
        drug which is approved under the Federal Food, Drug, and 
        Cosmetic Act, or the use of which is supported by one or more 
        citations included or approved for inclusion in any of the 
        following compendia:
                    ``(A) American Hospital Formulary Service Drug 
                Information.
                    ``(B) United States Pharmacopeia-Drug Information.
                    ``(C) American Medical Association Drug 
                Evaluations.
                    ``(D) The peer-reviewed medical literature.
            ``(6) Multiple source drug; innovator multiple source drug; 
        noninnovator multiple source drug; single source drug.--
                    ``(A) Defined.--
                            ``(i) Multiple source drug.--The term 
                        `multiple source drug' means, with respect to a 
                        rebate period, a covered outpatient drug (not 
                        including any drug described in paragraph 
                        (2)(D)) for which there are 2 or more drug 
                        products which--
                                    ``(I) are rated as therapeutically 
                                equivalent (under the Food and Drug 
                                Administration's most recent 
                                publication of `Approved Drug Products 
                                with Therapeutic Equivalence 
                                Evaluations'),
                                    ``(II) except as provided in 
                                subparagraph (B), are pharmaceutically 
                                equivalent and bioequivalent, as 
                                defined in subparagraph (C) and as 
                                determined by the Food and Drug 
                                Administration, and
                                    ``(III) are sold or marketed in the 
                                State during the period.
                            ``(ii) Innovator multiple source drug.--The 
                        term `innovator multiple source drug' means a 
                        multiple source drug that was originally 
                        marketed under an original new drug application 
                        or product licensing application approved by 
                        the Food and Drug Administration.
                            ``(iii) Noninnovator multiple source 
                        drug.--The term `noninnovator multiple source 
                        drug' means a multiple source drug that is not 
                        an innovator multiple source drug.
                            ``(iv) Single source drug.--The term 
                        `single source drug' means a covered outpatient 
                        drug which is produced or distributed under an 
                        original new drug application approved by the 
                        Food and Drug Administration, including a drug 
                        product marketed by any cross-licensed 
                        producers or distributors operating under the 
                        new drug application or product licensing 
                        application.
                    ``(B) Exception.--Subparagraph (A)(i)(II) shall not 
                apply if the Food and Drug Administration changes by 
                regulation the requirement that, for purposes of the 
                publication described in subparagraph (A)(i)(I), in 
                order for drug products to be rated as therapeutically 
                equivalent, they must be pharmaceutically equivalent 
                and bioequivalent, as defined in subparagraph (C).
                    ``(C) Definitions.--For purposes of this 
                paragraph--
                            ``(i) drug products are pharmaceutically 
                        equivalent if the products contain identical 
                        amounts of the same active drug ingredient in 
                        the same dosage form and meet compendial or 
                        other applicable standards of strength, 
                        quality, purity, and identity;
                            ``(ii) drugs are bioequivalent if they do 
                        not present a known or potential bioequivalence 
                        problem, or, if they do present such a problem, 
                        they are shown to meet an appropriate standard 
                        of bioequivalence; and
                            ``(iii) a drug product is considered to be 
                        sold or marketed in a State if it appears in a 
                        published national listing of average wholesale 
                        prices selected by the Secretary, if the listed 
                        product is generally available to the public 
                        through retail pharmacies in that State.
            ``(7) Nonprescription drugs.--If the MediGrant plan of a 
        State participating in the MediGrant master rebate agreement 
        under this section includes coverage of prescribed drugs as 
        described in section 2171(a)(1)(H) and permits coverage of 
        drugs which may be sold without a prescription (commonly 
        referred to as `over-the-counter' drugs), if they are 
        prescribed by a physician (or other person authorized to 
        prescribe under State law), such a drug shall be regarded as a 
        covered outpatient drug for purposes of the State's 
        participation in the agreement.
            ``(8) Rebate period.--The term `rebate period' means, with 
        respect to an agreement under subsection (a), a calendar 
        quarter or other period specified by the Secretary with respect 
        to the payment of rebates under such agreement.''.

SEC. 16002. TERMINATION OF CURRENT PROGRAM AND TRANSITION.

    (a) Termination of Current Program; Limitation on Medicaid Payments 
in Fiscal Year 1996.--Title XIX of the Social Security Act is amended--
            (1) by redesignating section 1931 as section 1932; and
            (2) by inserting after section 1930 the following new 
        section:tech deg.
    ``termination of medicaid program; limitation on new obligation 
                               authority
    ``Sec. 1931. (a) Elimination of Individual Entitlement.--Effective 
on the date of the enactment of this section--
            ``(1) except as provided in subsection (b), the Federal 
        Government has no obligation to provide payment with respect to 
        items and services provided under this title, and
            ``(2) this title shall not be construed as providing for an 
        entitlement, under Federal law in relation to the Federal 
        Government, in an individual or person (including any provider) 
        at the time of provision or receipt of services.
    ``(b) Limitation on Obligation Authority.--Notwithstanding any 
other provision of this title--
            ``(1) Post-enactment, pre-medigrant.--Subject to paragraph 
        (2), the Secretary is authorized to enter into obligations with 
        any State under this title for expenses incurred after the date 
        of the enactment of this Act and during fiscal year 1996, but 
        not in excess of the obligation allotment for that State for 
        fiscal year 1996 under section 2121(b)(4).
            ``(2) None after medigrant.--The Secretary is not 
        authorized to enter into any obligation with any State under 
        this title for expenses incurred on or after the earlier of--
                    ``(A) October 1, 1996; or
                    ``(B) the first day of the first quarter on which 
                the State plan under title XXI is first effective.
            ``(3) Agreement.--A State's submission of claims for 
        payment under section 1903 after the date of the enactment of 
        this title with respect to which the limitation described in 
        paragraph (1) applies is deemed to constitute the State's 
        acceptance of the obligation limitation under such paragraph 
        (including the formula for computing the amount of such 
        obligation limitation).
    ``(c) Requirement for Timely Submittal of Claims.--No payment shall 
be made to a State under this title with respect to an obligation 
incurred before the date of the enactment of this section, unless the 
State has submitted to the Secretary, by not later than June 30, 1996, 
a claim for Federal financial participation for expenses paid by the 
State with respect to such obligations. Nothing in subsection (a) or 
(b) shall be construed as affecting the obligation of the Federal 
Government to pay claims described in the previous sentence.''.
    (b) Medicaid Transition.--
            (1) Treatment of certain causes of action.--No cause of 
        action under title XIX of the Social Security Act which seeks 
        to require a State to establish or maintain minimum payment 
        rates under such title and which has not become final as of the 
        date of the enactment of this Act shall be brought or 
        continued.
            (2) Treatment of certain disallowances.--Notwithstanding 
        any provision of law, in the case where payment has been made 
        under section 1903(a) of the Social Security Act to a State 
        before October 1, 1995, and for which a disallowance has not 
        been taken as of such date (or, if so taken, has not been 
        completed by such date), the Secretary of Health and Human 
        Services shall discontinue the disallowance proceeding and, if 
        such disallowance has been taken as of the date of the 
        enactment of this Act, any payment reductions effected shall be 
        rescinded and the payments returned to the State.
            tech deg.(3) Extension of moratorium.--Section 
        6408(a)(3) of the Omnibus Budget Reconciliation Act of 1989, as 
        amended by section 13642 of the Omnibus Budget Reconciliation 
        Act of 1993, is amended by striking ``December 31, 1995'' and 
        inserting ``the first day of the first quarter on which the 
        MediGrant plan for the State of Michigan is first effective 
        under title XXI of such Act''.
    (c) No Application of Prior Medicaid Judgments to MediGrant 
Program.--No judicial or administrative decision rendered regarding 
requirements imposed under title XIX of the Social Security Act with 
respect to a State shall have any application to the MediGrant plan of 
the State title XXI of such Act. A State may, pursuant to the previous 
sentence, seek the abrogation or modification of any such decision 
after the date of termination of the State plan under title XIX of such 
Act.
    (d) Termination of Program for Distribution of Pediatric Vaccines
            (1) In general.--Subject to paragraph (2), section 1928 of 
        the Social Security Act (42 U.S.C. 1396s) is repealed, 
        effective on the date of the enactment of this Act.
            (2) Transition.--(A) Such repeal shall not affect the 
        tech deg.distribution of vaccines purchased and 
        delivered to the States before the date of the enactment of 
        this Act.
            (B) No vaccine may be purchased after such date by the 
        Federal Government or any State under any contract under 
        section 1928(d) of the Social Security Act.
    eschoo.001 deg.(e) Anti-Fraud Provisions.--
            (1) In general.--Section 1128(h)(1) of the Social Security 
        Act (42 U.S.C. 1320a-7(h)(1)) is amended by inserting ``or a 
        MediGrant plan under title XXI'' after ``title XIX''.
            (2) Continued role of inspector general.--The Inspector 
        General in the Department of Health and Human Services shall 
        have the same responsibilities and duties in relation to fraud 
        and abuse and related matters under the MediGrant program under 
        title XXI of the Social Security Act as such Inspector General 
        has had in relation to the medicaid program under title XIX of 
        such Act before the date of the enactment of this Act.

              TITLE XVII--DEPARTMENT OF COMMERCE ABOLITION

SEC. 17001. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This title may be cited as the ``Department of 
Commerce Dismantling Act''.
    (b) Table of Contents.--The table of contents for this title is as 
follows:

              TITLE XVII--DEPARTMENT OF COMMERCE ABOLITION

Sec. 17001. Short title; table of contents.

           Subtitle A--Abolishment of Department of Commerce

Sec. 17101. Reestablishment of Department as Commerce Programs 
Resolution Agency.
Sec. 17102. Functions.
Sec. 17103. Deputy Administrator.
Sec. 17104. Continuation of service of Department officers.
Sec. 17105. Reorganization.
Sec. 17106. Abolishment of Commerce Programs Resolution Agency.
Sec. 17107. GAO report.
Sec. 17108. Conforming amendments.
Sec. 17109. Effective date.

Subtitle B--Disposition Of Particular Programs, Functions, and Agencies 
                       of Department of Commerce

Sec. 17201. Economic development.
Sec. 17202. Technology Administration.
Sec. 17203. Terminated functions of NTIA.
Sec. 17204. Transfer of National Telecommunications and Information 
Administration.
Sec. 17205. National Oceanic and Atmospheric Administration.
Sec. 17206. Miscellaneous abolishments.
Sec. 17207. Privatization of travel functions.
Sec. 17208. Effective date.
Sec. 17209. Sense of Congress regarding user fees.

           Subtitle C--Consolidation of Statistical Functions

Sec. 17301. Short title.
Sec. 17302. Definitions.

         Chapter 1--Establishment of Federal Statistics Agency

Sec. 17311. Establishment.
Sec. 17312. Principal officers.
Sec. 17313. Transfers of functions and offices.

                  Chapter 2--Administrative Provisions

Sec. 17321. Personnel provisions.
Sec. 17322. General administrative provisions.
Sec. 17323. Contracts.
Sec. 17324. Regulations.
Sec. 17325. Seal.
Sec. 17326. Annual report.

      Chapter 3--Transitional, Savings, and Conforming Provisions

Sec. 17331. Transfer and allocation of appropriations and personnel.
Sec. 17332. Effect on personnel.
Sec. 17333. Incidental transfers.
Sec. 17334. Savings provisions.
Sec. 17335. References.
Sec. 17336. Conforming amendments.
Sec. 17337. Transition.
Sec. 17338. Interim appointments.

             Subtitle D--United States Trade Administration

                     Chapter 1--General Provisions

Sec. 17401. Findings.
Sec. 17402. Definitions.

             Chapter 2--United States Trade Administration

Sec. 17411. Establishment of the Administration.
Sec. 17412. Functions of the USTR.
Sec. 17413. Deputy Administrator of the United States Trade 
Administration.
Sec. 17414. Deputy United States Trade Representatives.
Sec. 17415. Assistant Administrators.
Sec. 17416. General Counsel.
Sec. 17417. Inspector General.
Sec. 17418. Chief Financial Officer.

               Chapter 3--Transfers to the Administration

Sec. 17431. Office of the United States Trade Representative.
Sec. 17432. Transfers from the Department of Commerce.
Sec. 17433. Trade and Development Agency.
Sec. 17434. Functions with respect to textile agreements.
Sec. 17435. Plan for consolidation of trade activities.

                  Chapter 4--Administrative Provisions

Sec. 17441. Personnel provisions.
Sec. 17442. Delegation and assignment.
Sec. 17443. Succession.
Sec. 17444. Reorganization.
Sec. 17445. Rules.
Sec. 17446. Funds transfer.
Sec. 17447. Contracts, grants, and cooperative agreements.
Sec. 17448. Use of facilities.
Sec. 17449. Gifts and bequests.
Sec. 17450. Working capital fund.
Sec. 17451. Service charges.
Sec. 17452. Seal of department.

                      CHAPTER 5--RELATED AGENCIES

Sec. 17461. Interagency trade organization.
Sec. 17462. National Security Council.
Sec. 17463. International Monetary Fund.

                    Chapter 6--Conforming Amendments

Sec. 17471. Amendments to general provisions.
Sec. 17472. Repeals.
Sec. 17473. Conforming amendments relating to Executive Schedule 
positions.

      Chapter 7--Transitional, Savings, and Conforming Provisions

Sec. 17481. Additional transfers.
Sec. 17482. Incidental transfers.
Sec. 17483. Effect on personnel.
Sec. 17484. Savings provisions.
Sec. 17485. Reference.
Sec. 17486. Transition.

                        Chapter 8--Miscellaneous

Sec. 17491. Effective date.
Sec. 17492. Interim appointments.
Sec. 17493. Funding reductions resulting from reorganization.
Sec. 17494. Authorization of appropriations.

          Subtitle E--Patent And Trademark Office Corporation

Sec. 17501. Short title.

                 Chapter 1--Patent and Trademark Office

Sec. 17511. Establishment of Patent and Trademark Office as a 
corporation.
Sec. 17512. Powers and duties.
Sec. 17513. Organization and management.
Sec. 17514. Management Advisory Board.
Sec. 17515. Independence from Department of Commerce.
Sec. 17516. Trademark Trial and Appeal Board.
Sec. 17517. Board of Patent Appeals and Interferences.
Sec. 17518. Suits by and against the Corporation.
Sec. 17519. Annual report of Commissioner.
Sec. 17520. Suspension or exclusion from practice.
Sec. 17521. Funding.
Sec. 17522. Audits.
Sec. 17523. Transfer.

            Chapter 2--Effective Date; Technical Amendments

Sec. 17531. Effective date.
Sec. 17532. Technical and conforming amendments.

                  Subtitle F--Miscellaneous Provisions

Sec. 17601. References.
Sec. 17602. Exercise of authorities.
Sec. 17603. Savings provisions.
Sec. 17604. Transfer of assets.
Sec. 17605. Delegation and assignment.
Sec. 17606. Authority of Administrator with respect to functions 
transferred.
Sec. 17607. Proposed changes in law.
Sec. 17608. Certain vesting of functions considered transfers.
Sec. 17609. Definitions.
Sec. 17610. Limitation on annual expenditures for continued functions.
Sec. 17611. User fees.
Sec. 17612. Unobligated balances returned to Treasury.
Sec. 17613. Annual GAO report.

           Subtitle A--Abolishment of Department of Commerce

SEC. 17101.   REESTABLISHMENT OF DEPARTMENT AS COMMERCE PROGRAMS 
                    RESOLUTION AGENCY.

    (a) Reestablishment.--The Department of Commerce is hereby 
redesignated as the Commerce Programs Resolution Agency, which shall be 
a free-standing agency in the executive branch of the Government.
    (b) Administrator.--
            (1) In general.--There shall be at the head of the Agency 
        an Administrator of the Agency, who shall be appointed by the 
        President, by and with the advice and consent of the Senate. 
        The Agency shall be administered under the supervision and 
        direction of the Administrator. The Administrator shall receive 
        compensation at the rate prescribed for level II of the 
        Executive Schedule under section 5313 of title 5, United States 
        Code.
            (2) Initial appointment of administrator.--Notwithstanding 
        any other provision of this title or any other law, the 
        President may, at any time after the date of the enactment of 
        this title, appoint an individual to serve as Administrator of 
        the Commerce Programs Resolution Agency (who may be the 
        Secretary of Commerce), as such position is established under 
        paragraph (1). An appointment under this paragraph may not be 
        construed to affect the position of Secretary of Commerce or 
        the authority of the Secretary before the effective date 
        specified in section 17109(a).
    (c) Duties.--The Administrator shall be responsible for--
            (1) the administration and wind-up, during the wind-up 
        period, of all functions of the Administrator pursuant to 
        section 17102 and the other provisions of this title;
            (2) the administration and wind-up, during the wind-up 
        period, of any outstanding obligations of the Federal 
        Government under any programs terminated or repealed by this 
        title; and
            (3) taking such other actions as may be necessary, before 
        the termination date specified in section 17106(d), to wind up 
        any outstanding affairs of the Department of Commerce.

SEC. 17102. FUNCTIONS.

    Except to the extent a function is abolished or vested in another 
official or agency by this title, the Administrator shall perform all 
functions that, immediately before the effective date specified in 
section 17109(a), were functions of the Department of Commerce (or any 
office of the Department) or were authorized to be performed by the 
Secretary of Commerce or any other officer or employee of the 
Department in the capacity as such officer or employee.

SEC. 17103. DEPUTY ADMINISTRATOR.

    The Agency shall have a Deputy Administrator, who shall--
            (1) be appointed by and report to the Administrator; and
            (2) shall perform such functions as may be delegated by the 
        Administrator.

SEC. 17104. CONTINUATION OF SERVICE OF DEPARTMENT OFFICERS.

    (a) Continuation of Service of Secretary.--The individual serving 
on the effective date specified in section 17109(a) as the Secretary of 
Commerce may serve and act as Administrator until the date an 
individual is appointed under this title to the position of 
Administrator, or until the end of the 120-day period provided for in 
section 3348 of title 5, United States Code (relating to limitations on 
the period of time a vacancy may be filled temporarily), whichever is 
earlier.
    (b) Continuation of Service of Other Officers.--An individual 
serving on the effective date specified in section 17109(a) as an 
officer of the Department of Commerce other than the Secretary of 
Commerce may continue to serve and act in an equivalent capacity in the 
Agency until the date an individual is appointed under this title to 
the position of Administrator, or until the end of the 120-day period 
provided for in section 3348 of title 5, United States Code (relating 
to limitations on the period of time a vacancy may be filled 
temporarily) with respect to that appointment, whichever is earlier.
    (c) Compensation for Continued Service.--Any person--
            (1) who serves as the Administrator under subsection (a), 
        or
            (2) who serves under subsection (b),
after the effective date specified in section 17109(a) and before the 
first appointment of a person as Administrator shall continue to be 
compensated for so serving at the rate at which such person was 
compensated before such effective date.

SEC. 17105. REORGANIZATION.

    The Administrator may allocate or reallocate any function of the 
Agency pursuant to this title among the officers of the Agency, and may 
establish, consolidate, alter, or discontinue in the Commerce Programs 
Resolution Agency any organizational entities that were entities of the 
Department of Commerce, as the Administrator considers necessary or 
appropriate.

SEC. 17106. ABOLISHMENT OF COMMERCE PROGRAMS RESOLUTION AGENCY.

    (a) In General.--Effective on the termination date specified in 
subsection (d), the Commerce Programs Resolution Agency is abolished.
    (b) Abolition of Functions.--Except for functions transferred or 
otherwise continued by this title, all functions that, immediately 
before the termination date specified in subsection (d), were functions 
of the Commerce Programs Resolution Agency are abolished effective on 
that termination date.
    (c) Plan for Winding Up Affairs.--Not later than the effective date 
specified in section 17109(a), the President shall submit to the 
Congress a plan for winding up the affairs of the Agency in accordance 
with this title and by not later than the termination date specified in 
subsection (d).
    (d) Termination Date.--The termination date under this subsection 
is the date that is 3 years after the date of the enactment of this 
title.

SEC. 17107. GAO REPORT.

    Not later than 180 days after the date of enactment of this title, 
the Comptroller General of the United States shall submit to the 
Congress a report which shall include recommendations for the most 
efficient means of achieving, in accordance with this title--
            (1) the complete abolishment of the Department of Commerce; 
        and
            (2) the termination or transfer or other continuation of 
        the functions of the Department of Commerce.

SEC. 17108. CONFORMING AMENDMENTS.

    (a) Presidential Succession.--Section 19(d)(1) of title 3, United 
States Code, is amended by striking ``Secretary of Commerce,''.
    (b) Executive Departments.--Section 101 of title 5, United States 
Code, is amended by striking the following item:
            ``The Department of Commerce.''.
    (c) Secretary's Compensation.--Section 5312 of title 5, United 
States Code, is amended by striking the following item:
            ``Secretary of Commerce.''.
    (d) Compensation for Positions at Level III.--Section 5314 of title 
5, United States Code, is amended--
            (1) by striking the following item:
            ``Under Secretary of Commerce, Under Secretary of Commerce 
        for Economic Affairs, Under Secretary of Commerce for Export 
        Administration and Under Secretary of Commerce for Travel and 
        Tourism.'';
            (2) by striking the following item:
            ``Under Secretary of Commerce for Oceans and Atmosphere, 
        the incumbent of which also serves as Administrator of the 
        National Oceanic and Atmospheric Administration.''; and
            (3) by striking the following item:
            ``Under Secretary of Commerce for Technology.''.
    (e) Compensation for Positions at Level IV.--Section 5315 of title 
5, United States Code, is amended--
            (1) by striking the following item:
            ``Assistant Secretaries of Commerce (11).'';
            (2) by striking the following item:
            ``General Counsel of the Department of Commerce.'';
            (3) by striking the following item:
            ``Assistant Secretary of Commerce for Oceans and 
        Atmosphere, the incumbent of which also serves as Deputy 
        Administrator of the National Oceanic and Atmospheric 
        Administration.'';
            (4) by striking the following item:
            ``Director, National Institute of Standards and Technology, 
        Department of Commerce.'';
            (5) by striking the following item:
            ``Inspector General, Department of Commerce.'';
            (6) by striking the following item:
            ``Chief Financial Officer, Department of Commerce.''; and
            (7) by striking the following item:
            ``Director, Bureau of the Census, Department of 
        Commerce.''.
    (f) Compensation for Positions at Level V.--Section 5316 of title 
5, United States Code, is amended--
            (1) by striking the following item:
            ``Director, United States Travel Service, Department of 
        Commerce.''; and
            (2) by striking the following item:
            ``National Export Expansion Coordinator, Department of 
        Commerce.''.
    (g) Inspector General Act of 1978.--The Inspector General Act of 
1978 (5 U.S.C. App.) is amended--
            (1) in section 9(a)(1), by striking subparagraph (B);
            (2) in section 11(1), by striking ``Commerce,''; and
            (3) in section 11(2), by striking ``Commerce,'';

SEC. 17109. EFFECTIVE DATE.

    (a) In General.--Except as provided in subsection (b), this 
subtitle shall take effect on the date that is 6 months after the date 
of the enactment of this subtitle.
    (b) Provisions Effective on Date of Enactment.--The following 
provisions of this subtitle shall take effect on the date of the 
enactment of this subtitle:
            (1) Section 17101(b).
            (2) Section 17106(c).
            (3) Section 17107.

Subtitle B--Disposition of Particular Programs, Functions, and Agencies 
                       of Department of Commerce

SEC. 17201. ECONOMIC DEVELOPMENT.

    (a) Terminated Functions.--The Public Works and Economic 
Development Act of 1965 (42 U.S.C. 3121 et seq.) is repealed.
    (b) Transfer of Financial Obligations Owed to the Department.--
There are transferred to the Secretary of the Treasury the loans, 
notes, bonds, debentures, securities, and other financial obligations 
owned by the Department of Commerce under the Public Works and Economic 
Development Act of 1965, together with all assets or other rights 
(including security interests) incident thereto, and all liabilities 
related thereto. There are assigned to the Secretary of the Treasury 
the functions, powers, and abilities vested in or delegated to the 
Secretary of Commerce or the Department of Commerce to manage, service, 
collect, sell, dispose of, or otherwise realize proceeds on obligations 
owed to the Department of Commerce under authority of such Act with 
respect to any loans, obligations, or guarantees made or issued by the 
Department of Commerce pursuant to such Act.
    (c) Sale of Loans.--The Secretary of the Treasury shall take such 
actions as may be necessary to ensure that to the maximum extent 
practicable loans transferred to the Secretary under subsection (b) are 
sold to the public. The Secretary shall prescribe terms for the sale of 
such loans to ensure that such sale will bring the highest possible 
rate of return to the Federal Government.
    (d) Audit.--Not later than 18 months after the date of the 
enactment of this title, the Comptroller General shall conduct an audit 
of all grants made or issued by the Department of Commerce under the 
Public Works and Economic Development Act of 1965 in fiscal year 1995 
and all loans, obligations, and guarantees and shall transmit to 
Congress a report on the results of such audit.

SEC. 17202. TECHNOLOGY ADMINISTRATION.

    (a) Technology Administration.--
            (1) General rule.--Except as otherwise provided in this 
        section, the Technology Administration shall be terminated on 
        the effective date specified in section 17208(a).
            (2) Office of technology policy.--The Office of Technology 
        Policy is hereby terminated.
    (b) National Institute of Standards and Technology.--
            (1) General rule.--Except as otherwise provided in this 
        subsection, the National Institute of Standards and Technology 
        (in this subsection referred to as the ``Institute'') shall be 
        transferred to the United States Trade Administration.
            (2) Functions of director.--Except as otherwise provided in 
        this subsection, upon the transfer under paragraph (1), the 
        Director of the Institute shall perform all functions relating 
        to the Institute that, immediately before the effective date 
        specified in section 17208(a), were functions of the Secretary 
        of Commerce or the Under Secretary of Commerce for Technology, 
        including the administration of section 17 of the Stevenson-
        Wydler Technology Innovation Act of 1980.
            (3) Laboratories.--(A) The laboratories of the Institute 
        shall be transferred to the United States Trade Administration.
            (B) The United States Trade Administration shall attempt to 
        sell the property of the laboratories of the Institute, within 
        18 months after the effective date specified in section 
        17208(a), to a private sector entity intending to perform 
        substantially the same functions as were performed by the 
        laboratories of the Institute immediately before such effective 
        date.
            (C) If no offer to purchase property under subparagraph (B) 
        is received within the 18-month period described in such 
        subparagraph, the United States Trade Administration shall 
        submit a report to the Congress containing recommendations on 
        the appropriate disposition of the property and functions of 
        the laboratories of the Institute.
            (4) Provision of services by private sector.--The Director 
        of the Institute shall consider proposals from experienced and 
        qualified private-sector entities to provide services that, 
        immediately before the effective date specified in section 
        17208(a), were performed by the Technology Administration, 
        particularly foreign competitive technology assessments. The 
        Director shall require that proposals to provide a service that 
        are accepted under this paragraph satisfy user needs better 
        than, and provide such service at a lower cost than, the 
        service could be provided by the Federal Government.
    (c) National Technical Information Service.--
            (1) Sale of property.--The Commerce Programs Resolution 
        Agency shall attempt to sell the property of the National 
        Technical Information Service, within 18 months after the 
        effective date specified in section 17208(a), to a private 
        sector entity intending to perform substantially the same 
        functions as were performed by the National Technical 
        Information Service immediately before such effective date.
            (2) Recommendations.--If no offer to purchase property 
        under paragraph (1) is received within the 18-month period 
        described in such paragraph, the Commerce Programs Resolution 
        Agency shall submit a report to the Congress containing 
        recommendations on the appropriate disposition of the property 
        and functions of the National Technical Information Service.
            (3) Funding.--No Federal funds may be appropriated for the 
        National Technical Information Service for any fiscal year 
        after fiscal year 1995.
            (4) Electronic reporting.--Each Federal research report 
        that is required to be submitted to the National Technical 
        Information Service after the date of the enactment of this Act 
        shall be submitted in an electronic, standardized format in 
        order to facilitate the availability of Federal research 
        reports on the Internet and the World Wide Web.
    (d) Amendments.--
            (1) National institute of standards and technology act.--
        The National Institute of Standards and Technology Act (15 
        U.S.C. 271 et seq.) is amended--
                    (A) in section 2(b), by striking paragraph (1) and 
                redesignating paragraphs (2) through (11) as paragraphs 
                (1) through (10), respectively;
                    (B) in section 2(d), by striking ``, including the 
                programs established under sections 25, 26, and 28 of 
                this Act'';
                    (C) in section 10, by striking ``Advanced'' in both 
                the section heading and subsection (a), and inserting 
                in lieu thereof ``Standards and''; and
                    (D) by striking sections 24, 25, 26, and 28.
            (2) Stevenson-wydler technology innovation act of 1980.--
        (A) The Stevenson-Wydler Technology Innovation Act of 1980 (15 
        U.S.C. 3701 et seq.) is amended--
                    (i) in section 3, by striking paragraph (2) and 
                redesignating paragraphs (3) through (5) as paragraphs 
                (2) through (4), respectively;
                    (ii) in section 4, by striking paragraphs (1), (4), 
                and (13) and redesignating paragraphs (2), (3), (5), 
                (6), (7), (8), (9), (10), (11), and (12) as paragraphs 
                (1) through (10), respectively;
                    (iii) by striking sections 5, 6, 7, 8, 9, and 10; 
                and
                    (iv) in section 11--
                            (I) by striking ``, the Federal Laboratory 
                        Consortium for Technology Transfer,'' in 
                        subsection (c)(3);
                            (II) by striking ``and the Federal 
                        Laboratory Consortium for Technology Transfer'' 
                        in subsection (d)(2);
                            (III) by striking ``, and refer such 
                        requests'' and all that follows through 
                        ``available to the Service'' in subsection 
                        (d)(3); and
                            (IV) by striking subsection (e).
            (B) Section 17 of the Stevenson-Wydler Technology 
        Innovation Act of 1980 (15 U.S.C. 3711a, relating to the 
        Malcolm Baldrige National Quality Award) is repealed. It is the 
        sense of the Congress that a private-sector entity should 
        continue the national quality award program established by such 
        section.

SEC. 17203. TERMINATED FUNCTIONS OF NTIA.

    (a) Repeals.--The following provisions of law are repealed:
            (1) Subpart A of part IV of title III of the Communications 
        Act of 1934 (47 U.S.C. 390 et seq.), relating to assistance for 
        public telecommunications facilities.
            (2) Subpart B of part IV of title III of the Communications 
        Act of 1934 (47 U.S.C. 394 et seq.), relating to the Endowment 
        for Children's Educational Television.
            (3) Subpart C of part IV of title III of the Communications 
        Act of 1934 (47 U.S.C. 395 et seq.), relating to 
        Telecommunications Demonstration grants.
    (b) Disposal of NTIA Laboratories.--
            (1) Transfer to resolution agency.--The laboratories of the 
        National Telecommunications and Information Administration 
        shall be transferred to the Commerce Programs Resolution 
        Agency.
            (2) Sale of laboratories.--The Commerce Programs Resolution 
        Agency shall attempt to sell the property of such laboratories, 
        within 18 months after the effective date specified in section 
        17208(a), to a private sector entity intending to perform 
        substantially the same functions as were performed by such 
        laboratories immediately before such effective date.
            (3) Report on disposition.--If no offer to purchase 
        property under subparagraph (B) is received within the 18-month 
        period described in such subparagraph, the Commerce Programs 
        Resolution Agency shall submit a report to the Congress 
        containing recommendations on the appropriate disposition of 
        the property and functions of such laboratories.

SEC. 17204. TRANSFER OF NATIONAL TELECOMMUNICATIONS AND INFORMATION 
                    ADMINISTRATION.

    (a) Transfer to USTA.--The National Telecommunications and 
Information Administration shall be transferred to the United States 
Trade Administration.
    (b) Administrator.--The head of the National Telecommunications and 
Information Administration shall be an Administrator who shall be 
appointed by the President, by and with the advice and consent of the 
Senate. The functions of the National Telecommunications and 
Information Administration, and of the Secretary of Commerce and the 
Assistant Secretary for Communications and Information of the 
Department of Commerce with respect to the National Telecommunications 
and Information Administration, are transferred to the Administrator.
    (c) References.--References in any provision of law (including to 
the National Telecommunications and Information Administration 
Organization Act) to the Secretary of Commerce or the Assistant 
Secretary for Communications and Information of the Department of 
Commerce with respect to a function vested pursuant to this section in 
the Administrator of the National Telecommunications and Information 
Administration shall be deemed to refer to the Administrator of the 
National Telecommunications and Information Administration.

SEC. 17205. NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION.

    (a) Transfer to Department of Agriculture.--The National Oceanic 
and Atmospheric Administration shall be transferred to the Department 
of Agriculture.
    (b) Definitions.--For the purposes of this section, the term--
            (1) ``Act of 1890'' means the Act entitled ``An Act to 
        increase the efficiency and reduce the expenses of the Signal 
        Corps of the Army, and to transfer the Weather Bureau to the 
        Department of Agriculture'', approved October 1, 1890 (26 Stat. 
        653);
            (2) ``Act of 1947'' means the Act entitled ``An Act to 
        define the functions and duties of the Coast and Geodetic 
        Survey, and for other purposes'', approved August 6, 1947 (33 
        U.S.C. 883a et seq.);
            (3) ``Act of 1970'' means the Act entitled ``An Act to 
        clarify the status and benefits of commissioned officers of the 
        National Oceanic and Atmospheric Administration, and for other 
        purposes'', approved December 31, 1970 (33 U.S.C. 857-1 et 
        seq.);
            (4) ``Administrator'' means the Administrator of the 
        National Oceanic and Atmospheric Administration; and
            (5) ``Secretary'' means the Secretary of Agriculture.
    (c) Leasing and Contracting.--
            (1) Contracting authority.--Notwithstanding any other 
        provision of law, the Secretary of Agriculture is authorized to 
        enter into contracts for data or days-at-sea to fulfill the 
        National Oceanic and Atmospheric Administration missions of 
        marine research, climate research, fisheries research, 
        hurricane tracking, and mapping and charting services.
            (2) UNOLS vessel agreements.--In fulfilling the National 
        Oceanic and Atmospheric Administration mission requirements 
        described in paragraph (1), the Secretary of Agriculture shall 
        use excess capacity of University National Oceanographic 
        Laboratory System vessels where appropriate, and may enter into 
        memoranda of agreement with operators of those vessels to carry 
        out those mission requirements.
    (d) Abolitions.--The National Ocean Service and the Office of 
Oceanic and Atmospheric Research are abolished.
    (e) Termination of the National Oceanic and Atmospheric 
Administration Corps of Commissioned Officers.--
            (1) Number of officers.--Notwithstanding section 8 of the 
        Act of June 3, 1948 (33 U.S.C. 853g), no commissioned officers 
        are authorized for the National Oceanic and Atmospheric 
        Administration for any fiscal year after fiscal year 1996.
            (2) Separation pay.--The Secretary of Agriculture may 
        separate commissioned officers from the active list of the 
        National Oceanic and Atmospheric Administration, and may do so 
        without providing separation pay.
            (3) Transfer.--(A) Subject to the approval of the Secretary 
        of Defense and under terms and conditions specified by the 
        Secretary, commissioned officers subject to paragraph (1) may 
        transfer to the armed services under section 716 of title 10, 
        United States Code.
            (B) Subject to the approval of the Secretary of 
        Transportation and under terms and conditions specified by the 
        Secretary, commissioned officers subject to paragraph (1) may 
        transfer to the United States Coast Guard under section 716 of 
        title 10, United States Code.
            (C) Subject to the approval of the Administrator and under 
        terms and conditions specified by the Administrator, 
        commissioned officers subject to paragraph (1) who on the date 
        of enactment of this section have been assigned for a period of 
        one year or more to the programs transferred to the 
        Administration by this Act (other than those associated with 
        the modernization of the National Oceanic and Atmospheric 
        Administration fleet or the operations of the National Oceanic 
        and Atmospheric Administration Corps of Commissioned Officers) 
        may transfer to the Administration as members of the civil 
        service.
            (4) Repeals.--(A) The following provisions of law are 
        repealed:
                    (i) The Coast and Geodetic Survey Commissioned 
                Officers' Act of 1948 (33 U.S.C. 853a-853o, 853p-853u).
                    (ii) The Act of February 16, 1929 (Chapter 221, 
                section 5; 45 Stat. 1187; 33 U.S.C. 852a).
                    (iii) The Act of January 19, 1942 (Chapter 6; 56 
                Stat. 6).
                    (iv) Section 9 of Public Law 87-649 (76 Stat. 495).
                    (v) The Act of May 22, 1917 (Chapter 20, section 
                16; 40 Stat. 87; 33 U.S.C. 854 et seq.).
                    (vi) The Act of December 3, 1942 (Chapter 670; 56 
                Stat. 1038.
                    (vii) Sections 1 through 5 of Public Law 91-621 (84 
                Stat. 1863; 33 U.S.C. 857-1 et seq.).
                    (viii) The Act of August 10, 1956 (Chapter 1041, 
                section 3; 70A Stat. 619; 33 U.S.C. 857a).
                    (ix) The Act of May 18, 1920 (Chapter 190, section 
                11; 41 Stat. 603; 33 U.S.C. 864).
                    (x) The Act of July 22, 1947 (Chapter 286; 61 Stat. 
                400; 33 U.S.C. 873, 874).
                    (xi) The Act of August 3, 1956 (Chapter 932; 70 
                Stat. 988; 33 U.S.C. 875, 876).
                    (xii) All other Acts inconsistent with this 
                subsection.
            (B) The effective date of the repeals under subparagraph 
        (A) shall be September 30, 1997.
            (5) Unexpended balances.--Unexpended balances of 
        appropriations, allocations, and other funds available or made 
        available in connection with the National Oceanic and 
        Atmospheric Administration Corps of Commissioned officers may 
        be used by the Secretary for payments under section 8 of the 
        Act of June 3, 1948 (33 U.S.C. 853g).
            (6) Abolition.--The Office of the National Oceanic and 
        Atmospheric Administration Corps of Operations and the 
        Commissioned Personnel Center are abolished effective September 
        30, 1997.
    (f) Other Terminations.--The following programs of the National 
Oceanic and Atmospheric Administration are terminated:
            (1) The National Undersea Research Program.
            (2) The Fleet Modernization, Shipbuilding, and Construction 
        Account.
            (3) The Charleston, South Carolina, Special Management 
        Plan.
            (4) Chesapeake Bay Observation Buoys.
            (5) Federal/State Weather Modification Grants.
            (6) The Southeast Storm Research Account.
            (7) The Southeast United States Caribbean Fisheries 
        Oceanographic Coordinated Investigations Program.
            (8) National Institute for Environmental Renewal.
            (9) The Lake Champlain Study.
            (10) The Maine Marine Research Center.
            (11) The South Carolina Cooperative Geodetic Survey 
        Account.
            (12) Pacific Island Technical Assistance.
            (13) Sea Grant/Oyster Disease Account.
            (14) National Coastal Research and Development Institute 
        Account.
            (15) VENTS program.
            (16) National Weather Service non-Federal, non-wildfire 
        Fire Weather Service.
            (17) National Weather Service Regional Climate Centers.
            (18) National Weather Service Samoa Weather Forecast Office 
        Repair and Upgrade Account.
            (19) Dissemination of Weather Charts (Marine Facsimile 
        Service).
            (20) The global climate change program.
            (21) The Global Learning and Observations to Benefit the 
        Environment Program.
Any unobligated balances appropriated to carry out any program referred 
to in this subsection shall be transferred to the general fund of the 
Treasury.
    (g) Repeals.--The following provisions of law are repealed 
effective on the date of enactment of this Act:
            (1) The Ocean Thermal Conversion Act of 1980 (42 U.S.C. 
        9101 et seq.).
            (2) Title IV of the Marine Protection, Research, and 
        Sanctuaries Act of 1972 (16 U.S.C. 1447 et seq.).
            (3) Title V of the Marine Protection, Research, and 
        Sanctuaries Act of 1972 (33 U.S.C. 2801 et seq.).
            (4) Public Law 85-342 (72 Stat. 35; 16 U.S.C. 778 et seq.), 
        relating to fish research and experimentation.
            (5) The first section of the Act of August 8, 1956 (70 
        Stat. 1126; 16 U.S.C. 760d), relating to grants for commercial 
        fishing education.
            (6) Public Law 86-359 (16 U.S.C. 760e et seq.), relating to 
        the study of migratory marine gamefish.
            (7) The Act of August 15, 1914 (Chapter 253; 38 Stat. 692; 
        16 U.S.C. 781 et seq.), prohibiting the taking of sponges in 
        the Gulf of Mexico and the Straits of Florida.
    (h) Transfer of Fisheries Programs to MARAD.--
            (1) Operating differential subsidy program.--Section 
        607(k)(9) of the Merchant Marine Act, 1936 (46 App. U.S.C. 
        1177(k)(9)) is amended to read as follows:
    ``(9) The term `Secretary' means the Secretary of 
Transportation.''.
            (2) Ship mortgage insurance.--Section 1101(n) of the 
        Merchant Marine Act, 1936 (46 App. U.S.C. 1177(k)(9)) is 
        amended to read as follows:
    ``(n) The term `Secretary' means the Secretary of 
Transportation.''.
            (3) Outer continental shelf.--Section 401(8) of the Outer 
        Continental Shelf Lands Act Amendments of 1978 (43 U.S.C. 1841 
        et seq.) is amended to read as follows:
            ``(8) `Secretary' means the Secretary of Transportation.''.
            (4) Fishermen's protective act of 1967.--Section 10(a) of 
        the Fishermen's Protective Act of 1967 (22 U.S.C 1980(a)) is 
        amended--
                    (A) by amending paragraph (1) to read as follows:
            ``(1) The terms `fishery', `fishery conservation zone', 
        `fishing', `fishing vessel', and `vessel of the United States' 
        have the same meaning given to each of such terms in section 3 
        of the Magnuson Fishery Conservation and Management Act (16 
        U.S.C. 1802).''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(5) The term `Secretary' means the Secretary of 
        Transportation.''.
    (i) Transfer of Mapping, Charting, and Geodesy Functions to the 
United States Geological Survey.--There are hereby transferred to the 
Director of the United States Geological Survey the functions relating 
to mapping, charting, geodesy, observation, and prediction of tides and 
sea level authorized under the Act of August 7, 1947 (61 Stat. 787; 33 
U.S.C. 883a).
    (j) Report on Termination of Programs.--Not later than 60 days 
after the date of the enactment of this Act, the Secretary shall submit 
to the Committee on Science of the House of Representatives and the 
Committee on Commerce, Science, and Transportation of the Senate a 
report certifying that all the programs listed in subsection (f) will 
be terminated no later than September 30, 1995.
    (k) Competition with Private Sector.--The National Weather Service 
shall not compete, or assist other entities to compete, with the 
private sector when a service is currently provided or can be provided 
by commercial enterprise, unless--
            (1) the Secretary of Agriculture finds that the private 
        sector is unwilling or unable to provide the services; and
            (2) the service provides vital weather warnings and 
        forecasts for the protection of lives and property of the 
        general public.
    (l) Amendments.--The Act of 1890 is amended--
            (1) by striking section 3 (15 U.S.C. 313); and
            (2) in section 9 (15 U.S.C. 317), by striking all after 
        ``Department of Agriculture'' and inserting in lieu thereof a 
        period.
    (m) NWS Report.--Not later than 60 days after the date of the 
enactment of this Act, the Secretary of Agriculture shall submit to the 
Committee on Science of the House of Representatives and the Committee 
on Commerce, Science, and Transportation of the Senate a report 
detailing all National Weather Service activities which do not conform 
to the requirements of this section and outlining a timetable for their 
termination.
    (n) Prohibition of Lobbying Activities.--None of the funds 
authorized by this section shall be available for any activity whose 
purpose is to influence legislation pending before the Congress, 
provided that this shall not prevent officers or employees of the 
United States or of its departments or agencies from communicating to 
Members of Congress on the request of any Member or to Congress, 
through the proper channels, requests for legislation or appropriations 
which they deem necessary for the efficient conduct of the public 
business.
    (o) Report on Laboratories.--
            (1) In general.--No later than 120 days after the date of 
        the enactment of this Act, the Secretary of Agriculture shall 
        conduct a review of the laboratories operated by the National 
        Oceanic and Atmospheric Administration and submit a report to 
        the Committee on Science of the House of Representatives and 
        the Committee on Commerce, Science, and Transportation of the 
        Senate.
            (2) Requirements.--The report required by paragraph (1) 
        shall--
                    (A) address potential efficiencies and savings 
                which could be achieved through closing or 
                consolidating laboratory facilities; and
                    (B) review each laboratory's--
                            (i) mission and activities and their 
                        correlation to the mission priorities of the 
                        National Oceanic and Atmospheric 
                        Administration;
                            (ii) physical assets, equipment, condition, 
                        and personnel resources;
                            (iii) organization and program management; 
                        and
                            (iv) address other issues the Inspector 
                        General considers relevant.
    (p) Limitation on NOAA Annual Expenditures.--Notwithstanding 
section 17610, the amount expended by the United States each fiscal 
year for the National Oceanic and Atmospheric Administration may not 
exceed 75 percent of the total amount expended by the United States for 
the National Oceanic and Atmospheric Administration during fiscal year 
1994.

SEC. 17206. MISCELLANEOUS ABOLISHMENTS.

    (a) Abolishments.--The following agencies and programs of the 
Department of Commerce are abolished, and the functions of those 
agencies or programs are abolished except to the extent otherwise 
provided in this title:
            (1) The Economic Development Administration.
            (2) The Minority Business Development Administration.
            (3) The National Telecommunications and Information 
        Administration.
            (4) The Advanced Technology Program under section 28 of the 
        National Institute of Standards and Technology Act (15 U.S.C. 
        278n).
            (5) The Manufacturing Extension Programs under sections 25 
        and 26 of the National Institute of Standards and Technology 
        Act (15 U.S.C. 278k and 278l).
    (b) Sense of the Congress.--It is the sense of the Congress that 
the Congress should continue to explore the prospects for the private 
sector to assume responsibility for many of the functions and 
responsibilities of the Minority Business Development Administration.

SEC. 17207. PRIVATIZATION OF TRAVEL FUNCTIONS.

    The Administrator shall abolish the United States Travel and 
Tourism Administration effective August 1, 1996. Prior to this date the 
Administrator shall submit to the Congress a recommendation for the 
privatization of the functions of the United States Travel and Tourism 
Administration. In making such a recommendation the Administrator shall 
consider the results of the national review conducted by the White 
House Conference on Travel and Tourism, including the consideration of 
fees to support such functions.

SEC. 17208. EFFECTIVE DATE.

    (a) In General.--Except as provided in subsection (b), this 
subtitle shall take effect on the effective date specified in section 
17109(a).
    (b) Provisions Effective on Date of Enactment.--The following 
provisions of this subtitle shall take effect on the date of the 
enactment of this title:
            (1) section 17201.
            (2) section 17206.

SEC. 17209. SENSE OF CONGRESS REGARDING USER FEES.

    It is the sense of the Congress that the head of each agency that 
performs a function vested in the agency by this title should, wherever 
feasible, explore and implement user fees for the provision of services 
in the performance of that function, to offset operating costs.

           Subtitle C--Consolidation of Statistical Functions

SEC. 17301. SHORT TITLE.

    This subtitle may be cited as the ``Federal Statistics Agency 
Establishment Act''.

SEC. 17302. DEFINITIONS.

    As used in this subtitle:
            (1) The term ``Agency'' means the Federal Statistics 
        Agency.
            (2) The term ``Administrator'' means the Administrator of 
        the Federal Statistics Agency.
            (3) The term ``Deputy Administrator'' means the Deputy 
        Administrator of the Federal Statistics Agency.
            (4) The term ``function'' includes any duty, obligation, 
        power, authority, responsibility, right, privilege, activity, 
        or program.
            (5) The term ``office'' includes any office, bureau, 
        institute, council, unit, or organizational entity, or any 
        component thereof.

         CHAPTER 1--Establishment of Federal Statistics Agency

SEC. 17311. ESTABLISHMENT.

    The Federal Statistics Agency is hereby established as a free-
standing establishment in the executive branch of the Government.

SEC. 17312. PRINCIPAL OFFICERS.

    (a) Administrator.--(1) There shall be at the head of the Agency an 
Administrator of the Agency, who shall be appointed by the President, 
by and with the advice and consent of the Senate.
    (2) The Agency, including all functions and offices transferred to 
it under this subtitle, shall be administered, in accordance with the 
provisions of this subtitle, under the supervision and direction of the 
Administrator.
    (3) The Administrator shall receive basic pay at the rate payable 
for level II of the Executive Schedule under section 5313 of title 5, 
United States Code.
    (b) Deputy Administrator.--(1) There shall be in the Agency a 
Deputy Administrator of the Agency who shall be appointed by the 
President, by and with the advice and consent of the Senate.
    (2) During the absence or disability of the Administrator, or in 
the event of a vacancy in the office of the Administrator, the Deputy 
Administrator shall act as Administrator. The Deputy Administrator 
shall perform such other duties and exercise such powers as the 
Administrator may from time to time prescribe.
    (3) The Deputy Administrator shall receive basic pay at the rate 
payable for level III of the Executive Schedule under section 5314 of 
title 5, United States Code.
    (c) Agency Directors.--(1) There shall be in the Agency--
            (A) a Director of the Census who shall, on the transfer of 
        functions and offices under section 17313, serve as the head of 
        the Bureau of the Census; and
            (B) a Director of the Bureau of Economic Analysis who 
        shall, on the transfer of functions and offices under section 
        17313, serve as the head of the Bureau of Economic Analysis.
    (2) Each of the Directors shall be appointed by the President, by 
and with the advice and consent of the Senate. The Director of the 
Census shall receive basic pay at the rate payable for level IV of the 
Executive Schedule under section 5315 of title 5, United States Code. 
The Director of the Bureau of Economic Analysis shall receive basic pay 
at the rate payable for level V of the Executive Schedule under section 
5316 of title 5, United States Code.
    (d) General Counsel.--There shall be in the Agency a General 
Counsel who shall administer the Office of General Counsel of the 
Agency. The General Counsel shall be appointed by the President, by and 
with the advice and consent of the Senate. The General Counsel shall 
receive basic pay at the rate payable for level V of the Executive 
Schedule under section 5316 of title 5, United States Code.

SEC. 17313. TRANSFERS OF FUNCTIONS AND OFFICES.

    (a) Transfer of the Bureau of the Census.--There is transferred to 
the Agency the Bureau of the Census of the Department of Commerce, 
along with all of its functions and offices.
    (b) Transfer of the Bureau of Economic Analysis.--There is 
transferred to the Agency the Bureau of Economic Analysis of the 
Department of Commerce, along with all of its functions and offices.
    (c) Transfer of Statistical Management Functions of OMB.--There are 
transferred to the Administrator the functions of the Director of the 
Office of Management and Budget relating to statistical policy and 
coordination under chapter 35 of title 44, United States Code (as in 
effect immediately before such transfer), including such functions 
under sections 3504(a) and (d) and 3514(a)(10) of such chapter.
    (d) Transfer Date.--The transfers of functions and offices under 
this section shall be effective 90 days after the date of the enactment 
of this Act.

                  CHAPTER 2--ADMINISTRATIVE PROVISIONS

SEC. 17321. PERSONNEL PROVISIONS.

    (a) Officers and Employees.--The Administrator may appoint and fix 
the compensation of such officers and employees as may be necessary to 
carry out the functions of the Administrator and the Agency. Except as 
otherwise provided by law, such officers and employees shall be 
appointed in accordance with the civil service laws and their 
compensation shall be fixed in accordance with title 5, United States 
Code.
    (b) Experts and Consultants.--The Administrator may as provided in 
appropriation Acts obtain the services of experts and consultants in 
accordance with section 3109 of title 5, United States Code, and may 
compensate such experts and consultants at rates not to exceed the 
daily rate prescribed for level V of the Executive Schedule under 
section 5316 of title 5, United States Code.
    (c) Acceptance of Voluntary Services.--(1) Notwithstanding section 
1342 of title 31, United States Code, the Administrator may accept, 
subject to regulations issued by the Office of Personnel Management, 
voluntary services if the services--
            (A) are to be uncompensated; and
            (B) will not be used to displace any employee.
    (2) Any individual who provides voluntary services under this 
subsection shall not be considered a Federal employee for any purpose 
other than for purposes of chapter 81 of title 5, United States Code 
(relating to compensation for injury) and sections 2671 through 2680 of 
title 28, United States Code (relating to tort claims).

SEC. 17322. GENERAL ADMINISTRATIVE PROVISIONS.

    (a) General Authority.--In carrying out any function transferred by 
this subtitle, the Administrator, or any officer or employee of the 
Agency, may exercise any authority available by law with respect to 
such function to the official or agency from which such function is 
transferred, and the actions of the Administrator in exercising such 
authority shall have the same force and effect as when exercised by 
such official or agency.
    (b) Delegation.--Except as otherwise provided in this subtitle, the 
Administrator may delegate any function to such officers and employees 
of the Agency as the Administrator may designate, and may authorize 
such successive redelegations of such functions within the Agency as 
may be necessary or appropriate. No delegation of functions by the 
Administrator under this section or under any other provision of this 
Act shall relieve the Administrator of responsibility for the 
administration of such functions.
    (c) Reorganization.--(1) Except as provided in paragraph (2), the 
Administrator may allocate or reallocate functions among the officers 
of the Agency, and may establish, consolidate, alter, or abolish such 
offices or positions within the Agency as may be necessary or 
appropriate.
    (2) The Administrator may not--
            (A) abolish any office or position transferred to the 
        Agency and established by statute, or any function vested by 
        statute in such an office or an officer of such an office;
            (B) abolish any office or position established by this 
        subtitle; or
            (C) alter the delegation of functions to any specific 
        office or position required by this subtitle.

SEC. 17323. CONTRACTS.

    (a) In General.--Subject to the Federal Property and Administrative 
Services Act of 1949 and other applicable Federal law, the 
Administrator may make, enter into, and perform such contracts, grants, 
leases, cooperative agreements, and other similar transactions with 
Federal or other public agencies (including State and local 
governments) and private organizations and persons, and to make such 
payments, by way of advance or reimbursement, as the Administrator may 
determine necessary or appropriate to carry out functions of the 
Administrator or the Agency.
    (b) Appropriation Authority Required.--No authority to enter into 
contracts or to make payments under this subtitle shall be effective 
except to such extent or in such amounts as are provided in advance 
under appropriation Acts.

SEC. 17324. REGULATIONS.

    The Administrator may prescribe such rules and regulations as the 
Administrator considers necessary or appropriate to administer and 
manage the functions of the Administrator or the Agency, in accordance 
with chapter 5 of title 5, United States Code.

SEC. 17325. SEAL.

    The Administrator shall cause a seal of office to be made for the 
Agency of such design as the Administrator shall approve. Judicial 
notice shall be taken of such seal.

SEC. 17326. ANNUAL REPORT.

    The Administrator shall, as soon as practicable after the close of 
each fiscal year, make a single, comprehensive report to the President 
for transmission to the Congress on the activities of the Agency during 
such fiscal year.

      CHAPTER 3--TRANSITIONAL, SAVINGS, AND CONFORMING PROVISIONS

SEC. 17331. TRANSFER AND ALLOCATION OF APPROPRIATIONS AND PERSONNEL.

    Except as otherwise provided in this subtitle, the personnel 
employed in connection with, and the assets, liabilities, contracts, 
property, records, and unexpended balance of appropriations, 
authorizations, allocations, and other funds employed, held, used, 
arising from, available to, or to be made available in connection with, 
the functions and offices, or portions thereof, transferred by this 
subtitle, subject to section 1531 of title 31, United States Code, 
shall be transferred to the Administrator for appropriate allocation. 
Unexpended funds transferred pursuant to this subsection shall be used 
only for the purposes for which the funds were originally authorized 
and appropriated.

SEC. 17332. EFFECT ON PERSONNEL.

    (a) Preservation of Grade and Compensation for 1 Year.--Except as 
otherwise provided in this subtitle, the transfer pursuant to this Act 
of full-time personnel (except special Government employees) and part-
time personnel holding permanent positions shall not cause any such 
employee to be separated or reduced in grade or compensation for 1 year 
after the date of transfer to the Agency.
    (b) Preservation of Compensation for Executive Schedule 
Appointees.--Any person who, on the day preceding the date of the 
transfer of functions and offices under section 17313, held a position 
compensated in accordance with the Executive Schedule prescribed in 
chapter 53 of title 5, United States Code, and who, without a break in 
service, is appointed in the Agency to a position having duties 
comparable to the duties performed immediately preceding such 
appointment shall continue to be compensated in the new position at not 
less than the rate provided for the previous position, for the duration 
of the service of such person in the new position.

SEC. 17333. INCIDENTAL TRANSFERS.

    (a) In General.--The Director of the Office of Management and 
Budget, in conjunction with the Administrator, shall make such 
determinations as may be necessary with regard to the functions, 
offices, or portions thereof transferred by this subtitle, and make 
such additional incidental dispositions of personnel, assets, 
liabilities, grants, contracts, property, records, and unexpended 
balances of appropriations, authorizations, allocations, and other 
funds held, used, arising from, available to, or to be made available 
in connection with such functions, offices, or portions thereof, as may 
be necessary to carry out this subtitle. The Director of the Office of 
Management and Budget shall provide for the termination of the affairs 
of all entities terminated by this subtitle and, in conjunction with 
the Administrator, for such further measures and dispositions as may be 
necessary to effectuate the purposes of this subtitle.
    (b) Allocation of SES Positions.--After consultation with the 
Director of the Office of Personnel Management, the Director of the 
Office of Management and Budget may make such determinations as may be 
necessary with regard to the transfer of positions within the Senior 
Executive Service in connection with functions and offices transferred 
by this subtitle.

SEC. 17334. SAVINGS PROVISIONS.

    (a) Continuity of Legal Force and Effect.--All orders, 
determinations, rules, regulations, permits, grants, contracts, 
certificates, licenses, and privileges--
            (1) which have been issued, made, granted, or allowed to 
        become effective by the President, by any Federal department or 
        agency or official thereof, or by a court of competent 
        jurisdiction, in the performance of functions which are 
        transferred under this subtitle to the Administrator or the 
        Agency; and
            (2) which are in effect at the time of such transfer,
shall continue in effect according to their terms until modified, 
terminated, superseded, set aside, or revoked by the President, the 
Administrator, or the authorized official, a court of competent 
jurisdiction, or by operation of law.
    (b) Pending Proceedings.--(1) This subtitle shall not affect any 
proceedings, including notices of proposed rulemaking, pending on the 
date of the transfer of functions and offices under section 17313 
before any department, agency, commission, or component thereof, 
functions of which are transferred by this subtitle. Such proceedings, 
to the extent that they relate to functions so transferred, shall be 
continued, except as provided in paragraph (3).
    (2) Orders may be issued in such proceedings, appeals may be taken 
therefrom, and payments may be made pursuant to such orders, as if this 
subtitle had not been enacted. Orders issued in any such proceedings 
shall continue in effect until modified, terminated, superseded, or 
revoked by the Secretary, by a court of competent jurisdiction, or by 
operation of law.
    (3) Nothing in this subsection shall be considered to prohibit the 
discontinuance or modification of any such proceeding under the same 
terms and conditions and to the same extent that such proceeding could 
have been discontinued or modified if this subtitle had not been 
enacted.
    (4) The Administrator may prescribe regulations providing for the 
orderly transfer of proceedings continued under this subsection to the 
Agency.
    (c) No Effect on Judicial Proceedings.--Except as provided in 
subsection (e)--
            (1) the transfer of functions and offices under section 
        17313 shall not affect suits commenced prior to the date of 
        such transfer; and
            (2) in all such suits, proceedings shall be had, appeals 
        taken, and judgments rendered in the same manner and effect as 
        if this subtitle had not been enacted.
    (d) Nonabatement of Proceedings.--No suit, action, or other 
proceeding commenced by or against any officer in the official capacity 
of such individual as an officer of any department or agency, functions 
of which are transferred by this subtitle, shall abate by reason of the 
enactment of this subtitle. No cause of action by or against any 
department or agency, functions of which are transferred by this 
subtitle, or by or against any officer thereof in the official capacity 
of such officer shall abate by reason of the enactment of this 
subtitle.
    (e) Continuation of Proceeding With Substitution of Parties.--If, 
before the date of the transfer of functions and offices under section 
17313, any department or agency, or officer thereof in the official 
capacity of such officer, is a party to a suit, and under this subtitle 
any function of such department, agency, or officer is transferred to 
the Administrator or any other official of the Agency, then such suit 
shall be continued with the Administrator or other appropriate official 
of the Agency substituted or added as a party.
    (f) Reviewability of Orders and Actions Under Transferred 
Functions.--Orders and actions of the Administrator in the exercise of 
functions transferred under this subtitle shall be subject to judicial 
review to the same extent and in the same manner as if such orders and 
actions had been by the agency or office, or part thereof, exercising 
such functions immediately preceding their transfer. Any statutory 
requirements relating to notice, hearings, action upon the record, or 
administrative review that apply to any function transferred by this 
subtitle shall apply to the exercise of such function by the 
Administrator.

SEC. 17335. REFERENCES.

    With respect to any function transferred by this subtitle and 
exercised on or after the date of such transfer, any reference in any 
other Federal law to any department, commission, or agency or to any 
officer or office the functions of which are so transferred is deemed 
to refer to the Administrator, other official, or component of the 
Agency to which this subtitle transfers such functions.

SEC. 17336. CONFORMING AMENDMENTS.

    Chapter 35 of title 44, United States Code, is amended--
            (1) in section 3504--
                    (A) in subsection (a) by striking ``Federal 
                statistical activities,''; and
                    (B) by striking subsection (d); and
            (2) in section 3514(a)--
                    (A) by adding ``and'' after the semicolon at the 
                end of paragraph (8);
                    (B) by striking ``; and'' at the end of paragraph 
                (9)(C) and inserting a period; and
                    (C) by striking paragraph (10).

SEC. 17337. TRANSITION.

    (a) Use of Funds.--Funds available to any department or agency (or 
any official or component thereof), the functions or offices of which 
are transferred to the Administrator or the Agency by this subtitle, 
may, with the approval of the Director of the Office of Management and 
Budget, be used to pay the compensation and expenses of any officer 
appointed pursuant to this subtitle and other transitional and planning 
expenses associated with the establishment of the Agency or transfer of 
functions or offices thereto until such time as funds for such purposes 
are otherwise available.
    (b) Use of Personnel.--With the consent of the appropriate 
department or agency head concerned, the Administrator may utilize the 
services of such officers, employees, and other personnel of the 
departments and agencies from which functions or offices have been 
transferred to the Administrator or the Agency, for such period of time 
as may reasonably be needed to facilitate the orderly implementation of 
this subtitle.

SEC. 17338. INTERIM APPOINTMENTS.

    (a) Authority To Appoint.--Notwithstanding any other provision of 
law, in the event that one or more officers required by this subtitle 
to be appointed by and with the advice and consent of the Senate shall 
not have entered upon office on the date of the transfer of functions 
and offices under section 17313, the President may designate an officer 
in the executive branch to act in such office for 120 days or until the 
office is filled as provided in this subtitle, whichever occurs first.
    (b) Compensation.--Any officer acting in an office pursuant to 
subsection (a) shall receive compensation at the rate prescribed for 
such office under this subtitle.

             Subtitle D--United States Trade Administration

                     CHAPTER 1--GENERAL PROVISIONS

SEC. 17401. FINDINGS.

    The Congress finds that--
            (1) principal national goals of the United States are to--
                    (A) maintain United States leadership in 
                international trade liberalization and expansion 
                efforts;
                    (B) reinvigorate the ability of the United States 
                economy to compete in international markets and to 
                respond flexibly to changes in international 
                competition; and
                    (C) expand United States participation in 
                international trade through aggressive promotion and 
                marketing of American products and services;
            (2) the economy of the United States is so inextricably 
        linked with the international economic system that all domestic 
        economic sectors are influenced by the dynamics of global trade 
        and investment;
            (3) the expansion of United States participation in 
        international trade will improve the general welfare of the 
        people of the United States by increasing demand for American 
        products and services, creating jobs, and increasing the gross 
        national product;
            (4) business, labor, and all levels of government must 
        place the highest priority on developing methods and policies 
        to achieve the goals described in paragraph (1), and the 
        achievement of such goals is dependent on a marked improvement 
        in the capability of United States businesses to compete in 
        foreign markets;
            (5) the Federal Government can enhance the capability of 
        United States businesses to compete in foreign markets by 
        acting to--
                    (A) reduce trade barriers to sales and investments 
                by such businesses;
                    (B) promote American goods and services in foreign 
                countries and encourage aggressive participation by the 
                private sector in the international marketplace; and
                    (C) promote and maintain an international trade 
                system that establishes open, transparent, and fair 
                trade rules and leads to the expansion of United States 
                trade;
            (6) effective and efficient Government action to enhance 
        the capability of United States businesses to compete in 
        foreign markets requires coordination of the development and 
        implementation of Government policies relating to the 
        international trade interests of the United States;
            (7) effective and efficient Government action with respect 
        to international trade further requires the employment of 
        personnel consisting of individuals who, like the personnel of 
        the governments of United States trading partners, are highly 
        experienced and educated in international trade operations and 
        negotiations;
            (8) the present organizational structure of Government 
        administration of international trade activities is too diffuse 
        and leads to inconsistent and conflicting policies and actions;
            (9) such inconsistent and contradictory policies and 
        actions inhibit domestic trade interests, create trade 
        opportunities for our international competitors, and discourage 
        experienced Government personnel from career service in 
        international trade activities;
            (10) United States performance in international trade is 
        fundamentally linked to the competitiveness of American 
        industry in the world economy;
            (11) improvements in the competitiveness of United States 
        industry, products, and services can be aided by reducing 
        traditional antagonisms among government, industry, labor, and 
        the public;
            (12) a lack of analytical capability and knowledge 
        concerning the competitive position of American industries and 
        foreign industries greatly hampers or delays the ability of the 
        United States to formulate responsible trade policies and 
        policies that affect the international competitiveness of 
        domestic industries;
            (13) the consolidation of Government functions relating to 
        international trade, including functions relating to technical 
        analysis, policymaking, international negotiation, and 
        operational responsibilities, into the United States Trade 
        Administration shall provide the needed elevation and 
        coordination of Government activity in international trade;
            (14) the continued prosperity and overall competitive 
        posture of the United States calls for a decisive and unified 
        trade policy that vigorously promotes an equitable 
        international trade environment in which the United States is 
        able to compete fully and fairly;
            (15) continued United States leadership in the world 
        economy requires the formulation and implementation of a trade 
        policy that is delineated and understood by the rest of the 
        world; and
            (16) establishing a decisive and unified trade policy has 
        become a number one priority of the United States;
            (17) enhancing the process of consultation and advice 
        between the executive branch, the Congress, and the private 
        sector will assist in developing the consensus on and support 
        for the trade policy of the United States;
            (18) there is no one single agency or department within the 
        executive branch with overall responsibility for the 
        development, coordination, implementation, and administration 
        of the United States trade policy, and the proliferation and 
        division of agencies within the executive branch have weakened 
        the overall leadership of the United States in international 
        trade matters; and
            (19) the economic well-being of the American people will be 
        substantially enhanced through the establishment of the United 
        States Trade Administration.

SEC. 17402. DEFINITIONS.

    For purposes of this subtitle, unless otherwise provided or 
indicated by the context--
            (1) the term ``Administration'' means the United States 
        Trade Administration;
            (2) the term ``Federal agency'' has the meaning given to 
        the term ``agency'' by section 551(1) of title 5, United States 
        Code;
            (3) the term ``function'' means any duty, obligation, 
        power, authority, responsibility, right, privilege, activity, 
        or program;
            (4) the term ``office'' includes any office, 
        administration, agency, institute, unit, organizational entity, 
        or component thereof; and
            (5) the term ``USTR'' means the United States Trade 
        Representative as provided for under section 3411.

             CHAPTER 2--UNITED STATES TRADE ADMINISTRATION

SEC. 17411. ESTABLISHMENT OF THE ADMINISTRATION.

    (a) In General.--There is established the United States Trade 
Administration which shall be a free-standing establishment in the 
executive branch of Government as defined under section 104 of title 5, 
United States Code. The United States Trade Representative shall be the 
Administrator of the United States Trade Administration and shall be 
appointed by the President, by and with the advice and consent of the 
Senate.
    (b) Ambassador Status.--The USTR shall have the rank and status of 
Ambassador and shall represent the United States in all trade 
negotiations conducted by the Administration.
    (c) Successor to Department of Commerce.--The Administration shall 
be deemed to be the successor to the Department of Commerce for the 
purposes of protocol in any trade-related matter.

SEC. 17412. FUNCTIONS OF THE USTR.

    (a) In General.--In addition to the functions transferred to the 
USTR by this subtitle, such other functions as the President may assign 
or delegate to the USTR, and such other functions as the USTR may, 
after the effective date of this subtitle, be required to carry out by 
law, the USTR shall--
            (1) serve as the principal advisor to the President on 
        international trade policy and advise the President on the 
        impact of other policies of the United States Government on 
        international trade;
            (2) exercise primary responsibility, with the advice of the 
        interagency organization established under section 242 of the 
        Trade Expansion Act of 1962, for developing and implementing 
        international trade policy, including commodity matters and, to 
        the extent related to international trade policy, direct 
        investment matters and, in exercising such responsibility, 
        advance and implement the goals described in section 17401(1) 
        as the primary mandate of the Administration;
            (3) exercise lead responsibility for the conduct of 
        international trade negotiations, including international 
        negotiations relating to commodity matters, intellectual 
        property rights, services, and direct investment negotiations, 
        in which the United States participates;
            (4) exercise lead responsibility for the establishment of a 
        national export strategy, including policies designed to 
        implement such strategy;
            (5) with the advice of the interagency organization 
        established under section 242 of the Trade Expansion Act of 
        1962, issue policy guidance to other Federal agencies on 
        international trade, commodity, and direct investment functions 
        to the extent necessary to assure the coordination of 
        international trade policy;
            (6) have general operational responsibility for major 
        nonagricultural international trade functions under 
        Reorganization Plan No. 3 of 1979;
            (7) seek and promote new opportunities for United States 
        products and services to compete in the world marketplace;
            (8) assist small businesses in developing export markets;
            (9) enforce the laws of the United States relating to 
        trade;
            (10) analyze international economic trends and 
        developments;
            (11) report directly to the Congress on the administration 
        of, and matters pertaining to, the trade agreements program 
        under the Omnibus Trade and Competitiveness Act of 1988, the 
        Trade Act of 1974, the Trade Expansion Act of 1962, and section 
        350 of the Tariff Act of 1930;
            (12) report directly to the Congress, on an annual basis--
                    (A) the status of enforcement of international 
                agreements to which the United States is a party that 
                provide for the protection of intellectual property 
                rights;
                    (B) analyses of the impact on United States 
                citizens and businesses of piracy of intellectual 
                property by foreign entities; and
                    (C) any recommendations for new international 
                agreements to provide for the protection of 
                intellectual property rights;
            (13) keep each official adviser to the United States 
        delegations to international conferences, meetings, and 
        negotiation sessions relating to trade agreements who is 
        appointed by a committee of the Senate or the House of 
        Representatives under section 161 of the Trade Act of 1974 
        currently informed on United States negotiating objectives with 
        respect to trade agreements, the status of negotiations in 
        progress with respect to such agreements, and the nature of any 
        changes in domestic law or the administration thereof which the 
        USTR may recommend to the Congress to carry out any trade 
        agreement;
            (14) consult and cooperate with State and local governments 
        and other interested parties on international trade matters of 
        interest to such governments and parties, and to the extent 
        related to international trade matters, on investment matters, 
        and, when appropriate, hold informal public hearings;
            (15) serve as the principal advisor to the President in 
        identifying and assessing the consequences of any Government 
        policies that adversely affect, or have the potential to 
        adversely affect, the international competitiveness of United 
        States industries and services;
            (16) pursue the enforcement of international agreements to 
        which the United States is a party that provide for the 
        protection of intellectual property rights, seek new 
        international agreements to minimize theft of intellectual 
        property owned by United States citizens and businesses, and 
        otherwise promote protection of intellectual property rights.
    (b) Interagency Organization.--The USTR shall chair the interagency 
organization established under section 242 of the Trade Expansion Act 
of 1962.
    (c) National Security Council.--The USTR shall be a member of the 
National Security Council.
    (d) Advisory Council.--The USTR shall be Deputy Chairman of the 
National Advisory Council on International Monetary and Financial 
Policies established under Executive Order 11269, issued February 14, 
1966.
    (e) Agriculture.--(1) The USTR shall consult with the Secretary of 
Agriculture or the designee of the Secretary of Agriculture on all 
matters that potentially involve international trade in agricultural 
products.
    (2) If an international meeting for negotiation or consultation 
includes discussion of international trade in agricultural products, 
the USTR or the designee of the USTR shall be Chairman of the United 
States delegation to such meeting and the Secretary of Agriculture or 
the designee of such Secretary shall be Vice Chairman. The provisions 
of this paragraph shall not limit the authority of the USTR under 
subsection (h) to assign to the Secretary of Agriculture responsibility 
for the conduct of, or participation in, any trade negotiation or 
meeting.
    (f) Trade Promotion.--The USTR shall be the chairperson of the 
Trade Promotion Coordinating Committee established under section 2312 
of the Export Enhancement Act of 1988 (15 U.S.C. 4727).
    (g) National Economic Council.--The USTR shall be a member of the 
National Economic Council established under Executive Order No. 12835, 
issued January 25, 1993.
    (h) International Trade Negotiations.--Except where expressly 
prohibited by law, the USTR, at the request or with the concurrence of 
the head of any other Federal agency, may assign the responsibility for 
conducting or participating in any specific international trade 
negotiation or meeting to the head of such agency whenever the USTR 
determines that the subject matter of such international trade 
negotiation is related to the functions carried out by such agency.

SEC. 17413. DEPUTY ADMINISTRATOR OF THE UNITED STATES TRADE 
                    ADMINISTRATION.

    (a) Establishment.--There shall be in the Administration the Deputy 
Administrator of the United States Trade Administration, who shall be 
appointed by the President, by and with the advice and consent of the 
Senate.
    (b) Absence, Disability, or Vacancy of USTR.--The Deputy 
Administrator of the United States Trade Administration shall act for 
and exercise the functions of the USTR during the absence or disability 
of the USTR or in the event the office of the USTR becomes vacant. The 
Deputy Administrator of the United States Trade Administration shall 
act for and exercise the functions of the USTR until the absence or 
disability of the USTR no longer exists or a successor to the USTR has 
been appointed by the President and confirmed by the Senate.
    (c) Functions of Deputy Administrator of the United States Trade 
Administration.--The Deputy Administrator of the United States Trade 
Administration shall exercise all functions, under the direction of the 
USTR, transferred to or established in the Administration, except those 
functions exercised by the Deputy United States Trade Representatives, 
the Inspector General, and the General Counsel of the Administration, 
as provided by this subtitle.

SEC. 17414. DEPUTY UNITED STATES TRADE REPRESENTATIVES.

    (a) Establishment.--There shall be in the Administration 2 Deputy 
United States Trade Representatives, who shall be appointed by the 
President, by and with the advice and consent of the Senate. The Deputy 
United States Trade Representatives shall exercise all functions under 
the direction of the USTR, and shall include--
            (1) the Deputy United States Trade Representative for 
        Negotiations; and
            (2) the Deputy United States Trade Representative to the 
        World Trade Organization.
    (b) Functions of Deputy United States Trade Representatives.--(1) 
The Deputy United States Trade Representative for Negotiations shall 
exercise all functions transferred under section 17431 and shall have 
the rank and status of Ambassador.
    (2) The Deputy United States Trade Representative to the World 
Trade Organization shall exercise all functions relating to 
representation to the World Trade Organization and shall have the rank 
and status of Ambassador.

SEC. 17415. ASSISTANT ADMINISTRATORS.

    (a) Establishment.--There shall be in the Administration 3 
Assistant Administrators, who shall be appointed by the President, by 
and with the advice and consent of the Senate. The Assistant 
Administrators shall exercise all functions under the direction of the 
Deputy Administrator of the United States Trade Administration and 
include--
            (1) the Assistant Administrator for Export Administration;
            (2) the Assistant Administrator for Import Administration; 
        and
            (3) the Assistant Administrator for Trade and Policy 
        Analysis.
    (b) Functions of Assistant Administrators.--(1) The Assistant 
Administrator for Export Administration shall exercise all functions 
transferred under section 17432(a)(1)(C).
    (2) The Assistant Administrator for Import Administration shall 
exercise all functions transferred under section 17432(a)(1)(D).
    (3) The Assistant Administrator for Trade and Policy Analysis shall 
exercise all functions transferred under section 17432(a)(1)(B) and all 
functions transferred under section 17432(a)(2).

SEC. 17416. GENERAL COUNSEL.

    There shall be in the Administration a General Counsel, who shall 
be appointed by the President, by and with the advice and consent of 
the Senate. The General Counsel shall provide legal assistance to the 
USTR concerning the activities, programs, and policies of the 
Administration.

SEC. 17417. INSPECTOR GENERAL.

    There shall be in the Administration an Inspector General who shall 
be appointed in accordance with the Inspector General Act of 1978, as 
amended by section 17471(b) of this Act.

SEC. 17418. CHIEF FINANCIAL OFFICER.

    There shall be in the Administration a Chief Financial Officer who 
shall be appointed in accordance with section 901 of title 31, United 
States Code, as amended by section 17471(e) of this Act. The Chief 
Financial Officer shall perform all functions prescribed by the Deputy 
Administrator of the United States Trade Administration, under the 
direction of the Deputy Administrator.

               CHAPTER 3--TRANSFERS TO THE ADMINISTRATION

SEC. 17431. OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE.

    There are transferred to the USTR of the United States Trade 
Administration all functions of the United States Trade Representative 
and the Office of the United States Trade Representative in the 
Executive Office of the President and all functions of any officer or 
employee of such Office.

SEC. 17432. TRANSFERS FROM THE DEPARTMENT OF COMMERCE.

    (a) In General.--There are transferred to the USTR the following 
functions:
            (1) All functions of, and all functions performed under the 
        direction of, the following officers and employees of the 
        Department of Commerce:
                    (A) The Under Secretary of Commerce for 
                International Trade.
                    (B) The Assistant Secretary of Commerce for 
                International Economic Policy and the Assistant 
                Secretary of Commerce for Trade Development.
                    (C) The Under Secretary of Commerce for Export 
                Administration.
                    (D) The Assistant Secretary of Commerce for Import 
                Administration.
            (2) All functions of the Secretary of Commerce relating to 
        the National Trade Data Bank.
            (3) All functions of the Secretary of Commerce under the 
        Tariff Act of 1930, the Uruguay Round Agreements Act, the Trade 
        Act of 1974, and other trade-related Acts for which 
        responsibility is not otherwise assigned under this title.
    (b) United States and Foreign Commercial Service.--
            (1) Renaming and abolition of certain functions.--The 
        United States and Foreign Commercial Service shall, upon the 
        effective date specified in section 17109(a), be known as the 
        ``United States Trade Service'' (hereafter in this subsection 
        referred to as the ``USTS''). All operations of the USTS in the 
        United States (other than those performed at the headquarters 
        office referred to in section 2301(c) of the Export Enhancement 
        Act of 1988 (15 U.S.C. 4721(c)) with respect to the foreign 
        operations of the USTS) are abolished.
            (2) Transfer to ustr.--The USTS and its functions are 
        transferred to the USTR. All functions performed immediately 
        before the effective date specified in section 17109(a) by the 
        Secretary of Commerce or the Department of Commerce with 
        respect to the USTS are transferred to the USTR.
            (3) Director general.--(A) There shall be a Director 
        General of Trade who shall be appointed by the President, by 
        and with the advice and consent of the Senate, who shall have 
        the rank and status of Ambassador, and who shall be the head of 
        the USTS and shall be responsible for other trade promotion 
        functions of the Administration. The Director General of Trade 
        shall report to the USTR.
            (B) The individual serving as Assistant Secretary of 
        Commerce and Director General of Trade immediately before the 
        effective date specified in section 17109(a) may serve as the 
        Director General of Trade on and after such effective date 
        until a successor has taken office. Compensation for any 
        service under this subparagraph shall be at the rate at which 
        the individual was compensated immediately before the effective 
        date specified in section 17109(a).
            (4) Transfer of usts officers.--The transfer to the USTR 
        pursuant to this section of any Commercial Service Officer 
        serving immediately before the effective date specified in 
        section 17109(a) shall not cause such officer to be reduced in 
        rank, grade, or compensation.

SEC. 17433. TRADE AND DEVELOPMENT AGENCY.

    (a) Abolition of Agency.--The Trade and Development Agency is 
abolished.
    (b) Conforming Amendment.--Section 661 of the Foreign Assistance 
Act of 1961 (22 U.S.C. 2421) is repealed.

SEC. 17434. FUNCTIONS WITH RESPECT TO TEXTILE AGREEMENTS.

    (a) Transfer of Functions.--Notwithstanding the provisions of 
Executive Order 11651 and Executive Order 12475 (7 U.S.C. 1854 note), 
the functions of the Committee for the Implementation of Textile 
Agreements (hereafter in this section referred to as ``CITA'') are 
transferred to the USTR, except for all functions related to the 
determination of the existence of serious damage or actual threat 
thereof to the domestic United States textile industry which are 
transferred to the International Trade Commission.
    (b) Abolition of CITA.--CITA is abolished.

SEC. 17435. PLAN FOR CONSOLIDATION OF TRADE ACTIVITIES.

    Within 6 months after the date of the enactment of this Act, the 
USTR shall transmit to the Congress a comprehensive plan to consolidate 
Federal trade programs and activities. The plan shall provide for--
            (1) an itemized summary of all Federal trade programs and 
        activities identified by authorizing statute or executive 
        order, including staff allocation and resource expenditures;
            (2) a unified budget for reallocating Federal trade 
        priorities;
            (3) identification of and recommendations for the 
        elimination of overlapping and duplicative missions and 
        functions among Federal trade programs and activities; and
            (4) identification of present cooperative activities among 
        Federal, State, and private trade programs, and recommendations 
        for Federal priorities and long-term opportunities for 
        developing and increasing such cooperation.

                  CHAPTER 4--ADMINISTRATIVE PROVISIONS

SEC. 17441. PERSONNEL PROVISIONS.

    (a) Appointments.--The USTR may appoint and fix the compensation of 
such officers and employees, including investigators, attorneys, and 
administrative law judges, as may be necessary to carry out the 
functions of the USTR and the Administration. Except as otherwise 
provided by law, such officers and employees shall be appointed in 
accordance with the civil service laws and their compensation fixed in 
accordance with title 5, United States Code.
    (b) Positions Above GS-15.--(1) At the request of the USTR, the 
Director of the Office of Personnel Management shall, under section 
5108 of title 5, United States Code, provide for the establishment in a 
grade level above GS-15 of the General Service, and in the Senior 
Executive Service, of a number of positions in the Administration equal 
to the number of positions in that grade level which were used 
primarily for the performance of functions and offices transferred by 
this subtitle and which were assigned and filled on the day before the 
effective date of this subtitle.
    (2) Appointments to positions provided for under this subsection 
may be made without regard to the provisions of section 3324 of title 
5, United States Code, if the individual appointed in such position is 
an individual who is transferred in connection with the transfer of 
functions and offices under this subtitle and, on the day before the 
effective date of this subtitle, holds a position and has duties 
comparable to those of the position to which appointed under this 
subsection.
    (3) The authority under this subsection with respect to any 
position established at a grade level above GS-15 shall terminate when 
the person first appointed to fill such position ceases to hold such 
position.
    (4) For purposes of section 414(a)(3)(A) of the Civil Service 
Reform Act of 1978, an individual appointed under this subsection shall 
be deemed to occupy the same position as the individual occupied on the 
day before the effective date of this subtitle.
    (c) Experts and Consultants.--The USTR may obtain the services of 
experts and consultants in accordance with section 3109 of title 5, 
United States Code, and compensate such experts and consultants for 
each day (including traveltime) at rates not in excess of the maximum 
rate of pay for a position at a grade level above GS-15 of the General 
Schedule under section 5332 of such title. The USTR may pay experts and 
consultants who are serving away from their homes or regular place of 
business travel expenses and per diem in lieu of subsistence at rates 
authorized by sections 5702 and 5703 of such title for persons in 
Government service employed intermittently.
    (d) Voluntary Services.--(1)(A) The USTR is authorized to accept 
voluntary and uncompensated services without regard to the provisions 
of section 1342 of title 31, United States Code, if such services will 
not be used to displace Federal employees employed on a full-time, 
part-time, or seasonal basis.
    (B) The USTR is authorized to accept volunteer service in 
accordance with the provisions of section 3111 of title 5, United 
States Code.
    (2) The USTR is authorized to provide for incidental expenses, 
including but not limited to transportation, lodging, and subsistence 
for individuals who provide voluntary services under subparagraph (A) 
or (B) of paragraph (1).
    (3) An individual who provides voluntary services under paragraph 
(1)(A) shall not be considered a Federal employee for any purpose other 
than for purposes of chapter 81 of title 5, United States Code, 
relating to compensation for work injuries, and chapter 171 of title 
28, United States Code, relating to tort claims.
    (e) Foreign Service Positions.--In order to assure United States 
representation in trade matters at a level commensurate with the level 
of representation maintained by industrial nations which are major 
trade competitors of the United States, the Secretary of State shall 
classify certain positions at Foreign Service posts as commercial 
minister positions and shall assign members of the Foreign Service 
performing functions of the Administration, with the concurrence of the 
USTR, to such positions in nations which are major trade competitors of 
the United States. The Secretary of State shall obtain and use the 
recommendations of the USTR with respect to the number of positions to 
be so classified under this subsection.

SEC. 17442. DELEGATION AND ASSIGNMENT.

    Except where otherwise expressly prohibited by law or otherwise 
provided by this subtitle, the USTR may delegate any of the functions 
transferred to the USTR by this subtitle and any function transferred 
or granted to the USTR after the effective date of this subtitle to 
such officers and employees of the Administration as the USTR may 
designate, and may authorize successive redelegations of such functions 
as may be necessary or appropriate. No delegation of functions by the 
USTR under this section or under any other provision of this subtitle 
shall relieve the USTR of responsibility for the administration of such 
functions.

SEC. 17443. SUCCESSION.

    (a) Order of Succession.--Subject to the authority of the 
President, and except as provided in section 3413(b), the USTR shall 
prescribe the order by which officers of the Administration who are 
appointed by the President, by and with the advice and consent of the 
Senate, shall act for, and perform the functions of, the USTR or any 
other officer of the Administration appointed by the President, by and 
with the advice and consent of the Senate, during the absence or 
disability of the USTR or such other officer, or in the event of a 
vacancy in the office of the USTR or such other officer.
    (b) Continuation.--Notwithstanding any other provision of law, and 
unless the President directs otherwise, an individual acting for the 
USTR or another officer of the Administration pursuant to subsection 
(a) shall continue to serve in that capacity until the absence or 
disability of the USTR or such other officer no longer exists or a 
successor to the USTR or such other officer has been appointed by the 
President and confirmed by the Senate.

SEC. 17444. REORGANIZATION.

    (a) In General.--Subject to subsection (b), the USTR is authorized 
to allocate or reallocate functions among the officers of the 
Administration, and to establish, consolidate, alter, or discontinue 
such organizational entities in the Administration as may be necessary 
or appropriate.
    (b) Exception.--The USTR may not exercise the authority under 
subsection (a) to establish, consolidate, alter, or discontinue any 
organizational entity in the Administration or allocate or reallocate 
any function of an officer or employee of the Administration that is 
inconsistent with any specific provision of this subtitle.

SEC. 17445. RULES.

    The USTR is authorized to prescribe, in accordance with the 
provisions of chapters 5 and 6 of title 5, United States Code, such 
rules and regulations as the USTR determines necessary or appropriate 
to administer and manage the functions of the USTR or the 
Administration.

SEC. 17446. FUNDS TRANSFER.

    The USTR may, when authorized in an appropriation Act in any fiscal 
year, transfer funds from one appropriation to another within the 
Administration, except that no appropriation for any fiscal year shall 
be either increased or decreased by more than 10 percent and no such 
transfer shall result in increasing any such appropriation above the 
amount authorized to be appropriated therefor.

SEC. 17447. CONTRACTS, GRANTS, AND COOPERATIVE AGREEMENTS.

    (a) In General.--Subject to the provisions of the Federal Property 
and Administrative Services Act of 1949, the USTR may make, enter into, 
and perform such contracts, leases, cooperative agreements, grants, or 
other similar transactions with public agencies, private organizations, 
and persons, and make payments (in lump sum or installments, and by way 
of advance or reimbursement, and, in the case of any grant, with 
necessary adjustments on account of overpayments and underpayments) as 
the USTR considers necessary or appropriate to carry out the functions 
of the USTR or the Administration.
    (b) Exception.--Notwithstanding any other provision of this 
subtitle, the authority to enter into contracts or to make payments 
under this subtitle shall be effective only to such extent or in such 
amounts as are provided in advance in appropriation Acts. This 
subsection does not apply with respect to the authority granted under 
section 449.

SEC. 17448. USE OF FACILITIES.

    (a) Use by USTR.--With their consent, the USTR, with or without 
reimbursement, may use the research, services, equipment, and 
facilities of--
            (1) an individual,
            (2) any public or private nonprofit agency or organization, 
        including any agency or instrumentality of the United States or 
        of any State, the District of Columbia, the Commonwealth of 
        Puerto Rico, or any territory or possession of the United 
        States,
            (3) any political subdivision of any State, the District of 
        Columbia, the Commonwealth of Puerto Rico, or any territory or 
        possession of the United States, or
            (4) any foreign government,
in carrying out any function of the USTR or the Administration.
    (b) Use of USTR Facilities.--The USTR, under terms, at rates, and 
for periods that the USTR considers to be in the public interest, may 
permit the use by public and private agencies, corporations, 
associations or other organizations, or individuals, of any real 
property, or any facility, structure or other improvement thereon, 
under the custody of the USTR. The USTR may require permittees under 
this section to maintain or recondition, at their own expense, the real 
property, facilities, structures, and improvements used by such 
permittees.

SEC. 17449. GIFTS AND BEQUESTS.

    (a) In General.--The USTR is authorized to accept, hold, 
administer, and utilize gifts and bequests of property, both real and 
personal, for the purpose of aiding or facilitating the work of the 
Administration. Gifts and bequests of money and the proceeds from sales 
of other property received as gifts or bequests shall be deposited in 
the United States Treasury in a separate fund and shall be disbursed on 
order of the USTR. Property accepted pursuant to this subsection, and 
the proceeds thereof, shall be used as nearly as possible in accordance 
with the terms of the gift or bequest.
    (b) Tax Treatment.--For the purpose of Federal income, estate, and 
gift taxes, and State taxes, property accepted under subsection (a) 
shall be considered a gift or bequest to or for the use of the United 
States.
    (c) Investment.--Upon the request of the USTR, the Secretary of the 
Treasury may invest and reinvest in securities of the United States or 
in securities guaranteed as to principal and interest by the United 
States any moneys contained in the fund provided for in subsection (a). 
Income accruing from such securities, and from any other property held 
by the USTR pursuant to subsection (a), shall be deposited to the 
credit of the fund, and shall be disbursed upon order of the USTR.

SEC. 17450. WORKING CAPITAL FUND.

    (a) Establishment.--The USTR is authorized to establish for the 
Administration a working capital fund, to be available without fiscal 
year limitation, for expenses necessary for the maintenance and 
operation of such common administrative services as the USTR shall find 
to be desirable in the interest of economy and efficiency, including--
            (1) a central supply service for stationery and other 
        supplies and equipment for which adequate stocks may be 
        maintained to meet in whole or in part the requirements of the 
        Administration and its components;
            (2) central messenger, mail, and telephone service and 
        other communications services;
            (3) office space and central services for document 
        reproduction and for graphics and visual aids;
            (4) a central library service; and
            (5) such other services as may be approved by the Director 
        of the Office of Management and Budget.
    (b) Operation of Fund.--The capital of the fund shall consist of 
any appropriations made for the purpose of providing working capital 
and the fair and reasonable value of such stocks of supplies, 
equipment, and other assets and inventories on order as the USTR may 
transfer to the fund, less the related liabilities and unpaid 
obligations. The fund shall be reimbursed in advance from available 
funds of agencies and offices in the Administration, or from other 
sources, for supplies and services at rates which will approximate the 
expense of operation, including the accrual of annual leave and the 
depreciation of equipment. The fund shall also be credited with 
receipts from sale or exchange of property and receipts in payment for 
loss or damage to property owned by the fund. There shall be covered 
into the United States Treasury as miscellaneous receipts any surplus 
of the fund (all assets, liabilities, and prior losses considered) 
above the amounts transferred or appropriated to establish and maintain 
the fund. There shall be transferred to the fund the stocks of 
supplies, equipment, other assets, liabilities, and unpaid obligations 
relating to those services which the USTR determines will be performed.

SEC. 17451. SERVICE CHARGES.

    (a) Authority.--Notwithstanding any other provision of law, the 
USTR may establish reasonable fees and commissions with respect to 
applications, documents, awards, loans, grants, research data, 
services, and assistance administered by the Administration, and the 
USTR may change and abolish such fees and commissions. Before 
establishing, changing, or abolishing any schedule of fees or 
commissions under this section, the USTR may submit such schedule to 
the Congress.
    (b) Deposits.--The USTR is authorized to require a deposit before 
the USTR provides any item, information, service, or assistance for 
which a fee or commission is required under this section.
    (c) Deposit of Moneys.--Moneys received under this section shall be 
deposited in the Treasury in a special account for use by the USTR and 
are authorized to be appropriated and made available until expended.
    (d) Factors in Establishing Fees and Commissions.--In establishing 
reasonable fees or commissions under this section, the USTR may take 
into account--
            (1) the actual costs which will be incurred in providing 
        the items, information, services, or assistance concerned;
            (2) the efficiency of the Government in providing such 
        items, information, services, or assistance;
            (3) the portion of the cost that will be incurred in 
        providing such items, information, services, or assistance 
        which may be attributed to benefits for the general public 
        rather than exclusively for the person to whom the items, 
        information, services, or assistance is provided;
            (4) any public service which occurs through the provision 
        of such items, information, services, or assistance; and
            (5) such other factors as the USTR considers appropriate.
    (e) Refunds of Excess Payments.--In any case in which the USTR 
determines that any person has made a payment which is not required 
under this section or has made a payment which is in excess of the 
amount required under this section, the USTR, upon application or 
otherwise, may cause a refund to be made from applicable funds.

SEC. 17452. SEAL OF DEPARTMENT.

    The USTR shall cause a seal of office to be made for the 
Administration of such design as the USTR shall approve. Judicial 
notice shall be taken of such seal.

                      CHAPTER 5--RELATED AGENCIES

SEC. 17461. INTERAGENCY TRADE ORGANIZATION.

    Section 242(a)(3) of the Trade Expansion Act of 1962 (19 U.S.C. 
1872(a)(3)) is amended to read as follows:
            ``(3)(A) The interagency organization established under 
        subsection (a) shall be composed of--
                    ``(i) the United States Trade Representative, who 
                shall be the chairperson,
                    ``(ii) the Secretary of Agriculture,
                    ``(iii) the Secretary of the Treasury,
                    ``(iv) the Secretary of Labor,
                    ``(v) the Secretary of State, and
                    ``(vi) the representatives of such other 
                departments and agencies as the United States Trade 
                Representative shall designate.
            ``(B) The United States Trade Representative may invite 
        representatives from other agencies, as appropriate, to attend 
        particular meetings if subject matters of specific functional 
        interest to such agencies are under consideration. It shall 
        meet at such times and with respect to such matters as the 
        President or the chairperson shall direct.''.

SEC. 17462. NATIONAL SECURITY COUNCIL.

    The fourth paragraph of section 101(a) of the National Security Act 
of 1947 (50 U.S.C. 402(a)) is amended--
            (1) by redesignating clauses (5), (6), and (7) as clauses 
        (6), (7), and (8), respectively; and
            (2) by inserting after clause (4) the following new clause:
            ``(5) the United States Trade Representative;''.

SEC. 17463. INTERNATIONAL MONETARY FUND.

    Section 3 of the Bretton Woods Agreement Act is amended by adding 
at the end the following new subsection:
    ``(e) The United States executive director of the Fund shall 
consult with the United States Trade Representative with respect to 
matters under consideration by the Fund which relate to trade.''.

                    CHAPTER 6--CONFORMING AMENDMENTS

SEC. 17471. AMENDMENTS TO GENERAL PROVISIONS.

    (a) Presidential Succession.--Section 19(d)(1) of title 3, United 
States Code, is amended by inserting ``the United States Trade 
Representative,'' before ``Secretary of Labor,''.
    (b) Inspector General.--The Inspector General Act of 1978 is 
amended--
            (1) in subsection 9(a)(1) by inserting after subparagraph 
        (W) the following:
                    ``(X) of the United States Trade Representative, 
                all functions of the Inspector General of the 
                Department of Commerce and the Office of the Inspector 
                General of the Department of Commerce relating to the 
                functions transferred to the United States Trade 
                Representative by section 3432 of the Department of 
                Commerce Dismantling Act; and''; and
            (2) in section 11--
                    (A) in paragraph (1) by inserting ``the United 
                States Trade Representative;'' after ``the Attorney 
                General;''; and
                    (B) in paragraph (2) by inserting ``the United 
                States Trade Administration,'' after ``Treasury;''.
    (c) Amendment to the Trade Act of 1974.--(1) Chapter 4 of title I 
of the Trade Act of 1974 is amended to read as follows:

           ``CHAPTER 4--REPRESENTATION IN TRADE NEGOTIATIONS

``SEC. 141. FUNCTIONS OF THE UNITED STATES TRADE REPRESENTATIVE.

    ``The United States Trade Representative of the United States Trade 
Administration established under section 201 of the Trade 
Reorganization Act of 1995 shall--
            ``(1) be the chief representative of the United States for 
        each trade negotiation under this chapter or chapter 1 of title 
        III of this Act, or subtitle A of title I of the Omnibus Trade 
        and Competitiveness Act of 1988, or any other provision of law 
        enacted after the Department of Commerce Dismantling Act;
            ``(2) report directly to the President and the Congress, 
        and be responsible to the President and the Congress for the 
        administration of trade agreements programs under this Act, the 
        Omnibus Trade and Competitiveness Act of 1988, the Trade 
        Expansion Act of 1962, section 350 of the Tariff Act of 1930, 
        and any other provision of law enacted after the Department of 
        Commerce Dismantling Act;
            ``(3) advise the President and the Congress with respect to 
        nontariff barriers to international trade, international 
        commodity agreements, and other matters which are related to 
        the trade agreements programs; and
            ``(4) be responsible for making reports to Congress with 
        respect to the matters set forth in paragraphs (1) and (2).''.
    (2) The table of contents in the first section of the Trade Act of 
1974 is amended by striking the items relating to chapter 4 and section 
141 and inserting the following:

           ``Chapter 4--Representation in Trade Negotiations

``Sec. 141. Functions of the United States Trade Representative.''.

    (d) Foreign Service Personnel.--The Foreign Service Act of 1980 is 
amended by striking paragraph (3) of section 202(a) (22 U.S.C. 3922(a)) 
and inserting the following:
    ``(3) The United States Trade Representative of the United States 
Trade Administration may utilize the Foreign Service personnel system 
in accordance with this Act--
            ``(A) with respect to the personnel performing functions--
                    ``(i) which were transferred to the Department of 
                Commerce from the Department of State by Reorganization 
                Plan No. 3 of 1979; and
                    ``(ii) which were subsequently transferred to the 
                United States Trade Representative by section 17432 of 
                the Department of Commerce Dismantling Act; and
            ``(B) with respect to other personnel of the United States 
        Trade Administration to the extent the President determines to 
        be necessary in order to enable the United States Trade 
        Administration to carry out functions which require service 
        abroad.''.
    (e) Chief Financial Officers.--Section 901(b)(1) of title 31, 
United States Code, is amended by adding at the end the following:
            ``(Q) The United States Trade Administration.''.

SEC. 17472. REPEALS.

    Sections 1 and 2 of the Act of June 5, 1939 (15 U.S.C. 1502 and 
1503; 53 Stat. 808), relating to the Under Secretary of Commerce, are 
repealed.

SEC. 17473. CONFORMING AMENDMENTS RELATING TO EXECUTIVE SCHEDULE 
                    POSITIONS.

    (a) Positions at Level I.--Section 5312 of title 5, United States 
Code, is amended by amending the item relating to the United States 
Trade Representative to read as follows:
            ``United States Trade Representative, United States Trade 
        Administration.''.
    (b) Positions at Level II.--Section 5313 of title 5, United States 
Code, is amended by adding at the end the following:
            ``Deputy Administrator of the United States Trade 
        Administration.
            ``Deputy United States Trade Representatives, United States 
        Trade Administration (2).
            ``Director General of Trade, United States Trade 
        Administration (2).''.
    (c) Positions at Level III.--Section 5314 of title 5, United States 
Code, is amended by adding at the end the following:
            ``Assistant Administrators, United States Trade 
        Administration (3).''.
    (d) Positions at Level IV.--Section 5315 of title 5, United States 
Code, is amended--
            (1) by striking the item relating to the Assistant 
        Secretary of Commerce and Director General of the United States 
        and Foreign Commercial Service; and
            (2) by adding at the end the following:
            ``General Counsel, United States Trade Administration.
            ``Inspector General, United States Trade Administration.
            ``Chief Financial Officer, United States Trade 
        Administration.''.

      CHAPTER 7--TRANSITIONAL, SAVINGS, AND CONFORMING PROVISIONS

SEC. 17481. ADDITIONAL TRANSFERS.

    Any function of the Secretary of Commerce or the Department of 
Commerce which--
            (1) is not transferred by this subtitle; and
            (2) is incidental to, necessary for, or primarily related 
        to, the performance of a function transferred by this subtitle,
is transferred to the head of the Federal agency to which the related 
function is transferred by this subtitle.

SEC. 17482. INCIDENTAL TRANSFERS.

    After consultation with the Director of the Office of Personnel 
Management, the Director of the Office of Management and Budget is 
authorized, at such times as the Director of the Office of Management 
and Budget may provide, to make such determinations as may be necessary 
with regard to the transfer of positions within the Senior Executive 
Service in connection with the functions and offices transferred by 
this subtitle.

SEC. 17483. EFFECT ON PERSONNEL.

    (a) In General.--Except as otherwise provided by this subtitle, the 
transfer pursuant to this subtitle of full-time personnel (except 
special Government employees) and part-time personnel holding permanent 
positions shall not cause any such employee to be separated or reduced 
in grade or compensation for one year after the date of transfer of 
such employee under this subtitle.
    (b) Executive Schedule Positions.--Except as otherwise provided by 
this subtitle, any person who, on the day preceding the effective date 
of this subtitle, held a position compensated in accordance with the 
Executive Schedule prescribed in chapter 53 of title 5, United States 
Code, and who, without a break in service, is appointed in a Federal 
agency to which functions are transferred by this subtitle to a 
position having duties comparable to the duties performed immediately 
preceding such appointment shall continue to be compensated in such new 
position at not less than the rate provided for such previous position, 
for the duration of the service of such person in such new position.
    (c) Termination of Certain Positions.--Except for members of the 
Foreign Service, positions whose incumbents are appointed by the 
President, by and with the advice and consent of the Senate, the 
functions of which are transferred by this subtitle, shall terminate on 
the effective date of this subtitle.

SEC. 17484. SAVINGS PROVISIONS.

    (a) Administrative Actions Relating to Promulgation of Rules.--Any 
administrative action relating to the preparation or promulgation of a 
regulation by a Federal agency relating to a function transferred under 
this subtitle may be continued by the Federal agency to which such 
function is transferred with the same effect as if this subtitle had 
not been enacted.
    (b) Federal Official as Party in Action.--If, before the date on 
which this subtitle takes effect, the Office of the United States Trade 
Representative, or any officer thereof in his or her official capacity, 
is a party to an action with respect to a function transferred by this 
subtitle to a Federal agency, then such action shall be continued with 
the head of the agency substituted or added as a party.
    (c) Judicial Review.--Orders and actions of the head of a Federal 
agency in the exercise of functions transferred to the head of such 
agency by this subtitle shall be subject to judicial review to the same 
extent and in the same manner as if such orders and actions had been by 
the Department of Commerce or the Office of the United States Trade 
Representative, or any office or officer thereof, in the exercise of 
such functions immediately preceding their transfer. Any statutory 
requirements relating to notice, hearings, action upon the record, or 
administrative review that apply to any function transferred by this 
subtitle shall apply to the exercise of such function by the head of 
the Federal agency to which such function is transferred by this 
subtitle.

SEC. 17485. REFERENCE.

    With respect to any functions transferred by this subtitle and 
exercised after the effective date of this subtitle, reference in any 
other Federal law to--
            (1) the Secretary of Commerce or the United States Trade 
        Representative; or
            (2) the Department of Commerce or the Office of the United 
        States Trade Representative or any officer or office thereof,
shall be considered to refer to the head of the Federal agency to whom 
such functions were transferred by this subtitle.

SEC. 17486. TRANSITION.

    With the consent of the Secretary of Commerce or the United States 
Trade Representative, as the case may be, the head of each Federal 
agency to which functions or offices are transferred by this subtitle 
is authorized to utilize--
            (1) the services of such officers, employees, and other 
        personnel of the Department of Commerce or the Office of the 
        United States Trade Representative, as the case may be, with 
        respect to functions or offices transferred to that agency by 
        this subtitle; and
            (2) funds appropriated to such functions or offices for 
        such period of time as may reasonably be needed to facilitate 
        the orderly implementation of this subtitle.

                        CHAPTER 8--MISCELLANEOUS

SEC. 17491. EFFECTIVE DATE.

    (a) In General.--This subtitle shall take effect on the effective 
date specified in section 17109(a), except that at any time after the 
date of the enactment of this Act the officers provided for in chapter 
2 may be nominated and appointed, as provided in such chapter.
    (b) Interim Compensation and Expenses.--Funds available to the 
Department of Commerce or the Office of the United States Trade 
Representative (or any official or component thereof), with respect to 
the functions transferred by this subtitle, may be used, with approval 
of the Director of the Office of Management and Budget, to pay the 
compensation and expenses of an officer appointed under subsection (a) 
who will carry out such functions until funds for that purpose are 
otherwise available.

SEC. 17492. INTERIM APPOINTMENTS.

    (a) In General.--If one or more officers required by this subtitle 
to be appointed by and with the advice and consent of the Senate have 
not entered upon office on the effective date of this subtitle and 
notwithstanding any other provision of law, the President may designate 
any officer who was appointed by and with the advice and consent of the 
Senate, and who was such an officer on the day before the effective 
date of this subtitle, to act in the office until it is filled as 
provided by this subtitle.
    (b) Compensation.--Any officer acting in an office pursuant to 
subsection (a) shall receive compensation at the rate prescribed by 
this subtitle for such office.

SEC. 17493. FUNDING REDUCTIONS RESULTING FROM REORGANIZATION.

    (a) Funding Reductions.--Notwithstanding section 17610, beginning 
in the first fiscal year that begins on or after the effective date of 
this subtitle, the amount expended by the United States in performing 
all functions which, immediately before the effective date of this 
subtitle, were performed by the Department of Commerce or any agency, 
officer, or employee thereof and are transferred by this subtitle may 
not exceed 75 percent of the total amount expended by the United States 
in performing all such functions during fiscal year 1994.
    (b) Implementation Plan.--(1) Not later than 90 days after the date 
of the enactment of this Act, the Director of the Office of Management 
and Budget shall submit a report to the Congress on a plan that--
            (A) provides for the implementation of the funding 
        reductions required under subsection (a); and
            (B) makes legislative recommendations for additional 
        authority necessary or useful in implementing such funding 
        reductions.
    (2) In preparing the report, the Office of Management and Budget 
shall consult with the USTR.

SEC. 17494. AUTHORIZATION OF APPROPRIATIONS.

    There are authorized to be appropriated such sums as may be 
necessary to carry out the provisions of this subtitle. Amounts 
appropriated under this section shall be available until expended.

          Subtitle E--Patent and Trademark Office Corporation

SEC. 17501. SHORT TITLE.

    This subtitle may be cited as the ``Patent and Trademark Office 
Corporation Act of 1995''.

                 CHAPTER 1--PATENT AND TRADEMARK OFFICE

SEC. 17511. ESTABLISHMENT OF PATENT AND TRADEMARK OFFICE AS A 
                    CORPORATION.

    Section 1 of title 35, United States Code, is amended to read as 
follows:

``Sec. 1. Establishment

    ``(a) Establishment.--The Patent and Trademark Office is 
established as a wholly owned Government corporation subject to chapter 
91 of title 31, except as otherwise provided in this title.
    ``(b) Offices.--The Patent and Trademark Office shall maintain an 
office in the District of Columbia, or the metropolitan area thereof, 
for the service of process and papers and shall be deemed, for purposes 
of venue in civil actions, to be a resident of the District of 
Columbia. The Patent and Trademark Office may establish offices in such 
other places as it considers necessary or appropriate in the conduct of 
its business.
    ``(c) Reference.--For purposes of this title, the Patent and 
Trademark Office shall also be referred to as the `Office'.''.

SEC. 17512. POWERS AND DUTIES.

    Section 2 of title 35, United States Code, is amended to read as 
follows:

``Sec. 2. Powers and Duties

    ``(a) In General.--The Patent and Trademark Office shall be 
responsible for--
            ``(1) the granting and issuing of patents and the 
        registration of trademarks;
            ``(2) conducting studies, programs, or exchanges of items 
        or services regarding domestic and international patent and 
        trademark law or the administration of the Office, including 
        programs to recognize, identify, assess, and forecast the 
        technology of patented inventions and their utility to 
        industry;
            ``(3) authorizing or conducting studies and programs 
        cooperatively with foreign patent and trademark offices and 
        international organizations, in connection with the granting 
        and issuing of patents and the registration of trademarks; and
            ``(4) disseminating to the public information with respect 
        to patents and trademarks.
    ``(b) Specific Powers.--The Office--
            ``(1) shall have perpetual succession;
            ``(2) shall adopt and use a corporate seal, which shall be 
        judicially noticed and with which letters patent, certificates 
        of trademark registrations, and papers issued by the Office 
        shall be authenticated;
            ``(3) may sue and be sued in its corporate name and be 
        represented by its own attorneys in all judicial and 
        administrative proceedings;
            ``(4) may indemnify the Commissioner of Patents and 
        Trademarks, and other officers, attorneys, agents, and 
        employees (including members of the Management Advisory Board 
        established in section 5), of the Office for liabilities and 
        expenses incurred within the scope of their employment;
            ``(5) may adopt, amend, and repeal bylaws, rules, and 
        regulations, governing the manner in which its business will be 
        conducted and the powers granted to it by law will be 
        exercised, without regard to chapter 35 of title 44;
            ``(6) may acquire, construct, purchase, lease, hold, 
        manage, operate, improve, alter, and renovate any real, 
        personal, or mixed property, or any interest therein, as it 
        considers necessary to carry out its functions, without regard 
        to the provisions of the Federal Property and Administrative 
        Services Act of 1949;
            ``(7)(A) may make such purchases, contracts for the 
        construction, maintenance, or management and operation of 
        facilities, and contracts for supplies or services, after 
        advertising, in such manner and at such times sufficiently in 
        advance of opening bids, as the Office determines is adequate 
        to ensure notice and an opportunity for competition, except 
        that advertising shall not be required when the Office 
        determines that the making of any such purchase or contract 
        without advertising is necessary, or that advertising is not 
        reasonably practicable;
            ``(B) may enter into and perform such purchases and 
        contracts for printing services, including the process of 
        composition, platemaking, presswork, silk screen processes, 
        binding, microform, and the products of such processes, as it 
        considers necessary to carry out the functions of the Office, 
        without regard to sections 501 through 517 and 1101 through 
        1123 of title 44; and
            ``(C) may enter into and perform such other contracts, 
        leases, cooperative agreements, or other transactions with 
        international, foreign, and domestic public agencies and 
        private organizations, and persons as is necessary in the 
        conduct of its business and on such terms as it considers 
        appropriate;
            ``(8) may use, with their consent, services, equipment, 
        personnel, and facilities of other departments, agencies, and 
        instrumentalities of the Federal Government, on a reimbursable 
        basis, and to cooperate with such other departments, agencies, 
        and instrumentalities in the establishment and use of services, 
        equipment, and facilities of the Office;
            ``(9) may obtain from the Administrator of General Services 
        such services as the Administrator is authorized to provide to 
        other agencies of the United States, on the same basis as those 
        services are provided to other agencies of the United States;
            ``(10) may use, with the consent of the agency, government, 
        or international organization concerned, the services, records, 
        facilities, or personnel of any State or local government 
        agency or instrumentality or foreign government or 
        international organization to perform functions on its behalf;
            ``(11) may determine the character of and the necessity for 
        its obligations and expenditures and the manner in which they 
        shall be incurred, allowed, and paid, subject to the provisions 
        of this title and the Act of July 5, 1946 (commonly referred to 
        as the `Trademark Act of 1946');
            ``(12) may retain and use all of its revenues and receipts, 
        including revenues from the sale, lease, or disposal of any 
        real, personal, or mixed property, or any interest therein, of 
        the Office, in carrying out the functions of the Office, 
        including for research and development and capital investment, 
        without apportionment under the provisions of subchapter II of 
        chapter 15 of title 31;
            ``(13) shall have the priority of the United States with 
        respect to the payment of debts from bankrupt, insolvent, and 
        decedents' estates;
            ``(14) may accept monetary gifts or donations of services, 
        or of real, personal, or mixed property, in order to carry out 
        the functions of the Office;
            ``(15) may execute, in accordance with its bylaws, rules, 
        and regulations, all instruments necessary and appropriate in 
        the exercise of any of its powers;
            ``(16) may provide for liability insurance and insurance 
        against any loss in connection with its property, other assets, 
        or operations either by contract or by self-insurance; and
            ``(17) shall pay any settlement or judgment entered against 
        it from the funds of the Office and not from amounts available 
        under section 1304 of title 31.''.

SEC. 17513. ORGANIZATION AND MANAGEMENT.

    Section 3 of title 35, United States Code, is amended to read as 
follows:

``Sec. 3. Officers and employees

    ``(a) Commissioner.--
            ``(1) In general.--The management of the Patent and 
        Trademark Office shall be vested in the Commissioner of Patents 
        and Trademarks (hereafter in this title referred to as the 
        `Commissioner'), who shall be a citizen of the United States 
        and who shall be appointed by the President, by and with the 
        advice and consent of the Senate. The Commissioner shall be a 
        person who, by reason of professional background and experience 
        in patent and trademark law, is especially qualified to manage 
        the Office.
            ``(2) Duties.--
                    ``(A) In general.--The Commissioner shall be 
                responsible for the management and direction of the 
                Office, including the issuance of patents and the 
                registration of trademarks.
                    ``(B) Advising the president.--The Commissioner 
                shall advise the President of all activities of the 
                Patent and Trademark Office undertaken in response to 
                obligations of the United States under treaties and 
                executive agreements, or which relate to cooperative 
                programs with those authorities of foreign governments 
                that are responsible for granting patents or 
                registering trademarks. The Commissioner shall also 
                recommend to the President changes in law or policy 
                which may improve the ability of U.S. citizens to 
                secure and enforce patent rights or trademark rights in 
                the United States or in foreign countries.
                    ``(C) Consulting with the management advisory 
                board.--The Commissioner shall consult with the 
                Management Advisory Board established in section 5 on a 
                regular basis on matters relating to the operation of 
                the Patent and Trademark Office, and shall consult with 
                the Board before submitting budgetary proposals to the 
                Office of Management and Budget or changing or 
                proposing to change patent or trademark user fees or 
                patent or trademark regulations.
            ``(3) Term.--The Commissioner shall serve a term of six 
        years, and may continue to serve until a successor is appointed 
        and assumes office. The Commissioner may be reappointed to 
        subsequent terms.
            ``(4) Oath.--The Commissioner shall, before taking office, 
        take an oath to discharge faithfully the duties of the Office.
            ``(5) Compensation.--The Commissioner shall receive 
        compensation at the rate of pay in effect for level II of the 
        Executive Schedule under section 5313 of title 5.
            ``(6) Removal.--The Commissioner may be removed from office 
        by the President only for cause.
            ``(7) Designee of commissioner.--The Commissioner shall 
        designate an officer of the Office who shall be vested with the 
        authority to act in the capacity of the Commissioner in the 
        event of the absence or incapacity of the Commissioner.
    ``(b) Officers and Employees of the Office.--
            ``(1) Deputy commissioners.--The Commissioner shall appoint 
        a Deputy Commissioner for Patents and a Deputy Commissioner for 
        Trademarks for terms that shall expire on the date on which the 
        Commissioner's term expires. The Deputy Commissioner for 
        Patents shall be a person with demonstrated experience in 
        patent law and the Deputy Commissioner for Trademarks shall be 
        a person with demonstrated experience in trademark law. The 
        Deputy Commissioner for Patents and the Deputy Commissioner for 
        Trademarks shall be the principal policy advisors to the 
        Commissioner on all aspects of the activities of the Office 
        that affect the administration of patent and trademark 
        operations, respectively.
            ``(2) Other officers and employees.--The Commissioner 
        shall--
                    ``(A) appoint an Inspector General and such other 
                officers, employees (including attorneys), and agents 
                of the Office as the Commissioner considers necessary 
                to carry out its functions;
                    ``(B) fix the compensation of such officers and 
                employees, subject to the limits set forth in 
                subsection (c); and
                    ``(C) define the authority and duties of such 
                officers and employees and delegate to them such of the 
                powers vested in the Office as the Commissioner may 
                determine.
The Office shall not be subject to any administratively or statutorily 
imposed limitation on positions or personnel, and no positions or 
personnel of the Office shall be taken into account for purposes of 
applying any such limitation, except to the extent otherwise 
specifically provided by statute with respect to the Office.
    ``(c) Limits on Compensation.--Except as otherwise provided in this 
title or any other provision of law, the basic pay of an officer or 
employee of the Office for any calendar year may not exceed the annual 
rate of basic pay in effect for level III of the Executive Schedule 
under section 5314 of title 5. The Commissioner shall by regulation 
establish a limitation on the total compensation payable to officers or 
employees of the Office, consistent with the limitation under section 
5307 of title 5.
    ``(d) Inapplicability of Title 5 Generally.--Except as otherwise 
provided in this section, officers and employees of the Office shall 
not be subject to the provisions of title 5 relating to Federal 
employees.
    ``(e) Carryover of Personnel.--
            ``(1) To the office.--Effective as of the effective date of 
        the Patent and Trademark Office Corporation Act of 1995, all 
        officers and employees of the Patent and Trademark Office on 
        the day before such effective date shall become officers and 
        employees of the Office, without a break in service.
            ``(2) Continuation in office of certain officers.--
                    ``(A) Commissioner of patents and trademarks.--The 
                individual serving as the Commissioner of Patents and 
                Trademarks on the day before the effective date of the 
                Patent and Trademark Office Corporation Act of 1995 may 
                serve as the Commissioner for a period of 1 year 
                beginning on such effective date or, if earlier, until 
                a Commissioner has been appointed under subsection (a).
                    ``(B) Assistant commissioner for patents.--The 
                individual serving as the Assistant Commissioner for 
                Patents on the day before the effective date of the 
                Patent and Trademark Office Corporation Act of 1995 may 
                serve as the Deputy Commissioner for Patents for a 
                period of 1 year beginning on such effective date or, 
                if earlier, until a Deputy Commissioner for Patents has 
                been appointed under subsection (b).
                    ``(C) Assistant commissioner for trademarks.--The 
                individual serving as the Assistant Commissioner for 
                Trademarks on the day before the effective date of the 
                Patent and Trademark Office Corporation Act of 1995 may 
                serve as the Deputy Commissioner for Trademarks for a 
                period of 1 year beginning on such effective date or, 
                if earlier, until a Deputy Commissioner for Trademarks 
                has been appointed under subsection (b).
    ``(f) Employee Protection.--Not later than the effective date of 
the Patent and Trademark Office Corporation Act of 1995, the 
Commissioner shall, notwithstanding section 3531 of such Act, take 
appropriate measures to protect the employment interests of individuals 
who become employees of the Office pursuant to subsection (e)(1). Such 
measures shall include provisions to ensure that--
            ``(1) the Office will adopt labor agreements in accordance 
        with subsection (g);
            ``(2) no such individual shall, during the 2-year period 
        commencing on the effective date of the Patent and Trademark 
        Office Corporation Act of 1995, be subject to separation or any 
        reduction in compensation by reason of the establishment of the 
        Office as a Government corporation pursuant to such Act;
            ``(3) all sick leave, annual leave, and compensatory time 
        accrued or accumulated under title 5 before the start of such 
        2-year period shall be obligations of the Office during such 
        period; and
            ``(4) there shall be made available to such employees not 
        less than 1 life insurance program and not less than 3 health 
        insurance programs, during such 2-year period, which shall be 
        reasonably comparable, in terms of employee premium cost and 
        coverage, to the Federal health and life insurance programs 
        available to such employees on the day before the start of such 
        period.
    ``(g) Labor Agreements.--
            ``(1) Adoption of existing agreements.--The Office shall 
        adopt all labor agreements which are in effect, as of the day 
        before the effective date of the Patent and Trademark Office 
        Corporation Act of 1995, with respect to such Office (as then 
        in effect). Each such agreement shall remain in effect for the 
        2-year period commencing on such date, unless the agreement 
        provides for a shorter duration or the parties agree otherwise 
        before such period ends.
    ``(2) Continued applicability of chapter 71.--Chapter 71 of title 5 
shall continue to apply with respect to the Office after the Patent and 
Trademark Office Corporation Act of 1995 takes effect.
    ``(h) Termination Rights.--Any employee referred to in the first 
sentence of subsection (f) whose employment with the Office is 
terminated during the 2-year period commencing on the effective date of 
the Patent and Trademark Office Corporation Act of 1995 shall be 
entitled to rights and benefits, to be afforded by the Office, similar 
to those such employee would have had under Federal law if termination 
had occurred immediately before such date.
    ``(i) Retirement.--
            ``(1) Continued coverage.--Any employee referred to in the 
        first sentence of subsection (f) who, on the day before the 
        effective date of the Patent and Trademark Office Corporation 
        Act of 1995, is subject to subchapter III of chapter 83 of 
        title 5 or chapter 84 of such title shall, so long as such 
        employee remains employed by the Office without a break in 
        service, remain subject to such subchapter or chapter, as the 
        case may be. Any employment that satisfies the preceding 
        sentence shall be considered employment by the Government of 
        the United States for purposes of such subchapter or chapter. 
        During any such employment, the Office shall be considered to 
        be the employing agency of the employee and shall make all 
        agency contributions required under such subchapter or chapter 
        with respect to such employee.
            ``(2) Deposit requirement.--Not later than 1 year after the 
        effective date of the Patent and Trademark Office Corporation 
        Act of 1995, the Office shall pay into the Treasury of the 
        United States, to the credit of the Civil Service Retirement 
        and Disability Fund, an amount determined by the Office of 
        Personnel Management to represent the present value of the 
        difference between (A) the future cost of benefits payable from 
        the Fund and due the employees referred to in the first 
        sentence of subsection (f) that are attributable to employment 
        on or after the effective date of the Patent and Trademark 
        Office Corporation Act of 1995, and (B) the contributions made 
        by such employees and the Office under paragraph (1). In 
        determining the amount due, the Office of Personnel Management 
        shall take into consideration the actual interest such amount 
        can be expected to earn when invested in the Treasury.
    ``(j) Competitive Status.--For purposes of appointment to a 
position in the competitive service for which an officer or employee of 
the Office is qualified, such officer or employee--
            ``(1) shall not forfeit any competitive status, acquired by 
        such officer or employee before the effective date of the 
        Patent and Trademark Office Corporation Act of 1995, by reason 
        of becoming an officer or employee of the Office pursuant to 
        subsection (e)(1); or
            ``(2) if not covered by paragraph (1), shall acquire 
        competitive status after completing at least 1 year of 
        continuous service under a nontemporary appointment to a 
        position within the Office (taking into account any such 
        service performed with the former Patent and Trademark Office 
        immediately before such effective date).
    ``(k) Savings Provisions.--All orders, determinations, rules, and 
regulations regarding compensation and benefits and other terms and 
conditions of employment, in effect for the Office and its officers and 
employees immediately before the effective date of the Patent and 
Trademark Office Corporation Act of 1995, shall continue in effect with 
respect to the Office and its officers and employees until modified, 
superseded, or set aside by the Office or a court of appropriate 
jurisdiction or by operation of law.''.

 SEC. 17514. MANAGEMENT ADVISORY BOARD.

    Chapter 1 of part I of title 35, United States Code, is amended by 
inserting after section 4 the following:

``Sec. 5. Patent and Trademark Office Management Advisory Board

    ``(a) Compensation.--
            ``(1) Appointment.--The Patent and Trademark Office shall 
        have a Management Advisory Board (hereafter in this title 
        referred to as the `Board') of 18 members, 6 of whom shall be 
        appointed by the President, 6 of whom shall be appointed by the 
        Speaker of the House of Representatives, and 6 of whom shall be 
        appointed by the President pro tempore of the Senate. Not more 
        than 4 of the 6 members appointed by each appointing authority 
        shall be members of the same political party.
            ``(2) Terms.--Members of the Board shall be appointed for a 
        term of 6 years each, except that of the members first 
        appointed by each appointing authority, 1 shall be for a term 
        of 1 year, 1 shall be for a term of 2 years, 1 shall be for a 
        term of 3 years, 1 shall be for a term of 4 years, and 1 shall 
        be for a term of 5 years. No member may serve more than 1 term.
            ``(3) Chair.--The President shall designate the chair of 
        the Board, whose term as chair shall be for 3 years.
            ``(4) Timing of appointments.--Initial appointments to the 
        Board shall be made within 3 months after the effective date of 
        the Patent and Trademark Office Corporation Act of 1995, and 
        vacancies shall be filled within 3 months after they occur.
            ``(5) Vacancies.--Vacancies shall be filled in the manner 
        in which the original appointment was made under this 
        subsection. Members appointed to fill a vacancy occurring 
        before the expiration of the term for which the member's 
        predecessor was appointed shall be appointed only for the 
        remainder of that term. A member may serve after the expiration 
        of that member's term until a successor is appointed.
    ``(b) Basis for Appointments.--Members of the Board shall be 
citizens of the United States who shall be chosen so as to represent 
the interests of diverse users of the Patent and Trademark Office, and 
shall include individuals with substantial background and achievement 
in corporate finance and management.
    ``(c) Applicability of Certain Ethics Laws.--Members of the Board 
shall be special Government employees within the meaning of section 202 
of title 18.
    ``(d) Meetings.--The Board shall meet at the call of the chair to 
consider an agenda set by the chair.
    ``(e) Duties.--The Board shall--
            ``(1) review the policies, goals, performance, budget, and 
        user fees of the Patent and Trademark Office, and advise the 
        Commissioner on these matters; and
            ``(2) within 60 days after the end of each fiscal year, 
        prepare an annual report on the matters referred to in 
        paragraph (1), transmit the report to the President and the 
        Committees on the Judiciary of the Senate and the House of 
        Representatives, and publish the report in the Patent and 
        Trademark Office Official Gazette.
    ``(f) Staff.--The Board shall employ a staff and procure support 
services for the staff adequate to enable the Board to carry out its 
functions, using funds available to the Commissioner under section 42 
of this title. Persons employed by the Board shall receive compensation 
as determined by the Board, serve in accordance with terms and 
conditions of employment established by the Board, and be subject 
solely to the direction of the Board, notwithstanding any other 
provision of law.
    ``(g) Compensation.--Members of the Board may accept reimbursement 
for expenses incurred in attending meetings of the Board and 
compensation not to exceed $1000 per day for each day in attendance at 
meetings of the Board.
    ``(h) Access to Information.--Members of the Board shall be 
provided access to records and information in the Patent and Trademark 
Office, except for personnel or other privileged information and 
information concerning patent applications required to be kept in 
confidence by section 122 of this title.
    ``(i) Applicability of Federal Advisory Committee Act.--The 
provisions of the Federal Advisory Committee Act (5 U.S.C. App.) shall 
not apply to meetings of the Board, but all meetings of the Board shall 
be announced in the Federal Register at least 30 days in advance and 
all meetings shall be open to the public unless closed by the Board for 
good cause.''.

 SEC. 17515. INDEPENDENCE FROM DEPARTMENT OF COMMERCE.

    Section 6 of title 35, United States Code, is amended--
            (1) by striking ``, under the direction of the Secretary of 
        Commerce,'' each place it appears; and
            (2) by striking ``, subject to the approval of the 
        Secretary of Commerce,''.

SEC. 17516. TRADEMARK TRIAL AND APPEAL BOARD.

    Section 17 of the Act of July 5, 1946 (commonly referred to as the 
``Trademark Act of 1946'') (15 U.S.C. 1067) is amended to read as 
follows:
    ``Sec. 17. (a) In every case of interference, opposition to 
registration, application to register as a lawful concurrent user, or 
application to cancel the registration of a mark, the Commissioner 
shall give notice to all parties and shall direct a Trademark Trial and 
Appeal Board to determine and decide the respective rights of 
registration.
    ``(b) The Trademark Trial and Appeal Board shall include the 
Commissioner, the Deputy Commissioner for Patents, the Deputy 
Commissioner for Trademarks, and members competent in trademark law who 
are appointed by the Commissioner.''.

SEC. 17517. BOARD OF PATENT APPEALS AND INTERFERENCES.

    Section 7 of title 35, United States Code, is amended to read as 
follows:

``Sec. 7. Board of Patent Appeals and Interferences

    ``(a) Establishment and Composition.--There shall be in the Patent 
and Trademark Corporation a Board of Patent Appeals and Interferences. 
The Commissioner, the Deputy Commissioner for Patents, the Deputy 
Commissioner for Trademarks, the officer principally responsible for 
the examination of patents, the officer principally responsible for the 
examination of trademarks, and the examiners-in-chief shall constitute 
the Board. The examiners-in-chief shall be persons of competent legal 
knowledge and scientific ability.
    ``(b) Duties.--The Board of Patent Appeals and Interferences shall, 
on written appeal of an applicant, review adverse decisions of 
examiners upon applications for patents and shall determine priority 
and patentability of invention in interferences declared under section 
135(a) of this title. Each appeal and interference shall be heard by at 
least 3 members of the Board, who shall be designated by the 
Commissioner. Only the Board of Patent Appeals and Interferences may 
grant rehearings.''.

SEC. 17518. SUITS BY AND AGAINST THE CORPORATION.

    Chapter 1 of part I of title 35, United States Code, is amended--
            (1) by redesignating sections 8 through 14 as sections 9 
        through 15; and
            (2) by inserting after section 7 the following new section:

``Sec. 8. Suits by and against the Corporation

    ``(a) In General.--
            ``(1) Actions under united states law.--Any civil action, 
        suit, or proceeding to which the Patent and Trademark Office is 
        a party is deemed to arise under the laws of the United States. 
        Exclusive jurisdiction over all civil actions by or against the 
        Office is in the Federal courts as provided by law.
            ``(2) Contract claims.--Any action, suit, or proceeding 
        against the Office founded upon contract shall be subject to 
        the limitations and exclusive remedy provided in section 
        1346(a)(2) and sections 1491 through 1509 of title 28, whether 
        or not such contract claims are cognizable under the sections 
        507, 1346, 1402, 1491, 1496, 1497, 1501, 1503, 2071, 2072, 
        2411, 2501, 2512 of title 28). For purposes of the Contract 
        Disputes Act of 1978 (41 U.S.C. 601 and following), the 
        Commissioner shall be deemed to be the agency head with respect 
        to contract claims arising with respect to the Office.
            ``(3) Tort claims.--Any action, suit, or proceeding against 
        the Office founded upon tort shall be subject to the 
        limitations and exclusive remedies provided in section 1346(b) 
        and sections 2671 through 2680 of title 28, whether or not such 
        tort claims are cognizable under section 1346(b) of title 28.
            ``(4) Prohibition on attachment, liens, etc.--No 
        attachment, garnishment, lien, or similar process, intermediate 
        or final, in law or equity, may be issued against property of 
        the Office.
            ``(5) Substitution of office as party.--The Office shall be 
        substituted as defendant in any civil action, suit, or 
        proceeding against an officer or employee of the Office, if the 
        Office determines that the employee was acting within the scope 
        of the officer or employee's employment with the Office. If the 
        Office refuses to certify scope of employment, the officer or 
        employee may at any time before trial petition the court to 
        find and certify that the officer or employee was acting within 
        the scope of the officer or employee's employment. Upon 
        certification by the court, the Office shall be substituted as 
        the party defendant. A copy of the petition shall be served 
        upon the Office.
    ``(b) Relationship With Justice Department.--
            ``(1) Exercise by office of attorney general's 
        authorities.--Except as provided in this section, in relation 
        to all judicial proceedings in which the Office or an officer 
        or employee thereof is a party or in which the officer or 
        employee thereof is interested and which arise from or relate 
        to officers or employees thereof acting within the scope of 
        their employment, torts, contracts, property, registration of 
        patent and trademark practitioners, patents or trademarks, or 
        fees, the officer or employee thereof may exercise, without 
        prior authorization from the Attorney General, the authorities 
        and duties that otherwise would be exercised by the Attorney 
        General on behalf of the officer or employee thereof under 
        title 28, and other laws. In all other judicial or 
        administrative proceedings in which the Office or an officer or 
        employee of the Office is a party or is interested, the Office 
        may exercise these authorities and duties only after obtaining 
        authorization from the Attorney General.
            ``(2) Appearances by attorney general.--The Attorney 
        General may file an appearance on behalf of the Office or an 
        employee of the Office, without the consent of the Office, in 
        any suit in which the Office is a party and represent the 
        Office with exclusive authority in the conduct, settlement, or 
        compromise of that suit.
            ``(3) Consultations with and assistance by attorney 
        general.--The Office may consult with the Attorney General 
        concerning any legal matter, and the Attorney General shall 
        provide advice and assistance to the Office, including 
        representing the Office in litigation, if requested by the 
        Office.
            ``(4) Representation before supreme court.--The Attorney 
        General shall represent the Office in all cases before the 
        United States Supreme Court.
            ``(5) Qualifications of attorneys.--An attorney admitted to 
        practice to the bar of the highest court of at least one State 
        in the United States or the District of Columbia and appointed 
        by the Office may represent the Office in any legal proceeding 
        in which the Office or an officer or employee of the Office is 
        a party or interested, regardless of whether the attorney is a 
        resident of the jurisdiction in which the proceeding is held 
        and notwithstanding any other prerequisites of qualification or 
        appearance required by the court or administrative body.''.

 SEC. 17519. ANNUAL REPORT OF COMMISSIONER.

    Section 15 of title 35, United States Code, as redesignated by 
section 3518 of this Act, is amended to read as follows:

``Sec. 15. Annual report to Congress

    ``The Commissioner shall report to the Congress, not later than 90 
days after the end of each fiscal year, the moneys received and 
expended by the Office, the purposes for which the moneys were spent, 
the quality and quantity of the work of the Office, and other 
information relating to the Office.''.

SEC. 17520. SUSPENSION OR EXCLUSION FROM PRACTICE.

    Section 32 of title 35, United States Code, is amended by inserting 
before the last sentence the following: ``The Commissioner shall have 
the discretion to designate any officer or employee of the Patent and 
Trademark Office to conduct the hearing required by this section.''.

SEC. 17521. FUNDING.

    Section 42 of title 35, United States Code, is amended to read as 
follows:

``Sec. 42. Patent and Trademark Office funding

    ``(a) Fees Payable to the Office.--All fees for services performed 
by or materials furnished by the Patent and Trademark Office shall be 
payable to the Office.
    ``(b) Use of Moneys.--Moneys of the Patent and Trademark Office not 
otherwise used to carry out the functions of the Office shall be kept 
in cash on hand or on deposit, or invested in obligations of the United 
States or guaranteed by the United States, or in obligations or other 
instruments which are lawful investments for fiduciary, trust, or 
public funds. Fees available to the Commissioner under this title shall 
be used exclusively for the processing of patent applications and for 
other services and materials relating to patents. Fees available to the 
Commissioner under section 31 of the Act of July 5, 1946 (commonly 
referred to as the `Trademark Act of 1946') (15 U.S.C. 1113) shall be 
used exclusively for the processing of trademark registrations and for 
other services and materials relating to trademarks.
    ``(c) Borrowing Authority.--The Patent and Trademark Office is 
authorized to issue from time to time for purchase by the Secretary of 
the Treasury its debentures, bonds, notes, and other evidences of 
indebtedness (hereafter in this subsection referred to as 
`obligations') in an amount not exceeding $2,000,000 outstanding at any 
one time, to assist in financing its activities. Such obligations shall 
be redeemable at the option of the Office before maturity in the manner 
stipulated in such obligations and shall have such maturity as is 
determined by the Office with the approval of the Secretary of the 
Treasury. Each such obligation issued to the Treasury shall bear 
interest at a rate not less than the current yield on outstanding 
marketable obligations of the United States of comparable maturity 
during the month preceding the issuance of the obligation as determined 
by the Secretary of the Treasury. The Secretary of the Treasury shall 
purchase any obligations of the Office issued under this subsection and 
for such purpose the Secretary of the Treasury is authorized to use as 
a public-debt transaction the proceeds of any securities issued under 
chapter 31 of title 31, and the purposes for which securities may be 
issued under that chapter are extended to include such purpose. Payment 
under this subsection of the purchase price of such obligations of the 
Patent and Trademark Office shall be treated as public debt 
transactions of the United States.''.

SEC. 17522. AUDITS.

    Chapter 4 of part I title 35, United States Code, is amended by 
adding at the end the following new section:

``Sec. 43. Audits

    ``(a) In General.--Financial statements of the Patent and Trademark 
Office shall be prepared on an annual basis in accordance with 
generally accepted accounting principles. Such statements shall be 
audited by an independent certified public accountant chosen by the 
Secretary. The audit shall be conducted in accordance with standards 
that are consistent with generally accepted Government auditing 
standards and other standards established by the Comptroller General, 
and with the generally accepted auditing standards of the private 
sector, to the extent feasible.
    ``(b) Review by Comptroller General.--The Comptroller General may 
review any audit of the financial statement of the Patent and Trademark 
Office that is conducted under subsection (a). The Comptroller General 
shall report to the Congress and the Office the results of any such 
review and shall include in such report appropriate recommendations.
    ``(c) Audit by Comptroller General.--The Comptroller General may 
audit the financial statements of the Office and such audit shall be in 
lieu of the audit required by subsection (a). The Office shall 
reimburse the Comptroller General for the cost of any audit conducted 
under this subsection.
    ``(d) Access to Office Records.--All books, financial records, 
report files, memoranda, and other property that the Comptroller 
General deems necessary for the performance of any audit shall be made 
available to the Comptroller General.
    ``(e) Applicability in Lieu of Title 31 Provisions.--This section 
applies to the Office in lieu of the provisions of section 9105 of 
title 31.''.

SEC. 17523. TRANSFER.

    (a) Transfer of Functions.--Except as otherwise provided in this 
subtitle, there are transferred to, and vested in, the Patent and 
Trademark Office all functions, powers, and duties vested by law in the 
Secretary of Commerce or the Department of Commerce or in the officers 
or components in the Department of Commerce with respect to the 
authority to grant patents and register trademarks, and in the Patent 
and Trademark Office, as in effect on the day before the effective date 
of this subtitle, and in the officers and components of such Office.
    (b) Transfer of Funds and Property.--The Secretary of Commerce 
shall transfer to the Patent and Trademark Office, on the effective 
date of this subtitle, so much of the assets, liabilities, contracts, 
property, records, and unexpended and unobligated balances of 
appropriations, authorizations, allocations, and other funds employed, 
held, used, arising from, available to, or to be made available to the 
Department of Commerce, including funds set aside for accounts 
receivable which are related to functions, powers, and duties which are 
vested in the Patent and Trademark Office by this subtitle.
    (c) Transfer of Surcharge Fund.--On the effective date of this 
subtitle, there are transferred to the Patent and Trademark Office 
those residual and unappropriated balances remaining as of the 
effective date within the Patent and Trademark Office Surcharge Fund 
established by section 10101(b) of the Omnibus Budget Reconciliation 
Act of 1990 (35 U.S.C. 41 note).

            CHAPTER 2--EFFECTIVE DATE; TECHNICAL AMENDMENTS

 SEC. 17531. EFFECTIVE DATE.

    This subtitle shall take effect on the date that is 6 months after 
the date of the enactment of this Act.

SEC. 17532. TECHNICAL AND CONFORMING AMENDMENTS.

    (a) Amendments to Title 35.--
            (1) The table of contents for part I of title 35, United 
        States Code, is amended by amending the item relating to 
        chapter 1 to read as follows:

``1. Establishment, Officers and Employees, Functions.......       1''.

            (2) The table of sections for chapter 1 of title 35, United 
        States Code, is amended to read as follows:

     ``CHAPTER 1--ESTABLISHMENT, OFFICERS AND EMPLOYEES, FUNCTIONS

``Sec.
 ``1. Establishment.
 ``2. Powers and duties.
 ``3. Officers and employees.
 ``4. Restrictions on officers and employees as to interest in patents.
 ``5. Patent and Trademark Office Management Advisory Board.
 ``6. Duties of Commissioner.
 ``7. Board of Patent Appeals and Interferences.
 ``8. Suits by and against the Corporation.
 ``9. Library.
``10. Classification of patents.
``11. Certified copies of records.
``12. Publications.
``13. Exchange of copies of patents with foreign countries.
``14. Copies of patents for public libraries.
``15. Annual report to Congress.''.

    (3) The table of contents for chapter 4 of part I of title 35, 
United States Code, is amended by adding at the end the following new 
item:

``43. Audits.''.

    (b) Other Provisions of Law.--
            (1) Section 9101(3) of title 31, United States Code, is 
        amended by adding at the end the following:
                    ``(O) the Patent and Trademark Office.''.
            (2) Section 602(d) of the Federal Property and 
        Administrative Services Act of 1949 (40 U.S.C. 474) is 
        amended--
                    (A) in paragraph (20) by striking ``or'' after the 
                semicolon;
                    (B) in paragraph (21) by striking the period and 
                inserting ``; or''; and
                    (C) by adding at the end the following:
            ``(22) the Patent and Trademark Office.''.
            (3) Section 500(e) of title 5, United States Code (5 U.S.C. 
        500(e)) is amended by striking ``Patent Office'' and inserting 
        ``Patent and Trademark Office''.
            (4) Section 5102(c)(23) of title 5, United States Code, is 
        amended by striking ``, Department of Commerce''.
            (5) Section 5316 of title 5, United States Code (5 U.S.C. 
        5316) is amended by striking ``Commissioner of Patents, 
        Department of Commerce.'', ``Deputy Commissioner of Patents and 
        Trademarks.'', ``Assistant Commissioner for Patents.'', and 
        ``Assistant Commissioner for Trademarks.''.
            (6) Section 12 of the Act of February 14, 1903 (15 U.S.C. 
        1511) is amended by striking ``(d) Patent and Trademark 
        Office;'' and redesignating subsections (a) through (g) as 
        paragraphs (1) through (6), respectively.
            (7) The Act of April 12, 1892 (27 Stat. 395; 20 U.S.C. 91) 
        is amended by striking ``Patent Office'' and inserting ``Patent 
        and Trademark Office''.
            (8) Sections 505(m) and 512(o) of the Federal Food, Drug, 
        and Cosmetic Act (21 U.S.C. 355(m) and 360b(o)) are each 
        amended by striking ``of the Department of Commerce''.
            (9) Section 105(e) of the Federal Alcohol Administration 
        Act (27 U.S.C. 205(e)) is amended by striking ``Patent Office'' 
        and inserting ``Patent and Trademark Office''.
            (10) Section 1744 of title 28, United States Code is 
        amended--
                    (A) by striking ``Patent Office'' each place it 
                appears and inserting ``Patent and Trademark Office''; 
                and
                    (B) by striking ``Commissioner of Patents'' and 
                inserting ``Commissioner of Patents and Trademarks''.
            (11) Section 1745 of title 28, United States Code, is 
        amended by striking ``United States Patent Office'' and 
        inserting ``Patent and Trademark Office''.
            (12) Section 1928 of title 28, United States Code, is 
        amended by striking ``Patent Office'' and inserting ``Patent 
        and Trademark Office''.
            (13) Section 160 of the Atomic Energy Act of 1954 (42 
        U.S.C. 2190) is amended--
                    (A) by striking ``Patent Office'' and inserting 
                ``Patent and Trademark Office''; and
                    (B) by striking ``Commissioner of Patents'' and 
                inserting ``Commissioner of Patents and Trademarks''.
            (14) Section 305(c) of the National Aeronautics and Space 
        Act of 1958 (42 U.S.C. 2457(c)) is amended by striking 
        ``Commissioner of Patents'' and inserting ``Commissioner of 
        Patents and Trademarks''.
            (15) Section 12(a) of the Solar Heating and Cooling 
        Demonstration Act of 1974 (42 U.S.C. 5510(a)) is amended by 
        striking ``Commissioner of the Patent Office'' and inserting 
        ``Commissioner of Patents and Trademarks''.
            (16) Section 1111 of title 44, United States Code, is 
        amended by striking ``Commissioner of Patents'' and inserting 
        ``Commissioner of Patents and Trademarks''.
            (17) Sections 1114 and 1123 of title 44, United States 
        Code, are each amended by striking ``Commissioner of Patents''.
            (18) Section 1123 of title 44, United States Code, is 
        amended by striking ``the Patent Office,''.
            (19) Sections 1337 and 1338 of title 44, United States 
        Code, and the items relating to those sections in the table of 
        contents for chapter 13 of such title, are repealed.
            (20) Section 10(i) of the Trading With the Enemy Act (50 
        U.S.C. App. 10(i)) is amended by striking ``Commissioner of 
        Patents'' and inserting ``Commissioner of Patents and 
        Trademarks''.
            (21) Section 8G(a)(2) of the Inspector General Act of 1978 
        (5 U.S.C. App.) is amended by inserting ``the Patent and 
        Trademark Office,'', after ``the Panama Canal Commission,''.
            (22) Section 255(g)(1)(A) of the Balanced Budget and 
        Emergency Deficit Control Act of 1985 (2 U.S.C. 905(g)(1)(A)) 
        is amended by inserting after the item relating to the United 
        States Enrichment Corporation the following new item:
                    ``Patent and Trademark Office;''.
            (23) Section 10101(b)(2)(B) of the Omnibus Budget 
        Reconciliation Act of 1990 (35 U.S.C. 41 note) is amended by 
        striking ``, to the extent provided in appropriation Acts,'' 
        and inserting ``without appropriation''.

                  Subtitle E--Miscellaneous Provisions

SEC. 17601. REFERENCES.

    Any reference in any other Federal law, Executive order, rule, 
regulation, or delegation of authority, or any document of or 
pertaining to an office from which a function is transferred by this 
title--
            (1) to the Secretary of Commerce or an officer of the 
        Department of Commerce, is deemed to refer to the head of the 
        department or office to which such function is transferred; or
            (2) to the Department of Commerce or an agency in the 
        Department of Commerce is deemed to refer to the department or 
        office to which such function is transferred.

SEC. 17602. EXERCISE OF AUTHORITIES.

    Except as otherwise provided by law, a Federal official to whom a 
function is transferred by this title may, for purposes of performing 
the function, exercise all authorities under any other provision of law 
that were available with respect to the performance of that function to 
the official responsible for the performance of the function 
immediately before the effective date of the transfer of the function 
under this title.

SEC. 17603. SAVINGS PROVISIONS.

    (a) Legal Documents.--All orders, determinations, rules, 
regulations, permits, grants, loans, contracts, agreements, 
certificates, licenses, and privileges--
            (1) that have been issued, made, granted, or allowed to 
        become effective by the President, the Secretary of Commerce, 
        any officer or employee of any office transferred by this 
        title, or any other Government official, or by a court of 
        competent jurisdiction, in the performance of any function that 
        is transferred by this title, and
            (2) that are in effect on the effective date of such 
        transfer (or become effective after such date pursuant to their 
        terms as in effect on such effective date),
shall continue in effect according to their terms until modified, 
terminated, superseded, set aside, or revoked in accordance with law by 
the President, any other authorized official, a court of competent 
jurisdiction, or operation of law.
    (b) Proceedings.--This title shall not affect any proceedings or 
any application for any benefits, service, license, permit, 
certificate, or financial assistance pending on the date of the 
enactment of this title before an office transferred by this title, but 
such proceedings and applications shall be continued. Orders shall be 
issued in such proceedings, appeals shall be taken therefrom, and 
payments shall be made pursuant to such orders, as if this title had 
not been enacted, and orders issued in any such proceeding shall 
continue in effect until modified, terminated, superseded, or revoked 
by a duly authorized official, by a court of competent jurisdiction, or 
by operation of law. Nothing in this subsection shall be considered to 
prohibit the discontinuance or modification of any such proceeding 
under the same terms and conditions and to the same extent that such 
proceeding could have been discontinued or modified if this title had 
not been enacted.
    (c) Suits.--This title shall not affect suits commenced before the 
date of the enactment of this title, and in all such suits, proceeding 
shall be had, appeals taken, and judgments rendered in the same manner 
and with the same effect as if this title had not been enacted.
    (d) Nonabatement of Actions.--No suit, action, or other proceeding 
commenced by or against the Department of Commerce or the Secretary of 
Commerce, or by or against any individual in the official capacity of 
such individual as an officer or employee of an office transferred by 
this title, shall abate by reason of the enactment of this title.
    (e) Continuance of Suits.--If any officer of the Department of 
Commerce or the Commerce Programs Resolution Agency in the official 
capacity of such officer is party to a suit with respect to a function 
of the officer, and under this title such function is transferred to 
any other officer or office, then such suit shall be continued with the 
other officer or the head of such other office, as applicable, 
substituted or added as a party.

SEC. 17604. TRANSFER OF ASSETS.

    Except as otherwise provided in this title, so much of the 
personnel, property, records, and unexpended balances of 
appropriations, allocations, and other funds employed, used, held, 
available, or to be made available in connection with a function 
transferred to an official or agency by this title shall be available 
to the official or the head of that agency, respectively, at such time 
or times as the Director of the Office of Management and Budget directs 
for use in connection with the functions transferred.

SEC. 17605. DELEGATION AND ASSIGNMENT.

    Except as otherwise expressly prohibited by law or otherwise 
provided in this title, an official to whom functions are transferred 
under this title (including the head of any office to which functions 
are transferred under this title) may delegate any of the functions so 
transferred to such officers and employees of the office of the 
official as the official may designate, and may authorize successive 
redelegations of such functions as may be necessary or appropriate. No 
delegation of functions under this section or under any other provision 
of this title shall relieve the official to whom a function is 
transferred under this title of responsibility for the administration 
of the function.

SEC. 17606. AUTHORITY OF ADMINISTRATOR WITH RESPECT TO FUNCTIONS 
                    TRANSFERRED.

    (a) Determinations.--If necessary, the Administrator shall make any 
determination of the functions that are transferred under this title.
    (b) Incidental Transfers.--The Administrator, at such time or times 
as the Administrator shall provide, may make such determinations as may 
be necessary with regard to the functions transferred by this title, 
and to make such additional incidental dispositions of personnel, 
assets, liabilities, grants, contracts, property, records, and 
unexpended balances of appropriations, authorizations, allocations, and 
other funds held, used, arising from, available to, or to be made 
available in connection with such functions, as may be necessary to 
carry out the provisions of this title. The Administrator shall provide 
for the termination of the affairs of all entities terminated by this 
title and for such further measures and dispositions as may be 
necessary to effectuate the purposes of this title.

SEC. 17607. PROPOSED CHANGES IN LAW.

    Not later than one year after the date of the enactment of this 
title, the Director of the Office of Management and Budget shall submit 
to the Congress a description of any changes in Federal law necessary 
to reflect abolishments, transfers, terminations, and disposals under 
this title.

SEC. 17608. CERTAIN VESTING OF FUNCTIONS CONSIDERED TRANSFERS.

    For purposes of this title, the vesting of a function in a 
department or office pursuant to reestablishment of an office shall be 
considered to be the transfer of the function.

SEC. 17609. DEFINITIONS.

    For purposes of this title, the following definitions apply:
            (1) Administrator.--The term ``Administrator'' means the 
        Administrator of the Commerce Programs Resolution Agency.
            (2) Agency.--The term ``Agency'' means the Commerce 
        Programs Resolution Agency.
            (3) Function.--The term ``function'' includes any duty, 
        obligation, power, authority, responsibility, right, privilege, 
        activity, or program.
            (4) Office.--The term ``office'' includes any office, 
        administration, agency, bureau, institute, council, unit, 
        organizational entity, or component thereof.
            (5) Wind-up period.--The term ``wind-up period'' means the 
        period beginning on the effective date specified in section 
        17109(a) and ending on the termination date specified in 
        section 17106(d).

SEC. 17610. LIMITATION ON ANNUAL EXPENDITURES FOR CONTINUED FUNCTIONS.

    (a) In General.--The amount expended by the United States each 
fiscal year for an agency, or for performance of a transferred function 
which immediately before the effective date specified in section 
17109(a) was performed by an agency, officer, or employee of the 
Department of Commerce, may not exceed 75 percent of the total amount 
expended by the United States for that agency or for performance of 
that function during fiscal year 1994.
    (b) Exemptions.--Subsection (a) shall not apply to the performance 
of a function which immediately before the effective date specified in 
section 17109(a) was performed by the Bureau of the Census or the 
Patent and Trademark Office.

SEC. 17611. USER FEES.

    Within 6 months after the date of the enactment of this Act, the 
head of each agency that performs a function vested in the agency by 
this title shall report to Congress its recommendations for 
implementing user fees to offset operating costs for the provision of 
services in the performance of that function.

SEC. 17612. UNOBLIGATED BALANCES RETURNED TO TREASURY.

    Any unobligated balances appropriated to carry out any program 
referred to in this Act shall be transferred to the general fund of the 
Treasury.

SEC. 17613. ANNUAL GAO REPORT.

    (a) Report.--Not later than 1 year after the effective date 
specified in section 17109(a), and not later than the end of each 1-
year period thereafter, the Comptroller General of the United States 
shall submit to the Congress a report describing the costs, if any, 
during the 1-year period preceding the submission of the report, that 
were incurred by United States exporters as a result of the transfer of 
the functions of the Bureau of Export Administration of the Department 
of Commerce under this title, or as a result of the limitation on 
expenditures required by section 17493. Each such report shall cover, 
but not be limited to, costs incurred by exporters as a result of--
            (1) delays in the processing of export license 
        applications;
            (2) a reduction in outreach activities of the Government 
        that educate exporters on complying with exporting requirements 
        under United States law;
            (3) delays in the processing of commodity classification 
        requests by exporters regarding the applicability of export 
        controls to specific products and technical data; and
            (4) delays in the processing of requests by exporters for 
        advisory opinions by the Government regarding whether specific 
        transactions are likely to be approved or denied by the 
        Government.
    (b) Termination of Provisions.--If, in any report submitted under 
subsection (a), the Comptroller General determines that costs described 
in such subsection were incurred by United States exporters, then 
sections 17610(a) and 17493(a) shall cease to apply to the functions of 
the Bureau of Export Administration of the Department of Commerce 
transferred under this title.

                      TITLE XVIII--WELFARE REFORM

                         [Text to be inserted]

                   TITLE XIX--CONTRACT TAX PROVISIONS

                         [Text to be inserted]

                        TITLE XX--BUDGET PROCESS

                         [Text to be inserted]
TITLES XIII AND XIV--COMMITTEE ON WAYS AND MEANS REVENUE RECONCILIATION 
                               PROVISIONS

                       Committee on Ways and Means,
                                  House of Representatives,
                                Washington, DC, September 22, 1995.
Hon. John R. Kasich,
Chairman, Committee on the Budget,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: On September 19, 1995, the Committee on 
Ways and Means, pursuant to House Concurrent Resolution 67, the 
Concurrent Resolution on the Budget for Fiscal 1996, ordered 
favorably reported, as amended, its budget reconciliation 
recommendations on revenue items, to the Committee on Budget by 
a recorded vote of 21 to 15. Accordingly, I am now transmitting 
these recommendations to you.
    Enclosed are the legislative language, explanatory report 
language, estimates of the Congressional Budget Office and 
Joint Committee on Taxation and additional views. Under 
separate covers, I am transmitting the committee's 
recommendations on trade items, and trade adjustment 
assistance.
    Please feel free to contact me or Phil Moseley if you have 
any questions. With best personal regards,
            Sincerely,
                                             Bill Archer, Chairman.
    Enclosures.

                           table of contents

                                                                   Page
Transmittal letter...............................................   235
I. Introduction..................................................   236
    A. Purpose and Summary/Background and Need for Legislation...   236
    B. Legislative History.......................................   239
II. Explanation of Provisions....................................   240
    Title XIII. Revenue Reconciliation Act.......................   240
        Subtitle A. Extension of Expiring Tax Provisions.........   240
        Subtitle B. Medical Savings Accounts (sec. 13201)........   257
        Subtitle C. Pickle-Johnson Taxpayer Bill of Rights 2.....   262
        Subtitle D. Additional Technical Corrections.............   292
        Subtitle E. Tax Information Sharing: Extend Access to Tax 
          Information for the Department of Veterans Affairs 
          (sec. 13501)...........................................   296
        Subtitle F. Revenue Increases: Corporate and Other Tax 
          Reforms................................................   297
        Subtitle G. Reform of the Earned Income Tax Credit (secs. 
          13701-13703)...........................................   371
        Subtitle H. Increase in the Public Debt Limit (sec. 
          13801).................................................   375
        Subtitle I. Coal Industry Retiree Health Equity (sec. 
          13901).................................................   375
    Title XIV. Tax Simplification Act............................   377
        Subtitle A. Provisions Relating to Individuals...........   377
        Subtitle B. Pension Simplification.......................   389
            A. Simplified Distribution Rules (secs. 14201-14204).   389
            B. Increased Access to Pension Plans.................   393
            C. Nondiscrimination Provisions......................   395
            D. Miscellaneous Pension Simplification..............   402
        Subtitle C. Treatment of Partnerships....................   420
            A. General Provisions................................   420
            B. Other partnership audit rules.....................   439
        Subtitle D. Foreign Provisions...........................   451
            A. Modification of Passive Foreign Investment Company 
              Provisions to Eliminate Overlap with Subpart F and 
              to Allow Mark-to-Market Election (secs. 14401-
              14404).............................................   451
            B. Treatment of Controlled Foreign Corporations......   464
            C. Other Foreign Provisions..........................   475
        Subtitle E. Other Income Tax Simplification Provisions...   494
            A. Provisions Relating to S Corporations.............   494
            B. Provisions Relating to Regulated Investment 
              Companies [RIC's] and Real Estate Investment Trusts 
              [REIT's]...........................................   509
            C. Accounting Provisions.............................   518
            D. Tax-Exempt Bond Provisions........................   529
            E. Insurance Provisions..............................   532
            F. Other Provisions..................................   538
        Subtitle F. Estates, Gifts, and Trusts...................   541
            A. Income Tax Provisions.............................   541
            B. Estate and Gift Tax Provisions....................   549
            C. Generation-Skipping Tax Provisions................   562
        Subtitle G. Excise Tax Simplification....................   566
            A. Provisions Related to Distilled Spirits, Wines, 
              and Beer (secs. 14701-14711).......................   566
            B. Consolidation of Taxes on Aviation Gasoline (sec. 
              14721).............................................   569
            C. Other Excise Tax Provisions.......................   570
        Subtitle H. Administrative Provisions....................   573
            A. General Provisions................................   573
            B. Tax Court Procedures..............................   576
            C. Authority for Certain Cooperative Agreements (sec. 
              14821).............................................   578
III. Votes of the Committee......................................   579
IV. Budget Effects of Title XIII and Title XIV...................   587
    A. Committee Estimates of Budgetary Effects..................   587
    B. New Budget Authority and Tax Expenditures.................   599
    C. Cost Estimate of the Congressional Budget Office..........   599
V. Other Matters To Be Discussed Under House Rules...............   601
    A. Committee Oversight Findings and Recommendations..........   601
    B. Findings and Recommendations of the Committee on 
      Government Reform and Oversight............................   601
    C. Inflationary Impact Statement.............................   601
    D. Applicability of House Rule XXI5(c).......................   602

TITLES XIII AND XIV--COMMITTEE ON WAYS AND MEANS REVENUE RECONCILIATION 
                               PROVISIONS

                            I. Introduction

       a. purpose and summary/background and need for legislation

    The revenue reconciliation recommendations transmitted to 
the House Committee on the Budget by the House Committee on 
Ways and Means are contained in two titles. Title XIII, the 
``Revenue Reconciliation Act,'' includes extensions of certain 
expiring tax provisions and various tax reform provisions and 
title XIV, the ``Tax Simplification Act,'' includes various tax 
simplification provisions. These provisions are summarized 
briefly below and described in more detail in part II.

                 Title XIII--Revenue Reconciliation Act

Subtitle A--Extension of Certain Expiring Tax Provisions

    The bill extends the following five expiring tax provisions 
through December 31, 1997: First, the work opportunity tax 
credit (formerly the targeted jobs tax credit) with 
modifications; second, the exclusion from income of the value 
of employer-provided educational assistance with modifications; 
third, the research and experimentation tax credit with 
modifications; fourth, the special rule for contributions of 
qualified appreciated stock to private foundations; and fifth, 
the orphan drug tax credit. In addition, the bill permanently 
extends the exclusion from FUTA for certain alien agricultural 
workers. The bill also extends the present-law excise tax 
exemption for commercial aviation fuels for 2 years, through 
September 30, 1997, and extends the present-law Airport and 
Airway Trust Fund excise taxes (and transfers of these revenues 
to the Trust Fund) for 9 months, through September 30, 1996.

Subtitle B--Medical Savings Accounts

    The bill permits individuals who are covered only by a 
catastrophic health insurance plan to maintain a medical 
savings account [MSA]. In general, contributions to an MSA 
would be deductible (up to $2,500 for an individual and $5,000 
for a family) from an individual's income in the case of an 
individual contribution, or excludable from an employee's 
income in the case of an employer contribution. Withdrawals 
from the account would not be taxed if used for medical 
expenses for the individual or his or her family.

Subtitle C--Pickle-Johnson Taxpayer Bill of Rights 2

    The bill contains a number of provisions that strengthen 
the rights of taxpayers in their dealings with the Internal 
Revenue Service.

Subtitle D--Additional Technical Corrections

    The bill makes five technical and conforming changes with 
respect to previously enacted legislation.

Subtitle E--Tax Information Sharing: Extension of Disclosure of Return 
        Information for Administration of Certain Veterans Programs

    The bill permanently extends the authority of the Internal 
Revenue Service to disclose tax information to the Department 
of Veterans Affairs [DVA] to assist DVA in determining 
eligibility for and establishing the correct benefits amounts 
under certain DVA programs.

Subtitle F--Revenue Increases: Corporate and Other Tax Reforms

    The bill provides various corporate and other tax reforms 
that eliminate or modify many special tax benefits available to 
businesses and individuals under present law. In general, these 
reforms: modify the tax treatment of certain corporate stock 
redemptions; require corporate tax shelter reporting; deny 
deductions for interest on loans with respect to company-owned 
life insurance; phase out preferential tax deferral for certain 
large farm corporations required to use accrual accounting; 
phase in repeal of section 936; reform the income forecast 
method of accounting; permit withdrawal of excess corporate 
pension assets; modify the exclusion from income of damage 
awards; require tax reporting for payments to attorneys; modify 
and strengthen certain expatriation tax provisions; phase out 
tax credits for wind energy and ``closed loop'' biomass; modify 
tax benefits for ethanol and methanol from renewable sources; 
remove the business exclusion for energy subsidies provided by 
public utilities; modify the basis adjustment rules under 
section 1033; modify the exception to the related-party rule of 
section 1033 for individuals to only provide an exception for 
de minimis amounts; disallow a rollover under section 1034 to 
the extent of previously claimed depreciation; provide that 
rollover of gain on sale of a principal residence by a 
noncitizen cannot be elected unless the replacement property 
purchased is located within the United States; tax the gambling 
income of Indian tribes and repeal a targeted exemption from 
UBIT for gambling in one State; repeal the exemption for 
withholding on gambling winnings from bingo and keno where the 
proceeds exceed $5,000; sunset the low-income housing tax 
credit after December 31, 1997; repeal the tax credit for 
contributions to community development corporations; repeal the 
advance refunds of the diesel fuel tax for diesel cars and 
light trucks; modify the treatment of substitute returns for 
purposes of the penalty for failure to pay taxes; remove the 
exclusion from income for taxpayers who rent their home for 
fewer than 15 days; allow conversion of scholarship funding 
corporations to taxable corporations; apply a look-through rule 
for purposes of characterizing certain subpart F insurance 
income as unrelated business taxable income; and provide for 
intermediate sanctions for certain tax-exempt organizations.

Subtitle G--Reform of the Earned Income Tax Credit

    With respect to the earned income tax credit, the bill 
modifies the definition of income used to calculate the 
phaseout of the credit, eliminates the credit for individuals 
without qualifying children, increases the rate at which the 
credit is phased out, and denies the credit to individuals 
without proper Social Security numbers. These changes are 
designed to insure that the credit is targeted to the neediest 
individuals.

Subtitle H--Increase in Public Debt Limit

    The bill increases the statutory limit on the public debt 
to $5.5 trillion to facilitate the smooth functioning of the 
Federal Government and to prevent any disruption of financial 
markets.

Subtitle I--Repeal of Reachback Provisions of Coal Industry Health 
        Benefit System

     The bill returns responsibility for funding the health 
benefits of retired coal miners covered by the Combined Fund 
and the 1992 United Mine Workers of America Benefit Fund to the 
coal operators who were signatories to the 1988 National 
Bituminous Coal Wage Agreement by exempting reachback companies 
and operators who made withdrawal liability payments under the 
terms of the 1988 agreement from the provisions of the Coal 
Industry Retiree Health Act of 1992.

                   Title XIV--Tax Simplification Act

     Title XIV contains simplification provisions relating to 
Federal income taxes, estate, gift and trust taxes, and excise 
taxes. These provisions are intended to simplify administration 
of the Internal Revenue Code.

                         b. legislative history

Committee revenue reconciliation provisions

     Titles XIII and XIV are the revenue reconciliation 
provisions as approved by the Committee on Ways and Means on 
September 19, 1995, by a rollcall vote of 21 yeas and 15 nays. 
The committee marked up the reconciliation provisions on 
September 18-19, 1995.
     Title XIII contains revenue provisions relating to: First, 
extension of certain expiring tax provisions; second, medical 
savings accounts; third, Taxpayer Bill of Rights 2; fourth, 
additional technical corrections; fifth, extension of 
disclosure of tax return information to the Department of 
Veterans Affairs; sixth, corporate and other tax reform revenue 
increases; 1 seventh, earned income tax credit reforms; 
eighth, an increase in the public debt limit; and ninth, repeal 
of the reachback provisions of the coal industry retiree health 
benefit program. The Oversight Subcommittee met on September 
12, 1995, and approved a series of recommendations with respect 
to the Taxpayer Bill of Rights 2 provisions, which are included 
in title XIII with modifications.2
    \1\ Included in the revenue increases are provisions from H.R. 
1812, Expatriation Tax Act of 1995, as previously reported by the 
Committee on Ways and Means (H. Rept. 104-145, June 16, 1995).
    \2\ The Oversight Subcommittee recommendations were introduced in 
H.R. 2337 on September 14, 1995, by Mrs. Johnson of Connecticut and Mr. 
Matsui.
---------------------------------------------------------------------------
    Title XIV contains various tax simplification provisions, 
most of which were previously passed by the House in 1994 (103d 
Cong.) and in 1992 (102d Cong.).
    Earlier this year, the Committee on Ways and Means reported 
tax reduction and tax technical corrections provisions in H.R. 
1215 (H. Rept. 104-84, March 21, 1995), and the House passed 
H.R. 1215 on April 5, 1995. The committee intends to recommend 
that the revenue provisions of H.R. 1215, as modified to meet 
the revenue reduction target of -$245 billion over the fiscal 
year period 1996-2002 in the fiscal year 1996 Budget Resolution 
(H. Con. Res. 67), be included in the budget reconciliation 
legislation to be considered by the Rules Committee and the 
House.

Legislative hearings

            Subcommittee hearings
     Subcommittee hearings relating to the revenue provisions 
in titles XIII and XIV include the following:
March 24, 1995--Oversight Subcommittee hearing on Taxpayer Bill 
        of Rights 2 proposals;
March 27, 1995--Oversight Subcommittee hearing on tax treatment 
        of U.S. citizens who relinquish their citizenship and 
        long-term resident aliens who relinquish their U.S. 
        residency;
May 9, 1995--Oversight Subcommittee hearing on various expiring 
        tax provisions;
May 10, 1995--Oversight Subcommittee hearing on the research 
        tax credit and allocation of research expenses;
June 15, 1995--Oversight Subcommittee and Human Resources 
        Subcommittee joint hearing on the earned income tax 
        credit;
June 22, 1995--Oversight Subcommittee hearing on Coal Industry 
        Retiree Health Benefit Act of 1992;
June 27, 1995--Health Subcommittee hearing on H.R. 1818, Family 
        Medical Savings and Investment Act; and
July 18, 1995--Oversight Subcommittee hearing on the Internal 
        Revenue Service's Taxpayer Compliance Measurement 
        Program.
            Full committee hearings
     Certain of the tax simplification provisions (contained in 
title XIV) were the subject of hearings on various 
miscellaneous tax reforms on July 11-12, 1995.

                     II. Explanation of Provisions

                 TITLE XIII. REVENUE RECONCILIATION ACT

             subtitle a. extension expiring tax provisions

1. Work opportunity tax credit (sec. 13101 of the bill and sec. 51 of 
        the code)

                               Prior Law

General rules

    Prior to January 1, 1995, the targeted jobs tax credit was 
available on an elective basis for employers hiring individuals 
from one or more of nine targeted groups. The credit generally 
was equal to 40 percent of qualified first-year wages. 
Qualified first-year wages consisted of wages attributable to 
service rendered by a member of a targeted group during the 1-
year period beginning with the day the individual began work 
for the employer. For a vocational rehabilitation referral, 
however, the period began the day the individual began work for 
the employer on or after the beginning of the individual's 
vocational rehabilitation plan.
    No more than $6,000 of wages during the first year of 
employment were permitted to be taken into account with respect 
to any individual. Thus, the maximum credit per individual was 
$2,400.
    With respect to economically disadvantaged summer youth 
employees, the credit was equal to 40 percent of up to $3,000 
of qualified first-year wages, for a maximum credit of $1,200.
    The deduction for wages was reduced by the amount of the 
credit.

Certification of members of targeted groups

     In general, an individual was not treated as a member of a 
targeted group unless certification that the individual was a 
member of such a group was received or requested in writing by 
the employer from the designated local agency on or before the 
day on which the individual began work for the employer. In the 
case of a certification of an economically disadvantaged youth 
participating in a cooperative education program, this 
requirement was satisfied if the certification was requested or 
received from the participating school on or before the day on 
which the individual began work for the employer. The 
``designated local agency'' was the State employment security 
agency.
    If a certification was incorrect because it was based on 
false information provided as to the employee's membership in a 
targeted group, the certification was revoked. Wages paid after 
the revocation notice was received by the employer were not 
treated as qualified wages.
    The U.S. Employment Service, in consultation with the 
Internal Revenue Service, was directed to take whatever steps 
necessary to keep employers informed of the availability of the 
credit.

Targeted groups eligible for the credit

    The nine groups eligible for the credit were either 
recipients of payments under means-tested transfer programs, 
economically disadvantaged (as measured by family income), or 
disabled individuals.
            (1) Vocational rehabilitation referrals
    Vocational rehabilitation referrals were those individuals 
who had a physical or mental disability that constituted a 
substantial handicap to employment and who had been referred to 
the employer while receiving, or after completing, vocational 
rehabilitation services under an individualized, written 
rehabilitation plan under a State plan approved under the 
Rehabilitation Act of 1973, or under a rehabilitation plan for 
veterans carried out under chapter 31 of title 38, United 
States Code. Certification was provided by the designated local 
employment agency upon assurances from the vocational 
rehabilitation agency that the employee had met the above 
conditions.
            (2) Economically disadvantaged youths
    Economically disadvantaged youths were individuals 
certified by the designated local employment agency as first, 
members of economically disadvantaged families and second, at 
least age 18 but not age 23 on the date they were hired by the 
employer. An individual was determined to be a member of an 
economically disadvantaged family if, during the 6 months 
immediately preceding the earlier of the month in which the 
determination occurred or the month in which the hiring date 
occurred, the individual's family income was, on an annual 
basis, not more than 70 percent of the Bureau of Labor 
Statistics' lower living standard. A determination that an 
individual was a member of an economically disadvantaged family 
was valid for 45 days from the date on which the determination 
was made.
    Except as otherwise noted below, a determination of whether 
an individual was a member of an economically disadvantaged 
family was made on the same basis and was subject to the same 
45-day limitation, where required in connection with the four 
other targeted groups that excluded individuals who were not 
economically disadvantaged.
            (3) Economically disadvantaged Vietnam-era veterans
    The third targeted group was Vietnam-era veterans certified 
by the designated local employment agency as members of 
economically disadvantaged families. For these purposes, a 
Vietnam-era veteran was an individual who had served on active 
duty (other than for training) in the Armed Forces for more 
than 180 days, or who had been discharged or released from 
active duty in the Armed Forces for a service-connected 
disability, but in either case, the active duty must have taken 
place after August 4, 1964, and before May 8, 1975. However, 
any individual who had served for a period of more than 90 days 
during which the individual was on active duty (other than for 
training) was not an eligible employee if any of this active 
duty occurred during the 60-day period ending on the date the 
individual was hired by the employer. This latter rule was 
intended to prevent employers who hired current members of the 
armed services (or those departed from service within the last 
60-days) from receiving the credit.
            (4) SSI recipients
    The fourth targeted group was individuals receiving either 
Supplemental Security Income [SSI] under Title XVI of the 
Social Security Act or State supplements described in section 
1616 of that Act or section 212 of Public Law 93-66. To be an 
eligible employee, the individual must have received SSI 
payments during at least a 1-month period ending during the 60-
day period that ended on the date the individual was hired by 
the employer. The designated local agency was to issue the 
certification after a determination by the agency making the 
payments that these conditions had been fulfilled.
            (5) General assistance recipients
    General assistance recipients were individuals who received 
general assistance for a period of not less than 30 days if 
that period ended within the 60-day period ending on the date 
the individual was hired by the employer. General assistance 
programs were State and local programs that provided 
individuals with money payments, vouchers, or scrip based on 
need. These programs were referred to by a wide variety of 
names, including home relief, poor relief, temporary relief, 
and direct relief. Because of the wide variety of such 
programs, Congress provided that a recipient was an eligible 
employee only after the program had been designated by the 
Secretary of the Treasury as a program that provided money 
payments, vouchers, or scrip to needy individuals. 
Certification was performed by the designated local agency.
            (6) Economically disadvantaged former convicts
    The sixth targeted group included any individual who was 
certified by the designated local employment agency as first, 
having at some time been convicted of a felony under State or 
Federal law, second, being a member of an economically 
disadvantaged family, and third, having been hired within 5 
years of the later of release from prison or date of 
conviction.
            (7) Economically disadvantaged cooperative education 
                    students
    The seventh targeted group was youths who first, actively 
participated in qualified cooperative education programs, 
second, had attained age 16 but had not attained age 20, third, 
had not graduated from high school or vocational school, and 
fourth, were members of economically disadvantaged families. 
The definitions of a qualified cooperative education program 
and a qualified school were similar to those used in the 
Vocational Education Act of 1963. Thus, a qualified cooperative 
education program meant a program of vocational education for 
individuals who, through written cooperative arrangements 
between a qualified school and one or more employers, received 
instruction, including required academic instruction, by 
alternation of study in school with a job in any occupational 
field, but only if these two experiences were planned and 
supervised by the school and the employer so that each 
experience contributed to the student's education and 
employability.
    For this purpose, a qualified school was first, a 
specialized high school used exclusively or principally for the 
provision of vocational education to individuals who were 
available for study in preparation for entering the labor 
market, second, the department of a high school used 
exclusively or principally for providing vocational education 
to individuals who were available for study in preparation for 
entering the labor market, or third, a technical or vocational 
school used exclusively or principally for the provision of 
vocational education to individuals who had completed or left 
high school and who were available for study in preparation for 
entering the labor market. In order for a nonpublic school to 
be a qualified school, it must have been exempt from income tax 
under section 501(a) of the code.
    The certification was performed by the school participating 
in the cooperative education program. After initial 
certification, an individual remained a member of the targeted 
group only while meeting the program participation, age, and 
degree status requirements of (a), (b), and (c), above.
            (8) AFDC recipients
    The eighth targeted group included any individual who was 
certified by the designated local employment agency as being 
eligible for Aid to Families with Dependent Children [AFDC] and 
as having continually received such aid during the 90 days 
before being hired by the employer.
            (9) Economically disadvantaged summer youth employees
    The ninth targeted group included youths who performed 
services during any 90-day period between May 1 and September 
15 of a given year and who were certified by the designated 
local agency as first, being 16 or 17 years of age on the 
hiring date and second, a member of an economically 
disadvantaged family. A youth must not have been an employee of 
the employer prior to that 90-day period. With respect to any 
particular employer, an employee could qualify only one time 
for this summer youth credit. If, after the end of the 90-day 
period, the employer continued to employ a youth who was 
certified during the 90-day period as a member of another 
targeted group, the limit on qualified first-year wages took 
into account wages paid to the youth while a qualified summer 
youth employee.

Definition of wages

    In general, wages eligible for the credit were defined by 
reference to the definition of wages under the Federal 
Unemployment Tax Act [FUTA] in section 3306(b) of the code, 
except that the dollar limits did not apply. Because wages paid 
to economically disadvantaged cooperative education students 
and to certain agricultural and railroad employees were not 
FUTA wages, special rules were provided for these wages.
    Wages were taken into account for purposes of the credit 
only if more than one-half of the wages paid during the taxable 
year to an employee were for services in the employer's trade 
or business. The test as to whether more than one-half of an 
employee's wages were for services in a trade or business was 
applied to each separate employer without treating related 
employers as a single employer.

Other rules

    In order to prevent taxpayers from eliminating all tax 
liability by reason of the credit, the amount of the credit 
could not exceed 90 percent of the taxpayer's income tax 
liability. Furthermore, the credit was allowed only after 
certain other nonrefundable credits had been taken. If, after 
applying these other credits, 90 percent of an employer's 
remaining tax liability for the year was less than the targeted 
jobs tax credit, the excess credit could be carried back 3 
years and carried forward 15 years.
    All employees of all corporations that were members of a 
controlled group of corporations were to be treated as if they 
were employees of the same corporation for purposes of 
determining the years of employment of any employee and wages 
for any employee up to $6,000. Generally, under the controlled 
group rules, the credit allowed the group was the same as if 
the group were a single company. A comparable rule was provided 
in the case of partnerships, sole proprietorships, and other 
trades or businesses (whether or not incorporated) that were 
under common control, so that all employees of such 
organizations generally were to be treated as if they were 
employed by a single person. The amount of targeted jobs tax 
credit allowable to each member of the controlled group was its 
proportionate share of the wages giving rise to the credit.
    No credit was available for the hiring of certain related 
individuals (primarily dependents or owners of the taxpayer). 
The credit was also not available for wages paid to an 
individual who was employed by the employer at any time during 
which the individual was not a certified member of a targeted 
group.
    No credit was allowed for wages paid unless the eligible 
individual was either first, employed by the employer for at 
least 90 days (14 days in the case of economically 
disadvantaged summer youth employees) or second, had completed 
at least 120 hours (20 hours for summer youth) of services 
performed for the employer.

                           Reasons for Change

    While the prior-law targeted jobs tax credit was the 
subject of some criticism, the committee believes that a tax 
credit mechanism can provide an important incentive for 
employers to undertake the expense of providing jobs and 
training to economically disadvantaged individuals, many of 
whom are underskilled and/or undereducated. The bill creates a 
new program whose design will focus on individuals with poor 
workplace attachments, streamline administrative burdens, 
promote longer-term employment, and thereby reduce costs 
relative to the prior-law program. The committee intends that 
this 2-year program will provide the Congress and the Treasury 
and Labor Departments an opportunity to assess fully the 
operation and effectiveness of the new credit as a hiring 
incentive.

                        Explanation of Provision

General rules

    The bill replaces the targeted jobs tax credit with the 
``work opportunity tax credit.'' The work opportunity tax 
credit is available on an elective basis for employers hiring 
individuals from one or more of five targeted groups. The 
credit generally is equal to 35 percent of qualified wages. 
Qualified wages consist of wages attributable to service 
rendered by a member of a targeted group during the 1-year 
period beginning with the day the individual begins work for 
the employer. For a vocational rehabilitation referral, 
however, the period will begin on the day the individual begins 
work for the employer on or after the beginning of the 
individual's vocational rehabilitation plan as under prior law.
    Generally, no more than $6,000 of wages during the first 
year of employment is permitted to be taken into account with 
respect to any individual. Thus, the maximum credit per 
individual is $2,100. With respect to qualified summer youth 
employees, the maximum credit is 35 percent of up to $3,000 of 
qualified first-year wages, for a maximum credit of $1,050.
    The deduction for wages is reduced by the amount of the 
credit.

Certification of members of targeted groups

    In general, an individual is not to be treated as a member 
of a targeted group unless: First, on or before the day the 
individual begins work for the employer, the employer received 
in writing a certification from the designated local agency 
that the individual is a member of a specific targeted group, 
or second, on or before the day the individual is offered work 
with the employer, a pre-screening notice is completed with 
respect to that individual and within 14 days after the 
individual begins work for the employer, the employer submits 
such notice to the designated local agency as part of a written 
request for certification. The pre-screening notice will 
contain the information provided to the employer by the 
individual that forms the basis of the employer's belief that 
the individual is a member of a targeted group.
    If a certification is incorrect because it is based on 
false information provided as to the individual's membership in 
a targeted group, the certification will be revoked. No credit 
will be allowed on wages paid after receipt by the employer of 
the revocation notice.
    If a designated local agency rejects a certification 
request it will have to provide a written explanation of the 
basis of the rejection.

Targeted groups eligible for the credit

            (1) Aid to Families With Dependent Children [AFDC]
    An AFDC recipient is an individual certified as receiving 
assistance under a State plan approved under part A of title IV 
of the Social Security Act for a period of at least 9 months 
ending during the 9-month period (12 months in the case of 
certain veterans) ending on the hiring date. For these 
purposes, each member of the family receiving AFDC is treated 
as receiving such assistance. A veteran is an individual who 
has served on active duty (other than for training) in the 
Armed Forces for more than 180 days or who has been discharged 
or released from active duty in the Armed Forces for a service-
connected disability. However, any individual who has served 
for a period of more than 90 days during which the individual 
was on active duty (other than for training) is not an eligible 
employee if any of this active duty occurred during the 60-day 
period ending on the date the individual was hired by the 
employer. This latter rule is intended to prevent employers who 
hire current members of the armed services (or those departed 
from service within the last 60 days) from receiving the 
credit.
            (2) Qualified ex-felon
    A qualified ex-felon is an individual certified as: First, 
having been convicted of a felony under any State or Federal 
law, second, being a member of a family that had an income 
during the 6 months before the earlier of the date of 
determination or the hiring date which on an annual basis is 70 
percent or less of the Bureau of Labor Statistics lower living 
standard, and third, having a hiring date within 1 year of 
release from prison or date of conviction.
            (3) High-risk youth
    A high-risk youth is an individual certified as being at 
least age 18 but not 25 on the hiring date and as having a 
principal place of abode within an empowerment zone or 
enterprise community (as defined under subchapter U of the 
Internal Revenue Code). Qualified wages will not include wages 
paid or incurred for services performed after the individual 
moves outside an empowerment zone or enterprise community.
            (4) Vocational rehabilitation referral
    Vocational rehabilitation referrals are those individuals 
who have a physical or mental disability that constitutes a 
substantial handicap to employment and who have been referred 
to the employer while receiving, or after completing, 
vocational rehabilitation services under an individualized, 
written rehabilitation plan under a State plan approved under 
the Rehabilitation Act of 1973 or under a rehabilitation plan 
for veterans carried out under chapter 31 of title 38, United 
States Code. Certification will be provided by the designated 
local employment agency upon assurances from the vocational 
rehabilitation agency that the employee has met the above 
conditions.
            (5) Qualified summer youth employee
    Qualified summer youth employees are individuals: First, 
who perform services during any 90-day period between May 1 and 
September 15, second, who are certified by the designated local 
agency as being 16 or 17 years of age on the hiring date, 
third, who have not been an employee of that employer before, 
and fourth, who are certified by the designated local agency as 
having a principal place of abode within an empowerment zone or 
enterprise community (as defined under subchapter U of the 
Internal Revenue Code). As with high-risk youths, no credit is 
available on wages paid or incurred for service performed after 
the qualified summer youth moves outside of an empowerment zone 
or enterprise community. If, after the end of the 90-day 
period, the employer continues to employ a youth who was 
certified during the 90-day period as a member of another 
targeted group, the limit on qualified first-year wages will 
take into account wages paid to the youth while a qualified 
summer youth employee.

Definition of wages and other rules

    In general, wages eligible for the credit are defined by 
reference to the definition of wages under the Federal 
Unemployment Tax Act [FUTA] in section 3306(b) of the code, 
except that the dollar limits do not apply.
    Wages are taken into account for purposes of the credit 
only if more than one-half of the wages paid during the taxable 
year to an employee are for services in the employer's trade or 
business. The test as to whether more than one-half of an 
employee's wages are for services in a trade or business are 
applied to each separate employer without treating related 
employers as a single employer.
    In order to prevent taxpayers from eliminating all tax 
liability by reason of the credit, the amount of the credit may 
not exceed 90 percent of the taxpayer's income tax liability. 
Furthermore, the credit is allowed only after certain other 
nonrefundable credits had been taken. If, after applying these 
other credits, 90 percent of an employer's remaining tax 
liability for the year is less than the targeted jobs tax 
credit, the excess credit can be carried back 3 years and 
carried forward 15 years.
    All employees of all corporations that are members of a 
controlled group of corporations are treated as if they were 
employees of the same corporation for purposes of determining 
the years of employment of any employee and wages for any 
employee up to $6,000. Generally, under the controlled group 
rules, the credit allowed the group is the same as if the group 
were a single company. A comparable rule is provided in the 
case of partnerships, sole proprietorships, and other trades or 
businesses (whether or not incorporated) that are under common 
control, so that all employees of such organizations generally 
are treated as if they were employed by a single person. The 
amount of the credit allowable to each member of the controlled 
group is its proportionate share of the wages giving rise to 
the credit.
    No credit is available for the hiring of certain related 
individuals (primarily dependents or owners of the taxpayer). 
The credit is also not available for wages paid to an 
individual who is employed by the employer at any time during 
which the individual is not a certified member of a targeted 
group.

Minimum employment period

    No credit is allowed for wages paid unless the eligible 
individual is employed by the employer for at least 180 days 
(20 days in the case of a qualified summer youth employee) or 
500 hours (120 hours in the case of a qualified summer youth 
employee).

Business awareness program

    The Secretary of Labor shall establish a program to 
encourage small businesses to work with the designated local 
agencies to identify eligible individuals for inclusion in the 
credit program. The Secretary of Labor and heads of other 
Federal agencies also are directed to simplify credit 
procedures to encourage participation.

                             Effective Date

    The credit is effective for wages paid or incurred to a 
qualified individual who begins work for an employer on or 
after January 1, 1996, and before January 1, 1998.

2. Employer-provided educational assistance (sec. 13102 of the bill and 
        sec. 127 of the code)

                         Present and Prior Law

    Under present law, an employee must include in income and 
wages, for income and employment tax purposes, the value of 
educational assistance provided by an employer to an employee, 
unless the cost of such assistance qualifies as a deductible 
job-related expense of the employee. Amounts expended for 
education qualify as deductible job-related expenses if the 
education first, maintains or improves skills required for the 
employee's current job, or second, meets the express 
requirements of the individual's employer that are imposed as a 
condition of continued employment in the employee's current job 
(Treas. Reg. sec. 1.162-5(a)). Such expenses (if not reimbursed 
by the employer) are deductible only to the extent that, when 
aggregated with other miscellaneous itemized deductions, they 
exceed 2 percent of the taxpayer's adjusted gross income. No 
deduction (or exclusion) is allowed for expenses incurred to 
qualify for a new trade or business.
    Under prior law (sec. 127), an employee's gross income and 
wages did not include amounts paid or incurred by the employer 
for educational assistance provided to the employee if such 
amounts were paid or incurred pursuant to an educational 
assistance program that met certain requirements. This 
exclusion, which expired for taxable years beginning after 
December 31, 1994, was limited to $5,250 of educational 
assistance with respect to an individual during a calendar 
year.

                           Reasons for Change

    The section 127 exclusion for employer-provided educational 
assistance was first established on a temporary basis by the 
Revenue Act of 1978 (through 1983). It subsequently was 
extended, again on a temporary basis, by Public Law 98-611 
(through 1985), by the Tax Reform Act of 1986 (through 1987), 
by the Technical and Miscellaneous Revenue Act of 1988 (through 
1988), by the Omnibus Budget Reconciliation Act of 1989 
(through September 30, 1990), by the Omnibus Budget 
Reconciliation Act of 1990 (through 1991), by the Tax Extension 
Act of 1991 (through June 30, 1992), and by the Omnibus Budget 
Reconciliation Act of 1993 (through December 31, 1994). Public 
Law 98-611 adopted a $5,000 annual limit on the exclusion; this 
limit was subsequently raised to $5,250 in the Tax Reform Act 
of 1986. The Technical and Miscellaneous Revenue Act of 1988 
made the exclusion inapplicable to graduate-level courses. The 
restriction on graduate-level courses was repealed by the 
Omnibus Budget Reconciliation Act of 1990, effective for 
taxable years beginning after December 31, 1990.
    The committee believes that the exclusion for employer-
provided educational assistance should be extended because it 
provides needed assistance to workers and aids U.S. 
competitiveness by encouraging a better-educated work force. 
The need to balance the Federal budget necessitates some 
modification to the exclusion, as well as limiting it (and as 
other expiring tax provisions) to a temporary extension. The 
committee believes that the exclusion for employer-provided 
education should be targeted to those most in need of 
educational assistance--low- and middle-income employees who 
seek to obtain education which improves their skills and 
qualifies them for better jobs. Accordingly, the committee 
believes it appropriate to reinstate the restriction on 
graduate-level education. However, due to the past practice of 
extending the exclusion after it has expired, the committee is 
concerned that some taxpayers may have assumed that the 
exclusion would be available for graduate education during 
1995. Thus, the restriction on graduate-level education is 
effective beginning in 1996.

                        Explanation of Provision

    The exclusion for employer-provided educational assistance 
is restored retroactively to the date of expiration and is 
extended so that it expires for taxable years beginning after 
December 31, 1997. In years beginning after December 31, 1995, 
the exclusion does not apply with respect to graduate-level 
courses.

                             Effective Date

    The provision is effective with respect to taxable years 
beginning after December 31, 1994, and the restriction of the 
exclusion to undergraduate education is effective for taxable 
years beginning after December 31, 1995.

3. Research and development tax credit (sec. 13103 of the bill and sec. 
        41 of the code)

                               Prior Law

General rule

    Prior to July 1, 1995, section 41 of the Internal Revenue 
Code provided for a research tax credit equal to 20 percent of 
the amount by which a taxpayer's qualified research 
expenditures for a taxable year exceeded its base amount for 
that year. The research tax credit expired and does not apply 
to amounts paid or incurred after June 30, 1995.
    A 20-percent research tax credit also applied to the excess 
of first, 100 percent of corporate cash expenditures (including 
grants or contributions) paid for basic research conducted by 
universities (and certain nonprofit scientific research 
organizations) over second, the sum of (a) the greater of two 
minimum basic research floors plus (b) an amount reflecting any 
decrease in nonresearch giving to universities by the 
corporation as compared to such giving during a fixed-base 
period, as adjusted for inflation. This separate credit 
computation is commonly referred to as the ``university basic 
research credit'' (see sec. 41(e)).

Computation of allowable credit

    Except for certain university basic research payments made 
by corporations, the research tax credit applies only to the 
extent that the taxpayer's qualified research expenditures for 
the current taxable year exceed its base amount. The base 
amount for the current year generally is computed by 
multiplying the taxpayer's fixed-base percentage by the average 
amount of the taxpayer's gross receipts for the 4 preceding 
years. If a taxpayer both incurred qualified research 
expenditures and had gross receipts during each of at least 3 
years from 1984 through 1988, then its fixed-base percentage is 
the ratio that its total qualified research expenditures for 
the 1984-1988 period bears to its total gross receipts for that 
period (subject to a maximum ratio of .16). All other taxpayers 
(so-called start-up firms) are assigned a fixed-base percentage 
of 3 percent.\3\
    \3\ The Omnibus Budget Reconciliation Act of 1993 included a 
special rule designed to gradually recompute a start-up firm's fixed-
base percentage based on its actual research experience. Under this 
special rule, a start-up firm (i.e., any taxpayer that did not have 
gross receipts in at least 3 years during the 1984-1988 period) will be 
assigned a fixed-base percentage of 3 percent for each of its first 5 
taxable years after 1993 in which it incurs qualified research 
expenditures. In the event that the research credit is extended beyond 
the scheduled June 30, 1995 expiration date, a start-up firm's fixed-
base percentage for its 6th through 10th taxable years after 1993 in 
which it incurs qualified research expenditures will be a phased-in 
ratio based on its actual research experience. For all subsequent 
taxable years, the taxpayer's fixed-base percentage will be its actual 
ratio of qualified research expenditures to gross receipts for any 5 
years selected by the taxpayer from its 5th through 10th taxable years 
after 1993 (sec. 41(c)(3)(B)).
---------------------------------------------------------------------------
    In computing the credit, a taxpayer's base amount may not 
be less than 50 percent of its current-year qualified research 
expenditures.
    To prevent artificial increases in research expenditures by 
shifting expenditures among commonly controlled or otherwise 
related entities, research expenditures and gross receipts of 
the taxpayer are aggregated with research expenditures and 
gross receipts of certain related persons for purposes of 
computing any allowable credit (sec. 41(f)(1)). Special rules 
apply for computing the credit when a major portion of a 
business changes hands, under which qualified research 
expenditures and gross receipts for periods prior to the change 
or ownership of a trade or business are treated as transferred 
with the trade or business that gave rise to those expenditures 
and receipts for purposes of recomputing a taxpayer's fixed-
base percentage (sec. 41(f)(3)).

Eligible expenditures

    Qualified research expenditures eligible for the research 
tax credit consist of: First, in-house expenses of the taxpayer 
for wages and supplies attributable to qualified research; 
second, certain time-sharing costs for computer use in 
qualified research; and third, 65 percent of amounts paid by 
the taxpayer for qualified research conducted on the taxpayer's 
behalf (so-called contract research expenses).
    To be eligible for the credit, the research must not only 
satisfy the requirements of present-law section 174 but must be 
undertaken for the purpose of discovering information that is 
technological in nature, the application of which is intended 
to be useful in the development of a new or improved business 
component of the taxpayer, and must pertain to functional 
aspects, performance, reliability, or quality of a business 
component. Research does not qualify for the credit if 
substantially all of the activities relate to style, taste, 
cosmetic, or seasonal design factors (sec. 41(d)(3)). In 
addition, research does not qualify for the credit if conducted 
after the beginning of commercial production of the business 
component, if related to the adaptation of an existing business 
component to a particular customer's requirements, if related 
to the duplication of an existing business component from a 
physical examination of the component itself or certain other 
information, or if related to certain efficiency surveys, 
market research or development, or routine quality control 
(sec. 41(d)(4)).
    Expenditures attributable to research that is conducted 
outside the United States do not enter into the credit 
computation. In addition, the credit is not available for 
research in the social sciences, arts, or humanities, nor is it 
available for research to the extent funded by any grant, 
contract, or otherwise by another person (or governmental 
entity).

Relation to deduction

    Deductions for expenditures allowed to a taxpayer under 
section 174 (or any other section) are reduced by an amount 
equal to 100 percent of the taxpayer's research tax credit 
determined for the taxable year. Taxpayers may alternatively 
elect to claim a reduced research tax credit amount under 
section 41 in lieu of reducing deductions otherwise allowed 
(sec. 280C(c)(3)).

                           Reasons for Change

    Businesses may not find it profitable to invest in some 
research activities because of the difficulty in capturing the 
full benefits from the research. Costly technological advances 
made by one firm are often cheaply copied by its competitors. A 
research tax credit can help to promote investment in research, 
so that research activities undertaken approach the optimal 
level for the overall economy. Therefore, the committee 
believes that it is appropriate to reinstate the research tax 
credit and to make certain modifications to the method for 
computing the credit.

                        Explanation of Provision

    The research tax credit (including the university basic 
research credit) is extended for the period July 1, 1995, 
through December 31, 1997.
    The bill also expands the definition of ``start-up firms'' 
under section 41(c)(3)(B)(i) to include any firm if the first 
taxable year in which such firm had both gross receipts and 
qualified research expenses began after 1983.4
    \4\ In applying the start-up firm rules, the test is whether a 
taxpayer, in fact, both incurred qualified research expenses and had 
gross receipts in a particular year, not whether the taxpayer claimed a 
research tax credit for that year.
---------------------------------------------------------------------------
    In addition, the bill allows taxpayers to elect an 
alternative incremental research credit regime. If a taxpayer 
elects to be subject to this alternative regime, the taxpayer 
is assigned a three-tiered fixed-base percentage (that is lower 
than the fixed-base percentage otherwise applicable under 
present law) and the credit rate likewise is reduced. Under the 
alternative credit regime, a credit rate of 1.65 percent 
applies to the extent that a taxpayer's current-year research 
expenses exceed a base amount computed by using a fixed-base 
percentage of 1 percent (i.e., the base amount equals 1 percent 
of the taxpayer's average gross receipts for the 4 preceding 
years) but do not exceed a base amount computed by using a 
fixed-base percentage of 1.5 percent. A credit rate of 2.2 
percent applies to the extent that a taxpayer's current-year 
research expenses exceed a base amount computed by using a 
fixed-base percentage of 1.5 percent but do not exceed a base 
amount computed by using a fixed-base percentage of 2 percent. 
A credit rate of 2.75 percent applies to the extent that a 
taxpayer's current-year research expenses exceed a base amount 
computed by using a fixed-base percentage of 2 percent. An 
election to be subject to this alternative incremental credit 
regime may be made only for a taxpayer's first taxable year 
beginning after June 30, 1995, and such an election applies to 
that taxable year and all subsequent years unless revoked with 
the consent of the Secretary of the Treasury.
    The bill also provides for a special rule for payments made 
to a qualified research consortium. Under this special rule, 75 
percent of amounts paid to a qualified research consortium for 
qualified research are treated as qualified research expenses 
eligible for the research credit (rather than 65 percent under 
the present-law section 41(b)(3) rule governing contract 
research expenses). For this purpose, a qualified research 
consortium is defined as a nonprofit scientific research 
organization that is described in section 501(c)(3) (but not a 
college or university) if first, at least 15 unrelated persons 
paid amounts to the organization for qualified research during 
the calendar year in which the taxable year of the taxpayer 
begins, second, no three persons paid more than 50 percent of 
such amounts, and third, no one person paid more than 20 
percent of such amounts.

                             Effective Date

    The provision is effective for expenditures paid or 
incurred during the period July 1, 1995, through December 31, 
1997. Taxpayers may elect the alternative research credit 
regime (with lower fixed-base percentages and lower credit 
rates) for taxable years beginning after June 30, 1995. The 
special rule for payments made to a qualified research 
consortium is effective for taxable years beginning after June 
30, 1995.

4. Contributions of appreciated stock to private foundations (sec. 
        13104 of the bill and sec. 170(e)(5) of the code)

                         Present and Prior Law

    In computing taxable income, a taxpayer who itemizes 
deductions generally is allowed to deduct the fair market value 
of property contributed to a charitable organization.5 
However, in the case of a charitable contribution of short-term 
gain, inventory, or other ordinary income property, the amount 
of the deduction generally is limited to the taxpayer's basis 
in the property. In the case of a charitable contribution of 
tangible personal property, the deduction is limited to the 
taxpayer's basis in such property if the use by the recipient 
charitable organization is unrelated to the organization's tax-
exempt purpose (sec. 170(e)(1)(B)(i)).6
    \5\ The amount of the deduction allowable for a taxable year with 
respect to a charitable contribution may be reduced depending on the 
type of property contributed, the type of charitable organization to 
which the property is contributed, and the income of the taxpayer 
(secs. 170(b) and 170(e)).
    \6\ As part of the Omnibus Budget Reconciliation Act of 1993, 
Congress eliminated the treatment of contributions of appreciated 
property (real, personal, and intangible) as a tax preference for 
alternative minimum tax [AMT] purposes. Thus, if a taxpayer makes a 
gift to charity of property (other than short-term gain, inventory, or 
other ordinary income property, or gifts to private foundations) that 
is real property, intangible property, or tangible personal property 
the use of which is related to the donee's tax-exempt purpose, the 
taxpayer is allowed to claim the same fair-market-value deduction for 
both regular tax and AMT purposes (subject to present-law percentage 
limitations).
---------------------------------------------------------------------------
    In cases involving contributions to a private foundation 
(other than certain private operating foundations), the amount 
of the deduction is limited to the taxpayer's basis in the 
property (sec. 170(e)(1)(B)(ii)). However, under a special rule 
contained in section 170(e)(5), taxpayers were allowed a 
deduction equal to the fair market value of qualified 
appreciated stock contributed to a private foundation prior to 
January 1, 1995. Qualified appreciated stock was defined as any 
stock of a corporation for which (as of the date of 
contribution) market quotations are readily available on an 
established securities market and which is capital gain 
property. The fair-market-value deduction for qualified 
appreciated stock donated to a private foundation applied only 
to the extent that the cumulative aggregate amount of donations 
made by the donor to one or more private foundations of stock 
in a particular corporation did not exceed 10 percent in value 
of the outstanding stock of that corporation. For this purpose, 
an individual was treated as making all contributions that were 
made by any member of the individual's family (as defined in 
sec. 267(c)(4)).

                           Reasons for Change

    The committee believes that, to encourage donations to 
charitable private foundations, it is appropriate to reinstate 
the special rule that allowed a fair market value deduction for 
certain gifts of appreciated stock to private foundations.

                        Explanation of Provision

    The bill extends the special rule contained in section 
170(e)(5) for contributions of qualified appreciated stock made 
to private foundations during the period January 1, 1995, 
through December 31, 1997.7
    \7\ If, during this period, a taxpayer contributes qualified 
appreciated stock as defined in section 170(e)(5) and the amount of 
such contribution exceeds the percentage limitation under section 
170(b)(1)(D), the excess may be carried over to succeeding taxable 
years. See, e.g., LTR 9444029, LTR 9424040.
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                             Effective Date

    The provision is effective for contributions of qualified 
appreciated stock to private foundations made during the period 
January 1, 1995, through December 31, 1997.

5. Orphan drug tax credit (sec. 13105 of the bill and sec. 28 of the 
        code)

                               Prior Law

    Prior to January 1, 1995, a 50-percent nonrefundable tax 
credit was allowed under section 28 for a taxpayer's qualified 
clinical testing expenses paid or incurred in the testing of 
certain drugs for rare diseases or conditions, generally 
referred to as ``orphan drugs.'' Qualified testing expenses are 
costs incurred to test an orphan drug after the drug has been 
approved for human testing by the Food and Drug Administration 
[FDA] but before the drug has been approved for sale by the 
FDA. A rare disease or condition is defined as one that first, 
affects less than 200,000 persons in the United States or 
second, affects more than 200,000 persons, but for which there 
is no reasonable expectation that businesses could recoup the 
costs of developing a drug for it from U.S. sales of the drug. 
These rare diseases and conditions include Huntington's 
disease, myoclonus, ALS (Lou Gehrig's disease), Tourette's 
syndrome, and Duchenne's dystrophy (a form of muscular 
dystrophy).
    The orphan drug tax credit expired on December 31, 1994.

                           Reasons for Change

    The committee believes that it is appropriate to reinstate 
the orphan drug tax credit.

                        Explanation of Provision

    The orphan drug tax credit is extended for the period 
January 1, 1995, through December 31, 1997.

                             Effective Date

    The provision is effective for qualified clinical testing 
expenses paid or incurred during the period January 1, 1995, 
through December 31, 1997.

6. Permanent extension of FUTA exemption for alien agricultural workers 
        (sec. 13106 of the bill and sec. 3306 of the code)

                               Prior Law

    Generally, Federal Unemployment Tax [FUTA] is imposed on 
farm operators who first, employ 10 or more agricultural 
workers for some portion of each of 20 different days, each day 
being in a different calendar week or second, have a quarterly 
payroll for agricultural services of at least $20,000. An 
exclusion from FUTA was provided, however, for labor performed 
by an alien admitted to the United States to perform 
agricultural labor under sections 214(c) and 101(a)(15)(H) of 
the Immigration and Nationality Act. This exclusion was 
effective for labor performed before January 1, 1995. For these 
purposes, the term agricultural labor generally has the same 
meaning (except for certain cooperative organizations) as used 
for FICA tax purposes.

                           Reasons for Change

    The committee believes that the FUTA exemption is 
appropriate in light of the ineligibility of those workers for 
FUTA benefits. Further, a permanent extension will provide 
certainty to taxpayers, ease tax administration, and obviate 
the need for further short-term extensions.

                        Explanation of Provision

    The bill permanently extends the exemption.

                             Effective Date

    The provision is effective for labor performed on or after 
January 1, 1995.

7. Transportation fuels tax exemption for fuels used in commercial 
        aviation (sec. 13111 of the bill and secs. 4081-4083, 4091-
        4093, 6421, and 6427 of the code)

                              Present Law

    A 4.3-cents-per-gallon deficit reduction excise tax is 
imposed on fuel used in most transportation modes. Fuels 
subject to the tax include gasoline (including gasoline blended 
with alcohol, gasohol), diesel fuel, special motor fuels, 
propane, compressed natural gas, aviation fuels (jet fuel and 
gasoline), and any other motor fuel used in shipping in the 
inland waterway system. The transportation modes subject to tax 
include highway, rail, air, inland waterway, and motorboats and 
other recreational boats. Fuel consumed before October 1, 1995, 
in commercial aviation, defined as the air transportation of 
persons or property for hire, is exempt from this tax.
    Revenues from this transportation fuels tax are deposited 
in the General Fund of the Treasury. This tax is separate from, 
and in addition to, any user-based excise taxes imposed on the 
same fuels to fund the Highway Trust Fund, the Airport and 
Airway Trust Fund, the Leaking Underground Storage Tank Trust 
Fund, the Inland Waterways Trust Fund, or the Aquatic Resources 
Trust Fund.

                           Reasons for Change

    A major rationale for granting commercial aviation a 
temporary exemption from the transportation fuels tax in 1993 
was the then existing economic condition of that industry. The 
economic condition of the industry has improved significantly 
since 1993; however, the recovery is not complete. Further, 
several questions have arisen regarding the relative excise tax 
burdens of different transportation modes and the Federal 
benefits received by payers of certain of those taxes. As a 
result, the committee determined that an additional temporary 
extension of the commercial aviation exemption, accompanied by 
a Treasury Department study of these burden/benefit issues, is 
appropriate.

                        Explanation of Provision

Extend exemption

    The present exemption for commercial aviation fuels is 
extended for 2 years, through September 30, 1997. Thereafter, 
the full 4.3-cents-per-gallon tax will be imposed.

Treasury Department study

    The bill also directs the Treasury Department, in 
consultation with the Transportation Department, to study the 
relative excise tax burdens of various modes of transportation 
and the Federal benefits derived from Federal expenditures 
related to those taxes by each such mode. The results of this 
study are required to be submitted to the House Committee on 
Ways and Means and the Senate Committee on Finance no later 
than June 30, 1996.

                             Effective Date

    The provision generally is effective after September 30, 
1995.
    Under present law, this excise tax will be imposed on 
transactions occurring after September 30, 1995, and the floor 
stocks tax imposed by the Omnibus Budget Reconciliation Act of 
1993 will be imposed on October 1, 1995. While the provision 
defers this imposition for 2 years, retroactive to October 1, 
1995, it is unlikely that this legislation will be enacted 
before these taxes take effect. Therefore, the provision 
provides refunds to commercial aviation users for any such 
taxes paid before enactment upon adequate documentation that 
tax-paid fuel was purchased. The committee further wishes to 
express its desire that the Internal Revenue Service consider 
waiving the semimonthly deposit requirements for this tax 
during the period beginning on October 1, 1995, and ending on 
the date on which 1995 budget reconciliation process is 
completed.
    Appropriate floor stocks taxes will be imposed on October 
1, 1997.

8. Extension of airport and airway trust fund excise taxes (sec. 13116 
        of the bill and secs. 4041, 4091-4093, 4261-4263, and 4271-4272 
        of the code)

                              Present Law

    Five separate excise taxes are imposed under present law to 
fund the Federal Airport and Airway Trust Fund program. In 
general, these taxes are scheduled to expire after December 31, 
1995. Current trust fund authorizations extend through 
September 30, 1996. The aviation excise taxes are:
          (1) a 10-percent tax on domestic passenger tickets;
          (2) a 6.25-percent tax on domestic freight waybills;
          (3) a $6-per-person tax on international departures;
          (4) a 17.5-cents-per-gallon tax on jet fuel used in 
        noncommercial aviation; and
          (5) a 15-cents-per-gallon tax on gasoline used in 
        noncommercial aviation.

                           Reasons for Change

    Expenditure authorization for the Federal Airport and 
Airway Trust Fund currently extends 9 months beyond the 
scheduled expiration of excise taxes funding that Trust Fund. 
Further, these excise taxes are assumed permanent under the 
Budget Enforcement Act; failure to extend them would result in 
higher Federal deficit projections in January 1996. To avoid 
this budgetary problem, and to allow a full review of these 
taxes when the trust fund program is reauthorized, the 
committee decided to extend the trust fund taxes for 9 months.

                        Explanation of Provision

    The current Airport and Airway Trust Fund excise taxes, and 
transfer of these revenues to the trust fund, are extended for 
9 months, through September 30, 1996.

                             Effective Date

    The provision is effective on the date of enactment.

                  Subtitle B. Medical Savings Accounts

(Sec. 13201 of the bill and secs. 106, 220, 3121(a), 3231(e), 3306(b), 
                     4975(c), and 6693 of the code)

                              Present Law

    Under present law, the tax treatment of health insurance 
expenses depends on whether the taxpayer is an employee or 
self-employed individual, and whether the taxpayer is covered 
under a health plan paid for by the employee's employer. An 
employer's contribution to a plan providing accident or health 
coverage for the employee and the employee's spouse and 
dependents is excludable from an employee's income. In 
addition, businesses generally can deduct, as an employee 
compensation expense, the full cost of any health insurance 
coverage provided for their employees. The exclusion and 
deduction are generally also available in the case of owners of 
subchapter C corporations who are also employees.
    In the case of self-employed individuals (sole proprietors 
or partners in a partnership) no equivalent exclusion applies. 
However, present law provides a deduction for 30 percent of the 
amount paid for health insurance for a self-employed individual 
and the individual's spouse and dependents. The 30-percent 
deduction is also available to more than 2-percent shareholders 
of subchapter S corporations.
    Individuals who itemize deductions may deduct amounts paid 
during the taxable year (if not reimbursed by insurance or 
otherwise) for medical care (including medical insurance) of 
the taxpayer and the taxpayer's spouse and dependents, to the 
extent that the total of such expenses exceeds 7.5 percent of 
the taxpayer's adjusted gross income [AGI].
    There are no specific tax provisions for medical savings 
accounts.

                           Reasons for Change

    The fact that Americans with conventional health insurance 
have few incentives to buy medical services carefully or 
benefit from staying well are major factors affecting health 
care cost growth. One approach to providing incentives for 
Americans to be more cost conscious purchasers of medical 
services is to make available alternatives to conventional 
insurance such as medical savings accounts [MSA's]. MSA's will 
give people more control over their health care dollars. 
Because MSA's afford people the opportunity to save unspent MSA 
funds for future health care needs and for retirement income, 
the committee believes that people will be more careful in 
their purchase of health care services.

                        Explanation of Provision

In general

    In general, the bill permits individuals (including self-
employed individuals) who are covered only by a catastrophic 
health plan to maintain a medical savings account [MSA]. Within 
limits, contributions to an MSA are deductible if made by the 
individual, or alternatively, are excludable from an employee's 
income if made by the employer. An individual is not eligible 
to make deductible contributions if the individual's employer 
makes contributions to an MSA for the individual. In general, 
the aggregate amount of individual or employer contributions 
that could be deducted or excluded for a taxable year is the 
lesser of: First, the deductible under the catastrophic health 
plan, or second, $2,500 if the catastrophic health plan only 
provides individual coverage or $5,000 if the catastrophic 
health plan also covers the individual's spouse and/or 
dependents. These dollar limits are indexed annually based on 
the medical care component of the Consumer Price Index [CPI] 
(rounded to the nearest multiple of $50). Income earned on 
amounts held in an MSA are currently includible in income. 
Withdrawals from an MSA are excludable from income if used for 
medical expenses for the individual and his or her spouse or 
dependents.

Deductible contributions to MSA's

    Under the bill, a deductible contribution could be made to 
an MSA for any month in which the individual is an eligible 
individual. The deduction limit is the same for self-employed 
individuals as for other individuals. In general, a person is 
an eligible individual for a month if, as of the first day of 
the month, he or she is covered under a catastrophic health 
plan. However, an individual is not eligible if the individual 
is also covered by another health plan (other than a plan that 
provides certain permitted coverage) which is not a 
catastrophic health plan and which provides coverage for 
benefits provided by the catastrophic health plan. An 
individual with other coverage in addition to a catastrophic 
plan is still eligible to make deductible contributions to an 
MSA if such other coverage is certain permitted insurance 
8 or is coverage (whether provided through insurance or 
otherwise) for accidents, dental care, vision care, or long-
term care. Thus, for example, an individual whose only health 
plan coverage is a catastrophic health plan and a flexible 
spending arrangement under which the only health expenses that 
may be reimbursed are expenses for dental and vision care is an 
eligible individual.
    \8\ The following types of insurance are permitted insurance and 
therefore do not preclude an individual from making a deductible 
contribution to an MSA: First, Medicare supplemental insurance; second, 
insurance if substantially all of the coverage provided under such 
insurance relates to (a) liabilities incurred under workers' 
compensation laws, (b) tort liabilities, (c) liabilities relating to 
ownership or use of property (e.g., auto insurance), (d) credit 
insurance, or (e) such other similar liabilities as the Secretary may 
prescribe by regulations; third, insurance for a specified disease or 
illness; and fourth, insurance that provides a fixed payment for 
hospitalization.
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    A catastrophic health plan is defined as a health plan that 
has a deductible amount of at least $1,500 (or $3,000 if the 
plan provides coverage for more than one individual). These 
dollar amounts are indexed annually for medical inflation 
provided to the nearest multiple of $50.
    No deduction is allowed for a taxable year if any employer 
contributions are made to an MSA on behalf of an individual 
during such year. (As discussed below, such employer 
contributions are excludable from income, subject to the same 
limits as deductible contributions.)
    The maximum annual deductible contribution to an MSA is 
determined separately for each month based on the individual's 
status as of the first day for each month, including: First, 
Whether the individual is an eligible individual, second, 
whether the catastrophic health plan covers only the individual 
or also a spouse and dependents, and third, the amount of the 
deductible under the catastrophic health plan. In general, the 
maximum annual deductible contribution is the sum of the 
following amounts determined separately for each month: First, 
one-twelfth of the lesser of $2,500 or the deductible under the 
catastrophic health plan for each month in which the individual 
is an eligible individual and the catastrophic health plan 
covers only the individual; and second, one-twelfth of the 
lesser of $5,000 or the deductible under the catastrophic 
health plan for each month in which the individual is an 
eligible individual and the catastrophic health plan also 
covers the individual's spouse and/or dependents.
    The deduction limit generally is determined separately for 
each spouse of a married couple. If both spouses are covered 
under the same catastrophic health plan, then the $5,000 
deduction limit is divided equally between the spouses unless 
they agree on a different division (in the time and manner 
prescribed by the Secretary). In such a case, no deduction is 
allowed with respect to either spouse if an employer 
contribution is made to an MSA on behalf of either of the 
spouses. If either spouse or any dependent is covered under 
another catastrophic health plan, the maximum deductible 
contribution for each spouse is no more than $2,500.
    Permitted deductions for contributions to an MSA are taken 
into account in arriving at adjusted gross income (i.e., 
``above the line''). No deduction is allowed to an individual 
if any other person is entitled to a personal exemption on 
account of such individual, whether or not such personal 
exemption is actually taken.
    Contributions to an MSA for a taxable year could be made 
until the due date for filing the individual's tax return for 
the year (determined without regard to extensions).

Employer contributions to an MSA

    Employer contributions to an MSA on behalf of an eligible 
individual are excludable from gross income and are not 
considered wages for employment tax purposes. The amount 
excludable could not exceed the deduction limit applicable to 
the individual. The exclusion applies whether or not the 
employee may choose to have the amounts contributed to an MSA 
or another health plan. For example, there is no income 
inclusion merely because the employee may choose between a 
catastrophic health plan with an employer contribution to an 
MSA and coverage under another (noncatastrophic) health plan. 
Employer contributions to an MSA are not excludable from income 
if made at the election of the employee (i.e., pursuant to a 
salary reduction arrangement under a cafeteria plan). Any 
employer contribution to an MSA (if otherwise allowable as a 
deduction) is allowed only for the taxable year in which paid.
    The bill does not specify the timing of employer 
contributions. Thus, for example, an employer could make 
monthly contributions or a single annual contribution to an 
MSA.

Definition and tax treatment of MSA's

    In general, an MSA is a trust (or a custodial account) 
created exclusively for the purpose of paying the qualified 
medical expenses of the account holder (or his or her spouse or 
dependents) that meets requirements similar to those applicable 
to individual retirement arrangements [IRA's].9 The 
trustee of an MSA could be a bank, insurance company, or other 
person that demonstrates to the satisfaction of the Secretary 
that the manner in which such person will administer the trust 
will be consistent with applicable requirements.
    \9\ For example, MSA contributions (other than amounts rolled over 
from another MSA) must be in cash, no MSA assets could be invested in 
life insurance contracts, MSA assets could not be commingled with other 
property except in a common trust fund or common investment fund, and 
an account holder's interest in an MSA is required to be 
nonforfeitable. In addition, if an account holder engages in a 
prohibited transaction with respect to an MSA or pledges assets in an 
MSA, rules similar to those for IRA's apply, and any amounts treated as 
distributed to the account holder under these rules are treated as not 
used for qualified medical expenses.
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    The holder of an MSA must currently include earnings on MSA 
assets in gross income. Any capital losses on MSA assets could 
be used only to offset capital gains on MSA assets. Unused 
capital losses could be carried forward to succeeding taxable 
years to offset future gains on MSA assets.
    An MSA trustee is required to make such reports as may be 
required by the Secretary. A $50 penalty is imposed for each 
failure to file without reasonable cause.

Distributions from an MSA

    Distributions from an MSA that are used to pay the 
qualified medical expenses (not reimbursed by insurance or 
otherwise) of the individual or the individual's spouse or 
dependents are excludable from gross income whether or not the 
individual is an eligible individual at the time of the 
distribution. Distributions for qualified medical expenses of 
the individual's spouse and dependents are permitted even if 
the catastrophic health plan only covers the individual. 
Qualified medical expenses are generally defined as under the 
rules relating to the itemized deduction for medical expenses 
(sec. 213). However, for this purpose qualified medical 
expenses do not include any insurance premiums (including 
premiums for the catastrophic health plan), except for premiums 
for long-term care insurance. Distributions from an MSA that 
are excludable from gross income under the bill could not be 
taken into account for purposes of the itemized deduction for 
medical expenses.
    Distributions for purposes other than qualified medical 
expenses are subject to an ordering rule so that such 
distributions are includible in income until the amount of 
previously deducted or excluded contributions have been 
exhausted. Under the bill, amounts not used for qualified 
medical expenses are included in gross income to the extent 
such distributions do not exceed the excess of first, the 
aggregate contributions to such account which were deductible 
or excludable from gross income, over second, the aggregate 
prior payments from such account which were includible in gross 
income. For this purpose, all MSA's of the account holder are 
aggregated and all distributions during a taxable year are 
treated as a single distribution. An additional tax of 10 
percent of the amount includible in income also apply unless 
the distribution is made after the individual attains the age 
of 59\1/2\, dies or becomes disabled.
    Distributions upon the death of the account holder are 
subject to rules similar to the rules applicable to IRA's.
    Rollovers from one MSA to another MSA are permitted without 
income inclusion if made within 60 days of distribution.
    The bill includes a correction mechanism so that if 
contributions for a year (whether made by the individual or the 
employer) exceed the deduction limit for the year, the excess 
contribution can be withdrawn tax free. In order for tax-free 
treatment to apply, the excess contributions must be withdrawn 
before the due date (including extensions) for filing the 
individual's tax return for the year and be accompanied by the 
amount of income attributable to such contribution.

                             Effective Date

    The provision is effective with respect to taxable years 
beginning after December 31, 1995.

          subtitle c. pickle-johnson taxpayer bill of rights 2

1. Taxpayer Advocate

            a. Establishment of position of Taxpayer Advocate within 
                    Internal Revenue Service (sec. 13301 of the bill 
                    and sec. 7802 of the code)

                              Present Law

    The Office of the Taxpayer Ombudsman was created by the 
Internal Revenue Service [IRS] in 1979. The Taxpayer 
Ombudsman's duties are to serve as the primary advocate, within 
the IRS, for taxpayers. As the taxpayers' advocate, the 
Taxpayer Ombudsman participates in an ongoing review of IRS 
policies and procedures to determine their impact on taxpayers, 
receives ideas from the public concerning tax administration, 
identifies areas of the tax law that confuse or create an 
inequity for taxpayers, and supervises cases handled under the 
Problem Resolution Program. Under current procedures, the 
Taxpayer Ombudsman is selected by the Commissioner of the IRS 
and serves at the Commissioner's discretion.

                           Reasons for Change

    To date, the Taxpayer Ombudsman has been a career civil 
servant selected by and serving at the pleasure of the IRS 
Commissioner. Some may perceive that the Taxpayer Ombudsman is 
not an independent advocate for taxpayers. In order to ensure 
that the Taxpayer Ombudsman has the necessary stature within 
the IRS to represent fully the interests of taxpayers, it is 
believed to be appropriate that the position be elevated to a 
position comparable to that of the Chief Counsel. In addition, 
in order to ensure that the Congress is systematically made 
aware of recurring and unresolved problems and difficulties 
taxpayers encounter in dealing with the IRS, the Taxpayer 
Ombudsman should have the authority and responsibility to make 
independent reports to the Congress in order to advise the tax-
writing committees of those areas.

                        Explanation of Provision

    The bill establishes a new position, Taxpayer Advocate, 
within the IRS. This replaces the position of Taxpayer 
Ombudsman. The Taxpayer Advocate is appointed by and reports 
directly to the Commissioner. Compensation of the Taxpayer 
Advocate is at a level equal to that of the highest level 
official reporting directly to the Deputy Commissioner of the 
IRS.
    The bill also establishes the Office of Taxpayer Advocate 
within the IRS. The functions of the office are first, to 
assist taxpayers in resolving problems with the IRS, second, to 
identify areas in which taxpayers have problems in dealings 
with the IRS, third, to propose changes (to the extent 
possible) in the administrative practices of the IRS that will 
mitigate those problems, and fourth, to identify potential 
legislative changes that may mitigate those problems.
    While the Taxpayer Advocate would not have direct line 
authority over the regional and local Problem Resolution 
Officers [PRO's], the committee believes that all PRO's should 
take direction from the Taxpayer Advocate and that they should 
operate with sufficient independence to assure that taxpayer 
rights are not being subordinated to pressure from local 
revenue officers, district directors, etc. Accordingly, the 
committee recommends and encourages that regional PRO's 
actively participate in the selection and evaluation of local 
PRO's.
    The Taxpayer Advocate is required to make two annual 
reports to the tax-writing committees. The first report is to 
contain the objectives of the Taxpayer Advocate for the next 
calendar year. This report is to contain full and substantive 
analysis, in addition to statistical information, and is due 
not later than June 30 of each year.
    The second report is on the activities of the Taxpayer 
Advocate during the previous fiscal year. The report must 
identify the initiatives the Taxpayer Advocate has taken to 
improve taxpayer services and IRS responsiveness, contain 
recommendations received from individuals who have the 
authority to issue a Taxpayer Assistance Order [TAO], describe 
in detail the progress made in implementing these 
recommendations, contain a summary of at least 20 of the most 
serious problems which taxpayers have in dealing with the IRS, 
include recommendations for such administrative and legislative 
action as may be appropriate to resolve such problems, describe 
the extent to which regional problem resolution officers 
participate in the selection and evaluation of local problem 
resolution officers, and to include other such information as 
the Taxpayer Advocate may deem advisable. The Commissioner is 
required to establish internal procedures that will ensure a 
formal IRS response within 3 months to all recommendations 
submitted to the Commissioner by the Taxpayer Advocate. This 
second report is due not later than December 31 of each year.
    The reports submitted to Congress by the Taxpayer Advocate 
are not subject to prior review by the Commissioner, the 
Secretary of the Treasury, any other officer or employee of the 
Department of the Treasury, or the Office of Management and 
Budget. The objective is for Congress to receive an unfiltered 
and candid report of the problems taxpayers are experiencing 
and what can be done to address them. The reports by the 
Taxpayer Advocate are not official legislative recommendations 
of the Administration; providing official legislative 
recommendations remains the responsibility of the Department of 
Treasury.

                             Effective Date

    The provision is effective on the date of enactment. The 
first annual reports of the Taxpayer Advocate are due in June 
and December, 1996.
            b. Expansion of authority to issue Taxpayer Assistance 
                    Orders (sec. 13302 of the bill and sec. 7811 of the 
                    code)

                              Present Law

    Section 7811(a) authorizes the Taxpayer Ombudsman to issue 
a Taxpayer Assistance Order [TAO]. TAO's may order the release 
of taxpayer property levied upon by the IRS and may require the 
IRS to cease any action, or refrain from taking any action if, 
in the determination of the Taxpayer Ombudsman, the taxpayer is 
suffering or about to suffer a significant hardship as a result 
of the manner in which the internal revenue laws are being 
administered.

                           Reasons for Change

    The requirement that the significant hardship be as a 
result of the manner in which the internal revenue laws are 
being administered has resulted in confusion as to the 
circumstances which justify the issuance of a TAO. The most 
frequent situation where a TAO may be needed, but may not be 
authorized under present law, involves income tax refunds that 
are needed to relieve severe hardship of taxpayers. Another 
example involves the reissuance of refund checks which have 
been sent by the IRS to an address at which the taxpayer no 
longer resides. While the mailing of the check to the incorrect 
address might in no way be due to the fault of the IRS, the 
normal delays in reissuing such a check may cause great 
hardship for the taxpayer. Also, the IRS Collection Division 
may take an enforcement action when the taxpayer has had no 
actual notice of the deficiency and is not afforded any 
opportunity to obtain an administrative review of the validity 
of the tax deficiency. In cases like these, it may be 
appropriate for the Taxpayer Advocate to issue a TAO to 
temporarily stay the IRS collection action in order to allow 
for a review of the appropriateness of the proposed action.

                        Explanation of Provision

    The bill provides the Taxpayer Advocate with broader 
authority to affirmatively take any action as permitted by law 
with respect to taxpayers who would otherwise suffer a 
significant hardship as a result of the manner in which the IRS 
is administering the tax laws. In addition, the bill provides 
that a TAO may specify a time period within which the TAO must 
be followed. Finally, the bill provides that only the Taxpayer 
Advocate, the Commissioner of the IRS, the Deputy Commissioner, 
or a regional problem resolution officer, may modify or rescind 
a TAO. Any official who modifies or rescinds a TAO must provide 
the Taxpayer Advocate a written explanation of the reasons for 
the modification or rescission.

                             Effective Date

    The provision is effective on the date of enactment.

2. Modifications to installment agreement provisions

            a. Notification of reasons for termination of installment 
                    agreements (sec. 13306 of the bill and sec. 6159 of 
                    the code)

                              Present Law

    Section 6159 authorizes the IRS to enter into written 
installment agreements with taxpayers to facilitate the 
collection of tax liabilities. In general, the IRS has the 
right to terminate (or in some instances, alter or modify) such 
agreements if the taxpayer provided inaccurate or incomplete 
information before the agreement was entered into, if the 
taxpayer fails to make a timely payment of an installment or 
another tax liability, if the taxpayer fails to provide the IRS 
with a requested update of financial condition, if the IRS 
determines that the financial condition of the taxpayer has 
changed significantly, or if the IRS believes collection of the 
tax liability is in jeopardy. If the IRS determines that the 
financial condition of a taxpayer that has entered into an 
installment agreement has changed significantly, the IRS must 
provide the taxpayer with a written notice that explains the 
IRS determination at least 30 days before altering, modifying 
or terminating the installment agreement. No notice is 
statutorily required if the installment agreement is altered, 
modified, or terminated for other reasons.

                           Reasons for Change

    The committee believes that the IRS generally should notify 
taxpayers if an installment agreement is altered, modified, or 
terminated.

                        Explanation of Provision

    The bill requires the IRS to notify taxpayers 30 days 
before altering, modifying, or terminating any installment 
agreement for any reason other than that the collection of tax 
is determined to be in jeopardy. The IRS must include in the 
notification an explanation of why the IRS intends to take this 
action.

                             Effective Date

    The provision is effective 6 months after the date of 
enactment.
            b. Administrative review of termination of installment 
                    agreements (sec. 13307 of the bill and sec. 6159 of 
                    the code)

                              Present Law

    The IRS is currently testing an appeal process for various 
collection actions, including installment agreements, that will 
permit taxpayers to appeal these collection actions to Appeals 
Division personnel.

                           Reasons for Change

    The committee believes that taxpayers should be able to 
obtain an independent administrative review of terminations of 
installment agreements.

                        Explanation of Provision

    The bill requires the IRS to establish additional 
procedures for an independent administrative review of 
terminations of installment agreements for taxpayers who 
request a review.

                             Effective Date

    The provision is effective on January 1, 1996.

3. Abatement of interest and penalties

            a. Expansion of authority to abate interest (sec. 13311 of 
                    the bill and sec. 6404 of the code)

                              Present Law

    Any assessment of interest on any deficiency attributable 
in whole or in part to any error or delay by an officer or 
employee of the IRS (acting in his official capacity) in 
performing a ministerial act may be abated.

                           Reasons for Change

    The committee believes that it is appropriate to expand the 
authority to abate interest to include delays caused by 
managerial acts of the IRS.

                        Explanation of Provision

     The bill permits the IRS to abate interest with respect to 
any unreasonable error or delay resulting from managerial acts 
as well as ministerial acts. This would include extensive 
delays resulting from managerial acts such as: the loss of 
records by the IRS, IRS personnel transfers, extended 
illnesses, extended personnel training, or extended leave. On 
the other hand, interest would not be abated for delays 
resulting from general administrative decisions. For example, 
the taxpayer could not claim that the IRS's decision on how to 
organize the processing of tax returns or its delay in 
implementing an improved computer system resulted in an 
unreasonable delay in the Service's action on the taxpayer's 
tax return, and so the interest on any subsequent deficiency 
should be waived.

                             Effective Date

    The provision applies to interest accruing with respect to 
deficiencies or payments for taxable years beginning after the 
date of enactment.
            b. Review of IRS failure to abate interest (sec. 13312 of 
                    the bill and sec. 6404 of the code)

                              Present Law

    Federal courts generally do not have the jurisdiction to 
review the IRS's failure to abate interest.

                           Reasons for Change

    The committee believes that it is appropriate for the Tax 
Court to have jurisdiction to review IRS's failure to abate 
interest with respect to certain taxpayers.

                        Explanation of Provision

    The bill grants the Tax Court jurisdiction to determine 
whether the IRS's failure to abate interest for an eligible 
taxpayer was an abuse of discretion. The action must be brought 
within 6 months after the date of the Secretary's final 
determination not to abate interest. An eligible taxpayer must 
meet the net worth and size requirements imposed with respect 
to awards of attorney's fees. No inference is intended as to 
whether under present law any court has jurisdiction to review 
IRS's failure to abate interest.

                             Effective Date

    The provision applies to requests for abatement after the 
date of enactment.
            c. Extension of interest-free period for payment of tax 
                    after notice and demand (sec. 13313 of the bill and 
                    sec. 6601 of the code)

                              Present Law

    In general, a taxpayer must pay interest on late payments 
of tax. An interest-free period of 10 calendar days is provided 
to taxpayers who pay the tax due within 10 calendar days of 
notice and demand.

                           Reasons for Change

    The 10-day interest-free period was designed to give 
taxpayers time to receive the notice and pay the amount due. 
Because it may be very difficult for some taxpayers to remit 
payment within the 10-day period, particularly if the mail has 
delayed delivery of the notice, the IRS must recompute interest 
and send another notice to taxpayers.

                        Explanation of Provision

    The bill extends the interest-free period provided to 
taxpayers for the payment of the tax liability reflected in the 
notice from 10 calendar days to 10 business days (21 calendar 
days, provided that the total tax liability shown on the notice 
of deficiency is less than $100,000).

                             Effective Date

    The provision applies in the case of any notice and demand 
given after June 30, 1996.

4. Joint returns

            a. Studies of joint and several liability for married 
                    persons filing joint tax returns and other joint 
                    return-related issues (sec. 13316 of the bill)

                              Present Law

    Spouses who file a joint tax return are each fully 
responsible for the accuracy of the return and for the full tax 
liability. This is true even though only one spouse may have 
earned the wages or income which is shown on the return. This 
is ``joint and several'' liability. Spouses who wish to avoid 
joint liability may file as a ``married person filing 
separately.''
    Spouses often file a joint tax return but then later are 
separated or divorced. If the IRS later disputes the accuracy 
of the joint tax returns, one spouse may be held liable for the 
entire tax deficiency stemming from erroneous deductions or 
omitted income attributable to the other spouse. Therefore, the 
``innocent'' spouse may be held liable for the full deficiency 
in a subsequent audit occurring after the separation or 
divorce. This has resulted in a serious hardship being imposed 
on an ``innocent spouse'' in a number of cases.
    In some cases, a couple addresses the responsibility for 
tax liability as part of their divorce decree. However, these 
agreements are not binding on the IRS because the IRS was not a 
party to the divorce proceeding. Thus, if a former spouse 
violates the tax responsibilities assigned to him or her in a 
divorce decree, the other spouse may not rely on the decree in 
dealing with the IRS.
    While present law does contain provisions which give relief 
to certain innocent spouses in these situations, the provisions 
are narrowly drawn and strictly interpreted. Therefore, many 
former spouses are not able to qualify for the protections of 
the current ``innocent spouse'' rules.
    In 1930, the Supreme Court ruled in Poe v. Seaborn, 282 
U.S. 101 (1930), that all the earnings of a married couple in 
community property States were part of the marital property to 
which each spouse had an equal right. At the time, married 
couples generally welcomed this decision because it allowed 
couples in community property States to benefit from income 
``splitting'' between the husband and wife for income tax 
purposes. Later, the Federal tax law was changed to allow all 
married taxpayers to ``split'' their income by means of filing 
a joint tax return.
    While the income-splitting effect of Poe v. Seaborn is now 
moot, the decision continues to affect married couples in 
community property States, but in an adverse way. For example, 
there are cases where a divorced spouse owes the IRS a tax 
liability based on his or her joint return filed during the 
marital years. When this spouse remarries, the new spouse's 
income may become subject to levy in order to satisfy the tax 
deficiency of the prior spouse. In contrast, if the couple did 
not live in a community property State, the second spouse's 
wages could not be levied to pay a tax liability arising from 
this spouse's first marriage.

                           Reasons for Change

    The committee believes that the traditional standard of 
joint and several liability for married couples filing a joint 
tax return should be reexamined.

                        Explanation of Provision

    The bill directs the Treasury Department and the General 
Accounting Office [GAO] to conduct separate studies analyzing 
the following:
    (1) The effects of changing the current standard of ``joint 
and several'' liability for married couples to a 
``proportionate'' liability standard. That is, each spouse 
would be liable only for the income tax attributable to the 
income of each spouse.
    (2) The effects of requiring the IRS to be bound by the 
terms of a divorce decree which addresses the responsibility 
for the tax liability on prior joint tax returns.
    (3) Whether the current ``innocent spouse'' provisions 
provide meaningful relief to former spouses.
    (4) The effects of overturning the application of Poe v. 
Seaborn for income tax purposes in community property States.
    The Treasury Department and the GAO must examine the tax 
policy implications, the equity implications, and operational 
changes which would face the IRS if the liability standard were 
changed. For example, the studies must consider how a system of 
proportionate liability would change the way the IRS 
communicates with taxpayers, conducts audits of joint returns, 
and enforces tax lien and levies against married couples.

                             Effective Date

    The studies are due 6 months after the date of enactment.
            b. Joint return may be made after separate returns without 
                    full payment of tax (sec. 13317 of the bill and 
                    sec. 6013 of the code)

                              Present Law

    Taxpayers who file separate returns and subsequently 
determine that their tax liability would have been less if they 
had filed a joint return are precluded by statute from reducing 
their tax liability by filing jointly if they are unable to pay 
the entire amount of the joint return liability before the 
expiration of the 3-year period for making the election to file 
jointly.

                           Reasons for Change

    Not all taxpayers are able to pay the full amount owed on 
their returns by the filing deadline. In such circumstances, 
the IRS encourages the taxpayer to pay the tax as soon as 
possible or enter into an installment agreement. However, 
taxpayers who file separate returns and subsequently determine 
that their tax liability would have been less if they had filed 
a joint return are precluded from reducing their tax liability 
by filing jointly if they are unable to pay the entire amount 
of the joint return liability. This rule may be unfair to 
taxpayers experiencing financial difficulties.

                        Explanation of Provision

    The bill repeals the requirement of full payment of tax 
liability as a precondition to switching from married filing 
separately status to married filing jointly status.

                             Effective Date

    The provision applies to taxable years beginning after the 
date of the enactment.
            c. Disclosure of collection activities with respect to 
                    joint returns (sec. 13318 of the bill and sec. 6103 
                    of the code)

                              Present Law

    The IRS does not routinely disclose collection information 
to a former spouse that relates to tax liabilities attributable 
to a joint return that was filed when married.

                           Reasons for Change

    The committee believes that it is appropriate to require 
the IRS to discuss with one former spouse the efforts it has 
made to collect the joint return tax liability from the other 
spouse.

                        Explanation of Provision

    If a tax deficiency with respect to a joint return is 
assessed, and the individuals filing the return are no longer 
married or no longer reside in the same household, the bill 
requires the IRS to disclose in writing (in response to a 
written request by one of the individuals) to that individual 
whether the IRS has attempted to collect the deficiency from 
the other individual, the general nature of the collection 
activities, and the amount (if any) collected.
    Such requests must be made in writing. The IRS may develop 
procedures to address the frequency of such requests in order 
to prevent taxpayers from abusing this provision by making 
numerous requests without good cause. For example, one request 
per quarter would be a reasonable rate unless the taxpayer had 
good cause to seek more frequent information.
    In making these disclosures, the IRS may omit the current 
home address and business location of the former spouse. This 
is designed to prevent the disclosure of such personal 
information to persons who might be hostile towards a former 
spouse.

                             Effective Date

    The provision is effective on the date of enactment.

5. Collection activities

            a. Modifications to lien and levy provisions
            i. Withdrawal of public notice of lien (sec. 13321(a) of 
                    the bill and sec. 6323 of the code)

                              Present Law

    The IRS must file a notice of lien in the public record, in 
order to protect the priority of a tax lien. A notice of tax 
lien provides public notice that a taxpayer owes the government 
money. The IRS has discretion in filing such a notice, but may 
withdraw a filed notice only if the notice (and the underlying 
lien) was erroneously filed or if the underlying lien has been 
paid, bonded, or become unenforceable.

                           Reasons for Change

    The committee believes that it is appropriate to give the 
IRS discretion to withdraw a notice of lien in other situations 
as well.

                        Explanation of Provision

    The bill allows the IRS to withdraw a public notice of tax 
lien prior to payment in full by the indebted taxpayer without 
prejudice, if the Secretary determines that first, the filing 
of the notice was premature or otherwise not in accordance with 
the administrative procedures of the IRS, second, the taxpayer 
has entered into an installment agreement to satisfy the tax 
liability with respect to which the lien was filed, third, the 
withdrawal of the lien will facilitate collection of the tax 
liability, or fourth, the withdrawal of the lien would be in 
the best interests of the taxpayer (as determined by the 
Taxpayer Advocate) and of the government. The IRS must also 
provide a copy of the notice of withdrawal to the taxpayer. The 
bill also requires that, at the written request of the 
taxpayer, the IRS make reasonable efforts to give notice of the 
withdrawal of a lien to creditors, credit reporting agencies, 
and financial institutions specified by the taxpayer.

                             Effective Date

    The provision is effective on the date of enactment.
            ii. Return of levied property (sec. 13321(b) of the bill 
                    and sec. 6343 of the code)

                              Present Law

    The IRS is authorized to levy on the property of a taxpayer 
as a means of collecting unpaid taxes. The IRS is able to 
return levied property to a taxpayer only when the taxpayer has 
overpaid its liability with respect to tax, interest, and 
penalty for which the property was levied.

                           Reasons for Change

    There are several situations where the IRS is not 
authorized return levied-upon amounts, even when it believes 
doing so would be equitable and in the best interests of the 
taxpayer and the government. For example, if the IRS enters 
into an installment agreement and, in contradiction to the 
terms of the installment agreement, the IRS levies on the 
taxpayer's property, the IRS is prohibited from returning the 
property to the taxpayer. The committee believes that it is 
appropriate to give the IRS authority to return levied property 
in other circumstances as well.

                        Explanation of Provision

    The bill allows the IRS to return property (including money 
deposited in the Treasury) that has been levied upon if the 
Secretary determines that first, the levy was premature or 
otherwise not in accordance with the administrative procedures 
of the IRS, second, the taxpayer has entered into an 
installment agreement to satisfy the tax liability, third, the 
return of the property will facilitate collection of the tax 
liability, or fourth, the return of the property would be in 
the best interests of the taxpayer (as determined by the 
Taxpayer Advocate) and the government.

                             Effective Date

    The provision is effective on the date of enactment.
            iii. Modifications in certain levy exemption amounts (sec. 
                    13321(c) of the bill and sec. 6334 of the code)

                              Present Law

    Property exempt from levy includes personal property with a 
value of up to $1,650.

                           Reasons for Change

    The committee believes that this amount should be increased 
and indexed for inflation.

                        Explanation of Provision

    The bill increases the exemption amount to $2,500 for 
personal property. This amount is indexed for inflation 
commencing January 1, 1996.

                             Effective Date

    The provision is effective with respect to levies issued 
after December 31, 1995.
            b. Offers-in-compromise (sec. 13322 of the bill and sec. 
                    7122 of the code)

                              Present Law

    The IRS has the authority to settle a tax debt pursuant to 
an offer-in-compromise. IRS regulations provide that such 
offers can be accepted if: the taxpayer is unable to pay the 
full amount of the tax liability and it is doubtful that the 
tax, interest, and penalties can be collected or there is doubt 
as to the validity of the actual tax liability. Amounts over 
$500 can only be accepted if the reasons for the acceptance are 
documented in detail and supported by an opinion of the IRS 
chief counsel.

                           Reasons for Change

    The committee believes that the $500 threshold amount 
requiring a written opinion from the IRS chief counsel slows 
the approval process for most offers-in-compromise and is 
unnecessarily low.

                        Explanation of Provision

    The bill increases from $500 to $100,000 the amount 
requiring a written opinion from the Office of Chief Counsel. 
Compromises below the $100,000 threshold must be subject to 
continuing quality review by the IRS.

                             Effective Date

    The provision is effective on the date of enactment.

6. Information returns

            a. Civil damages for fraudulent filing of information 
                    returns (sec. 13326 of the bill and new sec. 7434 
                    of the code)

                              Present Law

    Federal law provides no private cause of action to a 
taxpayer who is injured because a fraudulent information return 
has been filed with the IRS asserting that payments have been 
made to the taxpayer.

                           Reasons for Change

    Some taxpayers may suffer significant personal loss and 
inconvenience as the result of the IRS receiving fraudulent 
information returns, which have been filed by persons intent on 
either defrauding the IRS or harassing taxpayers.

                        Explanation of Provision

    The bill provides that, if any person willfully files a 
fraudulent information return with respect to payments 
purported to have been made to another person, the other person 
may bring a civil action for damages against the person filing 
that return. A copy of the complaint initiating the action must 
be provided to the IRS. Recoverable damages are the greater of 
first, $5,000 or second, the amount of actual damages 
(including the costs of the action) and, in the court's 
discretion, reasonable attorney's fees. The court must specify 
in any decision awarding damages the correct amount (if any) 
that should have been reported on the information return. An 
action seeking damages under this provision must be brought 
within 6 years after the filing of the fraudulent information 
return, or 1 year after the fraudulent information return would 
have been discovered through the exercise of reasonable care, 
whichever is later.

                             Effective Date

    The provision applies to fraudulent information returns 
filed after the date of enactment.
            b. Requirement to conduct reasonable investigations of 
                    information returns (sec. 13327 of the bill and 
                    sec. 6201 of the code)

                              Present Law

    Deficiencies determined by the IRS are generally afforded a 
presumption of correctness.

                           Reasons for Change

    Taxpayers may encounter difficulties when a payor issues an 
erroneous information return and refuses to correct the 
information and report the change to the IRS, or when a 
fraudulent information return is filed.

                        Explanation of Provision

    The bill provides that, in any court proceeding, if a 
taxpayer asserts a reasonable dispute with respect to any item 
of income reported on an information return (form 1099 or form 
W-2) filed by a third party and the taxpayer has fully 
cooperated with the IRS, the government has the burden of 
producing reasonable and probative information concerning the 
deficiency (in addition to the information return itself). 
Fully cooperating with the IRS includes (but is not limited to) 
the following: bringing the reasonable dispute over the item of 
income to the attention of the IRS within a reasonable period 
of time, and providing (within a reasonable period of time) 
access to and inspection of all witnesses, information, and 
documents within the control of the taxpayer (as reasonably 
requested by the Secretary).

                             Effective Date

    The provision is effective on the date of enactment.

7. Awarding of costs and certain fees

            a. United States must establish that its position in a 
                    proceeding was substantially justified (sec. 13331 
                    of the bill and sec. 7430 of the code)

                              Present Law

    Under section 7430, a taxpayer who successfully challenges 
a determination of deficiency by the IRS may recover attorney's 
fees and other administrative and litigation costs if the 
taxpayer qualifies as a ``prevailing party.'' A taxpayer 
qualifies as a prevailing party if it: First, establishes that 
the position of the United States was not substantially 
justified; second, substantially prevails with respect to the 
amount in controversy or with respect to the most significant 
issue or set of issues presented; and third, meets certain net 
worth and (if the taxpayer is a business) size requirements. A 
taxpayer must exhaust administrative remedies to be eligible to 
receive an award of attorney's fees.

                           Reasons for Change

    The committee believes that it is appropriate for the IRS 
to demonstrate that it was substantially justified in 
maintaining its position when the taxpayer substantially 
prevails and that the IRS should be required to follow its 
published guidance and private guidance provided to taxpayers.

                        Explanation of Provision

    The bill provides that, once a taxpayer substantially 
prevails over the IRS in a tax dispute, the IRS has the burden 
of proof to establish that it was substantially justified in 
maintaining its position against the taxpayer. This will switch 
the current procedure which places the burden of proof on the 
taxpayer to establish that the IRS was not substantially 
justified in maintaining its position. Therefore, the 
successful taxpayer will receive an award of attorney's fees 
unless the IRS satisfies its burden of proof. The bill also 
establishes a rebuttable presumption that the position of the 
United States was not substantially justified if the IRS did 
not follow in the administrative proceeding first, its 
published regulations, revenue rulings, revenue procedures, 
information releases, notices, or announcements, or second, a 
private letter ruling, determination letter, or technical 
advice memorandum issued to the taxpayer. This provision only 
applies to the version of IRS guidance that is most current on 
the date the IRS's position was taken.

                             Effective Date

     The provision is effective for proceedings commenced after 
the date of enactment.
            b. Increased limit on attorney's fees (sec. 13332 of the 
                    bill and sec. 7430 of the code)

                              Present Law

    Attorney's fees recoverable by prevailing parties as 
litigation or administrative costs was originally set at $75 
per hour.

                           Reasons for Change

    The committee believes that these amounts should be raised 
and indexed for inflation.

                        Explanation of Provision

    The bill raises the statutory rate to $110 per hour, 
indexed for inflation beginning after 1996.

                             Effective Date

     The provision applies to proceedings commenced after the 
date of enactment.
            c. Failure to agree to extension not taken into account 
                    (sec. 13333 of the bill and sec. 7430 of the code)

                              Present Law

    To qualify for an award of attorney's fees, the taxpayer 
must have exhausted the administrative remedies available 
within the IRS.

                           Reasons for Change

    The IRS has taken the position in regulations that 
attorney's fees cannot be awarded if the taxpayer has not 
agreed to extend the statute of limitations. In Minahan v. 
Commissioner, 88 T.C. 492 (1987), the Tax Court held that 
regulation invalid insofar as it provides that a taxpayer's 
refusal to consent to extend the statute of limitations is to 
be taken into account in determining whether the taxpayer has 
exhausted administrative remedies available to the taxpayer.

                        Explanation of Provision

    The bill provides that any failure to agree to an extension 
of the statute of limitations cannot be taken into account for 
purposes of determining whether a taxpayer has exhausted the 
administrative remedies for purposes of determining eligibility 
for an award of attorney's fees.

                             Effective Date

    The provision applies to proceedings commenced after the 
date of enactment.
            d. Award of litigation costs permitted in declaratory 
                    judgment proceedings (sec. 13334 of the bill and 
                    sec. 7430 of the code)

                              Present Law

    Section 7430(b)(3) denies any reimbursement for attorney's 
fees in all declaratory judgment actions, except those actions 
related to the revocation of an organization's qualification 
under section 501(c)(3) (relating to tax-exempt status).

                           Reasons for Change

    It is appropriate to treat declaratory judgment proceedings 
similar to other tax proceedings, with respect to eligibility 
for attorney's fees.

                        Explanation of Provision

    The bill eliminates the present-law restrictions on 
awarding attorney's fees in all declaratory judgment 
proceedings.

                             Effective Date

    The provision applies to proceedings commenced after the 
date of enactment.

8. Modification to recovery of civil damages for unauthorized 
        collection actions

            a. Increase in limit on recovery of civil damages for 
                    unauthorized collection actions (sec. 13336 of the 
                    bill and sec. 7433 of the code)
            Present Law
    A taxpayer may sue the United States for up to $100,000 of 
damages caused by an officer or employee of the IRS who 
recklessly or intentionally disregards provisions of the 
Internal Revenue Code or the Treasury regulations promulgated 
thereunder in connection with the collection of Federal tax 
with respect to the taxpayer.

                           Reasons for Change

    The committee believes that the cap for damages caused by 
IRS employees should be raised.

                        Explanation of Provision

    The bill increases the cap from $100,000 to $1 million.

                             Effective Date

    The provision applies to unauthorized collection actions by 
IRS employees that occur after the date of enactment.
            b. Court discretion to reduce award for litigation costs 
                    for failure to exhaust administrative remedies 
                    (sec. 13337 of the bill and sec. 7433 of the code)

                              Present Law

    A taxpayer suing the United States for civil damages for 
unauthorized collection activities must exhaust administrative 
remedies to be eligible for an award.

                           Reasons for Change

    There may be circumstances in which it is inappropriate to 
require a taxpayer to exhaust administrative remedies.

                        Explanation of Provision

    The bill permits (but does not require) a court to reduce 
an award if the taxpayer has not exhausted administrative 
remedies.

                             Effective Date

    The provision is effective for proceedings commenced after 
the date of enactment.

9. Modification to penalty for failure to collect and pay over tax

            a. Preliminary notice requirement (sec. 13341 of the bill 
                    and sec. 6672 of the code)

                              Present Law

    Under section 6672, a ``responsible person'' is subject to 
a penalty equal to the amount of trust fund taxes that are not 
collected or paid to the government on a timely basis. An 
individual the IRS has identified as a responsible person is 
permitted an administrative appeal on the question of 
responsibility.

                           Reasons for Change

    Some employees may not be fully aware of their personal 
liability under section 6672 for the failure to pay over trust 
fund taxes. The committee believes that IRS could make 
additional efforts to assist the public in understanding its 
responsibilities.

                        Explanation of Provision

    The bill requires the IRS to issue a notice to an 
individual the IRS had determined to be a responsible person 
with respect to unpaid trust fund taxes at least 60 days prior 
to issuing a notice and demand for the penalty. The statute of 
limitations shall not expire before the date 90 days after the 
date on which the notice was mailed. The provision does not 
apply if the Secretary finds that the collection of the penalty 
is in jeopardy.

                             Effective Date

    The provision applies to assessments made after June 30, 
1996.
            b. Disclosure of certain information where more than one 
                    person subject to penalty (sec. 13342 of the bill 
                    and sec. 6103 of the code)

                              Present Law

    The IRS may not disclose to a responsible person the IRS's 
efforts to collect unpaid trust fund taxes from other 
responsible persons, who may also be liable for the same tax 
liability.

                           Reasons for Change

    The committee believes that it is appropriate to permit the 
IRS to disclose to a responsible person whether the IRS is 
imposing the penalty on any other responsible person, and 
whether the IRS has been successful in collecting the penalty 
against such a person.

                        Explanation of Provision

    The bill requires the IRS, if requested in writing by a 
person considered by the IRS to be a responsible person, to 
disclose in writing to that person the name of any other person 
the IRS has determined to be a responsible person with respect 
to the tax liability. The IRS is required to disclose in 
writing whether it has attempted to collect this penalty from 
other responsible persons, the general nature of those 
collection activities, and the amount (if any) collected. 
Failure by the IRS to follow this provision does not absolve 
any individual for any liability for this penalty.

                             Effective Date

    The provision is effective on the date of enactment.
            c. Right of contribution from multiple responsible parties 
                    (sec. 13343 of the bill and sec. 6672 of the code)

                              Present Law

    A responsible person may seek to recover part of the amount 
which he has paid to the IRS from other individuals who also 
may have the obligations of a responsible person but who have 
not yet contributed their proportionate share of their 
liability under section 6672. Taxpayers must pursue such claims 
for contribution under state law (to the extent state law 
permits such claims). The variations in state law sometimes 
make it difficult or impossible to press successful suits in 
State courts to force a contribution from other responsible 
persons.

                           Reasons for Change

    The IRS may collect this penalty from a responsible person 
from whom it can collect most easily, rather than from the 
person with the greatest culpability for the failure. It would 
accordingly promote fairness in the administration of the tax 
laws to establish a right of contribution among multiple 
responsible parties.

                        Explanation of Provision

    If more than one person is liable for this penalty, each 
person who paid the penalty is entitled to recover from other 
persons who are liable for the penalty an amount equal to the 
excess of the amount paid by such person over such person's 
proportionate share of the penalty. This proceeding is a 
Federal cause of action and must be entirely separate from any 
proceeding involving IRS's collection of the penalty from any 
responsible party (including a proceeding in which the United 
States files a counterclaim or third-party complaint for 
collection of the penalty).

                             Effective Date

    The provision applies to penalties assessed after the date 
of enactment.
            d. Board members of tax-exempt organizations (sec. 13344 of 
                    the bill and sec. 6672 of the code)

                              Present Law

    Under section 6672, ``responsible persons'' of tax-exempt 
organizations are subject to a penalty equal to the amount of 
trust fund taxes that are not collected and paid to the 
government on a timely basis.

                           Reasons for Change

    Individuals who serve on the boards of tax-exempt 
organizations, on a voluntary or honorary basis, are often 
concerned that they will be held liable for unpaid taxes of the 
organization as a responsible person, even though their service 
may be strictly voluntary in nature, and they may not be 
involved in the day-to-day operations and financial decisions 
of the organization. The committee believes that the IRS has 
not made adequate efforts to clarify the rules applicable to 
tax-exempt organizations.

                        Explanation of Provision

    The bill clarifies that the section 6672 responsible person 
penalty is not to be imposed on volunteer, unpaid members of 
any board of trustees or directors of a tax-exempt organization 
to the extent such members are solely serving in an honorary 
capacity, do not participate in the day-to-day or financial 
activities of the organization, and do not have actual 
knowledge of the failure. The provision cannot operate in such 
a way as to eliminate all responsible persons from 
responsibility.
    The bill requires the IRS to develop materials to better 
inform board members of tax-exempt organizations (including 
voluntary or honorary members) that they may be treated as 
responsible persons. The IRS is required to make such materials 
routinely available to tax-exempt organizations. The bill also 
requires the IRS to clarify its instructions to IRS employees 
on application of the responsible person penalty with regard to 
honorary or volunteer members of boards of trustees or 
directors of tax-exempt organizations.

                             Effective Date

    The provision is effective on the date of enactment.

10. Modifications of rules relating to summonses

            a. Enrolled agents included as third-party recordkeepers 
                    (sec. 13346 of the bill and sec. 7609 of the code)

                              Present Law

    Section 7609 contains special procedures that the IRS must 
follow before it issues a third-party summons. A third-party 
summons is a summons issued to a third-party recordkeeper 
compelling him to provide information with respect to the 
taxpayer. An example of this would be a summons served on a 
stock brokerage house to provide data on the securities trading 
of the taxpayer-client.
    If a third-party summons is served on a third-party 
recordkeeper listed in section 7609(a)(3), then the taxpayer 
must receive notice of the summons and have an opportunity to 
challenge the summons in court. Otherwise the taxpayer has no 
statutory right to receive notice of the summons and 
accordingly he will not have the opportunity to challenge it in 
court.
    Section 7609(a)(3) lists attorneys and accountants as 
third-party recordkeepers, but it does not list ``enrolled 
agents'', who are authorized to practice before the IRS.

                           Reasons for Change

    Because enrolled agents are authorized to practice before 
the IRS in a similar manner to attorneys and accountants, they 
should be accorded the same status as third-party recordkeepers 
as are attorneys and accountants.

                        Explanation of Provision

    The bill includes enrolled agents as third-party 
recordkeepers.

                             Effective Date

    The provision applies to summonses issued after the date of 
enactment.
            b. Safeguards relating to designated summonses; annual 
                    report to Congress on designated summonses (secs. 
                    13347 and 13348 of the bill and sec. 6503 of the 
                    code)

                              Present Law

    The period for assessment of additional tax with respect to 
most tax returns, corporate or otherwise, is 3 years. The IRS 
and the taxpayer can together agree to extend the period, 
either for a specified period of time or indefinitely. The 
taxpayer may terminate an indefinite agreement to extend the 
period by providing notice to the IRS.
    During an audit, the IRS may informally request that the 
taxpayer provide additional information necessary to arrive at 
a fair and accurate audit adjustment, if any adjustment is 
warranted. Not all taxpayers cooperate by providing the 
requested information on a timely basis. In some cases the IRS 
seeks information by issuing an administrative summons. Such a 
summons will not be judicially enforced unless the government 
(as a practical matter, the Department of Justice) seeks and 
obtains an order for enforcement in Federal court. In addition, 
a taxpayer may petition the court to quash an administrative 
summons where this is permitted by statute.10
    \10\ Petitions to quash are permitted, for example, in connection 
with the examination of certain related party transactions under 
section 6038A(e)(4), and in the case of certain third-party summonses 
under section 7609(b)(2).
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    In certain cases, the running of the assessment period is 
suspended during the period when the parties are in court to 
obtain or avoid judicial enforcement of an administrative 
summons. Such a suspension is provided in the case of 
litigation over a third-party summons (sec. 7609(e)) or 
litigation over a summons regarding the examination of a 
related party transaction. Such a suspension can also occur 
with respect to a corporate tax return if a summons is issued 
at least 60 days before the day on which the assessment period 
(as extended) is scheduled to expire. In this case, suspension 
is only permitted if the summons clearly states that it is a 
``designated summons'' for this purpose. Only one summons may 
be treated as a designated summons for purposes of any one tax 
return. The limitations period is suspended during the judicial 
enforcement period of the designated summons and of any other 
summons relating to the same tax return that is issued within 
30 days after the designated summons is issued.
    Under current internal procedures of the IRS, no designated 
summons is issued unless first reviewed by the Office of Chief 
Counsel to the IRS, including review by an IRS deputy regional 
counsel for the region in which the examination of the 
corporation's return is being conducted.

                           Reasons for Change

    The committee recognizes that issuance of a designated 
summons is a serious step in the examination of a tax return, 
given the fact that litigation over the summons would suspend 
the running of the period for assessing additional tax against 
the taxpayer under audit. The committee believes that, in 
recognition of the seriousness of such a step, the IRS should 
be required to institute additional procedures to ensure high-
level IRS review before any such summons is issued. The 
committee also believes that it is important to place some 
restrictions on the taxpayers to whom IRS can issue a 
designated summons.

                        Explanation of Provision

    The bill requires that issuance of any designated summons 
with respect to a corporation's tax return must be preceded by 
review of such issuance by the regional counsel, Office of 
Chief Counsel to the IRS, for the region in which the 
examination of the corporation's return is being conducted.
    The bill also limits the use of a designated summons to 
corporations (or to any other person to whom the corporation 
has transferred records) that are being examined as part of the 
Coordinated Examination Program [CEP] or its successor. CEP 
audits cover about 1,600 of the largest corporate taxpayers. If 
a corporation moves between CEP and non-CEP audit categories, 
only the tax years covered by the CEP may be the subject of a 
designated summons. The bill does not affect code section 
6038A(e)(1), which relates to a U.S. reporting corporation that 
acts merely as the agent of the foreign related party by 
receiving summonses on behalf of the foreign party.
    The bill also requires that the Treasury report annually to 
the Congress on the number of designated summonses issued in 
the preceding 12 months.

                             Effective Date

    The provision applies to summonses issued after date of 
enactment.

11. Relief from retroactive application of Treasury Department 
        regulations (sec. 13351 of the bill and sec. 7805 of the code)

                              Present Law

    Under section 7805(b), Treasury may prescribe the extent 
(if any) to which regulations shall be applied without 
retroactive effect.

                           Reasons for Change

    The committee believes that it is generally inappropriate 
for Treasury to issue retroactive regulations.

                        Explanation of Provision

    The bill provides that temporary and proposed regulations 
must have an effective date no earlier than the date of 
publication in the Federal Register or the date on which any 
notice substantially describing the expected contents of such 
regulation is issued to the public. Any regulations filed or 
issued within 12 months of the enactment of the statutory 
provision to which the regulation relates may be issued with 
retroactive effect. This general prohibition on retroactive 
regulations may be superseded by a legislative grant 
authorizing the Treasury to prescribe the effective date with 
respect to a statutory provision. The Treasury may issue 
retroactive temporary or proposed regulations to prevent abuse. 
The Treasury also may issue retroactive temporary, proposed, or 
final regulations to correct a procedural defect in the 
issuance of a regulation. Taxpayers may elect to apply a 
temporary or proposed regulation retroactively from the date of 
publication of the regulation. Final regulations may take 
effect from the date of publication of the temporary or 
proposed regulation to which they relate. The provision does 
not apply to any regulation relating to internal Treasury 
Department policies, practices, or procedures. Present law with 
respect to rulings is unchanged.

                             Effective Date

     The provision applies with respect to regulations that 
relate to statutory provisions enacted on or after the date of 
enactment.

12. Miscellaneous provisions

            a. Report on pilot program for appeal of enforcement 
                    actions (sec. 13356 of the bill)

                              Present Law

    A taxpayer who disagrees with an IRS collection action 
generally can only appeal to successively higher levels of 
management in the Collection Division. However, certain cases 
involving the 6672 penalty, offers-in-compromise, and 
employment tax issues may be appealed to the Appeals Division.

                           Reasons for Change

    The IRS recently conducted a pilot program to evaluate the 
merits of allowing an independent appeal, by the taxpayer, to 
the Appeals Division of enforcement actions (including lien, 
levy, and seizure actions).

                        Explanation of Provision

    The bill requires the Secretary to report to the tax-
writing committees on the effectiveness of the pilot program, 
together with any recommendations he may deem advisable.

                             Effective Date

    The report is due by March 1, 1996.
            b. Phone numbers of person providing payee statement 
                    required to be shown on such statement (sec. 13357 
                    of the bill and secs. 6041, 6041A, 6042, 6044, 
                    6045, 6049, 6050B, 6050H, 6050I, 6050J, 6050K and 
                    6050N of the code)

                              Present Law

    Information returns must contain the name and address of 
the payor.

                           Reasons for Change

    Taxpayers often need to contact payors issuing information 
returns in order to resolve questions about the accuracy of the 
information provided to the IRS. Currently, payors are only 
required to provide their names and addresses on information 
returns. As a result, taxpayers may have difficulty in 
contacting the payor and resolving questions quickly.

                        Explanation of Provision

    The bill requires that information returns contain the 
name, address, and phone number of the information contact of 
the person required to make the information return. A payor 
may, for example, provide the phone number of the department 
with the relevant information. It is intended that the 
telephone number provide direct access to individuals with 
immediate resources to resolve a taxpayer's questions in an 
expeditious manner.

                             Effective Date

    The provision applies to statements required to be 
furnished after December 31, 1996 (determined without regard to 
any extension).
            c. Required notice to taxpayers of certain payments (sec. 
                    13358 of the bill)

                              Present Law

    If the IRS receives a payment without sufficient 
information to properly credit it to a taxpayer's account, the 
IRS may attempt to contact the taxpayer. If contact cannot be 
made, the IRS places the payment in an unidentified remittance 
file.

                           Reasons for Change

    If the IRS cannot associate a taxpayer's payment with a 
balance due, the IRS generally deposits the money and may not 
inform the taxpayer of the overpayment. For example, a check 
that is separated from a balance-due income tax return, which 
is subsequently lost, may not get credited to that taxpayer's 
account.

                        Explanation of Provision

    The bill requires the IRS to make reasonable efforts to 
notify, within 60 days, those taxpayers who have made payments 
which the IRS cannot associate with the taxpayer.

                             Effective Date

    The provision is effective on the date of enactment.
            d. Unauthorized enticement of information disclosure (sec. 
                    13359 of the bill and new sec. 7435 of the code)

                              Present Law

    No statutory disincentive applies to IRS employees who 
entice a tax professional to disclose information about clients 
in exchange for the favorable treatment of the taxes of the 
professional.

                           Reasons for Change

    The committee believes that it is improper for IRS 
employees to entice tax professionals into breaching their 
fiduciary responsibilities to their clients in exchange for 
favorable treatment on their own returns.

                        Explanation of Provision

    If any officer or employee of the United States 
intentionally compromises the determination or collection of 
any tax due from an attorney, certified public accountant, or 
enrolled agent representing a taxpayer in exchange for 
information conveyed by the taxpayer to the attorney, certified 
public accountant or enrolled agent for purposes of obtaining 
advice concerning the taxpayer's tax liability, the taxpayer 
may bring a civil action for damages against the United States 
in a district court of the United States. Upon a finding of 
liability, damages shall equal the lesser of $500,000 or the 
sum of first, actual economic damages sustained by the taxpayer 
as a proximate result of the information disclosure and second, 
the costs of the action. These remedies shall not apply to 
information conveyed to an attorney, certified public 
accountant or enrolled agent for the purpose of perpetrating a 
fraud or crime.

                             Effective Date

    The provision applies to actions taken after the date of 
enactment.
            e. Annual reminders to taxpayers with outstanding 
                    delinquent accounts (sec. 13360 of the bill and new 
                    sec. 7524 of the code)

                              Present Law

    There is no statutory requirement in the code that the IRS 
send annual reminders to persons who have outstanding tax 
liabilities.

                           Reasons for Change

     Numerous taxpayers become delinquent in paying their tax 
liability. The delinquencies may occur because the person did 
not make enough payments through payroll withholding or 
quarterly estimated payments or because of an adjustment 
following an audit.
     The IRS generally pursues larger tax deficiencies first, 
and then it pursues small deficiencies. Because of the limited 
amount of IRS resources to work collection cases, cases with 
smaller deficiencies may not be addressed for years. In the 
meantime, the taxpayer may come to believe that the apparent 
lack of IRS collection activity means that it has abandoned its 
claim against the taxpayer. The taxpayer may be surprised when 
the IRS resumes collection action years later, when the 10-year 
statute of limitations on collections is close to expiring.

                        Explanation of Provision

     The bill requires the IRS to send taxpayers an annual 
reminder of their outstanding tax liabilities. The fact that a 
taxpayer did not receive a timely, annual reminder notice does 
not affect the tax liability.

                             Effective Date

     The provision requires the IRS to send annual reminder 
notices beginning in 1996.
             f. Five-year extension of authority for undercover 
                    operations (sec. 13361 of the bill and sec. 7608 of 
                    the code)

                               Present Law

     The Anti-Drug Abuse Act of 1988 exempted IRS undercover 
operations from the otherwise applicable statutory restrictions 
controlling the use of government funds (which generally 
provide that all receipts be deposited in the general fund of 
the Treasury and all expenses be paid out of appropriated 
funds). In general, the exemption permits the IRS to churn the 
income earned by an undercover operation to pay additional 
expenses incurred in the undercover operation. The IRS is 
required to conduct a detailed financial audit of large 
undercover operations in which the IRS is churning funds and to 
provide an annual audit report to the Congress on all such 
large undercover operations. The exemption originally expired 
on December 31, 1989, and was extended by the Comprehensive 
Crime Control Act of 1990 to December 31, 1991. The IRS has not 
had the authority to churn funds from its undercover operations 
since 1991.

                           Reasons for Change

     Many other law enforcement agencies have churning 
authority. It is appropriate for IRS to have this authority as 
well.

                        Explanation of Provision

     The bill reinstates the IRS's offset authority under 
section 7608(c) from the date of enactment until January 1, 
2001. The bill amends the IRS annual reporting requirement 
under section 7608(c)(4)(B) to require the provision of the 
following data: First, the date the operation was initiated; 
second, the date offsetting was approved; third, the total 
current expenditures and the amount and use of proceeds of the 
operation; fourth, a detailed description of the undercover 
operation projected to generate proceeds, including the 
potential violation being investigated, and whether the 
operation is being conducted under grand jury auspices; and 
fifth, the results of the operation to date, including the 
results of criminal proceedings.

                             Effective Date

     The provision is effective on the date of enactment.
             g. Disclosure of returns on cash transactions (sec. 13362 
                    of the bill and sec. 6103 of the code)

                               Present Law

     The Internal Revenue Code prohibits disclosure of tax 
returns and return information, except to the extent 
specifically authorized by the Internal Revenue Code (sec. 
6103). Unauthorized disclosure is a felony punishable by a fine 
not exceeding $5,000 or imprisonment of not more than 5 years, 
or both (sec. 7213). An action for civil damages also may be 
brought for unauthorized disclosure (sec. 7431). No tax 
information may be furnished by the IRS to another agency 
unless the other agency establishes procedures satisfactory to 
the IRS for safeguarding the tax information it receives (sec. 
6103(p)).
     Under section 6050I, any person who receives more than 
$10,000 in cash in one transaction (or two or more related 
transactions) in the course of a trade or business generally 
must file an information return (form 8300) with the IRS 
specifying the name, address, and taxpayer identification 
number of the person from whom the cash was received and the 
amount of cash received.
     The Anti-Drug Abuse Act of 1988 provided a special rule 
permitting the IRS to disclose these information returns to 
other Federal agencies for the purpose of administering Federal 
criminal statutes. The special rule originally was to expire 
after November 18, 1990, and was extended by the Comprehensive 
Crime Control Act of 1990 to November 18, 1992.

                           Reasons for Change

     Information filed on form 8300 is very similar to 
information filed on Currency Transaction Reports [CTRs] under 
the Bank Secrecy Act. Both types of information reports should 
be subject to the same disclosure rules.

                        Explanation of Provision

     The bill permanently extends the special rule for 
disclosing form 8300 information. Moreover, the bill permits 
disclosures not only to Federal agencies but also to State, 
local and foreign agencies and for civil, criminal and 
regulatory purposes (i.e., generally in the same manner as 
CTR's filed by financial institutions under the Bank Secrecy 
Act.) Disclosure, however, is not permitted to any such agency 
for purposes of tax administration. The bill also first, 
extends the dissemination policies and guidelines under section 
6103 to people having access to form 8300 information, and 
second, applies section 6103 sanctions to persons having access 
to form 8300 information that disclose this information without 
proper authorization.

                             Effective Date

     The provision is effective on the date of enactment.
             h. Disclosure of returns and return information to 
                    designee of taxpayer (sec. 13363 of the bill and 
                    sec. 6103 of the code)

                               Present Law

     Under present law, the IRS is authorized to disclose the 
return of any taxpayer, or return information pertaining to a 
taxpayer, to such person(s) as the taxpayer has designated in a 
written request.

                           Reasons for Change

    The IRS' move to a paperless system depends on the ease and 
functionality of electronic communication systems, e.g., 
telephones, facsimile machines, computers, communications 
networks, etc.

                        Explanation of Provision

    The bill deletes the word ``written'' from the requirement 
that ``written consent'' from the taxpayer is necessary for the 
disclosure of taxpayer information to a designated third party. 
Allowing the IRS to adopt alternatives to the written request 
requirement will expedite such changes and facilitate the 
development and implementation of Tax System Modernization 
projects. It is anticipated that the IRS will continue to 
utilize its regulatory authority to impose reasonable 
restrictions on the form in which a request is made, and that 
the IRS will in no event accept an unconfirmed verbal request.

                             Effective Date

    The provision is effective on the date of enactment.
            i. Report on netting of interest on overpayments and 
                    liabilities (sec. 13364 of the bill)

                              Present Law

    If any portion of a tax is satisfied through the crediting 
of an overpayment of tax, no interest is imposed on that 
portion of the tax for any period during which, if the credit 
had not been made, interest would have been allowable.
    The Tax Reform Act of 1986 first implemented an interest 
rate differential. The underpayment rate was set 1 percent 
higher than the overpayment rate. The conference report to the 
Tax Reform Act of 1986 stated:

        [t]o the extent a portion of tax due is satisfied by a 
        credit of an overpayment, no interest is imposed on 
        that portion of the tax. Consequently, if an 
        underpayment of $1,000 occurs in year 1, and an 
        overpayment of $1,000 occurs in year 2, no interest is 
        imposed in year 2 because of the rule of section 
        6601(f). The IRS can at present net many of these 
        offsetting overpayments and underpayments. 
        Nevertheless, the IRS will require a transition period 
        during which to coordinate differential interest rates 
        * * * [t]he Secretary of the Treasury may prescribe 
        regulations providing for netting of tax underpayments 
        and overpayments through the period ending 3 years 
        after the date of enactment of the bill. By that date, 
        the IRS should have implemented the most comprehensive 
        netting procedures that are consistent with sound 
        administrative practice.

    The Omnibus Budget Reconciliation Act of 1990 increased the 
underpayment rate on certain large corporate underpayments to 3 
percent higher than the overpayment rate. The conference report 
stated:

        Under present law, the Secretary has the authority to 
        credit the amount of any overpayment against any 
        liability under the code * * * to the extent a portion 
        of tax due is satisfied by a credit of an overpayment, 
        no interest is imposed on that portion of the tax * * * 
        The Secretary should implement the most comprehensive 
        crediting procedures under section 6402 that are 
        consistent with sound administrative practice.

    The General Agreement on Tariffs and Trade [GATT] reduced 
the overpayment rate on certain corporate tax refunds. The 
legislative history of the GATT legislation stated that:

        The Secretary of the Treasury should implement the most 
        comprehensive crediting procedures under section 6402 
        that are consistent with sound administrative practice, 
        and should do so as rapidly as is practicable.

                           Reasons for Change

    The committee believes that it is important for the 
committee to understand in detail how the IRS has implemented 
netting procedures to date.

                        Explanation of Provision

    The bill requires the Secretary of the Treasury to conduct 
a study of the manner in which the IRS has implemented the 
netting of interest on overpayments and underpayments and the 
policy and administrative implications of global netting. The 
Treasury is required to hold a public hearing to receive 
comments from any interested party prior to submitting the 
report of its study to the tax writing committees.

                             Effective Date

    The report is due 6 months after the date of enactment.
            j. Credit for certain expenses incurred in connection with 
                    TCMP audits (sec. 13365 of the bill and new sec. 
                    6428 of the code)

                              Present Law

    The IRS has announced that it will soon begin taxpayer 
compliance measurement program [TCMP] audits of returns filed 
for taxable year 1994. The IRS plans to audit a stratified 
random sample consisting of approximately 150,000 returns. The 
data collected in TCMP audits is used by the IRS for several 
purposes: measuring the level of compliance with Federal tax 
laws; estimating the tax gap; developing criteria for 
objectively selecting returns for audit; allocating the IRS's 
audit resources; analyzing specific compliance issues; and 
developing legislative proposals designed to improve taxpayer 
compliance.
    Under present law, any expenses a taxpayer incurs in 
connection with the determination, collection or refund of any 
tax are deductible under either section 162 or sections 212(3). 
However, there is no tax credit for expenses incurred in 
connection with TCMP audits.

                           Reasons for Change

    The committee is concerned about the burden that TCMP 
audits may place on taxpayers whose returns are selected for 
audit. The committee believes it is appropriate to provide 
individuals subject to TCMP audits a tax credit for the 
expenses they incur in being audited, and to require the IRS to 
take other steps to reduce the burden on taxpayers selected for 
participation.

                        Explanation of Provision

    The bill provides a refundable tax credit to individuals 
(not including estates, trusts, partnerships, or S 
corporations) for up to $3,000 of expenses otherwise deductible 
under either section 162 or section 212(3) incurred in 
connection with a TCMP audit of the taxpayer for taxable year 
1994. In some circumstances, such as where a taxpayer has a net 
operating loss carryback, adjustments may also be made to an 
earlier tax return of the taxpayer as a consequence of the TCMP 
audit of the taxpayer for taxable year 1994. Expenses incurred 
with respect to this type of adjustment on an earlier return 
would also be eligible for the credit, because they are 
incurred in connection with the TCMP audit of the taxpayer for 
taxable year 1994. The $3,000 credit is the total available 
with respect to an audit, regardless of whether the expenses 
are incurred in 2 (or more) years. The credit is in lieu of a 
deduction with respect to these expenses.
    The committee is concerned about the burdens TCMP audits 
may impose on taxpayers. In light of this, the IRS must provide 
participants with a full explanation of the TCMP program, their 
right to appeal any adjustments made to their tax liability as 
a result of the audit, and the eligibility of individuals for 
the tax credit for audit expenses and the eligibility of 
business taxpayers for a full deduction of all appropriate 
expenses.
    The committee also directs the IRS to review existing 
guidelines for auditors to assure that ``financial status'' 
audit techniques are used only in cases where there is an 
indication that the taxpayer has underreported his or her 
income. At the discretion of the Secretary, IRS may establish a 
process that will insure that individual taxpayers who do not 
file a business schedule will be selected only once in their 
lifetime for a TCMP audit.

                             Effective Date

    The provision is effective with respect to amounts paid or 
incurred after December 31, 1994, in taxable years ending after 
that date. The credit is allowable with respect to the taxable 
year in which the expenses are incurred.
            k. Expenses of detection of underpayments and fraud (sec. 
                    13366 of the bill and sec. 7623 of the code)

                              Present Law

    The Secretary may, pursuant to regulations, pay rewards for 
information leading to the detection and punishment of 
violations of the Internal Revenue laws.

                           Reasons for Change

    The committee believes that improvements should be made to 
this program.

                        Explanation of Provision

    The bill clarifies that rewards may be paid for information 
relating to civil violations, as well as criminal violations. 
The bill also provides that the rewards are to be paid out of 
the proceeds of amounts (other than interest) collected by 
reason of the information provided. The bill also requires an 
annual report on the rewards program.

                             Effective Date

    The provision is effective 6 months after the date of 
enactment.

              Subtitle D. Additional Technical Corrections

1. Technical correction to the Technical and Miscellaneous Revenue Act 
        of 1988--reporting of real estate transactions (sec. 13401 of 
        the bill and sec. 6045(e)(3) of the code)

                              Present Law

    It is unlawful for any real estate reporting person to 
charge separately any customer for complying with the 
information reporting requirements with respect to real estate 
transactions.

                        Explanation of Provision

    The bill clarifies that real estate reporting persons may 
take into account the cost of complying with the reporting 
requirements of code section 6045 in establishing charges for 
their services, so long as a separately listed charge for such 
costs is not made.

                             Effective Date

    The provision is effective on November 11, 1988 (as if 
originally enacted as part of the amendment to the code 
relating to separate charges).

2. Technical correction to the Tax Reform Act of 1986--clarification of 
        denial of deductions for stock redemption expenses (sec. 13402 
        of the bill and sec. 162(k)(2) of the code)

                              Present Law

    Section 162(k), added by the Tax Reform Act of 1986, denies 
a deduction for any amount paid or incurred by a corporation in 
connection with the redemption of its stock. An exception is 
provided for any deduction allowable under section 163 
(relating to interest). The Internal Revenue Service has taken 
the position that costs properly allocable to a borrowing the 
interest on which is deductible under the exception may not be 
amortized over the period of the loan, due to section 162(k). 
Different courts have reached differing conclusions when 
taxpayers have litigated the question.11
    \11\ See, e.g., Fort Howard Corp. v. Commissioner, 103 T.C. 345 
(1994) upholding the IRS position; compare United States v. Kroy 
(Europe) Limited, 27 F.3d 367 (9th Cir. 1994) (to the contrary).
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                        Explanation of Provision

    The bill clarifies that amounts properly allocable to 
indebtedness on which interest is deductible and properly 
amortized over the term of that indebtedness are not subject to 
the provision of section 162(k) denying a deduction for any 
amount paid or incurred by a corporation in connection with the 
redemption of its stock.
    In addition, the bill clarifies that the rules of section 
162(k) apply to any acquisition of its stock by a corporation 
or by a party that has a relationship to the corporation 
described in section 465(b)(3)(C) (which applies a more than 
10-percent relationship test in certain cases).
    Thus, for example, it is clarified that the denial of a 
deduction applies to any reacquisition (i.e., any transaction 
that is in effect an acquisition of previously outstanding 
stock) regardless of whether the transaction is treated as a 
redemption for purposes of subchapter C of the code, regardless 
of whether it is treated for tax purposes as a sale of the 
stock or as a dividend, and regardless of whether the 
transaction is a reorganization or other transaction.
    Apart from the clarification relating to amounts properly 
allocable to indebtedness, it is not intended that application 
of the 1986 act deduction denial to any amount or transaction 
be limited under the bill.

                            Effective Dates

    The provision clarifying that amounts properly allocable to 
indebtedness and amortized over the term of that indebtedness 
are not subject to the denial under section 162(k), is 
effective as if included in the Tax Reform Act of 1986.
    The other clarifications apply to amounts paid or incurred 
after September 13, 1995. No inference is intended that any 
amounts described in these other clarifications are deductible 
under present law.

3. Technical correction to the Omnibus Budget Reconciliation Act of 
        1990--Clarification of depreciation class for certain energy 
        property (sec. 13403 of the bill and sec. 168(e)(3) of the 
        code)

                              Present Law

    Section 168(e)(3)(B)(vi)(I) provides that ``solar and wind 
energy property'' is 5-year property for purposes of the 
Modified Accelerated Cost Recovery System [MACRS]. ``Solar and 
wind energy property'' is defined by a cross-reference to 
section 48(a)(3)(A). Section 48(a)(3) contains flush language 
that provides that ``energy property'' does not include any 
public utility property. It is unclear whether this language 
applies to section 48(a)(3)(A) to deny the characterization of 
solar and wind energy property that is also public utility 
property as 5-year property.

                        Explanation of Provision

    The bill clarifies that solar or wind energy property that 
is also public utility property qualifies as 5-year MACRS 
property.

                             Effective Date

    The provision is effective as if included in the Omnibus 
Budget Reconciliation Act of 1990.

4. Technical correction to the Deficit Reduction Act of 1984--Cross 
        reference relating to limitations on benefits and contributions 
        (sec. 13404 of the bill and sec. 404(j)(1) of the code)

                              Present Law

    Section 404(j)(1) requires the application of the limits on 
contributions and benefits under section 415 in determining 
deductions under certain listed paragraphs of section 404(a). 
Included in this list is paragraph (10) which no longer exists.
    Section 713(d)(4)(A) of the Deficit Reduction Act of 1984 
[DEFRA] removed the prior section 404(a)(9), which referred to 
plans benefiting self-employed individuals, and redesignated 
section 404(a)(10) as section 404(a)(9). However, this cross 
reference in section 404(j)(1) was not changed.

                        Explanation of Provision

    Section 404(j)(1) is amended to refer to section 404(a)(9) 
instead of section 404(a)(10).

                             Effective Date

    The provision is effective as if included in DEFRA.

5. Treatment of certain veterans' reemployment rights (sec. 13405 of 
        the bill and new sec. 414(u) of the code)

                              Present Law

    Under the Uniformed Services Employment and Reemployment 
Rights Act of 1994 [USERRA], Public Law No. 103-353, 38 U.S.C. 
Sec. Sec. 4301, ff., which revised and restated the Federal law 
protecting veterans' reemployment rights, an employee who 
leaves a civilian job for qualified military service generally 
is entitled to be reemployed by the civilian employer if the 
individual returns to employment within a specified time 
period. In addition to reemployment rights, a returning veteran 
also is entitled to the restoration of certain pension, profit 
sharing and similar benefits that would have accrued, but for 
the employee's absence due to the qualified military service.
    USERRA generally provides that for a reemployed veteran 
service in the uniformed services is considered service with 
the employer for retirement plan benefit accrual purposes, and 
the employer that reemploys the returning veteran is liable for 
funding any resulting obligation. USERRA also provides that the 
reemployed veteran is entitled to any accrued benefits that are 
contingent on the making of, or derived from, employee 
contributions or elective deferrals only to the extent the 
reemployed veteran makes payment to the plan with respect to 
such contributions or deferrals. No such payment may exceed the 
amount the reemployed veteran would have been permitted or 
required to contribute had the person remained continuously 
employed by the employer throughout the period of uniformed 
service. Under USERRA, any such payment to the plan must be 
made during the period beginning with the date of reemployment 
and whose duration is three times the reemployed veteran's 
period of uniform service, not to exceed 5 years.
    Under the Internal Revenue Code, overall limits are 
provided on contributions and benefits under certain retirement 
plans. For example, the maximum amount of elective deferrals 
that can be made by an individual into a qualified cash or 
deferred arrangement in any taxable year is limited to $9,240 
for 1995 (sec. 402(g)). Annual additions with respect to each 
participant under a qualified defined contribution plan 
generally are limited to the lesser of $30,000 (for 1995) or 25 
percent of compensation (sec. 415(c)). Annual deferrals with 
respect to each participant under an eligible deferred 
compensation plan (sec. 457) generally are limited to the 
lesser of $7,500 or 33\1/3\ percent of includable compensation. 
There is no provision under present law that permits 
contributions or deferrals to exceed these and other annual 
limits in the case of contributions with respect to a 
reemployed veteran.
    Other requirements for which there is no special provision 
for contributions with respect to a reemployed veteran include 
the limit on deductible contributions and the qualified plan 
nondiscrimination, coverage, minimum participation, and top-
heavy rules.

                        Explanation of Provision

    The bill provides special rules in the case of certain 
contributions (``make-up contributions'') with respect to a 
reemployed veteran that are required or authorized under 
USERRA. The bill applies to contributions made by an employer 
or employee to an individual account plan or to contributions 
made by an employee to a defined benefit pension plan that 
provides for employee contributions.
    Under the bill, if any make-up contribution is made by an 
employer or employee with respect to a reemployed veteran, then 
such contribution is not subject to the generally applicable 
plan contribution limits (i.e., secs. 402(g), 402(h), 403(b), 
408, 415, or 457) or the limit on deductible contributions 
(i.e., secs. 404(a) or 404(h)) as applied with respect to the 
year in which the contribution is made. In addition, the make-
up contribution is not taken into account in applying the plan 
contribution or deductible contribution limits to any other 
contribution made during the year. However, the amount of any 
make-up contribution cannot exceed the aggregate amount of 
contributions that would have been permitted under the plan 
contribution and deductible contribution limits had the 
individual continued to be employed by the employer during the 
period of uniformed service.
    The bill also provides that a plan under which a make-up 
contribution is made on account of a reemployed veteran is not 
treated as failing to meet the qualified plan 
nondiscrimination, coverage, minimum participation, and top 
heavy rules (i.e., secs. 401(a)(4), 401(a)(26), 401(k)(3), 
401(m), 403(b)(12), 408(k)(3), 408(k)(6), 410(b), or 416) by 
reason of the making of such contribution. Consequently, for 
purposes of applying the tests associated with these rules, 
make-up contributions will not be taken into account.
    Under the bill, a special rule applies in the case of make-
up contributions of salary reduction, employer matching, and 
after-tax employee amounts. A plan that provides for elective 
deferrals or employee contributions is treated as meeting the 
requirements of USERRA if the employer permits reemployed 
veterans to make additional elective deferrals or employee 
contributions under the plan during the period which begins on 
the date of reemployment and has the same length as the lesser 
of first, the period of the individual's absence due to 
uniformed service multiplied by three or second, 5 years. The 
amount of the additional elective deferrals or employee 
contributions cannot exceed the amount of elective deferrals or 
employee contributions that the individual would have been 
permitted to make under the plan and in accordance with the 
plan contribution limits described above had the individual 
continued to be employed by the employer during the period of 
uniformed service and received compensation at the same rate as 
received from the employer immediately before such service.
    The employer is required to match any additional elective 
deferrals or employee contributions at the same rate that would 
have been required had the deferrals or contributions actually 
been made during the period of uniformed service. Additional 
elective deferrals, employer matching contributions, and 
employee contributions are treated as make-up contributions for 
purposes of the rule exempting such contributions from 
qualified plan nondiscrimination, coverage, minimum 
participation, and top heavy rules as described above.
    The bill clarifies that USERRA does not require first, any 
earnings to be credited to an employee with respect to any 
contribution before such contribution is actually made or 
second, any make-up allocation of any forfeiture that occurred 
during the period of uniformed service.
    The bill also provides that the plan loan and plan 
qualification rules will not be violated merely because a plan 
suspends the repayment of a plan loan during the period of 
uniformed service.
    The bill also defines compensation to be used for purposes 
of determining make-up contributions and would conform the 
rules contained in the code with certain rights of reemployed 
veterans contained in USERRA pertaining to employee benefit 
plans.

                             Effective Date

    The provision is effective as of December 12, 1994, the 
effective date of the benefits-related provisions of USERRA.

 Subtitle E. Tax Information Sharing: Extend Access to Tax Information 
for the Department of Veterans Affairs (sec. 13501 of the bill and sec. 
                           6103 of the code)

                              Present Law

    The Internal Revenue Code prohibits disclosure of tax 
returns and return information, except to the extent 
specifically authorized by the Internal Revenue Code (sec. 
6103). Unauthorized disclosure is a felony punishable by a fine 
not exceeding $5,000 or imprisonment of not more than 5 years, 
or both (sec. 7213). An action for civil damages also may be 
brought for unauthorized disclosure (sec. 7431). No tax 
information may be furnished by the Internal Revenue Service 
[IRS] to another agency unless the other agency establishes 
procedures satisfactory to the IRS for safeguarding the tax 
information it receives (sec. 6103(p)).
    Among the disclosures permitted under the code is 
disclosure to the Department of Veterans Affairs [DVA] of self-
employment tax information and certain tax information supplied 
to the Internal Revenue Service and Social Security 
Administration by third parties. Disclosure is permitted to 
assist DVA in determining eligibility for, and establishing 
correct benefit amounts under, certain of its needs-based 
pension, health care, and other programs (sec. 
6103(1)(7)(D)(viii)). The income tax returns filed by the 
veterans themselves are not disclosed to DVA.
    The DVA is required to comply with the safeguards currently 
contained in the code and in section 1137(c) of the Social 
Security Act (governing the use of disclosed tax information). 
These safeguards include independent verification of tax data, 
notification to the individual concerned, and the opportunity 
to contest agency findings based on such information.
    The DVA disclosure provision is scheduled to expire after 
September 30, 1998.

                           Reasons for Change

    The committee believes that it is appropriate to extend the 
authority to disclose tax information to DVA to assist DVA in 
determining eligibility for and establishing the correct 
benefits amounts under certain DVA programs.

                        Explanation of Provision

    The bill permanently extends the authority to disclose tax 
information to the DVA.

                             Effective Date

    The provision is effective on the date of enactment.

     Subtitle F. Revenue Increases: Corporate and Other Tax Reforms

1. Reform the tax treatment of certain corporate stock redemptions 
        (sec. 13601 of the bill and sec. 1059 of the code)

                              Present Law

    A corporate shareholder generally can deduct at least 70 
percent of a dividend received from another corporation. This 
dividends received deduction is 80 percent if the corporate 
shareholder owns at least 20 percent of the distributing 
corporation and generally 100 percent if the shareholder owns 
at least 80 percent of the distributing corporation.
    Section 1059 of the code requires a corporate shareholder 
that receives an ``extraordinary dividend'' to reduce the basis 
of the stock with respect to which the dividend was paid by the 
nontaxed portion of the dividend. Whether a dividend is 
``extraordinary'' is determined, among other things, by 
reference to the size of the dividend in relation to the 
adjusted basis of the shareholder's stock. Also, a dividend 
resulting from a non pro rata redemption or a partial 
liquidation is an extraordinary dividend. If the reduction in 
basis of stock exceeds the basis in the stock with respect to 
which an extraordinary dividend is paid, the excess is taxed as 
gain on the sale or disposition of such stock, but not until 
that time (sec. 1059(a)(2)).
    In general, a distribution in redemption of stock is 
treated as a dividend, rather than as a sale of the stock, if 
it is essentially equivalent to a dividend (sec. 302). A 
redemption of the stock of a shareholder generally is 
essentially equivalent to a dividend if it does not result in a 
meaningful reduction in the shareholder's proportionate 
interest in the distributing corporation. Section 302(b) also 
contains several specific tests (e.g., a substantial reduction 
computation and a termination test) to identify redemptions 
that are not essentially equivalent to dividends. The 
determination whether a redemption is essentially equivalent to 
a dividend includes reference to the constructive ownership 
rules of section 318, including the option attribution rules of 
section 318(a)(4).

                           Reasons for Change

    The committee is concerned that corporate taxpayers are 
attempting to dispose of stock of other corporations in 
transactions structured as redemptions, where the redeemed 
corporate shareholder apparently expects to take the position 
that the transaction qualifies for the dividends received 
deduction. Thus, the redeemed corporate shareholder attempts to 
exclude from income a substantial portion of the amount 
received. In some cases, it appears that the taxpayers' 
interpretations of the option attribution rules of section 
318(a)(4) are important to the taxpayers' contentions that 
their interests in the distributing corporations are not 
meaningfully reduced.12
    \12\ For example, it has been reported that Seagram Co. intends to 
take the position that the corporate dividends received deduction will 
eliminate tax on significant distributions received from DuPont Co. in 
a redemption of almost all the DuPont stock held by Seagram, coupled 
with the issuance of certain rights to reacquire DuPont stock. (See, 
e.g., Landro and Shapiro, Hollywood Shuffle, Wall St. Journal pp. A1 
and A11, April 7, 1995; Sloan, For Seagram and DuPont, a Tax Deal that 
No One Wants to Brandy About, Wash. Post p. D3, April 11, 1995; 
Sheppard, Can Seagram Bail Out of DuPont without Capital Gain Tax, Tax 
Notes Today, 95 TNT 75-4, April 10, 1995).
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    Even in the absence of options, the committee is concerned 
that the present law rules dealing with extraordinary dividends 
permit inappropriate deferral of gain recognition when the 
portion of the distribution that is excluded due to the 
dividends received deduction exceeds the basis of the stock 
with respect to which the extraordinary dividend is received.

                        Explanation of Provision

    Under the bill, except as provided in regulations, a 
corporate shareholder will recognize gain immediately with 
respect to any redemption treated as a dividend (in whole or in 
part) when the nontaxed portion of the dividend exceeds the 
basis of the shares surrendered, if the redemption is treated 
as a dividend due to options being counted as stock 
ownership.13
    \13\ Thus, for example, where a portion of such a distribution 
would not have been treated as a dividend due to insufficient earnings 
and profits, the rule applies to the portion treated as a dividend.
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    In addition, the bill requires immediate gain recognition 
whenever the basis of stock with respect to which any 
extraordinary dividend was received is reduced below zero.
    Reorganizations or other exchanges involving amounts that 
are treated as dividends under section 356(a)(2) of the code 
are treated as redemptions for purposes of applying the rules 
relating to redemptions under section 1059(e). For example, if 
a recapitalization or other transaction that involves a 
dividend under section 356 has the effect of a non pro rata 
redemption or is treated as a dividend due to options being 
counted as stock, the rules of section 1059 apply. Redemptions 
of shares (or other extraordinary dividends on shares) held by 
a partnership will be subject to section 1059 to the extent 
there are corporate partners (e.g., appropriate adjustments to 
the basis of the shares held by the partnership and to the 
basis of the corporate partner's partnership interest will be 
required).
    Finally, under continuing section 1059(g) of present law, 
the Treasury Department is authorized to issue regulations 
where necessary to carry out the purposes and prevent the 
avoidance of the bill.

                             Effective Date

    The provision is generally effective for distributions 
after May 3, 1995, unless made pursuant to the terms of a 
written binding contract in effect on that date or a tender 
offer outstanding on that date. However, in applying the new 
gain recognition rules to any distribution that is not a 
partial liquidation, a non pro rata redemption, or a redemption 
that is treated as a dividend by reason of options, September 
13, 1995 is substituted for May 3, 1995 in applying the 
transition rules.
    No inference is intended regarding the tax treatment under 
present law of any transaction within the scope of the bill, 
including transactions utilizing options.

2. Require corporate tax shelter reporting (sec. 13602 of the bill and 
        secs. 6111 and 6707(a) of the code)

                              Present Law

    An organizer of a tax shelter is required to register the 
shelter with the Internal Revenue Service [IRS] (sec. 6111). If 
the principal organizer does not do so, the duty may fall upon 
any other participant in the organization of the shelter or any 
person participating in its sale or management. The shelter's 
identification number must be furnished to each investor who 
purchases or acquires an interest in the shelter. Failure to 
furnish this number to the tax shelter investors will subject 
the organizer to a $100 penalty for each such failure (sec. 
6707(b)).
    A penalty may be imposed against an organizer who fails 
without reasonable cause to timely register the shelter or who 
provides false or incomplete information with respect to it. 
The penalty is the greater of 1 percent of the aggregate amount 
invested in the shelter or $500. Any person claiming any tax 
benefit with respect to a shelter must report its registration 
number on her return. Failure to do so without reasonable cause 
will subject that person to a $250 penalty (sec. 6707(b)(2)).
    A person who organizes or sells an interest in a tax 
shelter subject to the registration rule or in any other 
potentially abusive plan or arrangement must maintain a list of 
the investors (sec. 6112). A $50 penalty may be assessed for 
each name omitted from the list. The maximum penalty per year 
is $100,000 (sec. 6708).
    For this purpose, a tax shelter is defined as any 
investment that meets two requirements. First, the investment 
must be first, required to be registered under a Federal or 
State law regulating securities, second, sold pursuant to an 
exemption from registration requiring the filing of a notice 
with a Federal or State agency regulating the offering or sale 
of securities, or third, a substantial investment. Second, it 
must be reasonable to infer that the ratio of deductions and 
350 percent of credits to investment for any investor (i.e., 
the tax shelter ratio) may be greater than two to one as of the 
close of any of the first 5 years ending after the date on 
which the investment is offered for sale. An investment that 
meets these requirements will be considered a tax shelter 
regardless of whether it is marketed or customarily designated 
as a tax shelter (sec. 6111(c)(1)).

                           Reasons for Change

    The committee believes that requiring registration of 
corporate tax shelters will result in the IRS obtaining useful 
information at an early date regarding various forms of tax 
shelter transactions engaged in by corporate participants. This 
will allow the IRS to make better informed judgments regarding 
the audit of corporate tax returns and to monitor whether 
legislation or regulations are necessary regarding the type of 
transaction being registered.

                        Explanation of Provision

    The bill requires an organizer of a corporate tax shelter 
to register the shelter with the Secretary. Registration is 
required not later than the next business day after the day 
when the tax shelter is first offered to potential users. If an 
organizer is not a U.S. person, or if a required registration 
is not otherwise made, then any U.S. participant is required to 
register the shelter.
    A corporate tax shelter is any investment, plan, 
arrangement or transaction first, that has a significant 
purpose of tax avoidance or evasion by a corporate participant, 
second, that is offered to any potential participant under 
conditions of confidentiality, and third, for which the tax 
shelter organizers may receive total fees in excess of 
$100,000.
    A transaction is offered under conditions of 
confidentiality if: (a) an offeree (or any person acting on its 
behalf) has an understanding or agreement with or for the 
benefit of any promoter to restrict or limit its disclosure of 
the transaction or any significant tax features of the 
transaction; or (b) the promoter claims, knows or has reason to 
know (or the promoter causes another person to claim or 
otherwise knows or has reason to know that a party other than 
the potential offeree claims) that the transaction (or one or 
more aspects of its structure) is proprietary to the promoter 
or any party other than the offeree, or is otherwise protected 
from disclosure or use.
    Registration will require the submission of information 
identifying and describing the tax shelter and the tax benefits 
of the tax shelter, as well as such other information as the 
Treasury Department may require.
    Tax shelter promoters are required to maintain lists of 
those who have signed confidentiality agreements, or otherwise 
have been subjected to nondisclosure requirements, with respect 
to particular tax shelters. In addition, promoters must retain 
lists of those paying fees with respect to plans or 
arrangements that have previously been registered (even though 
the particular party may not have been subject to 
confidentiality restrictions).
    All registrations will be treated as taxpayer information 
under the provisions of section 6103 and will therefore not be 
subject to any public disclosure.
    The penalty for failing to timely register a corporate tax 
shelter is the greater of $10,000 or 50 percent of the fees 
payable to any promoter with respect to offerings prior to the 
date of late registration (i.e., this part of the penalty does 
not apply to fee payments with respect to offerings after late 
registration). A similar penalty is applicable to actual 
participants in any corporate tax shelter who were required to 
register the tax shelter but did not. With respect to 
participants, however, the 50-percent penalty is based only on 
fees paid by that participant. Intentional disregard of the 
requirement to register by either a promoter or a participant 
increases the 50-percent penalty to 75 percent of the 
applicable fees.

                             Effective Date

    The provision applies to any tax shelter offered to 
potential participants after the date of enactment. No filings 
are due, however, until the Treasury Department issues guidance 
with respect to the filing requirements.

3. Denial of deduction for interest on loans with respect to company-
        owned insurance (sec. 13603 of the bill and sec. 264 of the 
        code)

                              Present Law

    No Federal income tax generally is imposed on a 
policyholder with respect to the earnings under a life 
insurance contract (``inside buildup'').14 Further, an 
exclusion from Federal income tax is provided for amounts 
received under a life insurance contract paid by reason of the 
death of the insured (sec. 101(a)). The policyholder may borrow 
with respect to the life insurance contract without affecting 
these exclusions, subject to certain limitations.
    \14\ This favorable tax treatment is available only if a life 
insurance contract meets certain requirements designed to limit the 
investment character of the contract (sec. 7702). Distributions from a 
life insurance contract (other than a modified endowment contract) that 
are made prior to the death of the insured generally are includible in 
income, to the extent that the amounts distributed exceed the 
taxpayer's basis in the contract; such distributions generally are 
treated first as a tax-free recovery of basis, and then as income (sec. 
72(e)). In the case of a modified endowment contract, however, in 
general, distributions are treated as income first, loans are treated 
as distributions (i.e., income rather than basis recovery first), and 
an additional 10 percent tax is imposed on the income portion of 
distributions made before age 59\1/2\ and in certain other 
circumstances (secs. 72(e) and (v)). A modified endowment contract is a 
life insurance contract that does not meet a statutory ``7-pay'' test, 
i.e., generally is funded more rapidly than seven annual level premiums 
(sec. 7702A).
---------------------------------------------------------------------------
    The limitations on borrowing with respect to a life 
insurance contract under present law provide that no deduction 
is allowed for any interest paid or accrued on any indebtedness 
with respect to one or more life insurance policies owned by 
the taxpayer covering the life of any individual who first, is 
an officer or employee of, or second, is financially interested 
in, any trade or business carried on by the taxpayer to the 
extent that the aggregate amount of such debt with respect to 
policies covering the individual exceeds $50,000 (sec. 
264(a)(4)). Further, no deduction is allowed for any amount 
paid or accrued on debt incurred or continued to purchase or 
carry a life insurance, endowment or annuity contract pursuant 
to a plan of purchase that contemplates the systematic direct 
or indirect borrowing of part or all of the increases in the 
cash value of the contract.15 An exception to the latter 
rule is provided, permitting deductibility of interest on bona 
fide debt that is part of such a plan, if no part of 4 of the 
annual premiums due during the first 7 years is paid by means 
of debt (the ``4-out-of-7 rule'') (sec. 264(c)(1)). Provided 
the transaction gives rise to debt for Federal income tax 
purposes, and provided the 4-out-of-7 rule is met,16 a 
company may under present law borrow up to $50,000 per 
employee, officer, or financially interested person to purchase 
or carry a life insurance contract covering such a person, and 
is not precluded under section 264 from deducting the interest 
on the debt, even though the earnings inside the life insurance 
contract (inside buildup) are tax-free, and in fact the 
taxpayer has full use of the borrowed funds.
    \15\Additional limitations are imposed on the deductibility of 
interest with respect to single premium contracts (sec. 264(a)(2)), and 
on the deductibility of premiums paid on a life insurance contract 
covering the life of any officer or employee or person financially 
interested in a trade or business of the taxpayer when the taxpayer is 
directly or indirectly a beneficiary under the contract (sec. 
264(a)(1)).
    \16\ Interest deductions are disallowed if any of the disallowance 
rules of section 264(a)(2)-(4) apply. The disallowance rule of section 
264(a)(3) is not applicable if one of the exceptions of section 264(c), 
such as the 4-out-of-7 rule (sec. 264(c)(1)) is satisfied. In addition 
to the statutory disallowance rules of section 264, generally 
applicable principles of tax law apply.
---------------------------------------------------------------------------

                           Reasons for Change

    Considerable publicity has been focused on the magnitude of 
business borrowings with respect to life insurance and the 
scale of the tax benefits. In a recent article describing 
corporate-owned life insurance [COLI], it was stated, ``COLIs 
can net big bucks. After 40 years, a COLI program that pays a 
$10,000 annual premium on each of 5,000 employees will produce 
about $450 million in death benefits and $300 million in tax 
benefits--netting the company $230 million.''17
    \17\ Solov, Diane, ``Companies Profit By Insurance,'' St. Paul 
Pioneer Press, p. 2E, March 20, 1995.
---------------------------------------------------------------------------
    A company that sets up a COLI program typically purchases 
life insurance on the lives of its employees, in many cases 
thousands or tens of thousands of employees.18 The 
company, not the employee or his family, is the beneficiary and 
receives proceeds on the employee's death. The company borrows 
against the value of the life insurance policies at an interest 
rate just above the rate at which inside buildup is credited 
under the policy. When deducting legitimate interest expense, 
the company shows a positive rate of return, because the after-
tax interest it pays on the policy loan is less than the 
interest income being credited under the policy. In addition, 
tax-free death benefits that the company receives on the death 
of insured employees subsidize future years' premiums. Thus, 
the company is able to increase the value of its life insurance 
contract while using funds borrowed under the insurance 
contract for other purposes.19
    \18\ In some cases, State law provides that an employer continues 
to have an insurable interest in former employees even after the 
termination of their employment. Thus, this life insurance coverage may 
be continued after an employee terminates employment with an employer, 
creating an ever-increasing pool of lives.
    \19\ Companies sometimes use the funds borrowed under the life 
insurance contracts for tax-advantaged funding of expenses such as 
retiree health benefits and nuclear decommissioning expenses, even 
though Congress has already provided special tax benefits specifically 
for funding these expenses.
---------------------------------------------------------------------------
    The committee believes that these types of transactions are 
an inappropriate use of the tax rules and achieve a result that 
was never contemplated by Congress. When the $50,000 limitation 
of present law was enacted, it was not anticipated that it 
would lead to a trend in the purchase of insurance products 
covering hundreds, thousands or even hundreds of thousands of 
employees of a business organization in order to maximize the 
tax arbitrage of deducting interest that is credited, tax-free, 
to the organization's own insurance contract.
    In addition, the committee feels that it is not appropriate 
to permit a deduction for interest that is funding the increase 
in value of an asset of which the taxpayer is the ultimate 
beneficiary, as recipient of the proceeds upon the insured 
person's death. Interest paid by the taxpayer on a loan under a 
life insurance policy can be viewed as funding the inside 
buildup of the policy. The taxpayer is indirectly paying the 
interest to itself, through the increase in value of the policy 
of which the taxpayer is the beneficiary.
    A general principle of accurate income measurement under an 
income tax system provides that expenses, such as interest, are 
not deducted from income if they are costs of accretions to 
wealth that are not included in income. The committee notes 
that numerous provisions of the tax law limit the deductibility 
of interest (as well as other expenses) relating to income that 
is not subject to tax. For example, interest incurred or 
continued to purchase or carry tax-exempt bonds is not 
deductible (sec. 265(a)(2)). As a further example, proration 
rules apply to insurance companies and financial institutions 
such as banks, designed to limit deductions funded by tax-
exempt income (secs. 805(a)(4), 832(b)(5)(B), and 265(b)). 
Personal interest of individuals is not deductible (secs. 
163(h)).20 The absence of any such limitation under 
present law with respect to companies' borrowings under life 
insurance contracts creates a significant tax incentive under 
present law for companies to purchase life insurance contracts 
rather than investing in other assets. To be consistent with 
the principle of accurate income measurement, and to limit the 
economic distortion induced by present law, it is appropriate 
to limit the deductibility of interest on debt that relates to 
the earning of inside buildup.
    \20\ Congress has specifically permitted a deduction for home 
mortgage interest. In providing the home mortgage interest deduction, 
Congress noted that encouraging home ownership is an important policy 
goal. Borrowing under a life insurance policy, by contrast, conflicts 
with a policy goal to encourage the purchase of life insurance so that 
breadwinners provide after their death for their dependents, because 
the proceeds of life insurance are reduced by the amount of any loans 
outstanding at the time of the insured person's death. Interest on a 
loan to purchase a life insurance policy is nondeductible personal 
interest of an individual.
---------------------------------------------------------------------------
    Therefore, the provision disallows any deduction for 
interest on borrowing by businesses with respect to life 
insurance, endowment and annuity products covering persons in 
whom the taxpayer has an insurable interest, subject to a 
phase-in of the disallowance rule. The committee bill provides 
additional transition relief by permitting a 4-year spread of 
income resulting from the complete surrender, redemption or 
maturity of a policy or a refund of the consideration paid for 
a policy during 1996. The committee believes that, because a 
company can often control (through negotiation with the 
insurer) the interest rate on its policy loan, and because a 
policy can be surrendered (and the bill provides transition 
relief for surrenders), it is appropriate to apply the 
provision to interest paid or accrued after 1995.

                        Explanation of Provision

    Under the bill, no deduction is allowed for interest paid 
or accrued on any indebtedness with respect to one or more life 
insurance policies or annuity or endowment contracts owned by 
the taxpayer covering any individual who is first, an officer 
or employee of, or second, financially interested in any trade 
or business carried on by the taxpayer, regardless of the 
aggregate amount of debt with respect to policies or contracts 
covering the individual.21
    \21\ The provision disallows the deduction for interest even if the 
deduction would not be disallowed under any other rule. Thus, for 
example, if a deduction would not be disallowed under section 264(a)(3) 
because the 4-out-of-7 rule is met, this provision nevertheless 
disallows the deduction.
---------------------------------------------------------------------------
    The provision is phased in over a 4-year period. Under the 
phase-in, a percentage of the interest deduction that would 
otherwise be disallowed is nevertheless allowed. The interest 
deduction allowed under the phase-in is for interest on debt 
incurred before September 18, 1995, with respect to a life 
insurance policy that was in effect on that date and that 
covers only the individual who was insured under that policy on 
that date (``qualified debt''). Any increase in the amount of 
debt under the policy on or after September 18, 1995 is treated 
as debt incurred on or after that date, and interest on the 
increased amount of debt is not allowed as a deduction under 
the phase-in. Only interest that would have been allowed as a 
deduction but for the amendment made by the bill is allowed 
under the phase-in. Thus, for example, debt that is otherwise 
qualified debt under a life insurance policy may not exceed the 
$50,000 limit of present-law section 264(a)(4), in order for 
interest on the debt to be allowed as a deduction under the 
phase-in. As another example, interest on debt that is 
disallowed as a deduction under present-law section 264(a)(3) 
because the 4-out-of-7 rule is not satisfied (and none of the 
other sec. 264(c) exceptions are satisfied) is not allowed 
under the phase-in.
    During the 4-year phase-in period, the percentage of the 
deduction for interest that is disallowed for periods in 1996 
is 20 percent; in 1997, 40 percent; in 1998, 60 percent; and in 
1999, 80 percent. No deduction for interest is allowed under 
the phase-in after 1999. For taxpayers whose taxable year is 
not the calendar year, interest accrued in the portion of the 
taxable year that falls during any calendar year in the 4-
calendar-year phase-in period is allowed in accordance with the 
percentage for that calendar year. Thus, for example, with 
respect to calendar years 1996 and 1997, a taxpayer with a 
fiscal year ending September 30 may deduct 80 percent of the 
interest on qualified debt that accrues during the period 
January 1, 1996, through September 30, 1996; 80 percent of the 
interest on such debt that accrues during the period October 1, 
1996, through December 31, 1996; 60 percent of the interest on 
such debt that accrues during the period January 1, 1997, 
through September 30, 1997; and 60 percent of the interest on 
such debt that accrues during the period October 1, 1997, 
through December 31, 1997.
    In promulgating regulations or other guidance under the 
provision, it is anticipated that the Treasury Department will 
take into account the purpose of the provision to eliminate the 
deduction for interest on borrowing by businesses with respect 
to life insurance, endowment and annuity products covering 
persons in whom the taxpayer has an insurable interest. For 
example, it is not intended that a taxpayer should be able to 
circumvent the purpose of the provision by borrowing under a 
life insurance, endowment or annuity contract with respect to a 
director who is not also an officer of the taxpayer.

                             Effective Date

    The provision is effective with respect to interest paid or 
accrued after December 31, 1995 (subject to the phase-in). No 
inference is intended as to the treatment of interest paid or 
accrued under present law.
    The provision does not apply to interest on debt with 
respect to contracts purchased on or before June 20, 1986 (thus 
continuing the effective date provision of the $50,000 
limitation enacted in the 1986 Act).22
    \22\ This rule has the same meaning under the provision as its 
meaning under the 1986 Act.
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    The bill provides a special 4-year income-spreading rule 
for certain amounts received under a contract, interest on debt 
under which was allowed as a deduction prior to December 31, 
1995, but is disallowed under the provision. The 4-year income-
spreading rule applies for any amount that is received under 
such a contract on the complete surrender, redemption or 
maturity of the contract in 1996, or in full discharge of the 
obligation under the contract that is in the nature of a refund 
of the consideration paid for the contract in 1996, to the 
extent the amount received is included in the taxpayer's income 
for the taxable year in which such event occurs. Under the 
special 4-year income-spreading rule, the amount included in 
income upon any such event in 1996 is includable ratably over 
the first four taxable years beginning with the taxable year 
the amount would otherwise have been includable. Utilization of 
this 4-year income-spreading rule does not cause interest paid 
or accrued prior to January 1, 1996, to be nondeductible solely 
by reason of failure to meet the 4-out-of-7 rule.

4. Phase out preferential tax deferral for certain large farm 
        corporations required to use accrual accounting (sec. 13604 of 
        the bill and sec. 447 of the code)

                              Present Law

    A corporation (or a partnership with a corporate partner) 
engaged in the trade or business of farming must use an accrual 
method of accounting for such activities unless such 
corporation (or partnership), for each prior taxable year 
beginning after December 31, 1975, did not have gross receipts 
exceeding $1 million. If a farm corporation is required to 
change its method of accounting, the section 481 adjustment 
resulting from such change is included in gross income ratably 
over a 10-year period, beginning with the year of change. This 
rule does not apply to a family farm corporation.
    A provision of the Revenue Act of 1987 (1987 Act) requires 
a family corporation (or a partnership with a family 
corporation as a partner) to use an accrual method of 
accounting for its farming business unless, for each prior 
taxable year beginning after December 31, 1985, such 
corporation (and any predecessor corporation) did not have 
gross receipts exceeding $25 million. A family corporation is 
one where 50 percent or more of the stock of the corporation is 
held by one (or in some limited cases, two or three) families.
    A family farm corporation that must change to an accrual 
method of accounting as a result of the 1987 Act provision is 
to establish a suspense account in lieu of including the entire 
amount of the section 481 adjustment in gross income. The 
initial balance of the suspense account equals the lesser of 
first, the section 481 adjustment otherwise required for the 
year of change, or second, the section 481 adjustment computed 
as if the change in method of accounting had occurred as of the 
beginning of the taxable year preceding the year of change.
    The amount of the suspense account is required to be 
included in gross income if the corporation ceases to be a 
family corporation. In addition, if the gross receipts of the 
corporation attributable to farming for any taxable year 
decline to an amount below the lesser of first, the gross 
receipts attributable to farming for the last taxable year for 
which an accrual method of accounting was not required, or 
second, the gross receipts attributable to farming for the most 
recent taxable year for which a portion of the suspense account 
was required to be included in income, a portion of the 
suspense account is required to be included in gross income.

                           Reasons for Change

    The committee believes that an accrual method of accounting 
more accurately measures the economic income of a corporation 
than does the cash receipts and disbursements method and that 
changes from one method of accounting to another should be 
taken into account under section 481. However, the committee 
believes that it may be appropriate for a family farm 
corporation to retain the use of the cash method of accounting 
until such corporation reaches a certain size. At that time, 
the corporation should be subject to tax accounting rules to 
which other corporations are so subject. In addition, the 
committee believes that the present-law suspense account 
provision applicable to large family farm corporations may 
effectively provide an exclusion for, rather than a deferral 
of, amounts otherwise properly taken into account under section 
481 upon the required change in the method of accounting for 
such corporations.

                        Explanation of Provision

    The provision repeals the ability of a family farm 
corporation to establish a suspense account when it is required 
to change to an accrual method of accounting. Thus, under the 
provision, any family farm corporation required to change to an 
accrual method of accounting would restore the section 481 
adjustment applicable to the change in gross income ratably 
over a 10-year period beginning with the year of change. In 
addition, any taxpayer with an existing suspense account is 
required to restore the account into income ratably over a 20-
year period beginning in the first taxable year beginning after 
September 13, 1995, subject to the present-law requirements to 
restore such accounts more rapidly.

                             Effective Date

    The provision is effective for taxable years ending after 
September 13, 1995.

5. Phased-in repeal of section 936 (sec. 13605 of the bill and sec. 936 
        of the code)

                              Present Law

    Certain domestic corporations with business operations in 
the U.S. possessions (including, for this purpose, Puerto Rico 
and the U.S. Virgin Islands) may elect the section 936 credit 
which generally eliminates the U.S. tax on certain income 
related to their operations in the possessions. In contrast to 
the foreign tax credit, the possessions tax credit is a ``tax 
sparing'' credit. That is, the credit is granted whether or not 
the electing corporation pays income tax to the possession. 
Income exempt from U.S. tax under this provision falls into two 
broad categories: First, possession business income, which is 
derived from the active conduct of a trade or business within a 
U.S. possession or from the sale or exchange of substantially 
all of the assets that were used in such a trade or business; 
and second, qualified possession source investment income 
[QPSII], which is attributable to the investment in the 
possession or in certain Caribbean Basin countries of funds 
derived from the active conduct of a possession business.
    In order to qualify for the section 936 credit for a 
taxable year, a domestic corporation must satisfy two 
possession income requirements (sec. 936(a)(2)). First, the 
corporation must derive at least 80 percent of its gross income 
for the 3-year period immediately preceding the close of the 
taxable year from sources within a possession. Second, the 
corporation must derive at least 75 percent of its gross income 
for that same period from the active conduct of a possession 
business.
     The amount of the credit attributable to possession 
business income is subject to one of two limitations enacted by 
the Omnibus Budget Reconciliation Act of 1993 (1993 Act) (sec. 
936(a)(4)). Under the economic activity limit, the amount of 
the credit with respect to such income cannot exceed the sum of 
a portion of the taxpayer's wage and fringe benefit expenses 
and depreciation allowances (plus, in certain cases, possession 
income taxes). In the alternative, the taxpayer may elect to 
apply a limit equal to the applicable percentage of the credit 
that would otherwise be allowable with respect to possession 
business income; the applicable percentage is phased down, 
beginning at 60 percent for 1994 and reaching 40 percent for 
1998 and thereafter. The amount of the section 936 credit 
attributable to QPSII is not subject to these limitations.

                           Reasons for Change

     The committee understands that the tax benefits provided 
by section 936 are enjoyed by only the relatively small number 
of U.S. corporations that operate in the possessions. Moreover, 
the committee is concerned about the tax cost of the benefits 
provided to these possession corporations that is borne by all 
U.S. taxpayers. In light of current budget constraints, the 
committee believes that the continuation of the tax exemption 
provided to corporations under section 936 is no longer 
appropriate. However, the committee believes that an 
appropriate transition period should be provided for 
corporations that have existing operations in the possessions.

                        Explanation of Provision

     The bill generally repeals section 936 for taxable years 
beginning after December 31, 1995. However, a corporation that 
claimed the section 936 credit for any of its base period years 
(defined below) is eligible to continue to claim a section 936 
credit for an additional 10 years under a special grandfather 
rule. A corporation that adds a substantial new line of 
business after September 13, 1995, ceases to be eligible to 
claim the section 936 credit under this grandfather rule 
beginning with the taxable year in which such new line of 
business is added. The committee intends that the corporation's 
eligibility to claim the section 936 credit under this rule not 
be terminated by reason of the addition of a new line of 
business by a related corporation. In determining whether a 
corporation has added a substantial new line of business, the 
committee intends that principles similar to those reflected in 
Treasury Reg. 1.7704-2(d) (relating to the transition rules for 
existing publicly traded partnerships) will apply. In this 
regard, the committee intends that the fact that a business 
which is added is assigned a different four-digit Industry 
Number Standard Industrial Classification Code (Industry SIC 
Code) than is assigned to an existing business of the 
corporation will not automatically cause the corporation to be 
considered to have added a new line of business. For example, a 
pharmaceutical corporation that begins manufacturing a new drug 
will not be considered to have added a new line of business. 
Moreover, a pharmaceutical corporation that begins to 
manufacture a complete product from the bulk active chemical 
through the finished dosage form, a process that may be 
assigned two separate four-digit Industry SIC Codes, will not 
be considered to have added a new line of business even though 
it was previously engaged in activities that involved only a 
portion of the entire manufacturing process from bulk chemicals 
to finished dosages.
     The taxpayer's possession income that is eligible for the 
section 936 credit in each of the years during the grandfather 
period is subject to a cap computed based on the corporation's 
possession income for the base period years (``average adjusted 
base period possession income''). A taxpayer's possession 
income equals the sum of its possession business income and 
QPSII. Average adjusted base period possession income is the 
average of the adjusted possession income for each of the 
taxpayer's base period years. For the purpose of this 
computation, the taxpayer's possession income for a base period 
year is adjusted by an inflation factor that reflects inflation 
from such year to the year to which the cap is being applied. 
In addition, as a proxy for real growth in income throughout 
the base period, the inflation factor is increased by 5 
percentage points compounded for each year from such year to 
the taxpayer's first taxable year beginning on or after 
September 13, 1995.
     The taxpayer's base period years generally are 3 of the 
taxpayer's 5 most recent years ending before September 13, 
1995, determined by disregarding the taxable years in which the 
adjusted possession incomes were highest and lowest. For 
purposes of this computation, only years in which the taxpayer 
had significant possession income are taken into account. A 
taxpayer is considered to have significant possession income 
for a taxable year if such income exceeds 2 percent of the 
taxpayer's possession income for the each of the 6 taxable 
years ending with the first taxable year ending on or after 
September 13, 1995. If the taxpayer has significant possession 
income for only 4 of the 5 most recent taxable years ending 
before September 13, 1995, the base period years are determined 
by disregarding the year in which the taxpayer's possession 
income was lowest. If the taxpayer has significant possession 
income for 3 years or fewer of such 5 years, then the base 
period years are all such years. If there is no year of such 5 
taxable years in which the taxpayer has significant possession 
income, then the taxpayer may use as its base period its first 
taxable year ending on or after September 13, 1995; for this 
purpose, the amount of possession income taken into account is 
the annualized amount of such income for the portion of the 
year ended August 31, 1995, adjusted for inflation.
    As an alternative, the taxpayer may elect to use its 
taxable year ending in 1992 as its base period (with the 
adjusted possession income for such year constituting its cap). 
If such an election is made, it would apply to all the years 
within the grandfather period unless revoked. Such an election 
must be made for all possession corporations that are members 
of an affiliated group.
    If a taxpayer's possession income in a year during the 
grandfather period exceeds the cap, then the taxpayer's 
possession income for purposes of computing its section 936 
credit for the year is an amount equal to the cap. The 
reduction in the taxpayer's possession income to the amount of 
the cap is allocated between the taxpayer's possession business 
income and QPSII for the year to which the cap is being applied 
based upon the relative amounts of possession business income 
and QPSII.
    The taxpayer's section 936 credit for each year during the 
grandfather period continues to be subject to either the 
economic activity limit or the percentage phase-down imposed by 
the 1993 Act. The applicable limit is applied to the taxpayer's 
possession business income as reduced to reflect the 
application of the cap imposed under the bill. Under present 
law, an election to use the percentage phase-down was required 
to be made for the first taxable year after December 31, 1993, 
for which the taxpayer was a possession corporation. It is 
anticipated that some taxpayers that made such an election may 
prefer to apply the economic activity limit in light of the cap 
imposed under the bill; under present law, taxpayers are 
permitted to revoke the election to apply the percentage phase-
down.
    The cap computed under the bill is adjusted to reflect 
acquisitions (within the same line of business) and 
dispositions by a possession corporation prior to the close of 
the grandfather period. Under this rule, for example, a 
possession corporation that merges with another possession 
corporation that engages in the same line of business is 
subject to a cap that reflects the average adjusted possession 
income of both companies.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 1995.

6. Corporate accounting--reform of income forecast method (sec. 13606 
        of the bill and sec. 167 of the code)

                              Present Law

In general

    A taxpayer generally must capitalize the cost of property 
used in a trade or business and recover such cost over time 
through allowances for depreciation or amortization. Tangible 
property generally is depreciated under a modified Accelerated 
Cost Recovery System [MACRS] of section 168, which determines 
depreciation by applying specific recovery periods, placed-in-
service conventions, and depreciation methods to the cost of 
various types of depreciable property. Intangible property 
generally is amortized under section 197, which applies a 15-
year recovery period and the straight-line method to the cost 
of applicable property.

Treatment of film, video tape, and similar property

    MACRS does not apply to certain property, including any 
motion picture film, video tape, or sound recording or to other 
any property if the taxpayer elects to exclude such property 
from MACRS and the taxpayer applies a unit-of-production method 
or other method of depreciation not expressed in a term of 
years. Section 197 does not apply to certain intangible 
property, including property produced by the taxpayer or any 
interest in a film, sound recording, video tape, book, or 
similar property not acquired in transaction (or a series of 
related transactions) involving the acquisition of assets 
constituting a trade or business or substantial portion 
thereof. Thus, the cost of a film, video tape, or similar 
property that is produced by the taxpayer or is acquired on a 
``stand-alone'' basis by the taxpayer may not be recovered 
under either the MACRS depreciation provisions or under the 
section 197 amortization provisions. The cost of such property 
may be depreciated under section 167, which allows a 
depreciation deduction for the reasonable allowance for the 
exhaustion, wear and tear, or obsolescence of the property.
    The ``income forecast'' method is an allowable method for 
calculating depreciation under section 167 for certain 
property. Under the income forecast method, the depreciation 
deduction for a taxable year for a property is determined by 
multiplying the cost of the property 23 (less estimated 
salvage value) by a fraction, the numerator of which is the 
income generated by the property during the year and the 
denominator of which is the total forecasted or estimated 
income to be derived from the property during its useful life. 
The income forecast method has been held to be applicable for 
computing depreciation deductions for motion picture films, 
television films and taped shows, books, patents, master sound 
recordings and video games.24 The total forecasted or 
estimated income to be derived from a property is to be based 
on the conditions known to exist at the end of the period for 
which depreciation is claimed. This estimate can be revised 
upward or downward at the end of a subsequent taxable period 
based on additional information that becomes available after 
the last prior estimate. These revisions, however, do not 
affect the amount of depreciation claimed in a prior taxable 
year.
    \23\ In Transamerica Corp. v. United States, 999 F.2d 1362, (9th 
Cir. 1993), the Ninth Circuit overturned the District Court and held 
that for purposes of applying the income forecast method to a film, the 
``cost of a film'' includes ``participation'' and ``residual'' payments 
(i.e., payments to producers, writers, directors, actors, guilds, and 
others based on a percentage of the profits from the film) even though 
these payments were contingent on the occurrence of future events. It 
is unclear to what extent, if any, the Transamerica decision applies to 
amounts incurred after the enactment of the economic performance rules 
of code section 461(h), as contained in the Deficit Reduction Act of 
1984.
    \24\ See, e.g., Rev. Rul. 60-358, 1960-2 C.B. 68; Rev. Rul. 64-273, 
1964-2 C.B. 62; Rev. Rul 79-285, 1979-2 C.B. 91; and Rev. Rul. 89-62, 
1989-1 C.B. 78. Conversely, the courts have held that certain tangible 
personal property was not of a character to which the income forecast 
method was applicable. See, e.g., ABC Rentals of San Antonio v. Comm., 
68 TCM 1362 (1994) (consumer durable property subject to short-term, 
``rent-to-own'' leases not eligible) and Carland, Inc. v. Comm., 90 
T.C. 505 (1988), aff'd on this issue, 909 F.2d 1101 (8th Cir 1990) 
(railroad rolling stock subject to a lease not eligible).
---------------------------------------------------------------------------
    In the case of a film, income to be taken into account 
under the income forecast method means income from the film 
less the expense of distributing the film, including estimated 
income from foreign distribution or other exploitation of the 
film.25 In the case of a motion picture released for 
theatrical exhibition, income does not include estimated income 
from future television exhibition of the film (unless an 
arrangement for domestic television exhibition has been entered 
into before the film has been depreciated to its reasonable 
salvage value). In the case of a series or a motion picture 
produced for television exhibition, income does not include 
estimated income from domestic syndication of the series or the 
film (unless an arrangement for syndication has been entered 
into before the series or film has been depreciated to its 
reasonable salvage value).26 The Internal Revenue Service 
also has ruled that income does not include net merchandising 
revenue received from the exploitation of film 
characters.27
    \25\ Rev. Rul. 60-358, 1960-2 C.B. 68.
    \26\ Rev. Proc. 71-29, 1971-2 C.B. 568.
    \27\ Private letter ruling 7918012, January 24, 1979. Private 
letter rulings do no have precedential authority and may not be relied 
upon by any taxpayer other than the taxpayer receiving the ruling but 
are some indication of IRS administrative practice.
---------------------------------------------------------------------------

                           Reasons for Change

    The committee believes that, in theory, the income forecast 
method is an appropriate method for matching the capitalized 
cost of certain property with the income produced by such 
property. However, the committee believes that the application 
of the income forecast method under present law does not meet 
the theoretical objective of the method. In addition, the 
committee recognizes that the reliance of the operation of the 
income forecast method upon estimated income may result in a 
mismatch between income and depreciation deductions when future 
income is over- or underestimated. The committee bill attempts 
to address these issues.

                        Explanation of Provision

    The provision makes several amendments to the income 
forecast method of determining depreciation deductions.
    First, the provision provides that income to be taken into 
account under the income forecast method includes all estimated 
income derived from the property. In the case of a film, 
television show, or similar property, such income includes, but 
would not necessarily be limited to, income from foreign and 
domestic theatrical, television, and other releases and 
syndications; video tape releases, sales, rentals, and 
syndications; and the exploitation of film or program 
characters, prints, scripts, and scores. Pursuant to a special 
rule, if a taxpayer produces a television series and initially 
does not anticipate syndicating the episodes from the series, 
the forecasted income for the episodes of the first 3 years of 
the series need not take into account any future syndication 
fees (unless the taxpayer reasonably anticipates syndicating 
such episodes during such period).
    In addition, the cost of property subject to depreciation 
only includes amounts that satisfy the economic performance 
standard of section 461(h).28 Any costs that are taken 
into account after the property is placed in service are 
treated as a separate piece of property to the extent first, 
such amounts are significant and are expected to give rise to a 
significant increase in the income from the property that was 
not included in the estimated income from the property, or 
second, such costs are incurred more than 10 years after the 
property was placed in service. Except as provided in 
regulations, any costs that are not recovered by the end of the 
10th taxable year after the property was placed in service may 
be taken into account as depreciation in such year.
    \28\ No inference is intended as to the proper application of 
section 461(h) to the income forecast method under present law.
---------------------------------------------------------------------------
    Finally, taxpayers that claim depreciation deductions under 
the income forecast method are required to pay (or would 
receive) interest based on the recalculation of deprecation 
under a ``look-back'' method.29 The ``look-back'' method 
is applied in any ``recomputation year'' by first, comparing 
depreciation deductions that had been claimed in prior periods 
to depreciation deductions that would have been claimed had the 
taxpayer used actual, rather than estimated, total income from 
the property; second, determining the hypothetical overpayment 
or underpayment of tax based on this recalculated depreciation; 
and third, applying the overpayment rate of section 6621 of the 
code. Except as provided in regulations, a ``recomputation 
year'' is the 3d and 10th taxable year after the taxable year 
the property was placed in service unless the actual income 
from the property for each taxable year ending with or before 
the close of such years was within 10 percent of the estimated 
income from the property for such years. The Secretary of the 
Treasury has the authority to allow a taxpayer to delay the 
initial application of the look-back method where the taxpayer 
may be expected to have significant income from the property 
after the third taxable year after the taxable year the 
property was placed in service (e.g., the Treasury Secretary 
may exercise such authority where the depreciable life of the 
property is expected to be longer than 3 years). In applying 
the look-back method, any cost that is taken into account after 
the property was placed in service may be taken into account by 
discounting (using the Federal mid-term rate determined under 
sec. 1274(d) as of the time the costs were taken into account) 
such cost to its value as of the date the property was placed 
in service. Property with an adjusted basis of $100,000 or less 
when the property was placed in service is not subject to the 
look-back method. The provision provides a simplified look-back 
method for pass-through entities.
    \29\  The ``look-back'' method of the provision resembles the look-
back method applicable to long-term contracts accounted for under the 
percentage-of-completion method of present-law sec. 460.
---------------------------------------------------------------------------

                             Effective Date

    The provision is effective for property placed in service 
after September 13, 1995, unless placed in service pursuant to 
a binding written contract in effect before such date and all 
times thereafter.

7. Transfers of excess pension assets (sec. 13607 of the bill and sec. 
        420 of the code)

                              Present Law

Defined benefit pension plans--protections for plan participants

    A defined benefit pension plan is a type of employer-
sponsored retirement plan that provides benefits to 
participants based upon a formula specified in the plan. The 
key feature of such a plan is that the benefit payable under 
the plan is based on the plan formula, not on the assets or 
investment experience of the plan.
    Present law contains rules designed to ensure that benefits 
promised under defined benefit pension plans are paid to plan 
participants. Primary among these rules are minimum funding 
requirements that require the employer sponsoring the plan to 
make certain contributions to fund the plan. Underfunded plans 
are required to make additional minimum funding contributions. 
Within limits, employers may make, but are not required to 
make, contributions to defined benefit plans in excess of those 
required by the minimum funding rules.
    As a backstop to the minimum funding rules, there is a 
Federal guarantee of pension benefits in the event a plan 
terminates with insufficient assets to pay plan benefits. 
Within limits, the pension benefits under defined benefit 
pension plans are guaranteed by the Pension Benefit Guaranty 
Corporation [PBGC].

Pension Benefit Guaranty Corporation

     As initially enacted, as well as under present law, the 
minimum funding requirements permit an employer to fund plan 
participants' benefits over time. Because the funding rules 
recognize that pension obligations typically are long-term 
obligations, it is possible that a plan may be terminated at a 
time when plan assets are not sufficient to provide all the 
benefits earned by employees under the plan. In order to 
protect plan participants from losing significant retirement 
benefits in such circumstances, the PBGC was created in 1974 by 
the Employee Retirement Income Security Act [ERISA] to provide 
an insurance program for benefits under most defined benefit 
pension plans maintained by private employers.
    The PBGC guarantees most vested normal retirement benefits 
(other than those than vest solely on account of plan 
termination), up to a maximum benefit of $2,574 for 1995. This 
dollar limit is indexed for inflation.
    Under present law, a defined benefit pension plan with 
assets insufficient to provide for benefit liabilities can be 
terminated voluntarily by the employer only if the employer and 
members of the controlled group of the employer are in 
financial distress. The employer and controlled group members 
are liable to the PBGC for the full amount of unfunded plan 
liabilities (without regard to the net worth of the employer).
    The PBGC is funded by assets in terminated plans, amounts 
recovered from employers who terminate underfunded plans, 
premiums paid with respect to covered plans, and investment 
earnings. All covered plans are required to pay a flat-rate 
premium of $19 per plan participant. In addition, plans with 
unfunded vested liabilities are subject to a variable rate 
premium equal to $9.00 per each $1,000 of unfunded vested 
benefits.

Minimum funding requirements

    Present law imposes minimum funding requirements which are 
designed to provide at least a certain level of benefit 
security by requiring the employer sponsoring the plan to make 
certain minimum contributions to the plan.
    Under the minimum funding rules, plans are funded in 
accordance with the actuarial funding method used by the plan, 
using reasonable actuarial assumptions (e.g., interest, 
mortality, and turnover assumptions), and taking into account 
experience gains and losses (that is, investment earnings and 
losses different from those assumed). There are a number of 
different actuarial funding methods that can be used under 
present law. Some methods accrue liabilities more rapidly than 
others. The rate at which liabilities accrue will also depend 
on the actuarial assumptions used by the plan.
    Contributions required by the minimum funding rules are 
deductible by the employer (regardless of whether they would be 
deductible under normal income tax principles).

Special rules for underfunded plans

            Additional funding requirements
    The Pension Protection Act of 1987 added additional funding 
requirements for underfunded plans, required such plans to use 
an interest assumption within a particular corridor, and made 
other changes to the minimum funding rules and created the 
variable rate premium for underfunded plans. These rules were 
modified by the Retirement Protection Act of 1994, which was 
enacted as part of the Uruguay Round Agreements Act (commonly 
referred to as the implementing legislation for the General 
Agreement on Tariffs and Trade [GATT]).
    Among other things, GATT generally increased the level of 
contributions required of underfunded plans and required that 
such plans use an interest rate within 90 and 109 percent of 
the 30-year Treasury rate 30 and mortality assumptions 
prescribed by the Secretary based on the 1993 Group Annuity 
Mortality [GAM] Table.
    \30\ For 1995. The top end of the interest rate corridor phases 
down to 105 for 1999 and thereafter.
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    Under GATT, plans are generally subject to the additional 
funding requirements for underfunded plans if the plan has 
assets of less than 90 percent of current liability. In 
general, the additional contribution required under the special 
rules for underfunded plans increases as the level of 
underfunding increases.
            Additional premiums
    The Pension Protection Act of 1987 instituted a variable 
rate premium for plans with unfunded vested benefits.
    The variable rate premium was initially set at $6 per 
$1,000 of unfunded vested benefits, with a cap on the total 
variable rate premium of $34. The premium was subsequently 
raised to $9.00 per $1,000 of unfunded vested benefits, up to a 
maximum additional premium of $53. Under the GATT legislation, 
the cap on the variable rate premium will be phased out.

Overfunded defined benefit plans

            In general
    As noted above, an employer is permitted to make 
contributions (within limits) in excess of the minimum funding 
requirements. Making contributions in excess of those required 
by the minimum funding requirements, as well as other factors, 
such as greater investment returns than assumed for funding 
purposes, can contribute to overfunding of pension plans.
    Contributions to a plan are no longer deductible by the 
employer when plan assets reach a certain level, called the 
full-funding limit. A plan has reached the full-funding limit 
if the level of plan assets exceeds the lesser of first, 150 
percent of current liability, or second, the accrued liability 
under the plan. In general terms, ``current liability'' is the 
amount of plan assets needed to fund all current accrued 
benefits under the plan to date (vested and nonvested). Current 
liability is determined using a statutorily prescribed interest 
rate assumption--the interest rate used must be between 90 and 
110 percent of the 30-year Treasury rate. As under the general 
minimum funding rules, other actuarial assumptions used to 
calculate current liability are required to be reasonable. 
Accrued liability is generally the amount of assets required to 
fund the plan under the actuarial funding method used by the 
plan.
            Transfers of excess assets
    Under present law, defined benefit pension plan assets 
generally may not revert to an employer prior to the 
termination of the plan and the satisfaction of all plan 
liabilities. Any assets that revert to the employer upon such 
termination are includible in the gross income of the employer 
and subject to an excise tax. The rate of the excise tax 
generally is 20 percent, and is increased to 50 percent unless 
the employer maintains a replacement plan or makes certain 
benefit increases in connection with the plan termination. Upon 
plan termination, the accrued benefits of all plan participants 
are required to be 100-percent vested.
    The Omnibus Budget Reconciliation Act of 1990 included a 
provision under which employers could transfer excess assets in 
an overfunded defined benefit pension plan to pay certain 
retiree health liabilities. Provided certain requirements are 
satisfied, such a transfer does not affect a plan's tax-
qualified status and is not a prohibited transaction. Further, 
the assets transferred are not includible in the gross income 
of the employer and are not subject to the excise tax on 
reversions. The employer is not entitled to deduct retiree 
health benefits paid with transferred assets.
    Such a transfer must satisfy certain requirements designed 
to protect the benefit security of plan participants. Under one 
of these requirements, the accrued retirement benefits of 
participants under the pension plan (including participants who 
separated from service during the 1-year period ending on the 
date of the transfer) must be nonforfeitable as if the plan 
terminated immediately before the transfer. In addition, only 
excess assets may be transferred. Excess assets are defined to 
be the excess of the value of plan assets over the greater of 
first, the lesser of (a) 150 percent of current liability or 
(b) the accrued liability under the plan, or second, 125 
percent of current liability. The first part of this standard 
is the same as the maximum limit for making contributions to 
the plan for deduction purposes. As under that limit, the 
interest rate used in calculating current liability must be 
between 90 and 110 percent of the 30-year Treasury rate. The 
second part serves as insurance to make sure that there is a 
25-percent-of-current-liability-asset cushion.
    The provision permitting certain transfers of excess 
pension plan assets was originally adopted for a 5-year period, 
through 1995. As well as making changes to the minimum funding 
rules, GATT extended the excess asset transfer provision 
through the year 2000. The GATT legislation did not change the 
way in which excess assets are calculated.

                           Reasons for Change

    The committee believes that the defined benefit pension 
plan system is a critical part of the retirement security of 
many Americans. Fundamental to the maintenance of that system 
is ensuring that defined benefit plans are adequately funded. 
Since the enactment of ERISA, the minimum funding rules have 
been improved to strengthen the funding of underfunded plans. 
In addition, the security of defined benefit pension plans 
depends on the willingness of the employer to make 
contributions in excess of those required by law. If employers 
are denied reasonable access to excess pension assets, they 
will be cautious in making contributions and unwilling to make 
contributions in excess of those required by law. It is that 
very cautious funding that creates a potential risk to plan 
participants and the PBGC.
    In testimony before the Subcommittee on Private Retirement 
Plans of the Senate Committee on Finance on the Status of the 
Pension Benefit Guaranty Corporation in 1987, the then-
Executive Director of the PBGC stated: ``* * * the long-term 
health of the PBGC depends upon the continued health of the 
great majority of plans, those that are now fully funded or 
better. It is particularly important to allow employers 
reasonable access to truly surplus plan assets after full 
provision has been made for benefits promised to participants. 
Measures that would forbid pension asset reversions or 
drastically limit the amount that employers could recover upon 
plan termination would make companies very cautious about their 
contributions. Thus, paradoxical as it may sound, allowing 
employers access to pension surpluses protects plan participant 
because it helps produce better funding.'' 31 The 
committee believes that what was true in 1987 is particularly 
true in 1995 because the Congress has enacted much greater 
safeguards to the pension benefit guaranty system than existed 
in 1987.
    \31\ Testimony of Dr. Kathleen Utgoff, Executive Director, Pension 
Benefit Guaranty Corporation Before the Subcommittee on Private 
Retirement Plans and Oversight of the Internal Revenue Service of the 
Senate Committee on Finance, May 18, 1987.
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    The GATT legislation negotiated between the Congress and 
President Clinton embodies the policy that, while it is 
necessary to increase minimum funding contributions to help 
reduce underfunding, sponsors of overfunded plans should not be 
penalized for doing more than the law requires provided benefit 
security is not threatened. The present-law transfer provision 
has been designed to provide employers access to excess plan 
assets and safeguard pension plan benefits. However, by 
restricting the use of excess assets, present law unfairly 
discriminates against employers that do not have substantial 
retiree health liabilities. The committee believes it 
appropriate to provide more employers access to excess pension 
plan assets by permitting the employer to make transfers of 
excess assets without regard to the use of the funds. In order 
to make such a transfer, the employer must comply with 
participant protection rules contained in present law. Thus, 
the present-law method of determining excess assets and the 
present-law vesting requirement are retained. Further, the 
transfer provision is not extended beyond the period provided 
by GATT.
    The minimum funding rules, special rules for underfunded 
plans, and the variable rate premium will continue to operate 
to protect plan participants and the PBGC from the risks posed 
by underfunded plans. Modifying the transfer provision included 
in GATT will provide a financial incentive for more employers 
to make more than the minimum required contributions to their 
plans. The valuation date used to measure the amount of excess 
assets provides an additional safeguard because, under the 
provision adopted by the committee, the value of plan assets is 
the lesser of the value of plan assets as of January 1, 1995, 
or as of the most recent valuation date preceding the transfer. 
Thus, the value of plan assets cannot go up after January 1, 
1995, but they can go down, thereby leaving a smaller pool of 
excess assets to be transferred to the employer.
    The committee believes that, by imposing a smaller excise 
tax on the transfer of excess assets from an ongoing defined 
benefit plan, employers will have an incentive to continue to 
maintain, rather than terminate, such plans. In the long run, 
this may contribute to greater retirement income security. 
Further, permitting reasonable access to excess pension assets 
for all employers with overfunded plans may encourage more 
employers to adopt and adequately fund defined benefit pension 
plans.

                        Explanation of Provision

    The provision modifies the circumstances under which 
employers may transfer excess assets from a defined benefit 
plan. The provision permits a qualified transfer of excess 
assets from a defined benefit pension plan (other than a 
multiemployer plan) to the employer, without a limitation on 
the use of the excess assets. Amounts transferred are 
includible in the gross income of the employer and generally 
subject to a 6.5-percent excise tax. No excise tax applies in 
the case of transfers occurring before July 1, 1996. As under 
present law, a transfer under the provision does not affect the 
plan's qualified status and is not a prohibited transaction.
    In order for the transfer to be qualified, the accrued 
retirement benefits of participants (including participants who 
separated from service during the 1-year period ending on the 
date of the transfer) under the pension plan must be 
nonforfeitable as if the plan terminated immediately before the 
transfer.
    Excess assets are defined as under present law, and are 
determined as of whichever of the following dates excess assets 
are lower: First, January 1, 1995 (or, if January 1, 1995, is 
not a plan valuation date, as of the last plan valuation date 
preceding January 1, 1995), or second, the most recent plan 
valuation date preceding the transfer.
    The provision does not apply to transfers in taxable years 
beginning after December 31, 2000.

                             Effective Date

    The provision is effective January 1, 1995.

8. Modify exclusion of damages received on account of personal injury 
        or sickness (sec. 13611 of the bill and sec. 104(a)(2) of the 
        code)

                              Present Law

    Under present law, gross income does not include any 
damages received (whether by suit or agreement and whether as 
lump sums or as periodic payments) on account of personal 
injury or sickness (sec. 104(a)(2)).
    The exclusion from gross income of damages received on 
account of personal injury or sickness specifically does not 
apply to punitive damages received in connection with a case 
not involving physical injury or physical sickness. Courts 
presently differ as to whether the exclusion applies to damages 
received in connection with a case involving a physical injury 
or physical sickness.
    Courts have interpreted the exclusion from gross income of 
damages received on account of personal injury or sickness 
broadly in some cases to cover awards for personal injury that 
do not relate to a physical injury or physical sickness. For 
example, some courts have held that the exclusion applies to 
damages in cases involving certain forms of employment 
discrimination and injury to reputation where there is no 
physical injury or physical sickness. The damages received in 
these cases generally consist of back pay and other awards 
intended to compensate the claimant for lost wages or lost 
profits. The Supreme Court recently held that damages received 
based on a claim under the Age Discrimination in Employment Act 
could not be excluded from income.32 In light of the 
Supreme Court decision, the Internal Revenue Service has 
suspended existing guidance on the tax treatment of damages 
received on account of other forms of employment 
discrimination.
    \32\ Schleier v. Commissioner, 115 S. Ct. 2159 (1995).
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                           Reasons for Change

    Punitive damages are intended to punish the wrongdoer and 
do not compensate the claimant for lost wages or pain and 
suffering. Thus, they are a windfall to the taxpayer and 
appropriately should be included in taxable income. Further, 
including all punitive damages in taxable income provides a 
bright-line standard which avoids prospective litigation on the 
tax treatment of punitive damages received in connection with a 
case involving a physical injury or physical sickness.
    Damages received on a claim not involving a physical injury 
or physical sickness are generally to compensate the claimant 
for lost profits or lost wages that would otherwise be included 
in taxable income. The confusion as to the tax treatment of 
damages received in cases not involving physical injury or 
physical sickness has led to substantial litigation, including 
two Supreme Court cases within the last 4 years. The taxation 
of damages received in cases not involving a physical injury or 
physical sickness should not depend on the type of claim made.

                       Explanation of Provisions

Treat all punitive damage income as taxable

    The bill provides that the exclusion from gross income does 
not apply to any punitive damages received on account of 
personal injury or sickness whether or not related to a 
physical injury or physical sickness. The committee intends no 
inference as to the application of the exclusion to punitive 
damages received prior to the effective date of the bill in 
connection with a case involving a physical injury or physical 
sickness.

Include in income damage recoveries for nonphysical injuries

    The bill provides that the exclusion from gross income only 
applies to damages received on account of a personal physical 
injury or physical sickness. If an action has its origin in a 
physical injury or physical sickness, then all damages (other 
than punitive damages) that flow therefrom are treated as 
payments received on account of physical injury or physical 
sickness whether or not the recipient of the damages is the 
injured party. For example, damages (other than punitive 
damages) received by an individual on account of a claim for 
loss of consortium due to the physical injury or physical 
sickness of such individual's spouse are excludable from gross 
income. In addition, damages (other than punitive damages) 
received on account of a claim of wrongful death continue to be 
excludable from taxable income as under present law.
    The bill also specifically provides that emotional distress 
is not considered a physical injury or physical sickness. Thus, 
the exclusion from gross income does not apply to any damages 
received (other than for medical expenses as discussed below) 
based on a claim of employment discrimination or injury to 
reputation accompanied by a claim of emotional distress. 
Because all damages received on account of physical injury or 
physical sickness are excludable from gross income, the 
exclusion from gross income does apply to any damages received 
based on a claim of emotional distress that is attributable to 
a physical injury or physical sickness. In addition, the 
exclusion from gross income specifically does apply to the 
amount of damages received that is not in excess of the amount 
paid for medical care attributable to emotional distress.

                             Effective Date

    The provisions generally are effective with respect to 
amounts received after December 31, 1995. The provisions do not 
apply to amounts received under a written binding agreement, 
court decree, or mediation award in effect on (or issued on or 
before) September 13, 1995.

9. Require tax reporting for payments to attorneys (sec. 13612 of the 
        bill and sec. 6045 of the code)

                              Present Law

    Information reporting is required by persons engaged in a 
trade or business and making payments in the course of that 
trade or business of ``rent, salaries, wages, * * * or other 
fixed or determinable gains, profits, and income'' (code sec. 
6041(a)). Treas. Reg. sec. 1.6041-1(d)(2) provides that 
attorney's fees are required to be reported if they are paid by 
a person in a trade or business in the course of a trade or 
business. Reporting is required to be done on form 1099-Misc. 
If, on the other hand, the payment is a gross amount and it is 
not known what portion is the attorney's fee, no reporting is 
required on any portion of the payment.

                           Reasons for Change

    There have been recent reports of attorneys who have either 
failed to file income tax returns or failed to report all their 
income. The committee believes that it is important to require 
additional information reporting with respect to payments to 
attorneys to increase compliance by attorneys with the tax 
laws.

                        Explanation of Provision

    The bill requires gross proceeds reporting on all payments 
to attorneys made by a trade or business in the course of that 
trade or business. It is anticipated that gross proceeds 
reporting would be required on form 1099-B (currently used by 
brokers to report gross proceeds). The only exception to this 
new reporting requirement is for any payments reported on 
either form 1099-Misc under section 6041 (reports of payment of 
income) or on form W-2 under section 6051 (payments of wages).
    In addition, the present exception in the regulations 
exempting from reporting any payments made to corporations will 
not apply to payments made to attorneys. Treas. Reg. sec. 
1.6041-3(c) exempts payments to corporations generally 
(although payments to most corporations providing medical 
services must be reported). Reporting is required under both 
code sections 6041 and 6045 (as proposed) for payments to 
corporations that provide legal services. The exception of 
Treas. Reg. sec. 1.6041-3(g) exempting from reporting payments 
of salaries or profits paid or distributed by a partnership to 
the individual partners will continue to apply to both sections 
(since these amounts are required to be reported on form K-1).

                             Effective Date

    The provision is effective for payments made after December 
31, 1995. Consequently, the first information reports will be 
filed with the IRS (and copies will be provided to recipients 
of the payments) in 1997, with respect to payments made in 
1996.

10. Expatriation tax provisions (secs. 13616-13618 of the bill and 
        secs. 877, 2107, 2501 and new sec. 6039F of the code) 33

                              Present Law

         Taxation of U.S. citizens, residents, and nonresidents

Individual income taxation

            Income taxation of U.S. citizens and residents
            In general
    A U.S. citizen generally is subject to the U.S. individual 
income tax on his or her worldwide taxable income.34 All 
income earned by a U.S. citizen, whether from sources inside or 
outside the United States, is taxable, whether or not the 
individual lives within the United States. A non-U.S. citizen 
who resides in the United States generally is taxed in the same 
manner as a U.S. citizen if the individual meets the definition 
of a ``resident alien,'' described below.
    \33\ These expatriation tax provisions were previously reported by 
the Committee on Ways and Means in H.R. 1812 (H. Rept. 104-145, June 
16, 1995).
    \34\ The determination of who is a U.S. citizen for tax purposes, 
and when such citizenship is lost, is governed by the provisions of the 
Immigration and Nationality Act, 8 U.S.C. section 1401, et seq. See 
Treas. Reg. section 1.1-1(c).
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    The taxable income of a U.S. citizen or resident is equal 
to the taxpayer's total income less certain exclusions, 
exemptions, and deductions. The appropriate tax rates are then 
applied to a taxpayer's taxable income to determine his or her 
individual income tax liability. A taxpayer may reduce his or 
her income tax liability by any applicable tax credits. When an 
individual disposes of property, any gain or loss on the 
disposition is determined by reference to the taxpayer's cost 
basis in the property, regardless of whether the property was 
acquired during the period in which the taxpayer was a citizen 
or resident of the United States.
    If a U.S. citizen or resident earns income from sources 
outside the United States, and that income is subject to 
foreign income taxes, the individual generally is permitted a 
foreign tax credit against his or her U.S. income tax liability 
to the extent of foreign income taxes paid on that 
income.35 In addition, a U.S. citizen who lives and works 
in a foreign country generally is permitted to exclude up to 
$70,000 of annual compensation from being subject to U.S. 
income taxes, and is permitted an exclusion or deduction for 
certain housing expenses.36
    \35\ See code sections 901-907.
    \36\ Section 911.
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            Resident aliens
    In general, a non-U.S. citizen is considered a resident of 
the United States if the individual first, has entered the 
United States as a lawful permanent U.S. resident (the ``green 
card test''); or second, is present in the United States for 31 
or more days during the current calendar year and has been 
present in the United States for a substantial period of time--
183 or more days during a 3-year period weighted toward the 
present year (the ``substantial presence test'').37
    \37\ The definitions of resident and nonresident aliens are set 
forth in code section 7701(b). The substantial presence test will 
compare 183 days to the sum of first, the days present during the 
current calendar year, second, one-third of the days present during the 
preceding calendar year, and third, one-sixth of the days present 
during the second preceding calendar year. Presence for an average of 
122 days (or more) per year over the 3-year period would be sufficient 
to trigger the test.
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    If an individual is present in the United States for fewer 
than 183 days during the calendar year, and if the individual 
establishes that he or she has a closer connection with a 
foreign country than with the United States and has a tax home 
in that country for the year, the individual generally is not 
subject to U.S. tax as a resident on account of the substantial 
presence test. If an individual is present for as many as 183 
days during a calendar year, this closer connections/tax home 
exception is not available. An alien who has an application 
pending to change his or her status to permanent resident or 
who has taken other steps to apply for status as a lawful 
permanent U.S. resident is not eligible for the closer 
connections/tax home exception.
    For purposes of applying the substantial presence test, any 
days that an individual is present as an ``exempt individual'' 
are not counted. Exempt individuals include certain foreign 
government-related individuals, teachers, trainees, students, 
and professional athletes temporarily in the United States to 
compete in charitable sports events. In addition, the 
substantial presence test does not count days of presence of an 
individual who is physically unable to leave the United States 
because of a medical condition that arose while he or she was 
present in the United States, if the individual can establish 
to the satisfaction of the Secretary of the Treasury that he or 
she qualifies for this special medical exception.
    In some circumstances, an individual who meets the 
definition of a U.S. resident (as described above) could also 
be defined as a resident of another country under the internal 
laws of that country. In order to avoid the double taxation of 
such individuals, most income tax treaties include a set of 
``tie-breaker'' rules to determine the individual's country of 
residence for income tax purposes. In general, a dual resident 
is deemed to be a resident of the country in which such person 
has a permanent home. If the individual has a permanent home 
available in both countries, the individual's residence is 
deemed to be the country with which his or her personal and 
economic relations are closer, i.e., the ``center of vital 
interests.'' If the country in which such individual has his or 
her center of vital interests cannot be determined, or if such 
individual does not have a permanent home available in either 
country, he or she is deemed to be a resident of the country in 
which he or she has an habitual abode. If the individual has an 
habitual abode in both countries or in neither of them, he or 
she is deemed to be a resident of the country of which he or 
she is a citizen. If each country considers the person to be 
its citizen or if he or she is a citizen of neither of them, 
the competent authorities of the countries are to settle the 
question of residence by mutual agreement.
            Income taxation of nonresident aliens
    Non-U.S. citizens who do not meet the definition of 
``resident aliens'' are considered to be nonresident aliens for 
tax purposes. Nonresident aliens are subject to U.S. tax only 
to the extent their income is from U.S. sources or is 
effectively connected with the conduct of a trade or business 
within the United States. Bilateral income tax treaties may 
modify the U.S. taxation of a nonresident alien.
    A nonresident alien is taxed at regular graduated rates on 
net profits derived from a U.S. business.38 Nonresident 
aliens also are taxed at a flat rate of 30 percent on certain 
types of passive income derived from U.S. sources, although a 
lower treaty rate may be provided (e.g., dividends are 
frequently taxed at a reduced rate of 15 percent). Such passive 
income includes interest, dividends, rents, salaries, wages, 
premiums, annuities, compensations, remunerations, emoluments, 
and other fixed or determinable annual or periodical gains, 
profits and income. There is no U.S. tax imposed, however, on 
interest earned by nonresident aliens with respect to deposits 
with U.S. banks and certain types of portfolio debt 
investments.39 Gains on the sale of stocks or securities 
issued by U.S. persons generally are not taxable to a 
nonresident alien because they are considered to be foreign 
source income.40
    \38\ Section 871.
    \39\ See sections 871(h) and 871(i)(3).
    \40\ Section 865(a).
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    Nonresident aliens are subject to U.S. income taxation on 
any gain recognized on the disposition of an interest in U.S. 
real property.41 Such gains generally are subject to tax 
at the same rates that apply to similar income received by U.S. 
persons. If a U.S. real property interest is acquired from a 
foreign person, the purchaser generally is required to withhold 
10 percent of the amount realized (gross sales price). 
Alternatively, either party may request that the Internal 
Revenue Service [IRS] determine the transferor's maximum tax 
liability and issue a certificate prescribing a reduced amount 
of withholding (not to exceed the transferor's maximum tax 
liability).42
    \41\ Sections 897, 1445, 6039C, and 6652(f), known as the Foreign 
Investment in Real Property Tax Act [FIRPTA]. Under the FIRPTA 
provisions, tax is imposed on gains from the disposition of an interest 
(other than an interest solely as a creditor) in real property 
(including an interest in a mine, well, or other natural deposit) 
located in the United States or the U.S. Virgin Islands. Also included 
in the definition of a U.S. real property interest is any interest 
(other than an interest solely as a creditor) in any domestic 
corporation unless the taxpayer establishes that the corporation was 
not a U.S. real property holding corporation [USRPHC] at any time 
during the 5-year period ending on the date of the disposition of the 
interest (sec. 897(c)(1)(A)(ii)). A USRPHC is any corporation, the fair 
market value of whose U.S. real property interests equals or exceeds 50 
percent of the sum of the fair market values of first, its U.S. real 
property interests, second, its interests in foreign real property, 
plus third, any other of its assets which are used or held for use in a 
trade or business (sec. 897(c)(2)).
    \42\ Section 1445.
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Estate and gift taxation

    The United States imposes a gift tax on any transfer of 
property by gift made by a U.S. citizen or resident,43 
whether made directly or indirectly and whether made in trust 
or otherwise. Nonresident aliens are subject to the gift tax 
with respect to transfers of tangible real or personal property 
where the property is located in the United States at the time 
of the gift. No gift tax is imposed, however, on gifts made by 
nonresident aliens of intangible property having a situs within 
the United States (e.g., stocks and bonds).44
    \43\ Section 2501.
    \44\ Section 2501(a)(2)
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    The United States also imposes an estate tax on the 
worldwide ``gross estate'' of any person who was a citizen or 
resident of the United States at the time of death, and on 
certain property belonging to a nonresident of the United 
States that is located in the United States at the time of 
death.45
    \45\ Sections 2001, 2031, 2101. and 2103.
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    Since 1976, the gift tax and the estate tax have been 
unified so that a single graduated rate schedule applies to 
cumulative taxable transfers made by a U.S. citizen or resident 
during his or her lifetime and at death. Under this rate 
schedule, the unified estate and gift tax rates begin at 18 
percent on the first $10,000 in cumulative taxable transfers 
and reach 55 percent on cumulative taxable transfers over $3 
million.46 A unified credit of $192,800 is available with 
respect to taxable transfers by gift and at death. The unified 
credit effectively exempts a total of $600,000 in cumulative 
taxable transfers from the estate and gift tax.
    \46\ Section 2001(c).
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    Residency for purposes of estate and gift taxation is 
determined under different rules than those applicable for 
income tax purposes. In general, an individual is considered to 
be a resident of the United States for estate and gift tax 
purposes if the individual is ``domiciled'' in the United 
States. An individual is domiciled in the United States if the 
individual (a) is living in the United States and has the 
intention to remain in the United States indefinitely; or (b) 
has lived in the United States with such an intention and has 
not formed the intention to remain indefinitely in another 
country. In the case of a U.S. citizen who resided in a U.S. 
possession at the time of death, if the individual acquired 
U.S. citizenship solely on account of his birth or residence in 
a U.S. possession, that individual is not treated as a U.S. 
citizen or resident for estate tax purposes.47
    \47\ Section 209.
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    In addition to the estate and gift taxes, a separate 
transfer tax is imposed on certain ``generation-skipping'' 
transfers.

Special tax rules with respect to the movement of persons and property 
        into or out of the United States

            Individuals who relinquish U.S. citizenship with a 
                    principal purpose of avoiding U.S. tax
    An individual who relinquishes his or her U.S. citizenship 
with a principal purpose of avoiding U.S. taxes is subject to 
an alternative method of income taxation for 10 years after 
expatriation under section 877 of the code.48 Under this 
provision, if the Treasury Department establishes that it is 
reasonable to believe that the expatriate's loss of U.S. 
citizenship would, but for the application of this provision, 
result in a substantial reduction in U.S. tax based on the 
expatriate's probable income for the taxable year, then the 
expatriate has the burden of proving that the loss of 
citizenship did not have as one of its principal purposes the 
avoidance of U.S. income, estate or gift taxes. Section 877 
does not apply to resident aliens who terminate their U.S. 
residency.
    \48\ Treasury regulations provide that an individual's citizenship 
status is governed by the provisions of the Immigration and Nationality 
Act, specifically referring to the ``rules governing loss of 
citizenship [set forth in] sections 349 to 357, inclusive, of such act 
(8 U.S.C. 1481-1489).'' Treas. Reg. sec 1.1-1(c). Under the Immigration 
and Nationality Act, an individual is generally considered to lose U.S. 
citizenship on the date that an expatriating act is committed. The 
present-law rules governing the loss of citizenship, and a description 
of the types of expatriating acts that lead to a loss of citizenship, 
are discussed more fully in Part II.A.2.a., below.
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    The alternative method modifies the rules generally 
applicable to the taxation of nonresident aliens in two ways. 
First, the expatriate is subject to tax on his or her U.S. 
source income at the rates applicable to U.S. citizens rather 
than the rates applicable to other nonresident aliens. (Unlike 
U.S. citizens, however, individuals subject to section 877 are 
not taxed on any foreign source income.) Second, the scope of 
items treated as U.S. source income for section 877 purposes is 
broader than those items generally considered to be U.S. source 
income under the code. For example, gains on the sale of 
personal property located in the United States, and gains on 
the sale or exchange of stocks and securities issued by U.S. 
persons, generally are not considered to be U.S. source income 
under the code. However, if an individual is subject to the 
alternative taxing method of section 877, such gains are 
treated as U.S. source income with respect to that individual. 
The alternative method applies only if it results in a higher 
U.S. tax liability than would otherwise be determined if the 
individual were taxed as a nonresident alien.
    Because section 877 alters the sourcing rules generally 
used to determine the country having primary taxing 
jurisdiction over certain items of income, there is an 
increased potential for such items to be subject to double 
taxation. For example, a former U.S. citizen subject to the 
section 877 rules may have capital gains derived from stock in 
a U.S. corporation. Under section 877, such gains are treated 
as U.S. source income, and are, therefore, subject to U.S. tax. 
Under the internal laws of the individual's new country of 
residence, however, that country may provide that all capital 
gains realized by a resident of that country are subject to 
taxation in that country, and thus the individual's gain from 
the sale of U.S. stock also would be taxable in his or her 
country of residence. If the individual's new country of 
residence has an income tax treaty with the United States, the 
treaty may provide for the amelioration of this potential 
double tax.
    Similar rules apply in the context of estate and gift 
taxation if the transferor relinquished U.S. citizenship with a 
principal purpose of avoiding U.S. taxes within the 10-year 
period ending on the date of the transfer. A special rule is 
applied to the estate tax treatment of any decedent who 
relinquished his or her U.S. citizenship within 10 years of 
death, if the decedent's loss of U.S. citizenship had as one of 
its principal purposes a tax avoidance motive.49 Once the 
Secretary of the Treasury establishes a reasonable belief that 
the expatriate's loss of U.S. citizenship would result in a 
substantial reduction in estate, inheritance, legacy and 
succession taxes, the burden of proving that one of the 
principal purposes of the loss of U.S. citizenship was not 
avoidance of U.S. income or estate tax is on the executor of 
the decedent's estate.
    \49\ Section 2107.
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    In general, the estates of such individuals are taxed in 
accordance with the rules generally applicable to the estates 
of nonresident aliens (i.e., the gross estate includes all 
U.S.-situs property held by the decedent at death, is subject 
to U.S. estate tax at the rates generally applicable to the 
estates of U.S. citizens, and is allowed a unified credit of 
$13,000, as well as credits for State death taxes, gift taxes, 
and prior transfers). However, a special rule provides that the 
individual's gross estate also includes his or her pro-rata 
share of any U.S.-situs property held through a foreign 
corporation in which the decedent had a 10-percent or greater 
voting interest, provided that the decedent and related parties 
together owned more than 50 percent of the voting power of the 
corporation. Similarly, gifts of intangible property having a 
situs within the United States (e.g., stocks and bonds) made by 
a nonresident alien who relinquished his or her U.S. 
citizenship within the 10-year period ending on the date of 
transfer are subject to U.S. gift tax, if the loss of U.S. 
citizenship had as one of its principal purposes a tax 
avoidance motive.50
    \50\ Section 2501(a)(3).
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            Aliens having a break in residency status
    A special rule applies in the case of an individual who has 
been treated as a resident of the United States for at least 3 
consecutive years, if the individual becomes a nonresident but 
regains residency status within a 3-year period.51 In such 
cases, the individual is subject to U.S. tax for all 
intermediate years under the section 877 rules described above 
(i.e., the individual is taxed in the same manner as a U.S. 
citizen who renounced U.S. citizenship with a principal purpose 
of avoiding U.S. taxes). The special rule for a break in 
residency status applies regardless of the subjective intent of 
the individual.
    \51\ Section 7701(b)(10).
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            Transfers to foreign corporations
    Certain transfers of property by shareholders to a 
controlled corporation are generally tax-free if the persons 
transferring the property own at least 80 percent of the 
corporation after the transfer.52 Also, in certain 
corporate reorganizations, including qualifying acquisitions 
and dispositions, shareholders of one corporation may exchange 
their stock or securities for stock or securities of another 
corporation that is a party to the reorganization without a 
taxable event except to the extent they receive cash or other 
property that is not permitted stock or securities. In these 
cases, a corporation may also transfer property to another 
corporation that is a party to the reorganization, without a 
taxable event except to the extent of certain nonpermitted 
consideration.53 A liquidation of an 80-percent owned 
corporate subsidiary into its parent corporation is also 
generally tax-free.54
    \52\ Section 351.
    \53\ Sections 368, 354, 356, and 361. (See also sec. 355.)
    \54\ Section 332.
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    Under the rules applicable to these types of transfers, 
property transferred to a corporation retains its basis, to the 
extent the transfer was tax-free, so that any appreciation 
(i.e., built-in gain) will be subject to tax if the property is 
subsequently sold by the recipient corporation. Similarly, a 
shareholder who exchanges stock of one corporation for stock of 
another retains his or her original basis so that a subsequent 
sale of the acquired stock can produce a taxable gain.
    Section 367 applies special rules, however, if property is 
transferred by a U.S. person to a foreign corporation in a 
transaction that would otherwise be tax-free under these 
provisions. These special rules are generally directed at 
situations where property is transferred to a foreign 
corporation, outside of the U.S. taxing jurisdiction, so that a 
subsequent sale by that corporation could escape U.S. tax 
notwithstanding the carryover basis of the asset. In some 
instances, such a transfer causes an immediate taxable event so 
that the generally applicable tax-free rules are overridden. In 
other instances, the taxpayer may escape immediate tax by 
entering a gain recognition agreement [GRA] obligating the 
taxpayer to pay tax if the property is disposed of within a 
specified time period after the transfer. The GRA rules 
generally require the taxpayer to agree to file an amended 
return for the year of the original transfer if the property is 
disposed of by the transferee (including payment of interest 
from the due date of the return for the year of the original 
transfer to the time the additional tax under the agreement is 
actually paid following the disposition).
    Section 367 also imposes rules directed at situations where 
a U.S. person has an interest in a foreign corporation, such as 
a controlled foreign corporation [CFC] meeting specific U.S. 
shareholder ownership requirements, that could result in the 
U.S. person being taxed on its share of certain foreign 
corporate earnings. These rules are designed to prevent the 
avoidance of tax in circumstances where a reorganization or 
other nonrecognition transaction restructures the stock or 
asset ownership of the foreign corporation so that the 
technical requirements for imposition of U.S. tax on foreign 
earnings under the CFC or other rules are no longer met, so 
that there is potential for removing the earnings of the 
original CFC from current or future U.S. tax, or changing the 
character of the earnings for U.S. tax purposes (e.g., from 
dividend to capital gain).
    The rules of section 367 do not generally apply unless 
there is a transfer by a U.S. person to a foreign corporation, 
or unless a foreign corporation of which a U.S. person is a 
shareholder engages in certain transactions. Because an 
individual who expatriates is no longer a U.S. person, section 
367 has no effect on actions taken by such individuals after 
expatriation. The Treasury Department has considerable 
regulatory authority under section 367 to address situations 
that may result in U.S. tax avoidance. For example, section 
367(b) provides that any of certain tax-free corporate 
transactions that do not involve a transfer of property from a 
U.S. person (described in section 367(a)(1)) can be 
recharacterized as taxable ``to the extent provided in 
regulations prescribed by the Secretary which are necessary or 
appropriate to prevent the avoidance of Federal income taxes.'' 
The legislative history of this provision suggests that it was 
directed principally at situations involving avoidance of U.S. 
tax on foreign earnings and profits; 55 however the 
statutory language is quite broad and was provided in 
conjunction with the general rules taxing certain transfers by 
U.S. persons. Under the existing section 367 regulations and 
the relevant expatriation sections of the code, a U.S. person 
who expatriates, even for a principal purpose of avoiding U.S. 
tax, may subsequently engage in transactions that involve the 
transfer of property to a foreign corporation without any 
adverse consequences under section 367, since expatriation 
(even for a principal purpose of tax avoidance) is not an event 
covered by section 367 or the current regulations under that 
section. Similarly, a U.S. person who has expatriated is not be 
considered a U.S. shareholder for purposes of applying the 
rules that address restructurings of foreign corporations with 
U.S. shareholders. By engaging in such a transaction, a 
taxpayer that has expatriated could transfer assets that would 
otherwise generate income which would be subject to tax under 
section 877 into a foreign corporation, thus transforming the 
income into non-U.S. source income not subject to tax under 
section 877. For example, under section 877, if a principal 
purpose of tax avoidance existed, an expatriate would be taxed 
for 10 years on any sale of U.S. corporate stock. However, 
after expatriation, the person would no longer be a U.S. person 
for purposes of section 367, and thus could transfer U.S. 
corporate stock to a foreign corporation controlled by the 
expatriate under section 351 without any section 367 effect. 
The foreign corporation could then sell the U.S. corporate 
stock within the 10-year period, but the gain would not be 
subject to U.S. tax.
    \55\ See, e.g., H. Rept. No. 94-658, pp. 239-248 (94th Cong. 1st 
sess, 1975); S. Rept. No. 94-938, pp. 261-271 (94th Cong., 2d sess, 
1976); H. Rept. No. 94-1515, p. 463 (94th Cong., 2d sess., 1976)
---------------------------------------------------------------------------
    In addition, the IRS or Treasury might encounter 
difficulties enforcing a gain recognition agreement if a U.S. 
person who has entered into such an agreement to pay tax on a 
later disposition of an asset subject to the agreement and then 
expatriates. The GRA regulations contain provisions requiring 
security arrangements if a U.S. natural person who has entered 
an agreement dies (or if a U.S. entity goes out of existence) 
but these provisions do not apply if a U.S. natural person 
expatriates.56
    \56\ See, e.g., Temp. Reg. section 1.367(a)-3T(g)(9) and (10), 
Notice 87-85, 1987-2 C.B.
---------------------------------------------------------------------------
    Even if an individual is subject to the alternative taxing 
method of section 877 (because the person expatriated with a 
principal purpose of avoiding U.S. tax), section 877 does not 
impose a tax on foreign source income. Thus, such an individual 
could expatriate and subsequently transfer appreciated property 
to a foreign corporation or other entity beyond the U.S. taxing 
jurisdiction, without any U.S. tax being imposed on the 
appreciation under section 877.
    Similar issues exist under section 1491 of the code. 
Section 1491 imposes a 35-percent tax on otherwise untaxed 
appreciation when appreciated property is transferred by a U.S. 
citizen or resident, or by a domestic corporation, partnership, 
estate or trust, to certain foreign entities in a transaction 
not covered by section 367. In some cases, taxpayers may elect 
to enter into a gain recognition agreement (rather than pay 
immediate tax) pursuant to section 1492.57 As in the case 
of section 367, an individual who has expatriated is no longer 
a U.S. citizen and may also no longer be a U.S. resident, thus 
a transfer by such a person would be unaffected by section 
1491.
    \57\ See, e.g., PLR 9103033.
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       Requirements for U.S. citizenship, immigration, and visas

U.S. citizenship

    An individual may acquire U.S. citizenship in one of three 
ways: First, being born within the geographical boundaries of 
the United States; second, being born outside the United States 
to at least one U.S. citizen parent (as long as that parent had 
previously been a resident in the United States for a requisite 
period of time); or third, through the naturalization process. 
All U.S. citizens are required to pay U.S. income taxes on 
their worldwide income. The State Department estimates that 
there are approximately 3 million U.S. citizens living abroad, 
although thousands of these individuals may not even know that 
they are U.S. citizens.
    A U.S. citizen may voluntarily give up his or her U.S. 
citizenship at any time by performing one of the following acts 
(``expatriating acts'') with the intention of relinquishing 
U.S. nationality: First, becoming naturalized in another 
country; second, formally declaring allegiance to another 
country; third, serving in a foreign army; fourth, serving in 
certain types of foreign government employment; fifth, making a 
formal renunciation of nationality before a U.S. diplomatic or 
consular officer in a foreign country; sixth, making a formal 
renunciation of nationality in the United States during a time 
of war; or, seventh, committing an act of treason.58 An 
individual who wishes to formally renounce citizenship (item 
five, above), must execute an Oath of Renunciation before a 
consular officer, and the individual's loss of citizenship is 
effective on the date the oath is executed. In all other cases, 
the loss of citizenship is effective on the date that the 
expatriating act is committed, even though the loss may not be 
documented until a later date. The State Department generally 
documents loss in such cases when the individual acknowledges 
to a consular officer that the act was taken with the requisite 
intent. In all cases, the consular officer abroad submits a 
certificate of loss of nationality [CLN] to the State 
Department in Washington, DC for approval.59 Upon 
approval, a copy of the CLN is issued to the affected 
individual. The date upon which the CLN is approved is not the 
effective date for loss of citizenship.
    \58\ 8 U.S.C. section 1481.
    \59\ 8 U.S.C. section 1501.
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    Before a CLN is issued, the State Department reviews the 
individual's files to confirm that: First, the individual was a 
U.S. citizen; second, an expatriating act has been committed; 
third, the act was undertaken voluntarily; and fourth, the 
individual had the intent of relinquishing citizenship when the 
expatriating act was committed. If the expatriating act 
involved an action of a foreign government (for example, if the 
individual was naturalized in a foreign country or joined a 
foreign army), the State Department will not issue a CLN until 
it has obtained an official statement from the foreign 
government confirming the expatriating act. If a CLN is not 
issued because the State Department does not believe that an 
expatriating act has occurred (for example, if the requisite 
intent appears to be lacking), the issue is likely to be 
resolved through litigation. Whenever the loss of U.S. 
nationality is put in issue, the burden of proof is on the 
person or party claiming that a loss of citizenship has 
occurred to establish, by a preponderance of the evidence, that 
the loss occurred.60 Similarly, if a CLN has been issued, 
but the State Department later discovers that such issuance was 
improper (for example, because fraudulent documentation was 
submitted, or the requisite intent appears to be lacking), the 
State Department could initiate proceedings to revoke the CLN. 
If the recipient is unable to establish beyond a preponderance 
of the evidence that citizenship was lost on the date claimed, 
the CLN would be revoked. To the extent that the IRS believes a 
CLN was improperly issued, the IRS could present such evidence 
to the State Department and request that revocation proceedings 
be commenced. If it is determined that the individual has 
indeed committed an expatriating act, the date for loss of 
citizenship will be the date of the expatriating act.
    \60\ U.S.C. sec. 1481(b).
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    A child under the age of 18 cannot lose U.S. citizenship by 
naturalizing in a foreign state or by taking an oath of 
allegiance to a foreign state. A child under 18 can, however, 
lose U.S. citizenship by serving in a foreign military or by 
formally renouncing citizenship, but such individuals may 
regain their citizenship by asserting a claim of citizenship 
before reaching the age of 18 years and 6 months.
    A naturalized U.S. citizen can have his or her citizenship 
involuntarily revoked if a U.S. court determines that the 
certificate of naturalization was illegally procured, or was 
procured by concealment of a material fact or by willful 
misrepresentation (for example, if the individual concealed the 
fact that he served as a concentration camp guard during World 
War II).61 In such cases, the individual's certificate of 
naturalization is canceled, effective as of the original date 
of the certificate; in other words, it is as if the individual 
were never a U.S. citizen at all.
    \61\ See section 340(a) of the Immigration and Nationality Act, 8 
U.S.C. section 1451(a). See also, United States v. Demjanjuk, 680 F.2d 
32, cert. denied, 459 U.S. 1036 (1982).
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U.S. immigration and visas

    In general, a non-U.S. citizen who enters the United States 
is required to obtain a visa.62 An immigrant visa (also 
known as a ``green card'') is issued to an individual who 
intends to relocate to the United States permanently. Various 
types of nonimmigrant visas are issued to individuals who come 
to the United States on a temporary basis and intend to return 
home after a certain period of time. The type of nonimmigrant 
visa issued to such individuals is dependent upon the purpose 
of the visit and its duration. An individual holding a 
nonimmigrant visa is prohibited from engaging in activities 
that are inconsistent with the purpose of the visa (for 
example, an individual holding a tourist visa is not permitted 
to obtain employment in the United States).
    \62\ Under the Visa Waiver Pilot Program, nationals of most 
European countries are not required to obtain a visa to enter the 
United States if they are coming as tourists and staying a maximum of 
90 days. Also, citizens of Canada, Mexico, and certain islands in close 
proximity to the United States do not need visas to enter the United 
States, although other types of travel documents may be required.
---------------------------------------------------------------------------
    Foreign business people and investors often obtain ``E'' 
visas to come into the United States. Generally, an ``E'' visa 
is initially granted for a 1-year period, but it can be 
routinely extended for additional 2-year periods. There is no 
overall limit on the amount of time an individual may retain an 
``E'' visa. There are two types of ``E'' visas: an ``E-1'' 
visa, for ``treaty traders'' and an ``E-2'' visa, for ``treaty 
investors''. To qualify for an ``E-1'' visa, an individual must 
be a national of a country that has a treaty of trade with the 
United States, and must be coming to the United States solely 
to engage in substantial trade principally between a U.S. 
entity and that company. Trade includes the import and export 
of goods or services. At least 50 percent of the foreign-based 
company must be owned by nationals of that country, and at 
least 50 percent of the shareholders must either live abroad, 
or have an ``E-1'' visa and live in the United States (thus, an 
individual holding a ``green card'' would not be counted). Over 
50 percent of the individual's business must be between the 
United States and the foreign country. To qualify for an ``E-
2'' visa, an individual (or a company of which he is an 
executive, manager, or essential employee) must be a national 
of a country that has a treaty investor agreement with the 
United States, and must be coming to the United States solely 
to develop and direct the operations of an enterprise in which 
he has invested, or is actively in the process of investing, a 
substantial amount of capital.

Relinquishment of green cards

    There are several ways in which a green card can be 
relinquished. First, an individual who wishes to terminate his 
or her permanent residency may simply mail his or her green 
card back to the INS. Second, an individual may be 
involuntarily deported from the United States (through a 
judicial or administrative proceeding), and the green card must 
be relinquished at that time. Third, a green cardholder who 
leaves the United States and attempts to reenter more than a 
year later may have his or her green card taken away by the INS 
border examiner, although the individual may appeal to an 
immigration judge to have the green card reinstated. A green-
card holder may permanently leave the United States without 
relinquishing his or her green card, although such individuals 
would continue to be taxed as U.S. residents.63
    \63\ Code section 7701(b)(6)(B) provides that an individual who has 
obtained the status of residing permanently in the United States as an 
immigrant (i.e., an individual who has obtained a green card) will 
continue to be taxed as a lawful permanent resident of the United 
States until such status is revoked, or is administratively or 
judicially determined to have been abandoned.
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                           Reasons for Change

    The committee has been informed that a small number of very 
wealthy individuals each year relinquish their U.S. citizenship 
for the purpose of avoiding U.S. income, estate, and gift tax. 
By so doing, such individuals may reduce their annual U.S. 
income tax liability and their eventual U.S. estate tax 
liability.
    The committee recognizes that citizens of the United States 
clearly have a basic right under both U.S. and international 
law not only to leave the United States to live elsewhere, but 
also to relinquish their U.S. citizenship. The committee does 
not believe that the Internal Revenue Code should be used to 
stop U.S. citizens or residents from expatriating; however, the 
committee also does not believe that the code should provide a 
tax incentive for expatriating.
    The committee is concerned that present law, which bases 
the application of the alternative method of taxation under 
sections 877, 2107 and 2501(a)(3) (``expatriation tax 
provisions'') to former citizens on proof of a tax-avoidance 
purpose, may be difficult to administer. Thus, the bill 
generally subjects certain former citizens to the expatriation 
tax provisions without inquiry as to their motive for losing 
their U.S. citizenship, but allows certain individuals to 
request a ruling from the Secretary of Treasury as to whether 
the loss of citizenship had a principal purpose of tax 
avoidance. The committee believes that long-term permanent 
residents of the United States (i.e., green-card holders) 
should similarly be taxed under the expatriation tax provisions 
for 10 years after their U.S. residency is terminated.
    The committee is aware that taxpayers may circumvent 
present-law section 877 by converting U.S. source income to 
foreign source income. To eliminate taxpayers' ability to 
escape U.S. tax by such conversions, the bill substantially 
expands the scope of section 877 to apply to foreign property 
acquired in nonrecognition transactions. In addition, for 
purposes of determining the tax liability under section 877, 
the 10-year period is suspended with respect to any property 
during the period in which the individual's risk of loss with 
respect to such property is substantially diminished.
    The committee further believes that it is appropriate to 
tax amounts earned by former U.S. citizens and residents 
through certain controlled foreign corporations where the 
taxation of such amounts has been deferred during the period of 
U.S. citizenship or residency. Therefore, income or gains 
derived from stock in a foreign corporation that is more than 
50-percent owned by a former citizen or resident is taxable 
under the bill to the extent of the earnings and profits 
attributable to such stock if the income or gains are realized 
within the 10-year period after the relinquishment of U.S. 
citizenship or termination of U.S. residency. This rule applies 
to earnings and profits attributable to such stock but only to 
the extent earned during the preexpatriation period.
    The committee understands that amounts taxed under the 
expatriation tax provisions could be subject to double taxation 
(e.g., taxed by both the United States and the country of 
residence of the expatriate). Therefore, the bill provides 
relief from double taxation in circumstances where another 
country also taxes the same item that is subject to tax under 
the expatriation tax provisions.
    The committee is also aware that certain existing U.S. 
income tax treaties may not permit the United States to assert 
its taxing jurisdiction on former citizens or long-term 
residents who are residents of such countries. The committee 
believes that the modified expatriation tax provisions are 
generally consistent with the underlying principles of income 
tax treaties to the extent the bill provides a foreign tax 
credit for items that are taxed by another country, thus ceding 
primary taxing jurisdiction to the foreign country. To the 
extent that the modified expatriation provisions do conflict 
with the provisions of tax treaties, the committee expects that 
the Treasury Department will renegotiate those treaties to 
eliminate any such conflicts. In the interim, the new 
provisions take precedence over the treaties for a period of 10 
years.
    In order to enhance compliance with the expatriation tax 
provisions, and to assist the IRS in identifying former U.S. 
citizens and residents who are subject to the expatriation tax 
provisions, the bill imposes an information reporting 
obligation on former citizens and long-term residents at the 
time of expatriation and requires the State Department and 
other governmental entities to share certain information with 
the IRS with respect to such individuals.

                       Explanation of Provisions

Overview

    The bill expands and substantially strengthens in several 
ways the present-law provisions that subject U.S. citizens who 
lose their citizenship for tax avoidance purposes to special 
tax rules for 10 years after such loss of citizenship (secs. 
877, 2107, and 2501(a)(3)). First, the bill extends the 
expatriation tax provisions to apply not only to U.S. citizens 
who lose their citizenship but also to certain long-term 
residents of the United States whose U.S. residency is 
terminated. Second, the bill subjects certain individuals to 
the expatriation tax provisions without inquiry as to their 
motive for losing their U.S. citizenship or residency, but 
allows certain categories of citizens to show an absence of 
tax-avoidance motives if they request a ruling from the 
Secretary of the Treasury as to whether the loss of citizenship 
had a principal purpose of tax avoidance. Third, the bill 
expands the categories of income and gains that are treated as 
U.S. source (and therefore subject to U.S. income tax under 
section 877) if earned by an individual who is subject to the 
expatriation tax provisions and includes provisions designed to 
eliminate the ability to engage in certain transactions that 
under current law partially or completely circumvent the 10-
year reach of section 877. Further, the bill provides relief 
from double taxation in circumstances where another country 
imposes tax on items that would be subject to U.S. tax under 
the expatriation tax provisions.
    The bill also contains provisions to enhance compliance 
with the expatriation tax provisions. The bill imposes 
information reporting obligations on U.S. citizens who lose 
their citizenship and long-term residents whose U.S. residency 
is terminated at the time of expatriation. In addition, the 
bill directs the Treasury Department to undertake a study 
regarding compliance by individuals living abroad with their 
U.S. tax reporting obligations and to make recommendations with 
respect to improving such compliance.

Individuals covered

    The present-law expatriation tax provisions apply only to 
certain U.S. citizens who lose their citizenship. The bill 
extends these expatriation tax provisions to apply also to 
long-term residents of the United States whose U.S. residency 
is terminated. For this purpose, a long-term resident is any 
individual who was a lawful permanent resident of the United 
States for at least 8 out of the 15 taxable years ending with 
the year in which such termination occurs. In applying this 8-
year test, an individual is not considered to be a lawful 
permanent resident for any year in which the individual is 
taxed as a resident of another country under a treaty tie-
breaker rule. An individual's U.S. residency is considered to 
be terminated when either the individual ceases to be a lawful 
permanent resident pursuant to section 7701(b)(6) (i.e., the 
individual loses his or her green-card status) or the 
individual is treated as a resident of another country under a 
tie-breaker provision of a tax treaty (and the individual does 
not elect to waive the benefits of such treaty). Furthermore, a 
long-term resident may elect to use the fair market value basis 
of property on the date the individual became a U.S. resident 
(rather than the property's historical basis) to determine the 
amount of gain subject to the expatriation tax provisions if 
the asset is sold within the 10-year period.
    Under present law, the expatriation tax provisions are 
applicable to a U.S. citizen who loses his or her citizenship 
unless such loss did not have as a principal purpose the 
avoidance of taxes. Under the bill, U.S. citizens who lose 
their citizenship and long-term residents whose U.S. residency 
is terminated are generally treated as having lost such 
citizenship or terminated such residency with a principal 
purpose of the avoidance of taxes if either: First, the 
individual's average annual U.S. Federal income tax liability 
for the 5 taxable years ending before the date of such loss or 
termination is greater than $100,000 (the ``tax liability 
test''), or second, the individual's net worth as of the date 
of such loss or termination is $500,000 or more (the ``net 
worth test''). The dollar amount thresholds contained in the 
tax liability test and the net worth test are indexed for 
inflation in the case of a loss of citizenship or termination 
of residency occurring in any calendar year after 1996. An 
individual who falls below the thresholds specified in both the 
tax liability test and the net worth test is subject to the 
expatriation tax provisions unless the individual's loss of 
citizenship or termination of residency did not have as a 
principal purpose the avoidance of tax (as under present law in 
the case of U.S. citizens).
    A U.S. citizen, who loses his or her citizenship and who 
satisfies either the tax liability test or the net worth test, 
is not subject to the expatriation tax provisions if such 
individual can demonstrate that he or she did not have a 
principal purpose of tax avoidance and the individual is within 
one of the following categories: First, the individual was born 
with dual citizenship and retains only the non-U.S. 
citizenship; second, the individual becomes a citizen of the 
country in which the individual, the individual's spouse, or 
one of the individual's parents, was born; third, the 
individual was present in the United States for no more than 30 
days during any year in the 10-year period immediately 
preceding the date of his or her loss of citizenship; fourth, 
the individual relinquishes his or her citizenship before 
reaching age 18\1/2\; or fifth, any other category of 
individuals prescribed by Treasury regulations. In all of these 
situations, the individual would have been subject to tax on 
his or her worldwide income (as are all U.S. citizens) until 
the time of expatriation. In order to qualify for one of these 
exceptions, the former U.S. citizen must, within 1 year from 
the date of loss of citizenship, submit a ruling request for a 
determination by the Secretary of the Treasury as to whether 
such loss had as one of its principal purposes the avoidance of 
taxes. A former U.S. citizen who submits such a ruling request 
is entitled to challenge an adverse determination by the 
Secretary of the Treasury. However, a former U.S. citizen who 
fails to submit a timely ruling request is not eligible for 
these exceptions. It is expected that in making a determination 
as to the presence of a principal purpose of tax avoidance, the 
Secretary of the Treasury will take into account factors such 
as the substantiality of the former citizen's ties to the 
United States (including ownership of U.S. assets) prior to 
expatriation, the retention of U.S. citizenship by the former 
citizen's spouse, and the extent to which the former citizen 
resides in a country that imposes little or no tax.
    The foregoing exceptions are not available to long-term 
residents whose U.S. residency is terminated. However, the bill 
authorizes the Secretary of the Treasury to prescribe 
regulations to exempt certain categories of long-term residents 
from the bill's provisions.

Items subject to section 877

    Under section 877, an individual covered by the 
expatriation tax provisions is subject to tax on U.S. source 
income and gains for a 10-year period after expatriation at the 
graduated rates applicable to U.S. citizens.\64\ The tax under 
section 877 applies to U.S. source income and gains of the 
individual for the 10-year period, without regard to whether 
the property giving rise to such income or gains was acquired 
before or after the date the individual became subject to the 
expatriation tax provisions. For example, a U.S. citizen who 
inherits an appreciated asset immediately before losing 
citizenship and disposes of the asset immediately after such 
loss would not recognize any taxable gain on such disposition 
(because of the date of death fair market value basis accorded 
to inherited assets), but the individual would continue to be 
subject to tax under section 877 on the income or gain derived 
from any U.S. property acquired with the proceeds from such 
disposition.
    \64\ Under present law, all nonresident aliens (including 
expatriates) are subject to U.S. income tax at graduated rates on 
certain types of income. Such income includes income effectively 
connected with a U.S. trade or business and gains from the disposition 
of interests in U.S. real property. For example, compensation 
(including deferred compensation) paid with respect to services 
performed in the United States is subject to such tax. Thus, under 
current law, a U.S. citizen who earns a stock option while employed in 
the United States and delays the exercise of such option until after 
such individual loses his or her citizenship is subject to U.S. tax on 
the compensation income recognized upon exercise of the stock option 
(even if the stock received upon the exercise is stock in a foreign 
corporation).
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    In addition, section 877 currently recharacterizes as U.S. 
source income certain gains of individuals who are subject to 
the expatriation tax provisions, thereby subjecting such 
individuals to U.S. income tax on such gains. Under this rule, 
gain on the sale or exchange of stock of a U.S. corporation or 
debt of a U.S. person is treated as U.S. source income. In this 
regard, under current law, the substitution of a foreign 
obligor for a U.S. obligor is generally treated as a taxable 
exchange of the debt instrument, and therefore any gain on such 
exchange is subject to tax under section 877. The bill extends 
this recharacterization to income and gains derived from 
property obtained in certain transactions on which gain or loss 
is not recognized under present law. An individual covered by 
section 877 who exchanges property that would produce U.S. 
source income for property that would produce foreign source 
income is required to recognize immediately as U.S. source 
income any gain on such exchange (determined as if the property 
had been sold for its fair market value on such date). To the 
extent gain is recognized under this provision, the property 
would be accorded the step-up in basis provided under current 
law. This rule requiring immediate gain recognition does not 
apply if the individual enters into an agreement with the 
Secretary of the Treasury specifying that any income or gains 
derived from the property received in the exchange during the 
10-year period after the loss of citizenship (or termination of 
U.S. residency, as applicable) would be treated as U.S. source 
income. Such a gain recognition agreement terminates if the 
property transferred in the exchange is disposed of by the 
acquiror, and any gain that had not been recognized by reason 
of such agreement is recognized as U.S. source as of such date. 
It is expected that a gain recognition agreement would be 
entered into not later than the due date for the tax return for 
the year of the exchange. In this regard, the Secretary of the 
Treasury is authorized to issue regulations providing similar 
treatment for nonrecognition transactions that occur within 5 
years immediately prior to the date of loss of citizenship (or 
termination of U.S. residency, as applicable).
    The Secretary of Treasury is authorized to issue 
regulations to treat removal of tangible personal property from 
the United States, and other circumstances that result in a 
conversion of U.S. source income to foreign source income 
without recognition of any unrealized gain, as exchanges for 
purposes of computing gain subject to section 877. The taxpayer 
may defer the recognition of the gain if he or she enters into 
a gain recognition agreement as described above. For example, a 
former citizen who removes appreciated artwork that he or she 
owns from the United States could be subject to immediate tax 
on the appreciation under this provision unless the individual 
enters into a gain recognition agreement.
    The foregoing rules regarding the treatment under section 
877 of nonrecognition transactions are illustrated by the 
following examples: Ms. A loses her U.S. citizenship on January 
1, 1996, and is subject to section 877. On June 30, 1997, Ms. A 
transfers the stock she owns in a U.S. corporation, USCo, to a 
wholly-owned foreign corporation, FCo, in a transaction that 
qualifies for tax-free treatment under section 351. At the time 
of such transfer, A's basis in the stock of USCo is $100,000 
and the fair market value of the stock is $150,000. Under 
present law, Ms. A. would not be subject to U.S. tax on the 
$50,000 of gain realized on the exchange. Moreover, Ms. A would 
not be subject to U.S. tax on any distribution of the proceeds 
from a subsequent disposition of the USCo stock by FCo. Under 
the bill, if Ms. A does not enter into a gain recognition 
agreement with the Secretary of the Treasury, Ms. A would be 
deemed to have sold the USCo stock for $150,000 on the date of 
the transfer, and would be subject to U.S. tax in 1997 on the 
$50,000 of gain realized. Alternatively, if Ms. A enters into a 
gain recognition agreement, she would not be required to 
recognize for U.S. tax purposes in 1997 the $50,000 of gain 
realized upon the transfer of the USCo stock to FCo. However, 
under the gain recognition agreement, for the 10-year period 
ending on December 31, 2005, any income (e.g., dividends) or 
gain with respect to the FCo stock would be treated as U.S. 
source, and therefore Ms. A would be subject to tax on such 
income or gain under section 877. If FCo disposes of the USCo 
stock on January 1, 2002, Ms. A's gain recognition agreement 
would terminate on such date, and Ms. A would be required to 
recognize as U.S. source income at that time the $50,000 of 
gain that she previously deferred under the gain recognition 
agreement. (The amount of gain required to be recognized by Ms. 
A in this situation would not be affected by any changes in the 
value of the USCo stock since her June 30, 1997 transfer of 
such stock to FCo.)
    The bill also extends the recharacterization rules of 
section 877 to treat as U.S. source any income and gains 
derived from stock in a foreign corporation if the individual 
losing citizenship or terminating residency owns, directly or 
indirectly, more than 50 percent of the vote or value of the 
stock of the corporation on the date of such loss or 
termination or at any time during the 2 years preceding such 
date. Such income and gains are recharacterized as U.S. source 
only to the extent of the amount of earnings and profits 
attributable to such stock earned or accumulated prior to the 
date of loss of citizenship (or termination of residency, as 
applicable) and while such ownership requirement is satisfied.
    The following example illustrates this rule: Mr. B loses 
his U.S. citizenship on July 1, 1996 and is subject to section 
877. Mr. B has owned all of the stock of a foreign corporation, 
FCo, since its incorporation in 1991. As of FCo's December 31, 
1995 year-end, FCo has accumulated earnings and profits of 
$500,000. FCo has earnings and profits of $100,000 for 1996 and 
does not have any subpart F income (as defined in sec. 952). 
FCo makes a $100,000 distribution to Mr. B in each of 1997 and 
1998. On January 1, 1999, Mr. B disposes of all his stock of 
FCo and realizes $400,000 of gain. Under present law, neither 
the distributions from FCo nor the gain on the disposition of 
the FCo stock would be subject to U.S. tax. Under the bill, the 
distributions from FCo and the gain on the sale of the stock of 
FCo would be treated as U.S. source income and would be taxed 
to Mr. B under section 877, subject to the earnings and profits 
limitation. For this purpose, the amount of FCo's earnings and 
profits for 1996 is prorated based on the number of days during 
1996 that Mr. B is a U.S. citizen. Thus, the amount of FCo's 
earnings and profits earned or accumulated before Mr. B's loss 
of citizenship is $550,000. Accordingly, the $100,000 
distributions from FCo in 1997 and 1998 would be treated as 
U.S. source income taxable to Mr. B under section 877 in such 
years. In addition, $350,000 of the gain realized from the sale 
of the stock of FCo in 1999 would be treated as U.S. source 
income taxable to Mr. B under section 877 in that year.

Special rule for shift in risks of ownership

    Section 877 applies to income and gains for the 10-year 
period following the loss of citizenship (or termination of 
residency, as applicable). For purposes of applying section 
877, the bill suspends this 10-year period for gains derived 
from a particular property during any period in which the 
individual's risk of loss with respect to such property is 
substantially diminished. For example, Ms. C loses her 
citizenship on January 1, 1996 and is subject to section 877. 
On that date Ms. C owns 10,000 shares of stock of a U.S. 
corporation, USCo, with a value of $1 million. On the same date 
Ms. C enters into an equity swap with respect to such USCo 
stock with a 5-year term. Under the transaction, Ms. C will 
transfer to the counter-party an amount equal to the dividends 
on the USCo stock and any increase in the value of the USCo 
stock for the 5-year period. The counter-party will transfer to 
Ms. C an amount equal to a market rate of interest on $1 
million and any decrease in the value of the USCo stock for the 
same period. Ms. C's risk of loss with respect to the USCo 
stock is substantially diminished during the 5-year period in 
which the equity swap is in effect, and therefore, under the 
bill, the 10-year period under section 877 is suspended during 
such period. Accordingly, under the bill, if Ms. C sells her 
USCo stock for a gain on January 1, 2010, such gain would be 
treated as U.S. source income taxable to Ms. C under section 
877. Such gain would not be subject to U.S. tax under present 
law.

Double tax relief

    In order to avoid the double taxation of individuals 
subject to the expatriation tax provisions, the bill provides a 
credit against the U.S. tax imposed under such provisions for 
any foreign income, gift, estate or similar taxes paid with 
respect to the items subject to such taxation. This credit is 
available only against the tax imposed solely as a result of 
the expatriation tax provisions, and is not available to be 
used to offset any other U.S. tax liability. For example, Mr. D 
loses his citizenship on January 1, 1996 and is subject to 
section 877. Mr. D becomes a resident of Country X. During 
1996, Mr. D recognizes a $100,000 gain upon the sale of stock a 
U.S. corporation, USCo. Country X imposes $20,000 tax on this 
capital gain. But for the double tax relief provision, Mr. D 
would be subject to tax of $28,000 on this gain under section 
877. However, Mr. D's U.S. tax under section 877 would be 
reduced by the $20,000 of foreign tax paid, and Mr. D's 
resulting U.S. tax on this gain would be $8,000.

Effect on tax treaties

    While the committee believes that the expatriation tax 
provisions, as amended by this bill, are generally consistent 
with the underlying principles of income tax treaties to the 
extent the bill provides a foreign tax credit for items taxed 
by another country, it is intended that the purpose of the 
expatriation tax provisions, as amended, not be defeated by any 
treaty provision. The Treasury Department is expected to review 
all outstanding treaties to determine whether the expatriation 
tax provisions, as revised, potentially conflict with treaty 
provisions and to eliminate any such potential conflicts 
through renegotiation of the affected treaties as necessary. 
Beginning on the 10th anniversary of the enactment of the bill, 
any conflicting treaty provisions that remain in force would 
take precedence over the expatriation tax provisions as 
revised.

Required information reporting and sharing

    Under the bill, a U.S. citizen who loses his or her 
citizenship is required to provide a statement to the State 
Department (or other designated government entity) which 
includes the individual's Social Security number, forwarding 
foreign address, new country of residence and citizenship and, 
in the case of individuals with a net worth of at least 
$500,000, a balance sheet. The entity to which such statement 
is to be provided is required to provide to the Secretary of 
the Treasury copies of all statements received and the names of 
individuals who refuse to provide such statements. A long-term 
resident whose U.S. residency is terminated is required to 
attach a similar statement to his or her U.S. income tax return 
for the year of such termination. An individual's failure to 
provide the required statement results in the imposition of a 
penalty for each year the failure continues equal to the 
greater of first, 5 percent of the individual's expatriation 
tax liability for such year, or second, $1,000.
    The bill requires the State Department to provide the 
Secretary of the Treasury with a copy of each CLN approved by 
the State Department. Similarly, the bill requires the agency 
administering the immigration laws to provide the Secretary of 
the Treasury with the name of each individual whose status as a 
lawful permanent resident has been revoked or has been 
determined to have been abandoned.
    Further, the bill requires the Secretary of the Treasury to 
publish in the Federal Register the names of all former U.S. 
citizens from whom it receives the required statements or whose 
names it receives under the foregoing information-sharing 
provisions.

Treasury report on tax compliance by U.S. citizens and residents living 
        abroad

    In order to address the compliance issues raised during the 
course of the Joint Committee staff study on the taxation of 
expatriates, the Treasury Department is directed to undertake a 
study on the tax compliance of U.S. citizens and green-card 
holders residing outside the United States and to make 
recommendations regarding the improvement of such compliance. 
The findings of such study and such recommendations are 
required to be reported to the House Committee on Ways and 
Means and the Senate Committee on Finance within 90 days of the 
date of enactment.
    During the course of the Joint Committee staff study, a 
specific issue was identified regarding the difficulty in 
determining when a U.S. citizen has committed an expatriating 
act with the requisite intent, and thus no longer has the 
obligation to continue to pay U.S. taxes on his or her 
worldwide income due to the fact that the individual is no 
longer a U.S. citizen. Neither the Immigration and Nationality 
Act nor any other Federal law requires an individual to request 
a CLN within a specified amount of time after an expatriating 
act has been committed, even though the expatriating act 
terminates the status of the individual as a U.S. citizen for 
all purposes, including the status of being subject to U.S. tax 
on worldwide income. Accordingly, it is anticipated that the 
Treasury report, in evaluating whether improved coordination 
between executive branch agencies could improve compliance with 
the requirements of the Internal Revenue Code, will review the 
process through which the State Department determines when 
citizenship has been lost, and make recommendations regarding 
changes to such process to recognize the importance of such 
date for tax purposes. In particular, it is anticipated that 
the Treasury Department will explore ways of working with the 
State Department to insure that the State Department will not 
issue a CLN confirming the commission of an expatriating act 
with the requisite intent necessary to terminate citizenship in 
the absence of adequate evidence of both the occurrence of the 
expatriating act (e.g., the joining of a foreign army) and the 
existence of the requisite intent.

                             Effective Date

    The expatriation tax provisions as modified by the bill 
generally apply to any individual who loses U.S. citizenship on 
or after February 6, 1995, and any long-term residents whose 
U.S. residency is terminated on or after June 13, 1995. For 
citizens, the determination of the date of loss of citizenship 
remains the same as under present law (i.e., the date of loss 
of citizenship is the date of the expatriating act). However, a 
special transition rule applies to individuals who committed an 
expatriating act within 1 year prior to February 6, 1995, but 
had not applied for a CLN as of such date. Such an individual 
is subject to the expatriation tax provisions as amended by the 
bill as of the date of application for the CLN, but is not 
retroactively liable for U.S. income taxes on his or her 
worldwide income. In order to qualify for the exceptions 
provided for individuals who fall within one of the specified 
categories, such individual is required to submit a ruling 
request within 1 year after the date of enactment of the bill.
    The special transition rule is illustrated by the following 
example. Mr. E joined a foreign army on October 1, 1994 with 
the intent to relinquish his U.S. citizenship, but Mr. E does 
not apply for a CLN until October 1, 1995. Mr. E would be 
subject to the expatriation tax provisions (as amended) for the 
10-year period beginning on October 1, 1995. Moreover, if Mr. E 
falls within one of the specified categories (i.e., Mr. E is 
age 18 when he joins the foreign army), in order to qualify for 
the exception provided for such individuals, Mr. E would be 
required to submit his ruling request within 1 year after the 
date of enactment of the bill. Mr. E would not, however, be 
liable for U.S. income taxes on his worldwide income for any 
period after October 1, 1994.

11. Phaseout of tax credits for wind energy and ``closed loop'' biomass 
        (sec. 13621 of the bill and sec. 45 of the code)

                              Present Law

    An income tax credit is allowed for the production of 
electricity from either qualified wind energy or qualified 
``closed-loop'' biomass facilities (sec. 45). The credit is 
equal to 1.5 cents (adjusted for inflation since 1992) per 
kilowatt hour of electricity produced from these qualified 
sources during the 10-year period after the facility is placed 
in service.
    The credit applies to electricity produced by a qualified 
wind energy facility placed in service after December 31, 1993, 
and before July 1, 1999, and to electricity produced by a 
qualified closed-loop biomass facility placed in service after 
December 31, 1992, and before July 1, 1999. Closed-loop biomass 
is the use of plant matter, where the plants are grown for the 
sole purpose of being used to generate electricity. It does not 
apply to the use of waste materials (including, but not limited 
to, scrap wood, manure, and municipal or agricultural waste). 
It also does not apply to taxpayers who use standing timber to 
produce electricity. In order to claim the credit, a taxpayer 
must own the facility and sell the electricity produced by the 
facility to an unrelated party.
    The credit for electricity produced from wind or closed-
loop biomass is a component of the general business credit 
(sec. 38(b)(1)). This credit, when combined with all other 
components of the general business credit, generally may not 
exceed for any taxable year the excess of the taxpayer's net 
income tax over the greater of first, 25 percent of net regular 
tax liability above $25,000 or second, the tentative minimum 
tax. An unused general business credit generally may be carried 
back 3 taxable years and carried forward 15 taxable years.

                           Reasons for Change

    The committee believes that it is inappropriate to provide 
special tax credits to narrow categories of taxpayers. 
Moreover, the committee believes that free market prices should 
determine the choice of electricity production. Providing a tax 
incentive to one mode of production generally creates economic 
inefficiencies and distorts markets.

                        Explanation of Provision

    Under the provision, the income tax credit for electricity 
produced from wind and closed-loop biomass is available only 
for qualifying electricity produced from facilities placed in 
service before September 14, 1995, with an exception for 
facilities placed in service before September 14, 1996, 
pursuant to a binding contract in existence on September 13, 
1995, and at all times thereafter. As under present law, the 
credit is allowable only for production from a qualified 
facility during the 10-year period after it is placed in 
service.

                             Effective Date

    The provision is effective for taxable years ending after 
September 13, 1995.

12. Modify tax benefits for ethanol and methanol from renewable sources 
        (sec. 13622 of the bill and secs. 40, 4041, 4081-4083, 4091-
        4093, 6421, 6427, and 9502, 9503 of the code)

                              Present Law

    Present law provides several tax benefits for ethanol and 
methanol produced from renewable sources (e.g., biomass) that 
is used as a motor fuel or that is blended with other fuels 
(e.g., gasoline) for such a use. These benefits are: First, A 
54 cents per gallon of ethanol (60 cents per gallon for 
methanol) blender income tax credit; second, a 5.4-cents-per-
gallon (6 cents per gallon for methanol) excise tax exemption 
from the motor fuels excise taxes; 65 and third, in the 
case of ethanol, a separate 10-cents-per-gallon credit for 
small producers, defined generally as persons whose production 
does not exceed 15 million gallons per year and whose 
production capacity does not exceed 30 million gallons per 
year.
    \65\ Except in the case of certain ``near'' alcohol fuels, the 5.4-
cents-per-gallon and 6-cents-per-gallon exemptions generally assume a 
90-percent gasoline/10 percent alcohol blend fuel, and thus are 
equivalent to the blender income tax credit of 54 cents per gallon of 
alcohol.
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    The benefits of the blender income tax credit and the 
excise tax exemption are integrated so that they are not 
cumulative beyond an aggregate amount of 54 cents (or 60 cents) 
per gallon of alcohol.
    Treasury Department regulations provide that ethyl tertiary 
butyl ether [ETBE], which is made using ethanol, qualifies for 
the blender income tax credit and the excise tax exemption.
    These alcohol fuels tax benefits are scheduled to expire 
after December 31, 2000.

                           Reasons for Change

    In a period of spending reductions in order to balance the 
Federal budget, tax benefits must be reviewed carefully. 
Particular attention must be paid to those provisions that 
provide high benefit levels and to benefits that reduce funds 
available for important programs like the Federal Highway trust 
fund. The September 11, 1995, issue of Oxy-Fuel News showed 
that the current wholesale price of ethanol averages 
approximately $1.08 per gallon. Thus, the current 54-cents-per-
gallon tax benefit equals approximately 50 percent of the 
wholesale price of this product. The committee determined that 
this benefit level cannot be justified under current 
circumstances and decided, therefore, to limit and modify 
benefits. A production ceiling, rather than immediate repeal, 
was chosen to allow current producers 5 years in which to 
recover any costs that have been incurred to date.
    The committee further is aware that carbon dioxide is a 
naturally occurring by-product of ethanol production. This 
carbon dioxide is commercially valuable, and some ethanol 
producers are reaping an unintended subsidy by capturing and 
selling this ``free'' by-product. The committee determined that 
the ethanol tax benefit should be reduced to reflect the 
commercial value of this carbon dioxide.
    The committee further determined that this tax benefit 
should be restricted to the products for which it originally 
intended--ethanol and methanol--and should not be expanded, as 
the Treasury Department recently inappropriately attempted to 
do by regulation, to new products (ethers) that have not been 
approved by the Congress.
    Finally, the committee continues to be extremely cognizant 
of the potential effect on tax compliance of any actions it may 
take. Under the bill, not all fuel alcohol will be eligible for 
tax benefits. Both eligible alcohol and other alcohol will be 
sold from the same facilities. Retaining the current provisions 
allowing the full 54-cents-per-gallon ethanol (and 60-cents-
per-gallon methanol) benefit to be claimed through the excise 
tax system would lead to significant tax evasion. Because 
recent changes in the collection procedures for the gasoline 
and diesel fuel excise taxes have been shown to increase 
compliance with these taxes significantly and because the fuel 
alcohol distribution system is like that of those fuels, the 
committee decided to extend those rules to fuel alcohol to 
minimize tax evasion and ensure that only eligible alcohol 
receives tax benefits.

                       Explanation of Provisions

Limit on eligible production

    The 54-cents-per-gallon ethanol (60 cents per gallon for 
methanol) blender income tax credit and the excise tax 
exemptions for ethanol and methanol from renewable sources, as 
modified by the proposal, are available only for alcohol fuels 
produced by distilling equipment placed in service before 
September 14, 1995. Additionally, alcohol fuels produced by 
producers other than small producers (defined as under present 
law), will be eligible for the blenders income tax credit only 
to the extent that annual production after September 13, 1995, 
does not exceed average annual production of fuel alcohol by 
such equipment during the 3-year period ending on August 31, 
1995. Production from equipment placed in service before 
September 1, 1995, that was in service for at least the 3-month 
period ending on August 31, 1995, will be allowed to annualize 
actual production in applying the limit. A safe-harbor 
production level equal to 50 percent of capacity also is 
provided for equipment that was not in service for the entire 
3-year base period or that is placed in service pursuant to the 
transition rule described under Effective Dates, below.
    The current December 31, 2000, general sunset for these 
benefits is retained.

Excise tax compliance provisions

    To ensure that tax benefits are available only to eligible 
alcohol, fuel alcohol generally will be subject to the same 
excise tax rules as gasoline, with the addition of a provision 
allowing alcohol designated by registered producers as eligible 
for tax benefits under the revised rules to be sold tax-free. 
Under these rules, fuel alcohol plants will be registered by 
the Internal Revenue Service as refineries and alcohol bulk 
plants would be registered as terminals. Fuel alcohol will be 
taxed at the gasoline tax rate on removal from the distilling 
plant unless it is first, designated by a registered producer 
as eligible for tax benefits, or second, removed in bulk to a 
registered bulk plant. Alcohol not designated by a registered 
producer as qualifying for tax benefits will be subject to tax 
at the gasoline tax rate on removal from the bulk plant; 
alcohol designated by such a producer as eligible for tax 
benefits may be removed tax-free.
    Under the provision, tax benefits in excess of the gasoline 
excise tax rate will be claimed by blenders through the 
present-law income tax credit (sec. 40). Conforming amendments 
are made repealing the present excise tax reduced rate sales 
provisions, the excise tax alcohol blender refund provision, 
and the 5.4-cents-per-gallon ethanol (6 cents per gallon for 
methanol) excise tax exemptions.

Reduce ethanol tax benefits to reflect carbon dioxide byproduct value; 
        offset for small producers

    The 54-cents-per-gallon ethanol income tax credit is 
reduced to 51 cents per gallon to reflect the value of carbon 
dioxide recovered as a by-product in ethanol production.
    The present-law small ethanol producers credit is increased 
from 10 to 13 cents per gallon to offset the effect of this 
reduction on small producers.

ETBE and similar ethers not to qualify

    Statutory clarification is provided that ETBE and similar 
ethers (and alcohol used to produce these ethers) are not 
qualified alcohol fuels for either the ethanol or methanol from 
renewable sources tax benefits.

                            Effective Dates

Limit on eligible production

    The provision limiting production eligible for certain 
alcohol fuels tax benefits applies to distilling equipment 
placed in service after September 13, 1995, with an exception 
for property placed in service before September 14, 1996, 
pursuant to a binding contract in existence on September 13, 
1995, and at all times thereafter.
    The limit on production eligible for tax benefits from 
distilling equipment placed in the service generally before 
September 14, 1995, to amounts based on average production 
during the 3-year period ending on August 31, 1995, is 
effective for production occurring after September 13, 1995.

Excise tax compliance provisions

    The excise tax compliance provisions are effective on and 
after January 1, 1996.

Reduce ethanol tax benefits to reflect carbon dioxide byproduct value

    The reduction in the ethanol blenders credit to reflect the 
value of carbon dioxide produced as a byproduct is effective on 
and after January 1, 1996. The offsetting increase in the small 
ethanol producers credit is effective for production occurring 
on and after January 1, 1996.

ETBE and similar ethers not to qualify

    The provision reversing the Treasury Department regulations 
defining certain ethers as qualified alcohol fuels is effective 
after December 31, 1995.

13. Remove business exclusion for energy subsidies provided by public 
        utilities (sec. 13623 of the bill and sec. 136 of the code)

                              Present Law

    Internal Revenue Code section 136, as added by the Energy 
Policy Act of 1992, provides an exclusion from the gross income 
of a customer of a public utility for the value of any subsidy 
provided by the utility for the purchase or installation of an 
energy conservation measure with respect to a dwelling unit (as 
defined by sec. 280A(f)(1)). In addition, for subsidies 
received after 1994, section 136 provides a partial exclusion 
from gross income for the value of any subsidy provided by a 
utility for the purchase or installation of an energy 
conservation measure with respect to property that is not a 
dwelling unit. The amount of the exclusion is 40 percent of the 
value for subsidies received in 1995, 50 percent of the value 
for subsidies received in 1996, and 65 percent of the value for 
subsidies received after 1996.
    For this purpose, an energy conservation measure is any 
installation or modification primarily designed to reduce 
consumption of electricity or natural gas or to improve the 
management of energy demand with respect to property. With 
respect to property other than a dwelling unit, an energy 
conservation measure includes ``specially defined energy 
property'' (generally, property described in sec. 48(l)(5) of 
the code as in effect on the day before the date of enactment 
of the Revenue Reconciliation Act of 1990).
    The exclusion does not apply to payments made to or from a 
qualified cogeneration facility or a qualifying small power 
production facility pursuant to section 210 of the Public 
Utility Regulatory Policy Act of 1978.
    Section 136 denies a deduction or credit to a taxpayer (or 
in appropriate cases requires a reduction in the adjusted basis 
of property of a taxpayer) for any expenditure to the extent 
that a subsidy related to the expenditure was excluded from the 
gross income of the taxpayer.

                           Reasons for Change

    The committee believes that the present-law exclusion for 
energy conservation measures are appropriate with respect to 
individual consumers because the taxation of such benefits may 
impose unduly harsh recordkeeping burdens. However, with 
respect to businesses, the committee believes the exclusion 
results in the mismeasurement of business income and may create 
biases against certain types of conservation programs.

                        Explanation of Provision

    The provision repeals the partial exclusion for any subsidy 
provided by a utility for the purchase or installation of an 
energy conservation measure with respect to property that is 
not a dwelling unit.

                             Effective Date

    The provision is effective for subsidies received after 
September 13, 1995, unless received pursuant to a binding 
written contract in effect on that date and all times 
thereafter.

14. Modify basis adjustment rules under section 1033 (sec. 13626 of the 
        bill and sec. 1033 of the code)

                              Present Law

    Under section 1033, gain realized by a taxpayer from 
certain involuntary conversions of property is deferred to the 
extent the taxpayer purchases property similar or related in 
service or use to the converted property within a specified 
period of time. The replacement property may be acquired 
directly or by acquiring control of a corporation (generally 80 
percent of the stock of the corporation) that owns replacement 
property.66 The taxpayer's basis in the replacement 
property generally is the same as the taxpayer's basis in the 
converted property, decreased by the amount of any money or 
loss recognized on the conversion, and increased by the amount 
of any gain recognized on the conversion. In cases in which a 
taxpayer purchases stock as replacement property, section 1033 
permits the taxpayer to reduce the basis of the stock, but does 
not require any reduction in the basis of the underlying 
assets. Thus, the reduction in the basis of the stock generally 
does not result in reduced depreciation deductions.
    \66\ Although section 1033 and the underlying Treasury regulations 
do not provide the extent to which the assets of a corporation must 
qualify as similar use property in order for the acquisition of the 
corporation to qualify as replacement property, the law has developed 
to require that the assets of the corporation must ``primarily'' or 
``principally'' be similar use property. See, e.g., Templeton v. Comm., 
67 T.C. 518, at 521 (1977) and Rev. Rul. 82-70, 1982-1 C.B. 114 
(relating to broadcast property).
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                           Reasons for Change

    The committee believes that if a taxpayer elects to defer 
the recognition of gain with respect to property that is 
involuntarily converted, the taxpayer should have the same 
adjusted basis in the acquired property that is similar or 
related in service or use to the converted property, regardless 
of whether such property is acquired directly or indirectly 
through the acquisition of stock of a corporation.

                        Explanation of Provision

    The provision provides that where the taxpayer satisfies 
the replacement property requirement of section 1033 by 
acquiring stock in a corporation, the corporation generally 
will reduce its adjusted bases in its assets by the amount by 
which the taxpayer reduces its basis in the stock. The 
corporation's adjusted bases in its assets will not be reduced, 
in the aggregate, below the taxpayer's basis in its stock 
(determined after the appropriate basis adjustment for the 
stock). In addition, the basis of any individual asset will not 
be reduced below zero. The basis reduction first is applied to 
first, property that is similar or related in service or use to 
the converted property, then second, to other depreciable 
property, then third, to other property.
    The application of these rules can be demonstrated by the 
following examples:
    Example 1: Assume that a taxpayer owned a commercial 
building with an adjusted basis of $100,000 that was 
involuntarily converted, causing the taxpayer to receive $1 
million in insurance proceeds. Further assume that the taxpayer 
acquires all of the stock of a corporation, the sole asset of 
the corporation is a building with a value and an adjusted 
basis of $1 million, and the stock acquisition qualifies as the 
acquisition of replacement property. Under the provision, for 
section 1033 to apply, the taxpayer would reduce its basis in 
the stock to $100,000 (as under present law) and the 
corporation would reduce its adjusted basis in the building to 
$100,000.
    Example 2: Assume the same facts as in Example 1, except 
that on the date of acquisition, the corporation has an 
adjusted basis of $100,000 (rather than $1 million) in the 
building. Under the provision, the taxpayer reduces its basis 
in the stock to $100,000 (as under present law) and the 
corporation is not required to reduce its adjusted basis in the 
building.

                             Effective Date

    The provision applies to involuntary conversions occurring 
after September 13, 1995.

15. Modify the exception to the related party rule of section 1033 for 
        individuals to only provide an exception for de minimis amounts 
        (sec. 13627 of the bill and sec. 1033 of the code)

                              Present Law

    Under section 1033, gain realized by a taxpayer from 
certain involuntary conversions of property is deferred to the 
extent the taxpayer purchases property similar or related in 
service or use to the converted property within a specified 
period of time. Pursuant to a provision of H.R. 831, as passed 
by the Congress and signed by the President on April 11, 1995 
(Public Law 104-7), subchapter C corporations (and certain 
partnerships with corporate partners) are not entitled to defer 
gain under section 1033 if the replacement property or stock is 
purchased from a related person. A person is treated as related 
to another person if the person bears a relationship to the 
other person described in section 267(b) or 707(b)(1). An 
exception to this related party rule provides that a taxpayer 
could purchase replacement property or stock from a related 
person and defer gain under section 1033 to the extent the 
related person acquired the replacement property or stock from 
an unrelated person within the period prescribed under section 
1033.

                           Reasons for Change

    The committee believes that, except for de minimis cases, 
individuals should be subject to the same rules with respect to 
the acquisition of replacement property from a related person 
as are other taxpayers.

                        Explanation of Provision

    The provision expands the present-law denial of the 
application of section 1033 to any other taxpayer (including an 
individual) that acquires replacement property from a related 
party (as defined by secs. 267(b) and 707(b)(1)) unless the 
taxpayer has aggregate realized gain of $100,000 or less for 
the taxable year with respect to converted property with 
aggregate realized gains. In the case of a partnerships (or S 
corporation), the annual $100,000 limitation applies to both 
the partnership (or S corporation) and each partner (or 
shareholder).

                             Effective Date

    The provision applies to involuntary conversions occurring 
after September 13, 1995.

16. Disallow rollover under section 1034 to extent of previously 
        claimed depreciation for home office or other depreciable use 
        of residence (sec. 13628 of the bill and sec. 1034 of the code)

                              Present Law

Rollover

    Generally, no gain is recognized on the sale or exchange of 
a principal residence to the extent that the amount of the 
sales price of the old residence is reinvested in a new 
residence within a specified period (``the rollover''). The 
specified period generally is a period beginning 2 years before 
the sale of the old residence and ending 2 years after the sale 
of the old residence.

One-time exclusion

    In general, a taxpayer may exclude from gross income up to 
$125,000 of gain from the sale or exchange of a principal 
residence if the taxpayer first, has attained age 55 before the 
sale, and second, has used the residence as a principal 
residence for 3 or more years of the 5 years preceding the 
sale. This election is allowed only once in a lifetime unless 
all previous elections are revoked. For these purposes, sales 
on or before July 26, 1978, are not counted against the once-
in-a-lifetime limit.
    In the case of a mixed use of a residence, the exclusion is 
limited only to that portion of the residence that is owned and 
used by the individual as his principal residence for at least 
3 of the previous 5 years before the date of sale. Gain on the 
portion not qualifying as a principal residence is not eligible 
for this exclusion.

                           Reasons for Change

    The rollover and one-time exclusion provisions provide 
special treatment for the principal residence of a taxpayer. 
The committee believes that, to the extent a structure is 
treated as a business asset (as evidenced by depreciation 
deductions allowable) and not as a principal residence, the 
special rules applicable to principal residences are not 
appropriate.

                        Explanation of Provision

Rollover

    The bill provides that gain is recognized on the sale of a 
principal residence to the extent of any depreciation allowable 
with respect to such principal residence for periods after 
December 31, 1995.

One-time exclusion

    The bill imposes an additional restriction on the 
availability of the one-time exclusion. Specifically, the 
proposal provides that the amount of the otherwise allowable 
one-time exclusion is reduced and therefore the amount of 
recognized gain is increased to the extent of depreciation 
allowable with respect to such principal residence for periods 
after December 31, 1995. The bill does not change the amount of 
the allowable depreciation or the gain recognition treatment on 
the rental portion of the building under present law. To 
illustrate the bill, assume the following facts: a 60-year old 
taxpayer purchased a building on January 1, 1995, for $150,000, 
one-third of which was rented to an unrelated person and two-
thirds of which was used as the taxpayer's principal residence 
for at least 3 of the next 5 years. Further, assume that the 
taxpayer used one-tenth of the nonrental space as a qualified 
home office with allowable annual depreciation of $256. 
Finally, assume that the taxpayer sells the building for 
$300,000 on January 1, 2000. The taxpayer's realized gain is 
$150,000 of which $100,000 (representing the portion of the 
building used as a principal residence) is eligible for the 
one-time exclusion under present law. Under the bill that 
$100,000 is reduced by the amount of depreciation allowable 
with respect to that residence after December 31, 1995 
($1,024).

                             Effective Date

    The provision is effective for taxable years ending after 
December 31, 1995.

17. Provide that rollover of gain on sale of a principal residence 
        cannot be elected unless the replacement property purchased is 
        located in the United States (sec. 13629 of the bill and sec. 
        1034 of the code)

                              Present Law

    Generally, no gain is recognized on the sale or exchange of 
a principal residence to the extent that the amount of the 
sales price of the old residence is reinvested in a new 
residence within a specified period (``the rollover''). The 
specified period generally is a period beginning 2 years before 
the sale of the old residence and ending 2 years after the sale 
of the old residence. There is no requirement that either the 
old residence or new residence be located within the United 
States or its possessions.

                           Reasons for Change

    The committee is concerned that resident aliens can 
improperly avoid taxation of gains from the sale of their 
principal residences in the United States. Specifically, a 
resident alien can avoid taxation by claiming a rollover under 
code section 1034 and then ending residence status within 2 
years of the sale of the old residence. The committee believes 
that this provision is necessary to ensure such individuals 
remain subject to U.S. tax law on such gains from the sale of 
their principal residence located in the United States.

                        Explanation of Provision

    Generally, the bill requires recognition of gain on the 
sale or exchange of a principal residence by a resident alien 
unless the resident alien first, retains resident alien status 
for at least 2 years after the date of sale, second, becomes a 
U.S. citizen within 2 years of the date of sale, or third, 
acquires a replacement residence located in the United States 
or its possessions within the specified time period.
    The bill does not apply where first, the old residence is 
held jointly by the resident alien and the resident alien's 
spouse, second, they file a joint tax return, and third, the 
spouse is a U.S. citizen on the date of sale of the old 
residence.

                             Effective Date

    The provision applies to the sale of old residences after 
December 31, 1995, unless a replacement residence was purchased 
before September 13, 1995, or purchased on or after such date 
pursuant to a binding contract in effect on such date (and at 
all times thereafter before such purchase).

18. Tax gambling income of Indian tribes; repeal of targeted exemption 
        from UBIT for gambling in certain States (secs. 13631-13632 of 
        the bill and sec. 511 of the code)

                              Present Law

Tax treatment of Indian tribes

    There is no specific statutory provision governing the 
Federal income tax liability of Indian tribes.67 However, 
the IRS has long taken the position that Indian tribes, as well 
as wholly owned tribal corporations chartered under Federal 
law, are not taxable entities and, thus, are immune from 
Federal income taxes. (See Rev. Rul. 67-284, 1967-2 C.B. 55; 
Rev. Rul. 81-295, 1981-2 C.B. 15.) More recently, the IRS has 
ruled that any income earned by an unincorporated Indian tribe 
or federally chartered tribal corporation is not subject to 
Federal income tax, regardless of whether the activities that 
produced the income are conducted on or off the tribe's 
reservation. (See Rev. Rul. 94-16, 1994-12 I.R.B. 1; Rev. Rul. 
94-65, 1994-42 I.R.B. 10.68) In ordinary matters not 
governed by specific treaties or remedial legislation, 
individual members of Indian tribes are subject to the payment 
of Federal income tax (even if the income is distributed to 
individual tribal members out of income otherwise immune from 
tax when first received by the tribe).69
    \67\ Section 7871 provides that Indian tribes are treated as States 
for certain limited tax purposes, such as for purposes of the issuance 
of certain tax-exempt bonds, certain excise tax exemptions, and for 
eligibility to receive deductible charitable contributions.
    \68\ These rulings further hold, however, that a corporation 
organized by an Indian tribe under State law is subject to Federal 
income tax on the income earned from commercial activities conducted on 
or off the tribe's reservation.
    Legal commentators generally have concluded that ``[u]nder this so-
called Indian Commerce Clause [article I, section 8 of the 
Constitution] and Supreme Court cases, there is little constitutional 
limitation on the ability of the Federal Government to tax Indian 
tribes or tribal members.'' Aprill, Ellen P., ``Tribal Bonds: Indian 
Sovereignty and the Tax Legislative Process,'' 46 Admin. L. Rev. 
333,334 (1994).
    \69\ See Squire v. Capoeman, 351 U.S. 1, 6 (1956). One exception to 
this general rule is the exclusion from income provided for income 
received by Indians from the exercise of certain fishing rights 
guaranteed by treaties, Federal statute or Executive order (sec. 7873). 
See also 25 U.S.C. sections 1401-1407 (funds appropriated in 
satisfaction of a judgment of the U.S. Court of Federal Claims in favor 
of an Indian tribe which are then distributed per capita to tribal 
members pursuant to a plan approved by the Secretary of Interior are 
exempt from Federal income taxes); 25 U.S.C. section 117b(a) (per 
capita distributions made to tribal members from Indian trust fund 
revenues are exempt from tax if the Secretary of the Interior approves 
of such distributions).
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    Tribal governments and corporations, as well as individual 
Indians and their property, generally are exempt from State 
taxation within their reservations, unless Congress clearly 
manifests its consent to such taxation.70 In contrast, 
property and income earned by Indians outside the reservation 
generally have been held to be subject to State 
taxation.71 In addition, the Supreme Court has upheld a 
State's right to impose taxes on commercial activities 
conducted on reservation lands, provided that the legal 
incidence of the tax falls on non-Indians and the balance of 
Federal, State, and tribal interests favors the State.72
    \70\ See, e.g., Oklahoma Tax Comm'n v. Chickasaw Nation, 115 S. Ct. 
2214 (1995); Montana v. Blackfeet Tribe of Indians, 471 U.S. 759 
(1985); McClanahan v. Arizona State Tax Comm'n, 411 U.S. 164 (1973).
    \71\ See, e.g., Mescalero Apache Tribe v. Jones, 411 U.S. 145 
(1973) (tribe held to be subject to State gross receipts tax on income 
earned from a ski resort operated by the tribe off-reservation). The 
Supreme Court also has ruled that a State may impose income tax on 
members of an Indian tribe who are employed by the tribe on tribal 
lands but who reside in the State outside of Indian country. Oklahoma 
Tax Comm'n v. Chickasaw Nation, supra.
    \72\ See Oklahoma Tax Comm'n v. Chickasaw Nation, supra; Cotton 
Petroleum v. New Mexico, 490 U.S. 163 (1989) (upholding imposition of 
State severance tax on private producers of oil and gas on reservation 
lands).
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    In 1993, Congress enacted two Federal tax incentives for 
commercial activities conducted (by Indians or non-Indians) on 
any Indian reservation. These tax incentives are: First, 
enhanced accelerated depreciation (generally, 60 percent of the 
normal recovery period) for certain property used in the 
conduct of a trade or business on a reservation (and certain 
connecting infrastructure property); and second, a 20-percent 
incremental wage credit for wages and health insurance costs 
(up to $20,000 per employee) paid to tribal members and spouses 
who work on, and live on or near, a reservation.73 Neither 
of these tax incentives is available with respect to gambling 
activities (secs. 45A and 168(j)).
    \73\ The wage credit is available only to the extent that the sum 
of current-year qualified wages and health costs exceeds the sum of 
comparable costs for 1993.
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Taxation of gambling activities of nonprofit organizations

     Although generally exempt from Federal income tax, tax-
exempt organizations are subject to the unrelated business 
income tax [UBIT] on income derived from a trade or business 
regularly carried on that is not substantially related to the 
performance of the organization's tax-exempt functions (secs. 
511-514). Certain income, however, is exempted from the UBIT 
(such as interest, dividends, royalties, and certain rents), 
unless derived from debt-financed property (sec. 512(b)). Other 
exemptions from the UBIT are provided for activities in which 
substantially all the work is performed by volunteers and for 
income from the sale of donated goods (sec. 513(a)). In 
addition, a specific exemption from the UBIT is provided for 
bingo games 74 conducted by tax-exempt organizations, 
provided that the conducting of the bingo games is not an 
activity ordinarily carried out on a commercial basis and the 
conducting of which does not violate any State or local law 
(sec. 513(f)).75 A specific exemption from the UBIT also 
is provided for qualified public entertainment activities 
(meaning entertainment or recreation activities of a kind 
traditionally conducted at fairs or expositions promoting 
agricultural and educational purposes) conducted by an 
organization described in section 501(c)(3), (c)(4), or (c)(5) 
which regularly conducts an agricultural and educational fair 
or exposition as one of its substantial exempt purposes (sec. 
513(d)).76
    \74\ For purposes of this exemption, the term ``bingo game'' is 
defined as any game of bingo of a type in which usually first, the 
wagers are placed, second, the winners are determined, and third, the 
distribution of prizes or other property is made in the presence of all 
persons placing wagers in such game (sec. 513(f)(2)).
    \75\ In 1978, at the same time that Congress enacted section 
513(f), section 527 was modified to provide that bingo income of 
political organizations is to be treated as ``exempt function income'' 
and, thus, not subject to tax if such income is used for certain 
political purposes (sec. 527(c)(3)(D)).
    \76\ In addition, section 311 of the Deficit Reduction Act of 1984 
(as modified by the Tax Reform Act of 1986) provides a special, off-
code exemption from the UBIT for games of chance conducted by nonprofit 
organizations in the State of North Dakota.
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    In South End Italian Independent Club, Inc. v. 
Commissioner, 87 T.C. 168 (1986), acq. 1987-2 C.B. 1, the court 
held that gambling profits of a social club described in 
section 501(c)(7) that were required by State law to be used 
for charitable purposes were fully deductible under section 162 
in computing the UBIT liability of the social club. The effect 
of this decision was to exempt gambling income of that social 
club from UBIT. The IRS has indicated that, until further 
guidance is available with respect to this issue, the issue of 
the deductibility of amounts required under State law to be 
used for charitable or other so-called lawful purposes should 
be resolved consistent with the South End case, regardless of 
whether the gaming proceeds are donated to other charitable 
organizations or spent internally on the organization's own 
charitable activities.77
    \77\ See IRS, ``Exempt Organizations: Technical Instruction Program 
for FY 1996'' (Training 4277-048 (7-95)) at page 96.
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                           Reasons for Change

     The committee believes that it is appropriate to treat 
gambling operations of Indian tribes (and tribal-owned 
corporations) as separate, taxable businesses, which should be 
subject to tax under the same rules and tax rates applicable to 
for-profit gambling establishments.78 In addition, in 
order for Congress to review the present-law tax treatment of 
other gambling activities, the Treasury Department should 
conduct a study of gambling activities conducted by nonprofit 
organizations.
    \78\ See, e.g., ``High-Stakes Casino Game: Mirage vs. Indians,'' 
The Wall Street Journal, September 21, 1995, at B1.
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                        Explanation of Provision

    The bill subjects to Federal income tax as unrelated 
business income [UBI] income earned by an Indian tribe, or any 
corporate entity that is a tax-immune or tax-exempt entity by 
reason of being owned or controlled by an Indian tribe, from 
the conduct of class II or class III gaming activities (as 
defined under the Indian Gaming Regulatory Act, 25 U.S.C. secs. 
2701-2721). Thus, Indian tribes will be subject to Federal 
income tax on income derived from class II gaming operations 
(e.g., bingo, pull-tabs, lotto) or class III gaming operations 
(e.g., a casino operated pursuant to a compact between the 
State government and Indian tribe). As under present-law UBIT 
rules, a gaming activity will be subject to tax under the 
provision only if the activity is regularly carried on.79
    \79\ No inference is intended regarding the tax treatment of 
activities of Indian tribes or tribal-owned corporations under any 
other provision of the Internal Revenue Code or the IRS current ruling 
position with respect to Indian tribes and tribal-owned corporations.
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    Under the bill, if an Indian tribe is required (by Federal, 
State, or local law) to use any portion of the net proceeds of 
gaming activities for charitable or other specified purposes, 
any portion so used may be deductible only as a charitable 
contribution, and (under present law sec. 512(b)(10)) such 
deduction may not exceed 10 percent of the taxable income from 
the gaming activities. This 10-percent limitation, however, 
does not apply to any proceeds from gaming activities that are 
required to be paid as general revenues to the United States or 
any State or subdivision of a State (which generally will be 
fully deductible in computing the tribe's taxable income from 
gaming).
    In addition, the bill repeals the special, off-code 
provision that exempts from the UBIT gaming income earned by 
nonprofit organizations in North Dakota. With respect to other 
gaming activities conducted by tax-exempt organizations, the 
Treasury Department is directed to conduct a study on the 
nature and extent of gaming activities conducted by 
organizations exempt from tax under section 501(a), including 
an examination of: First, the types of gaming activities (e.g., 
bingo, pull tabs, casino nights) engaged in by charities and 
other nonprofit organizations and the frequency of such 
activities; second, the dollar volume of such gaming 
activities; third, the nature and extent of the involvement of 
for-profit entities and private parties in the management or 
operation of gaming activities of nonprofits; fourth, 
competition between taxable gaming activities and gaming 
activities that are exempt from Federal income tax; and fifth, 
an analysis of the present-law tax treatment of gaming 
activities of tax-exempt organizations and any recommendations 
for change, including examination of the South End decision and 
special UBIT exception for bingo games. The Treasury Department 
is required to report the results of this study to Congress no 
later than July 1, 1996.

                             Effective Date

    The provision is effective on and after January 1, 1996.

19. Repeal exemption for withholding on gambling winnings from bingo 
        and keno where proceeds exceed $5,000 (sec. 13633 of the bill 
        and sec. 3402(q) of the code)

                              Present Law

    In general, proceeds from a wagering transaction are 
subject to withholding at a rate of 28 percent if the proceeds 
exceed $5,000 and are at least 300 times as large as the amount 
wagered. The proceeds from a wagering transaction are 
determined by subtracting the amount wagered from the amount 
received. Any nonmonetary proceeds that are received are taken 
into account at fair market value.
    In the case of sweepstakes, wagering pools, or lotteries, 
proceeds from a wager are subject to withholding at a rate of 
28 percent if the proceeds exceed $5,000, regardless of the 
odds of the wager.
    No withholding tax is imposed on winnings from bingo or 
keno.

                           Reasons for Change

    The committee believes that imposing withholding on 
winnings from bingo and keno will improve tax compliance.

                        Explanation of Provision

    The provision imposes withholding on proceeds from bingo or 
keno wagering transactions at a rate of 28 percent if such 
proceeds exceed $5,000, regardless of the odds of the wager.

                             Effective Date

    The provision is effective for payments made after December 
31, 1995.

20. Sunset the low-income housing tax credit after December 31, 1997 
        (sec. 13636 of the bill and sec. 42 of the code)

                              Present Law

    A tax credit having a 70-percent present value is allowed 
on qualified low-income rental housing. The credit is reduced 
to 30 percent for housing receiving most other Federal 
subsidies. In certain difficult-to-develop areas, the credit is 
increased by 30 percent (e.g., from 70 to 91 percent). The 
credit applies to the eligible basis of low-income housing 
units.
    Credits are subject to annual allocations of $1.25 per 
resident of each State. State housing agencies allocate this 
amount to eligible projects. Credit amounts that are not 
allocated in the year in which the cap amount arises may be 
carried forward by the State for allocation in the following 
year. Any amounts remaining unallocated after that time revert 
to a national pool and are reallocated among States that 
allocated their entire credit amount in the preceding year.

                           Reasons for Change

    In response to reports that substantial amounts of low-
income housing credit possibly are being improperly claimed, 
and that the Internal Revenue Service and State administering 
agencies are not adequately monitoring the credit program, the 
chairman on July 5, 1995, requested the General Accounting 
Office to review the administration of the credit and report to 
the committee in early 1996. This study will examine issues 
such as: First, Whether the credit is being allocated to 
projects in which low-income tenants are charged full market 
rents; second, whether inappropriate amounts of the subsidy are 
being diverted from low-income tenants to developers and 
syndicators through their fees or to owners through higher than 
necessary rates of return on their investments; third, what 
controls, if any, exist at the State level to ensure that the 
credit is allocated as intended and that costs are reasonable; 
fourth, how efficiently the IRS is administering the credit 
program; and fifth, to what extent housing needs of low-income 
tenants that otherwise would be unmet are satisfied through 
credit projects. The chairman has requested that the 
Subcommittee on Oversight oversee the study and review its 
findings. The committee believes that sunsetting the credit 
after December 31, 1997, will facilitate this review and help 
ensure that this tax benefit is used only as intended by the 
Congress.

                        Explanation of Provision

    The low-income housing tax credit is sunset after December 
31, 1997.
    Credits allocated from annual State credit caps arising 
before this expiration date will be unaffected. Similarly, 
credits for projects financed with tax-exempt bonds issued 
before January 1, 1998, which are first, placed in service 
before that date or second, during a transition period after 
December 31, 1997 will be unaffected.
    The provisions under which certain unused credit cap 
amounts are redistributed among States by a national pool are 
repealed after December 31, 1995. Thus, no national pool 
allocations will be made in 1996 and subsequent years.

                             Effective Date

    These provisions are effective on the date of enactment.

21. Repeal tax credit for contributions to community development 
        corporations (section 13637 of the bill)

                              Present Law

    Taxpayers are entitled to claim a tax credit for certain 
contributions made to one of 20 nonprofit community development 
corporations [CDC's] selected by the Secretary of HUD to 
provide assistance in economically distressed areas. If a 
taxpayer makes a qualified contribution (i.e., a cash payment 
to a CDC, which can be made in the form of an equity investment 
or 10-year loan, the principal of which is to be returned to 
the taxpayer no sooner than after 10 years), the credit may be 
claimed by the taxpayer for each taxable year during the 10-
year period beginning with the taxable year during which the 
contribution was made. The credit that may be claimed for each 
year is equal to 5 percent of the amount of the contribution to 
the CDC. Thus, during the 10-year credit period, the taxpayer 
may claim aggregate credit amounts totalling 50 percent of his 
or her contribution.80 The aggregate amount of 
contributions that may be designated by any one CDC as eligible 
for the credit may not exceed $2 million. (Thus, a total amount 
of $40 million in contributions will be available for the 
credit with respect to all 20 selected CDC's--and the maximum 
credit amounts will total $20 million over the 10-year credit 
period.) The CDC's must use the contributions to provide 
employment and business opportunities to low-income residents 
who live in an area where the unemployment rate is not less 
than the national unemployment rate and the median family 
income does not exceed 80 percent of the median gross income of 
residents of the jurisdiction of the local government which 
includes such area.
    \80\ The contribution to the CDC must be available for use by the 
CDC for at least 10 years, but need not meet the requirements of a 
``contribution or gift'' for purposes of section 170. In other words, a 
contribution eligible for the credit may be made in the form of a 10-
year loan (or other long-term investment), the principal of which is to 
be returned to the taxpayer after the 10-year period. However, in the 
case of a donation of cash made by a taxpayer to an eligible CDC, the 
taxpayer is allowed to claim a charitable contribution deduction 
(subject to other present-law rules under section 170), in addition to 
the special credit for qualified contributions to a selected CDC.
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    On June 30, 1994, the Secretary of HUD announced the 20 
CDC's selected to receive contributions that qualify them for 
the credit. The eligible CDC's are located in the following 
areas: (1) Atlanta, (2) Baltimore, (3) Boston, (4) Chicago, (5) 
Cleveland, (6) Dallas, (7) Washington, DC, (8) Los Angeles, (9) 
Memphis, (10) Miami, (11) Brooklyn, (12) Newark, (13) 
Watsonville, CA, (14) London, KY, (15) Wiscasset, ME, (16) 
Greenville, MS, (17) Mayville, NY, (18) Barnesboro, PA, (19) 
San Antonio, TX and (20) Christiansburg, VA.

                           Reasons for Change

    The committee believes that it is not appropriate to 
provide more favorable tax treatment to a few nonprofit 
organizations (selected by HUD) than is provided to other 
nonprofits that are in existence (or will be created) to 
provide comparable employment and business opportunities in 
economically distressed areas.

                        Explanation of Provision

    The bill repeals the special credit for qualified 
contributions to selected community development corporations.

                             Effective Date

    The provision is effective for contributions made after the 
date of enactment (other than a contribution made pursuant to a 
legally enforceable agreement to make such contribution, if 
such agreement is in effect on the date of enactment).

22. Repeal advance refunds of diesel fuel tax for diesel automobiles, 
        vans, and light trucks (sec. 13638 of the bill and sec. 6427(g) 
        of the code)

                              Present Law

    Excise taxes are imposed on gasoline (11.5 cents per 
gallon) and diesel fuel (17.5 cents per gallon) to fund the 
Federal Highway Trust Fund. Before 1985, the gasoline and 
diesel fuel tax rates were the same. The predominate highway 
use of diesel fuel is by trucks. In 1984, the diesel excise tax 
rate was increased above the gasoline tax as the revenue offset 
for a reduction in the annual heavy truck use tax. Because 
automobiles, vans, and light trucks did not benefit from the 
use tax reductions, a provision was enacted allowing first 
purchasers of model year 1979 and later diesel-powered 
automobiles, vans, and light trucks a tax credit to offset this 
increased diesel fuel tax. The credit is $102 for automobiles, 
and $198 for vans and light trucks.

                           Reasons for Change

    Changed driving patterns, and vehicles currently being 
marketed, have resulted in fewer diesel-powered automobiles, 
vans, and light trucks today than was the case when this 
advance refund was enacted. Additionally, the highway cost 
allocation study on which the refund was based is now 13 years 
old. The committee believes, therefore, that this present-law 
credit is obsolete and should be repealed.

                        Explanation of Provision

    The tax credit for purchasers of diesel-powered automobiles 
and light trucks is repealed.

                             Effective Date

    The provision is effective for vehicles purchased after 
December 31, 1995.

23. Treatment of substitute returns for purposes of the penalty for 
        failure to pay taxes (sec. 13639 of the bill and sec. 6651 of 
        the code)

                              Present Law

    Section 6651(a)(2) provides that the IRS may assess a 
penalty for failure to pay tax from the due date of the return 
until the tax is paid. If no return is filed by the taxpayer 
and the IRS files a substitute return under section 6020, the 
tax on which the penalty is measured is considered a deficiency 
assessable under section 6212 or 6213, and the failure to pay 
penalty begins to accumulate 10 days after the IRS sends the 
taxpayer a notice and demand for payment of the tax.

                           Reasons for Change

    Under the current penalty system, there is an inequity 
between voluntarily filed delinquent returns and substitute 
returns. Taxpayers who file delinquent returns must pay a 
failure to file penalty from the due date of the return, 
whereas the taxpayer who forces the IRS to utilize a substitute 
return is not assessed the penalty until billed by the IRS.

                        Explanation of Provision

    The bill applies the failure to file penalty to substitute 
returns in the same manner as the penalty applies to delinquent 
filers.

                             Effective Date

    The provision applies in the case of any return the due 
date for which (determined without regard to extensions) is 
after the date of enactment.

24. Require taxpayers to include rental value of residence in income 
        without regard to period of rental (sec. 13640 of the bill and 
        sec. 280A of the code)

                              Present Law

    Gross income for purposes of the Internal Revenue Code 
generally includes all income from whatever source derived, 
including rents. The code (sec. 280A(g)) provides a de minimis 
exception to this rule where a dwelling unit is used during the 
taxable year by the taxpayer as a residence and such dwelling 
unit is actually rented for less than 15 days during the 
taxable year. In this case, the income from such rental is not 
included in gross income and no deductions arising from such 
rental use are allowed as a deduction.

                           Reasons for Change

    The de minimis exception allows certain taxpayers to 
exclude from income large rental payments for the short-term 
rental of the taxpayer's residence. The committee believes that 
such amounts generally should be included in income of the 
taxpayers.

                        Explanation of Provision

    The bill repeals the 15-day rules of section 280A(g). The 
bill also provides that no reduction in basis is required if 
the taxpayer: First, rented the dwelling unit for less than 15 
days during the taxable year and second, did not claim 
depreciation on the dwelling unit for the period of rental.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

25. Allow conversion of scholarship funding corporation to taxable 
        corporation (sec. 13641 of the bill and sec. 150 of the code)

                              Present Law

Qualified scholarship funding corporations

    Qualified scholarship funding corporations are nonprofit 
corporations established and operated exclusively for the 
purpose of acquiring student loan notes incurred under the 
Higher Education Act of 1965 (sec. 150(d)). Such corporations 
must be organized at the request of a State or political 
subdivision thereof. In addition, a qualified scholarship 
funding corporation must be required by its corporate charter 
and bylaws, or under State law, to devote any income (after 
payment of expenses, debt service and the creation of reserves 
for the same) to the purchase of additional student loan notes 
or to pay over any income to the United States.

Qualified student loan bonds

    In general, State and local government bonds issued to 
finance private loans (e.g., student loans) are taxable private 
activity bonds. However, interest on qualified student loan 
bonds is tax exempt.
    Qualified student loan bonds are obligations that are part 
of an issue all, or a major portion, of the proceeds of which 
are used, directly or indirectly, to finance loans to students 
who meet certain requirements. Such loans must be made under a 
program of general application to which the Higher Education 
Act of 1965 applies and with respect to which special allowance 
payments [SAP] under the Higher Education Act of 1965 are 
authorized. In addition, the program must restrict the maximum 
amount of loans that may be outstanding to any student and the 
maximum rate of interest payable on any loan, and the loans 
must be guaranteed by the Federal Government. Finally, the 
financing of loans under the program must not be limited by 
Federal law to the proceeds of tax-exempt bonds.
    Qualified scholarship funding corporations are eligible 
issuers of qualified student loan bonds.

Arbitrage restrictions and rebate requirement

    The Internal Revenue Code restricts the direct and indirect 
investment of bond proceeds in higher yielding investments and 
requires that profits on investments that are unrelated to the 
government purpose for which the bonds are issued be rebated to 
the United States.
    These arbitrage restrictions limit, for example, the amount 
by which interest charged on loans to students may exceed 
interest paid on qualified student loan bonds. This amount 
generally is limited to a spread between the interest on the 
bonds and the interest on the acquired program obligations 
equal to the greater of first, 2 percentage points plus 
reasonable administrative costs or second, all reasonable 
direct costs of the loan program (including issuance costs and 
bad debt losses). Special allowance payments [SAP] made by the 
Department of Education are treated as interest on notes and, 
therefore, are included within the 2-percent limit.

Private foundation excess business holding restrictions

    The activities and assets of private foundations are 
subject to certain restrictions, including the ``excess 
business holding'' limitations of section 4943. These rules 
limit the combined ownership of a business enterprise by a 
private foundation and all disqualified persons by imposing a 
tax on the ``excess business holdings'' of any private 
foundation. Generally, a private foundation and disqualified 
persons may, in the aggregate, own 20 percent of the voting 
stock of a functionally unrelated corporation. If third parties 
control the unrelated corporation, such aggregate percentage 
interest may be increased to 35 percent.
    The excess business holding rules do not apply if a private 
foundation owns an interest in a ``functionally-related 
business.'' A ``functionally-related business'' is one that is 
first, not an unrelated trade or business within the meaning of 
section 513 or second, carried on within a larger aggregate of 
similar activities or within a larger complex of other 
endeavors that are related to the foundation's exempt purposes.

                           Reasons for Change

    Congress provided in 1993 for certain loans to students be 
made directly by the Federal Government. To the extent that 
such direct loan programs provide loans to students, loan 
programs such as those provided by qualified scholarship 
funding corporations will be reduced and possibly terminated. 
The committee believes that those corporations should be given 
an opportunity to engage in new education-related activities 
without jeopardizing the tax-exempt character of their debt. In 
addition, the committee believes that profits accumulated by 
those corporations may be used as seed capital for those new 
activities, but that those funds be dedicated for charitable 
purposes. Accordingly, the committee believes that the assets 
and liabilities of such corporations may be transferred to a 
taxable subsidiary in exchange for its stock so long at the 
corporation becomes a charitable corporation and the terms of 
the subsidary's stock are protect the charity's interests.

                        Explanation of Provision

In general

    The bill provides that a nonprofit student loan funding 
corporation may elect to cease its status as a qualified 
scholarship funding corporation. If the corporation meets the 
requirements outlined below, such an election will not cause 
any bond outstanding as of the date of the issuer's election 
and any bond issued to refund such a bond to fail to be a 
qualified student loan bond. Accordingly, the interest on such 
bonds would remain tax-exempt to the bondholders. Once made, an 
election may be revoked only with the consent of the Secretary 
of Treasury.

Requirements

    First, upon making the election, the issuer is required to 
transfer all of the student loan notes to another, taxable, 
corporation in exchange for senior stock of such corporation 
within a reasonable period of time after the election is made. 
Immediately after the transfer, the issuer, and any other 
issuer who made the election, is required to hold all of the 
senior stock of the corporation. Senior stock is stock whose 
rights to dividends, liquidation or redemption rights are not 
inferior to those of any other class of stock and that first, 
participates pro rata and fully in the equity value of any 
other common stock of the corporation, second, has the right to 
payments receivable in liquidation prior to any other stock in 
the corporation, third, upon liquidation or redemption, has a 
fixed right to receive the greater of (a) the fair market value 
of the stock at the date of liquidation or redemption or (b) 
the net fair market value of all assets transferred to the 
corporation by the issuer, and fourth, has a right to require 
its redemption by a date which is not 10 years after the date 
that the election is made.
    In addition, the transferee corporation is required to 
assume or otherwise provide for the payment of all the 
qualified scholarship funding bond indebtedness of the issuer 
within a reasonable period after the election. To the extent 
permitted by law, the transferee corporation is required to 
assume all of the responsibilities and succeed to all of the 
rights of the issuer under the issuer's agreements with the 
Secretary of Education with respect to student loans.
    Further, immediately after the transfer, the issuer (i.e., 
the nonprofit student loan funding corporation) is required to 
become a charitable organization (described in section 
501(c)(3) that is exempt from tax under section 501(a)), at 
least 80 percent of the members of its board of directors must 
be independent members, and which must hold all of the senior 
stock of the corporation.

Consequences of election

    After making the election, the issuer is not authorized to 
issue any new bonds. On the other hand, any bonds issued to 
refund such bonds must be issued by a governmental entity 
because a qualified scholarship funding corporation would no 
longer exist.

Application of restriction on excess business holdings

    For purposes of the excess business holding restrictions 
imposed on a private foundation, the corporation to which the 
issuer makes the transfer is treated as a ``functionally-
related business'' with respect to the issuer if more than 50 
percent of the gross income of such corporation is derived 
from, or more than 50 percent of the assets (by value) of such 
corporation consists of, student loan notes incurred under the 
Higher Education Act of 1965.

                             Effective Date

    The provision is effective on the date of enactment.

26. Apply look-through rule for purposes of characterizing certain 
        subpart F insurance income as unrelated business taxable income 
        (sec. 13642 of the bill and sec. 512 of the code)

                              Present Law

    An organization that is exempt from tax by reason of code 
section 501(a) (e.g., a charity, business league, or qualified 
pension trust) is nonetheless subject to tax on its unrelated 
business taxable income [UBTI] (sec. 511). Unrelated business 
taxable income generally excludes dividend income (sec. 
512(b)(1)).
    Special rules apply to a tax-exempt organization described 
in section 501(c)(3) or (c)(4) (i.e., a charity or social 
welfare organization) that is engaged in commercial-type 
insurance activities. Such activities are treated as an 
unrelated trade or business and the tax-exempt organization is 
subject to tax on the income from such insurance activities 
(including investment income that might otherwise be excluded 
from the definition of unrelated business taxable income) under 
subchapter L (sec. 501(m)(2)).81 Accordingly, a tax-exempt 
organization described in section 501(c)(3) or (c)(4) is 
generally subject to tax on its income from commercial-type 
insurance activities in the same manner as a taxable insurance 
company.
    \81\ If the commercial-type insurance activities constitute a 
substantial part of the organization's activities, the organization 
will not be tax-exempt under section 501(c)(3) or (c)(4) (sec. 
501(m)(1)).
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    A tax-exempt organization that conducts insurance 
activities through a foreign corporation is not subject to U.S. 
tax with respect to such activities. Under the subpart F rules, 
the U.S. shareholders (as defined in sec. 951(b)) of a 
controlled foreign corporation [CFC] are required to include in 
income currently their shares of certain income of the CFC, 
whether or not such income is actually distributed to the 
shareholders. This current inclusion rule applies to certain 
insurance income of the CFC (sec. 953). However, income 
inclusions under subpart F have been characterized as dividends 
for unrelated business income tax purposes.82 Accordingly, 
insurance income earned by the CFC that is includible in income 
currently under subpart F by the taxable U.S. shareholders of 
the CFC is excluded from unrelated business taxable income in 
the case of a shareholder that is a tax-exempt entity.
    \82\ The Internal Revenue Service has concluded in private letter 
rulings, which are not to be used or cited as precedent, that subpart F 
inclusions are treated as dividends received by the U.S. shareholder (a 
tax-exempt entity) for purposes of computing the shareholder's UBTI 
(see LTRs 9407007 (November 12, 1993), 9027051 (April 13, 1990), 
9024086 (March 22, 1990), 9024026 (March 15, 1990), 8922047 (March 6, 
1989), 8836037 (June 14, 1988), 8819034 (February 10, 1988)). However, 
the IRS issued one private ruling in which it concluded that subpart F 
inclusions are treated as if the underlying income were realized 
directly by the U.S. shareholder (a tax-exempt entity) for purposes of 
computing the shareholder's UBTI (see LTR 9043039 (July 30, 1990)). 
This ruling gave no explanation for the IRS's departure from the 
position in its prior rulings, and the IRS reiterated in a subsequent 
ruling the position that subpart F inclusions are characterized as 
dividends for purposes of computing UBTI. Moreover, the application of 
the look-through rule in the ruling in question did not affect the 
ultimate result in the ruling because the income to which the subpart F 
inclusion was attributable was of a type that was excludible from UBTI. 
The committee believes that LTR 9043039 (July 30, 1990) is incorrect in 
its application of a look-through rule in characterizing income 
inclusions under subpart F for unrelated business income tax purposes.
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                           Reasons for Change

    The unrelated business income tax rules are designed to 
prevent unfair competition by business operations that would 
otherwise be tax-favored due to their ownership by tax-exempt 
organizations. The rules applicable to certain tax-exempt 
organizations that conduct insurance activities directly are 
designed to ensure that such operations are taxed in the same 
manner as they would be taxed if conducted by a taxable entity. 
However, current law does not prevent unfair competition where 
operations involving the insurance of third-party risks are not 
conducted directly by such a tax-exempt organization itself, 
but are conducted by the organization through a controlled 
foreign corporation that is subject to little tax relative to 
competing U.S. businesses.

                        Explanation of Provision

    The bill applies a look-through rule in characterizing 
certain subpart F insurance income for unrelated business 
income tax purposes. The bill applies to amounts that 
constitute insurance income currently includible in gross 
income under the subpart F rules and that are not attributable 
to the insurance of risks of first, the tax-exempt organization 
itself, second, affiliates of the tax-exempt organization that 
are themselves tax-exempt, or third, employees of the tax-
exempt organization or such affiliates if such insurance covers 
solely risks associated with the performance of services for 
the benefit of such organization or affiliate. Such amounts are 
treated as income from an unrelated trade or business to the 
extent that such amounts would constitute income from an 
unrelated trade or business if received directly by the tax-
exempt organization. Deductions connected with amounts treated 
as unrelated business taxable income are allowed to the same 
extent as such deductions are allowed to a taxable entity.

                             Effective Date

    The provision is effective for amounts includible in gross 
income in any taxable year beginning after December 31, 1995.

27. Intermediate sanctions for certain tax-exempt organizations (secs. 
        13646-13651 of the bill and sections 501, 6033, 6104, 6652, 
        6685 and new sections 4958, 6116, and 6716 of the code)

                              Present Law

Private inurement

    Charities.--Section 501(c)(3) specifically conditions tax-
exempt status for all organizations described in that section 
on the requirement that no part of the net earnings of the 
organization inures to the benefit of any private shareholder 
or individual (the so-called private inurement test).
    Social welfare organizations.--A tax-exempt social welfare 
organization described in section 501(c)(4) must be organized 
on a nonprofit basis and must be operated exclusively for the 
promotion of social welfare. In contrast to section 501(c)(3), 
however, there is no specific statutory rule in section 
501(c)(4) prohibiting the net earnings of a social welfare 
organization described in section 501(c)(4) from inuring to the 
benefit of a private shareholder or individual.83
    \83\ Even where no prohibited private inurement exists, however, 
more than incidental private benefits conferred on individuals may 
result in the organization not being operated ``exclusively'' for an 
exempt purpose. See, e.g., American Campaign Academy v. Commissioner, 
92 T.C. 1053 (1989).
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    Other organizations.--Other tax-exempt organizations, such 
as labor and agricultural organizations described in section 
501(c)(5) and business leagues described in section 501(c)(6) 
are subject to the private inurement test, as a result of 
explicit statutory language or Treasury Department regulations.

Sanctions for private inurement and other violations of exemption 
        standards

    Organizations described in section 501(c)(3) are classified 
as either public charities or private foundations. Penalty 
excise taxes may be imposed under the code when a public 
charity makes political expenditures (sec. 4955) or excessive 
lobbying expenditures (secs. 4911 and 4912). However, the code 
generally does not provide for the imposition of penalty excise 
taxes in cases where a 501(c)(3) public charity or a section 
501(c)(4) social welfare organization engages in a transaction 
that results in private inurement. In such cases, the only 
sanction that specifically is authorized under the code is 
revocation of the organization's tax-exempt status. A 
transaction engaged in by a private foundation (but not a 
public charity) is subject to special penalty excise taxes 
under the code if the transaction is a prohibited ``self-
dealing'' transaction (sec. 4941) or does not accomplish a 
charitable purpose (sec. 4945).

Filing and public disclosure rules

    Tax-exempt organizations (other than churches and certain 
small organizations) are required to file an annual information 
return (form 990) with the IRS, setting forth the 
organization's items of gross income and expenses attributable 
to such income, disbursements for tax-exempt purposes, plus 
certain other information for the taxable year. Private 
foundations are required to allow public inspection at the 
foundation's principal office of their current annual 
information return. Other tax-exempt organizations, including 
public charities, are required to allow public inspection at 
the organization's principal office (and certain regional or 
district offices) of their annual information returns for the 
three most recent taxable years (sec. 6104(e)). The code also 
requires that tax-exempt organizations allow public inspection 
of the organization's application to the IRS for recognition of 
tax-exempt status, the IRS determination letter, and certain 
related documents. In addition, upon written request to the 
IRS, members of the general public are permitted to inspect 
annual information returns of tax-exempt organizations and 
applications for recognition of tax-exempt status (and related 
documents) at the National Office of the IRS in Washington, DC. 
A person making such a written request is notified by the IRS 
when the material is available for inspection at the National 
Office, where notes may be taken of the material open for 
inspection, photographs taken with the person's own equipment, 
or copies of such material obtained from the IRS for a fee 
(Treas. Reg. secs. 301.6104(a)-6 and 301.6104(b)-1).
    Section 6652(c)(1)(A) provides that a tax-exempt 
organization that fails to file a complete and accurate form 
990 is subject to a penalty of $10 for each day during which 
such failure continues (with a maximum penalty with respect to 
any one return of the lesser of $5,000 or 5 percent of the 
organization's gross receipts for the year). Section 
6652(c)(1)(C) provides that tax-exempt organizations that fail 
to make certain annual returns and applications for exemption 
available for public inspection are subject to a penalty of $10 
for each day the failure continues (with a maximum penalty with 
respect to any one return not to exceed $5,000, and without 
limitation with respect to applications). In addition, section 
6685 provides a penalty for willfully failing to make an annual 
return or application available for public inspection of $1,000 
per return or application.
    Organizations that have tax-exempt status but that are not 
eligible to receive tax-deductible charitable contributions are 
required expressly to state in certain fundraising 
solicitations that contributions or gifts to the organization 
are not deductible as charitable contributions for Federal 
income tax purposes (sec. 6113). Penalties may be imposed on 
such organizations for failure to comply with this requirement 
(sec. 6710).

                           Reasons for Change

    To ensure that the advantages of tax-exempt status 
ultimately benefit the community and not private individuals, 
the bill extends the present-law section 501(c)(3) private 
inurement prohibition to nonprofit organizations described in 
section 501(c)(4) and provides for intermediate sanctions that 
may be imposed when nonprofit organizations described in 
section 501(c)(3) or 501(c)(4) engage in transactions with 
certain insiders that result in private inurement. The bill 
also enhances oversight and public accountability of nonprofit 
organizations through additional reporting of information by 
nonprofit organizations to the Internal Revenue Service [IRS] 
and increased public access to documents filed by such 
organizations with the IRS.

                        Explanation of Provision

Extend private inurement prohibition to social welfare organizations

    The bill amends section 501(c)(4) explicitly to provide 
that a social welfare organization or other organization 
described in that section is eligible for tax-exempt status 
only if no part of its net earnings inures to the benefit of 
any private shareholder or individual.84
    \84\ The committee intends that the private inurement rule will not 
be violated solely because of an allocation or return of net margins or 
capital to the members of a nonprofit association or organization that 
operates on a cooperative basis in accordance with its incorporating 
statute and bylaws (substantially as in existence on the date of 
enactment) and was determined to be exempt from federal income tax 
under section 501(c)(4) prior to the date of enactment. The committee 
intends that such cooperative organizations will be subject to the 
general private inurement proscription with respect to any other type 
of transaction.
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    Effective date.--This provision generally is effective on 
September 14, 1995. However, under a special transition rule, 
the provision does not apply to inurement occurring prior to 
January 1, 1997, if such inurement results from a written 
contract that was binding on September 13, 1995, and at all 
times thereafter before such inurement occurred, and the terms 
of which have not materially changed.

Intermediate sanctions for excess benefit transactions

    The bill imposes penalty excise taxes as an intermediate 
sanction in cases where organizations exempt from tax under 
section 501(c)(3) or 501(c)(4) (other than private foundations, 
which are subject to a separate penalty regime under current 
law) engage in an ``excess benefit transaction.'' In such 
cases, intermediate sanctions can be imposed on certain 
disqualified persons (i.e., insiders) who improperly benefit 
from an excess benefit transaction and on organization managers 
who participate in such a transaction knowing that it is 
improper.
     An ``excess benefit transaction'' is defined as: First, 
any transaction in which an economic benefit is provided to, or 
for the use of, any disqualified person if the value of the 
economic benefit provided directly by the organization (or 
indirectly through a controlled entity 85) to such person 
exceeds the value of consideration (including performance of 
services) received by the organization for providing such 
benefit; and second, to the extent provided in Treasury 
Department regulations, any transaction in which the amount of 
any economic benefit provided to, or for the use of, any 
disqualified person is determined in whole or in part by the 
revenues of the organization, provided that the transaction 
constitutes prohibited inurement under present-law section 
501(c)(3) or under section 501(c)(4), as amended. Thus, 
``excess benefit transactions'' subject to excise taxes include 
transactions in which a disqualified person engages in a 
nonfair-market-value transaction with an organization or 
receives unreasonable compensation, as well as financial 
arrangements (to the extent provided in Treasury regulations) 
under which a disqualified person receives payment based on the 
organization's income in a transaction that violates the 
present-law private inurement prohibition. The committee 
intends that the Treasury Department will issue prompt guidance 
providing examples of revenue-sharing arrangements that violate 
the private inurement prohibition.
    \85\ A tax-exempt organization cannot avoid the private inurement 
proscription by causing a controlled entity to engage in an excess 
benefit transaction. Thus, for example, if a tax-exempt organiztion 
causes its taxable subsidiary to pay excessive compensation to an 
individual who is a disqualified person with respect to the parent 
organization, such transaction would be in excess benefit transaction.
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    Existing tax-law standards apply in determining 
reasonableness of compensation and fair market value. 
Consistent with such standards, the parties to a transaction 
are entitled to rely on a rebuttable presumption of 
reasonableness with respect to a compensation arrangement with 
a disqualified person if such arrangement was approved by an 
independent board (or an independent committee authorized by 
the board) that: First, was composed entirely of individuals 
unrelated to and not subject to the control of the disqualified 
person(s) involved in the arrangement; second, obtained and 
relied upon appropriate data as to comparability (e.g., 
compensation levels paid by similarly situated organizations, 
both taxable and tax-exempt, for functionally comparable 
positions; the location of the organization, including the 
availability of similar specialties in the geographic area; 
independent compensation surveys by nationally recognized 
independent firms; or actual written offers from similar 
institutions competing for the services of the disqualified 
person); and third, adequately documented the basis for its 
determination (e.g., the record includes an evaluation of the 
individual whose compensation was being established and the 
basis for determining that the individual's compensation was 
reasonable in light of that evaluation and data).86 If 
these three criteria are satisfied, penalty excise taxes could 
be imposed under the bill only if the IRS develops sufficient 
contrary evidence to rebut the probative value of the evidence 
put forth by the parties to the transaction (e.g., the IRS 
could establish that the compensation data relied upon by the 
parties was not for functionally comparable positions or that 
the disqualified person, in fact, did not substantially perform 
the responsibilities of such position). A similar rebuttable 
presumption arises with respect to the reasonableness of the 
valuation of property sold or otherwise transferred (or 
purchased) by an organization to (or from) a disqualified 
person if the sale or transfer (or purchase) is approved by an 
independent board that uses appropriate comparability data and 
adequately documents its determination.
    \86\ The fact that a State or local legislative or agency body may 
have authorized or approved of a particular compensation package paid 
to a disqualified person is not determinative of the reasonableness of 
compensation paid for purposes of the excise tax penalties provided for 
by the proposal. Similarly, such authorization or approval is not 
determinative of whether a revenue sharing arrangement violates the 
private inurement proscription.
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    The bill specifically provides that the payment of personal 
expenses and benefits to or for the benefit of disqualified 
persons, and nonfair-market-value transactions benefiting such 
persons, are treated as compensation only if it is clear that 
the organization intended and made the payments as compensation 
for services. In determining whether such payments or 
transactions are, in fact, compensation, the relevant factors 
include whether the appropriate decision-making body approved 
the transfer as compensation in accordance with established 
procedures and whether the organization and the recipient 
reported the transfer (except in the case of nontaxable fringe 
benefits) as compensation on the relevant forms (i.e., the 
organization's form 990, the form W-2 provided by the 
organization to the recipient, the recipient's form 1040, and 
other required returns).87
    \87\ With the exception of nontaxable fringe benefits described in 
present-law section 132 and other types of nontaxable transfers such as 
employer-provided health benefits and contributions to qualified 
pension plans, an organization cannot demonstrate at the time of an IRS 
audit that it clearly indicated its intent to treat economic benefits 
provided to a disqualified person as compensation for services merely 
by claiming that such benefits may be viewed as part of the 
disqualified person's total compensation package. Rather, the 
organization must provide substantiation that is contemporaneous with 
the transfer of economic benefits at issue.
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    ``Disqualified person'' means any person who is (1) an 
``organization manager'' (meaning any officer, director, or 
trustee of an organization or any individual having powers or 
responsibilities similar to those of officers, directors, or 
trustees) or (2) any individual (other than an organization 
manager) who is in a position to exercise substantial influence 
over the affairs of the organization.88 In addition, 
``disqualified persons'' include certain family members and 35-
percent owned entities 89 of any person described in (1) 
or (2) above, as well as any person who was a disqualified 
person at any time during the 5-year period prior to the 
transaction at issue.
    \88\ The committee intends that a person could be in a position to 
exercise substantial influence over a tax-exempt organization despite 
the fact that such person is not an employee of (and receives no 
compensation directly from) a tax-exempt organization but is formally 
an employee of (and is directly compensated by) a subsidiary--even a 
taxable subsidiary--controlled by the parent tax-exempt organization.
    \89\ Family members are determined under present-law section 
4946(d), except that such members also include siblings (whether by 
whole or half blood) of the individual, and spouses of such siblings. 
``35-percent owned entities'' mean corporations, partnerships, and 
trusts or estates in which a disqualified person owns more than 35 
percent of the combined voting power, profits interest, or beneficial 
interest.
---------------------------------------------------------------------------
    A disqualified person who benefits from an excess benefit 
transaction is subject to a first-tier penalty tax equal to 25 
percent of the amount of the excess benefit (i.e., the amount 
by which a transaction differs from fair market value, the 
amount of compensation exceeding reasonable compensation, or 
the amount of a prohibited transaction based on the 
organization's gross or net income). Organization managers who 
participate in an excess benefit transaction knowing that it is 
an improper transaction are subject to a first-tier penalty tax 
of 10 percent of the amount of the excess benefit (subject to a 
maximum penalty of $10,000).
    Additional, second-tier taxes could be imposed on a 
disqualified person if there is no correction of the excess 
benefit transaction within a specified time period.90 In 
such cases, the disqualified person would be subject to a 
penalty tax equal to 200 percent of the amount of excess 
benefit. For this purpose, the term ``correction'' means 
undoing the excess benefit to the extent possible and, where 
fully undoing the excess benefit is not possible, taking such 
additional corrective action as is prescribed by Treasury 
regulations.
    \90\ Correction must be made on or prior to the earlier of first, 
the date of mailing of a notice of deficiency under section 6212 with 
respect to the first-tier penalty excise tax imposed on the 
disqualified person, or second, the date on which such tax is assessed.
---------------------------------------------------------------------------
    The intermediate sanctions for ``excess benefit 
transactions'' could be imposed by the IRS in lieu of (or in 
addition to) revocation of an organization's tax-exempt 
status.91 If more than one disqualified person or manager 
is liable for a penalty excise tax, then all such persons would 
be jointly and severally liable for such tax. As under current 
law, a 3-year statute of limitations applies, except in the 
case of fraud (sec. 6501). Under the bill, the IRS has 
authority to abate the excise tax penalty (under present-law 
section 4962) if it is established that the violation was due 
to reasonable cause and not due to willful neglect and the 
transaction at issue was corrected within the specified period.
    \91\ The committee generally expects that the intermediate 
sanctions would be the sole sanction imposed in those cases in which 
the excess benefit does not rise to a level where it calls into 
question whether, on the whole, the organization functions as a 
charitable or other tax-exempt organization. In practice, revocation of 
tax-exempt status, with or without the imposition of excise taxes, 
would occur only when the organization no longer operates for a 
charitable or other tax-exempt purpose.
---------------------------------------------------------------------------
    To prevent an organization from avoiding the penalty excise 
taxes through termination of its tax-exempt status, the bill 
also imposes a tax on tax-exempt organizations that terminate 
their tax-exempt status. The amount of the tax equals the 
lesser of first, the aggregate tax benefits that an 
organization can substantiate that it has received from its 
exemption from tax under code section 501(a), or second, the 
value of the net assets of such organization.92 The 
Secretary of the Treasury is permitted to abate all or a 
portion of the tax if a tax-exempt organization distributes all 
of its net assets to one or more charitable organizations 
described in code section 501(c)(3) that have been in existence 
for a continuous 5-year period. Tax-exempt organizations that 
are described in code section 501(c)(4) are permitted to 
distribute their net assets to one or more organizations 
described in code section 501(c)(3) or 501(c)(4) that have been 
in existence for a continuous 5-year period. An organization is 
permitted to terminate its exempt status only if it has paid 
the tax (or any portion thereof that is not abated) and the 
organization has notified the Secretary of its intent to 
terminate its exempt status (or the Secretary has made a final 
determination that such status has terminated).
    \92\ In calculating these amounts, rules similar to the rules 
applicable to private foundations set forth in code section 507(d),(e), 
and (f) apply.
---------------------------------------------------------------------------
    Effective date.--The provision generally applies to excess 
benefit transactions occurring on or after September 14, 1995. 
The provision does not apply, however, to any transaction 
pursuant to a written contract for the performance of personal 
services which was binding on September 13, 1995, and at all 
times thereafter before such transaction occurred, and the 
terms of which have not materially changed.

Additional filing and public disclosure rules

    Reporting of identity of certain disqualified persons, 
excise tax penalties and excess benefit transactions.--Tax-
exempt organizations are required to disclose on their form 990 
the names of each disqualified person who received an economic 
benefit during the taxable year and such other information as 
may be required by the Secretary of the Treasury. In addition, 
exempt organizations are required to disclose on their form 990 
such information as the Secretary of the Treasury may require 
with respect to ``excess benefit transactions'' (described 
above) and any other excise tax penalties paid during the year 
under present-law sections 4911 (excess lobbying expenditures), 
4912 (disqualifying lobbying expenditures), or 4955 (political 
expenditures), including the amount of the excise tax penalties 
paid with respect to such transactions, the nature of the 
activity, and the parties involved.93
    \93\ The penalties applicable to failure to file a timely, 
complete, and accurate return apply for failure to comply with these 
requirements. In addition, the committee intends that the IRS implement 
its plan to require additional form 990 reporting regarding first, 
changes to the governing board or the certified accounting firm, 
second, such information as the Secretary may require relating to 
professional fundraising fees paid by the organization, and third, 
aggregate payments (by related entities) in excess of $100,000 to the 
highest-paid employees.
---------------------------------------------------------------------------
    Furnishing copies of documents.--The bill also provides 
that a tax-exempt organization that is subject to the public 
inspection rules of present-law section 6104(e)(1) (i.e., any 
tax-exempt organization, other than a private foundation, that 
files a form 990) is required to comply with requests from 
individuals who seek a copy of the organization's form 990 or 
the organization's application for recognition of tax-exempt 
status and certain related documents. Upon such a request, the 
organization is required to supply copies without charge other 
than a reasonable fee for reproduction and mailing costs. If so 
requested, copies must be supplied of the forms 990 for any of 
the organization's three most recent taxable years. If the 
request for copies is made in person, then the organization 
must immediately provide such copies. If the request for copies 
is made other than in person (e.g., by mail or telephone), then 
copies must be provided within 30 days. However, an 
organization could be relieved, for a limited period of time, 
of its obligation to provide copies if the Secretary of the 
Treasury determined, upon application by the organization, that 
the organization was subject to a harassment campaign such that 
waiver of the obligation to provide copies would be in the 
public interest.
    Advertisements and solicitations.--The bill further 
requires that written advertisements or solicitations made by 
(or on behalf of) a tax-exempt organization that is subject to 
the public inspection rules of present-law section 6104(e)(1) 
must contain an express statement, in a conspicuous and easily 
recognizable format, that the organization's forms 990 are 
available to individuals upon request.94 Failure to make 
the required disclosure in an advertisement or solicitation 
would subject the organization to a penalty of $100 for each 
day on which the failure occurred. However, no penalty may be 
imposed with respect to a failure if it is shown that such 
failure was due to reasonable cause. The bill generally limits 
the maximum penalty to $10,000 for all such failures by an 
organization during any calendar year.95
    \94\ The committee intends that the Department of Treasury will 
provide prompt guidance on this requirement.
    \95\ However, if a failure to comply with the disclosure 
requirement for solicitations is due to intentional disregard, then the 
$10,000 limitation does not apply, and the penalty for each day on 
which such an intentional failure occurred is the greater of first, 
$1,000 or second, 50 percent of the aggregate cost of the solicitations 
which occurred on such day and with respect to which there was 
intentional disregard of the disclosure requirement.
---------------------------------------------------------------------------
    In addition, the bill requires entities that do not have 
Federal tax-exempt status but that describe themselves in 
advertisements or solicitations as ``nonprofit'' to disclose in 
an express statement that contributions to the entity are not 
deductible as charitable contributions for Federal income tax 
purposes. Failure to make the disclosure would subject the 
entity to penalties under section 6716.
    Electronic dissemination of information.--The bill requires 
the Treasury Department to provide copies of annual returns and 
applications for recognition of tax-exempt status filed by 
exempt organizations to any organization that agrees to accept 
broad categories of such returns and applications and to 
provide electronic access to all such documents on an 
electronic network to the general public. Such returns and 
applications must be provided free of charge to organizations 
that do not charge a fee for public access; if an organization 
charges a fee for public electronic access, the Treasury 
Department is allowed to charge a reasonable fee for 
reproduction and mailing costs.
    Penalties for failure to file timely or complete return.--
The section 6652(c)(1)(A) penalty imposed on a tax-exempt 
organization that either fails to file a form 990 in a timely 
manner or fails to include all required information on a form 
990 is increased from the present-law level of $10 for each day 
the failure continues (with a maximum penalty with respect to 
any one return of the lesser of $5,000 or 5 percent of the 
organization's gross receipts) to $20 for each day the failure 
continues (with a maximum penalty with respect to any one 
return of the lesser of $10,000 or 5 percent of the 
organization's gross receipts). Under the bill, organizations 
with annual gross receipts exceeding $1 million are subject to 
a penalty under section 6652(c)(1)(A) of $100 for each day the 
failure continues (with a maximum penalty with respect to any 
one return of $50,000). As under present law, no penalty may be 
imposed under section 6652(c)(1)(A) if it were shown that the 
failure to file a complete return was due to reasonable cause 
(sec. 6652(c)(3)).
    Penalties for failure to allow public inspection.--The 
section 6652(c)(1)(C) penalty imposed on tax-exempt 
organizations that fail to allow public inspection of certain 
annual returns or applications for exemption is increased from 
the present-law level of $10 per day (with a maximum of $5,000) 
to $20 per day (with a maximum of $10,000). In addition, the 
section 6685 penalty for willful failure to allow public 
inspections is increased from the present-law level of $1,000 
to $5,000.
    Treasury Department studies.--The bill directs the Treasury 
Department to: First, study and make recommendations regarding 
application of an explicit statutory private inurement 
prohibition, and intermediate sanctions, to other tax-exempt 
organizations; second, study and make recommendations to the 
Congress on whether certain State officers, such as the 
attorney general and other officials charged with overseeing 
public charities, should be provided with additional access to 
Federal tax information beyond that authorized under section 
6103; and third, review the form 990 reporting requirements to 
ensure the form's utility to IRS and the public and to reduce 
unnecessary reporting burdens.
    Effective dates.--The filing and disclosure provisions 
governing tax-exempt organizations generally take effect on 
January 1, 1996 (or, if later, 90 days after enactment). 
However, the provisions regarding the reporting on annual 
returns of excise tax penalties and excess benefit transactions 
is effective for returns with respect to taxable years 
beginning on or after January 1, 1995. The requirement that the 
Treasury Department provide copies of annual returns and 
applications for recognition of tax-exempt status for 
electronic dissemination applies to returns and applications 
filed on or after January 1, 1996; it applies to returns and 
applications filed prior to January 1, 1996, only to the extent 
provided by the Secretary of the Treasury. The Treasury 
Department studies are required to be transmitted to Congress 
by January 1, 1997.

           Subtitle G. Reform of the Earned Income Tax Credit

(Secs. 13701-13703 of the bill and secs. 32 and 6213(g)(2) of the code)

                              Present Law

In general

    Under present law, certain eligible low-income workers are 
entitled to claim a refundable earned income tax credit [EITC]. 
The amount of the credit an eligible taxpayer may claim depends 
upon whether the taxpayer has one, more than one, or no 
qualifying children and is determined by multiplying the credit 
rate by the taxpayer's earned income up to an earned income 
threshold. The maximum amount of the credit is the product of 
the credit rate and the earned income threshold. For taxpayers 
with earned income (or adjusted gross income [AGI], if greater) 
in excess of the phaseout threshold, the credit amount is 
reduced by the phaseout rate multiplied by the amount of earned 
income (or AGI, if greater) in excess of the phaseout 
threshold. For taxpayers with earned income (or AGI, if 
greater) in excess of the phaseout limit, no credit is allowed.
    As enacted in Public Law 104-7 (H.R. 831), for taxable 
years beginning after December 31, 1995, a taxpayer is not 
eligible for the EITC if the aggregate amount of ``disqualified 
income'' of the taxpayer for the taxable year exceeds $2,350. 
Disqualified income is the sum of:
          (1) interest (taxable and tax-exempt),
          (2) dividends, and
          (3) net rent and royalty income (if greater than 
        zero).
    The parameters for the EITC depend upon the number of 
qualifying children the taxpayer claims. For 1995 the 
parameters are as follows:

----------------------------------------------------------------------------------------------------------------
                                                                    Two or more                                 
                                                                    qualifying    One qualifying   No qualifying
                                                                    children--        child--       children--  
----------------------------------------------------------------------------------------------------------------
Credit rate (percent)...........................................           36.00           34.00            7.65
Phaseout rate (percent).........................................           20.22           15.98            7.65
Earned income threshold.........................................          $8,640          $6,160          $4,100
Maximum credit..................................................          $3,110          $2,094            $314
Phaseout threshold..............................................         $11,290         $11,290          $5,130
Phaseout limit..................................................         $26,673         $24,396          $9,230
----------------------------------------------------------------------------------------------------------------

    For 1996, the parameters are given in the following table 
(dollar amounts are projections expressed in 1996 dollars):

----------------------------------------------------------------------------------------------------------------
                                                                    Two or more                                 
                                                                    qualifying    One qualifying   No qualifying
                                                                    children--        child--       children--  
----------------------------------------------------------------------------------------------------------------
Credit rate (percent)...........................................           40.00           34.00            7.65
Phaseout rate (percent).........................................           21.06           15.98            7.65
Earned income threshold.........................................          $8,910          $6,340          $4,230
Maximum credit..................................................          $3,564          $2,156            $324
Phaseout threshold..............................................         $11,630         $11,630          $5,290
Phaseout limit..................................................         $28,553         $25,119          $9,520
----------------------------------------------------------------------------------------------------------------

    For years after 1996, the credit rates and the phaseout 
rates will be the same as in the preceding table. The earned 
income threshold and the phaseout threshold are indexed for 
inflation; because the phaseout limit depends on those amounts 
as well as the phaseout rate and the credit rate, the phaseout 
limit will also increase if there is inflation.
    In order to claim the EITC, a taxpayer must either have a 
qualifying child or meet other requirements. A qualifying child 
must meet a relationship test, an age test, an identification 
test, and a residence test.
    In order to claim the EITC without a qualifying child, a 
taxpayer must not be a dependent and must be over age 24 and 
under age 65. In addition, the taxpayer's principal place of 
abode must be located in the United States for more than one-
half of the taxable year. For purposes of this test, a member 
of the Armed Forces stationed outside the United States on 
extended active duty is considered to be maintaining a 
principal place of abode in the United States.
    To satisfy the identification test, taxpayers must include 
on their tax return the name and age of each qualifying child. 
For returns filed with respect to tax year 1995, taxpayers must 
provide a taxpayer identification number [TIN] for all 
qualifying children who were born on or before October 31, 
1995. For returns filed with respect to tax year 1996, 
taxpayers must provide TIN's for all qualifying children born 
on or before November 30, 1996. For returns filed with respect 
to tax year 1997 and all subsequent years, taxpayers must 
provide TIN's for all qualifying children, regardless of their 
age. A taxpayer's TIN is generally that taxpayer's Social 
Security number. Some taxpayers are exempt from Social Security 
taxes because of their religious beliefs. These taxpayers do 
not have a Social Security number; instead, the Internal 
Revenue Service [IRS] administratively assigns them a taxpayer 
identification number.

Mathematical errors

    The IRS may summarily assess additional tax due as a result 
of a mathematical error without sending the taxpayer a notice 
of deficiency and giving the taxpayer an opportunity to 
petition the Tax Court. Where the IRS uses the summary 
assessment procedure for mathematical or clerical errors, the 
taxpayer must be given an explanation of the asserted error and 
a period of 60 days to request that the IRS abate its 
assessment. The IRS may not proceed to collect the amount of 
the assessment until the taxpayer has agreed to it or has 
allowed the 60-day period for objecting to expire. If the 
taxpayer files a request for abatement of the assessment 
specified in the notice, the IRS must abate the assessment. Any 
reassessment of the abated amount is subject to the ordinary 
deficiency procedures. The request for abatement of the 
assessment is the only procedure a taxpayer may use prior to 
paying the assessed amount in order to contest an assessment 
arising out of a mathematical or clerical error. Once the 
assessment is satisfied, however, the taxpayer may file a claim 
for refund if he believes the assessment was made in error.

                           Reasons for Change

    The committee is concerned that the EITC is not well-
targeted to the neediest individuals. Under present law, in 
1996 taxpayers with two or more qualifying children would be 
able to claim the EITC even if they have AGI as high as 
$28,553. Taxpayers with one qualifying child would be able to 
claim the EITC even if they have AGI as high as $25,119. The 
committee believes that taxpayers with such incomes do not need 
a tax credit designed to benefit the poor. Therefore, the 
committee increased the rates at which the EITC is phased out 
for taxpayers with higher incomes.
    Another way to improve the targeting of the credit is by 
expanding the definition of income used in phasing out the 
EITC. The committee believes that the definition of AGI used 
currently in phasing out the EITC is too narrow and disregards 
other components of ability-to-pay. Untaxed Social Security 
benefits and untaxed distributions from pensions, annuities and 
individual retirement arrangements increase individuals' 
ability-to-pay and reduce the need for a tax credit.
    From the inception of the EITC in 1975 through 1993, the 
EITC was only available to taxpayers with qualifying children. 
A provision in the Omnibus Budget Reconciliation Act of 1993 
extended the EITC to certain taxpayers without qualifying 
children, for taxable years beginning after December 31, 1993. 
The committee believes that the EITC should be targeted to 
taxpayers with qualifying children, as was the case for the 
first 19 years of the credit.
    Finally, the committee does not believe that individuals 
who are not authorized to work in the United States should be 
able to claim the EITC. To enforce the requirement that EITC 
claimants and their qualifying children have proper Social 
Security numbers and to insure that EITC claimants have paid 
self-employment taxes on any self-employment income used to 
qualify for the credit, the committee believes the Internal 
Revenue Service should be able to use the streamlined 
procedures it currently uses for mathematical and clerical 
errors.

                        Explanation of Provision

Modify definition of adjusted gross income used for phasing out the 
        credit

    The bill modifies the definition of AGI used for phasing 
out the credit by including the following items:
          (1) Social Security benefits not subject to income 
        tax, and
          (2) nontaxable distributions from pensions, 
        annuities, and individual retirement arrangements (but 
        only if not rolled over into similar vehicles during 
        the applicable rollover period).

Deny eligibility for individuals without qualifying children

    In order to claim the EITC, a taxpayer must have a 
qualifying child.

Increase phaseout rates

    The phaseout rate of the EITC is increased to 23 percent 
for taxpayers with two or more qualifying children and to 18 
percent for taxpayers with one qualifying child. With these 
changes, the parameters of the credit for 1996 will be as 
follows:

------------------------------------------------------------------------
                                            Two or more                 
                                            qualifying    One qualifying
                                            children--        child--   
------------------------------------------------------------------------
Credit rate (percent)...................           40.00           34.00
Phaseout rate (percent).................           23.00           18.00
Earned income threshold.................          $8,910          $6,340
Maximum credit..........................          $3,564          $2,156
Phaseout threshold......................         $11,630         $11,630
Phaseout limit..........................         $27,126         $23,608
------------------------------------------------------------------------

    For years after 1996, the credit rates and the phaseout 
rates will be the same as in the preceding table. The dollar 
values will continue to be indexed, as under present law.

Deny credit to individuals not authorized to be employed in the United 
        States

    Under the bill, taxpayers are not eligible for the EITC if 
they do not include their taxpayer identification number (and, 
if married, their spouse's taxpayer identification number) on 
their tax return. Solely for these purposes and for purposes of 
the present-law identification test for a qualifying child, a 
taxpayer identification number is defined as a Social Security 
number issued to an individual by the Social Security 
Administration other than a number issued under section 
205(c)(2)(B)(i)(II) (or that portion of sec. 
205(c)(2)(B)(i)(III) relating to it) of the Social Security Act 
(regarding the issuance of a number to an individual applying 
for or receiving Federally funded benefits). Thus, if an 
individual obtains a Social Security number solely because that 
individual is an applicant for, or a recipient of, Federally 
funded benefits, the individual is ineligible to claim the 
EITC.

Use mathematical error procedures for certain omissions

    If a taxpayer fails to provide a correct taxpayer 
identification number, such omission will be treated as a 
mathematical or clerical error. If a taxpayer who claims the 
EITC with respect to net earnings from self-employment fails to 
pay the proper amount of self-employment tax on such net 
earnings, the failure will be treated as a mathematical or 
clerical error. Thus, any notification that the taxpayer owes 
additional tax because of these omissions will not be treated 
as a notice of deficiency.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 1995.

             Subtitle H. Increase in the Public Debt Limit

                        (Sec. 13801 of the bill)

                              Present Law

    The statutory limit on the public debt currently is $4.9 
trillion. It was set at this level in Public Law 103-66, 
enacted into law on August 10, 1993. It is projected that the 
current debt limit will be reached before the end of 1995.

                           Reasons for Change

    When the current debt limit is reached, the Treasury will 
be unable to meet the Federal Government's financial 
obligations and to manage the Federal debt effectively.
    The committee believes it is imperative to increase the 
debt limit on a permanent basis to facilitate the smooth 
functioning of the Federal Government and to prevent any 
disruption of financial markets.

                        Explanation of Provision

    The bill increases the statutory limit on the public debt 
to $5.5 trillion. The new debt limit has no expiration date.

                             Effective Date

    The provision is effective on the date of enactment.

            Subtitle I. Coal Industry Retiree Health Equity

  (Sec. 13901 of the bill and secs. 9701, 9702, 9704, and 9706 of the 
                                 code)

                              Present Law

    The financing of retiree health benefits previously 
provided by the United Mine Workers of America [UMWA] 1950 and 
1974 Benefit Funds was substantially revised by the Energy 
Policy Act of 1992 (H.R. 776, Public Law 104-486), enacted 
October 2, 1992. The relevant provisions, contained in the Coal 
Industry Retiree Health Benefit Act of 1992 (the Coal Act), 
created two new UMWA retiree health benefit funds and 
completely changed the financing mechanism. The two funds, 
known as the UMWA Combined Benefit Fund and the UMWA 1992 
Benefit Plan, service beneficiaries who retired on or before 
September 30, 1994. No provision was made for employees who 
retired or will retire after September 30, 1994. Future 
retirees will remain dependent on the provisions of future 
collective bargaining agreements.
    Under the Coal Act, which supersedes the retiree health 
benefits financing provisions of the 1988 National Bituminous 
Coal Wage Agreement [NBCWA], a company is charged an insurance 
premium based on the number of beneficiaries assigned to the 
company in its role as the retiree's ``last signatory 
employer.'' Under what are referred to as the ``super-
reachback'' provisions of the Coal Act, companies responsible 
for paying premiums include any company that had signed any 
NBCWA since 1946 or any related company as defined under the 
Act. To cover the costs associated with beneficiaries who 
cannot be assigned, up to $70 million per year is transferred 
into the Combined Fund. The first three transfers came from the 
surplus in the UMWA 1950 Pension Fund. Subsequent transfers 
will be made from the interest earnings of the Federal 
Abandoned Mine Reclamation Fund. If costs for unassigned 
beneficiaries exceed the annual transfer, they can be allocated 
to the signatory and reachback companies in proportion to their 
share of assigned beneficiaries.

                           Reasons for Change

    Absent the provisions of the Coal Act, the 1988 signatory 
companies would be paying 100 percent of the expenses of the 
UMWA retiree health benefit funds. Because of the Coal Act, the 
1988 signatories will contribute approximately 38 percent of 
the income of the Combined Fund this year. (Premiums paid by 
the reachback companies will account for approximately 24 
percent, the transfer from the UMWA Pension Fund 32 percent, 
and the investment income of the accumulated assets of the Fund 
6 percent.)
    Many companies left the bituminous coal business and the 
bargaining agreement under the accepted terms of the agreement, 
at a time when the health benefit funds were not in financial 
difficulty. Now, decades later, they are held responsible for 
contributing.
    Companies that paid a withdrawal liability under the 1988 
bargaining agreement are not able to claim a credit for any 
portion of that payment when they make payments required by the 
Coal Act.
    Some companies sold their coal operations at a reduced 
price in exchange for passing along full responsibility for 
retiree health benefits to the new owner.

                        Explanation of Provision

    The bill returns responsibility for funding the retiree 
health benefits of the 1988 agreement to the 1988 signatories 
by exempting from the Coal Act's provisions reachback companies 
and operators who made withdrawal liability payments under the 
terms of the 1988 agreement. Beneficiaries allocated to these 
reachback companies and operators are reallocated to the 
unassigned pool and their benefits will be financed according 
to the current provisions of the Coal Act.

                             Effective Date

    The provision shall apply to plan years beginning after 
September 30, 1995.

       TITLE XIV. COMMITTEE ON WAYS AND MEANS--TAX SIMPLIFICATION

             subtitle a. provisions relating to individuals

1. Provisions relating to rollover of gain on sale of principal 
        residence (secs. 14101-14102 of the bill and sec. 1034 of the 
        code)

                              Present Law

    No gain is recognized on the sale of a principal residence 
if a new residence at least equal in cost to the sales price of 
the old residence is purchased and used by the taxpayer as his 
or her principal residence within a specified period of time 
(sec. 1034). This replacement period generally begins 2 years 
before and ends 2 years after the date of sale of the old 
residence. The basis of the replacement residence is reduced by 
the amount of any gain not recognized on the sale of the old 
residence by reason of section 1034.
    In general, nonrecognition treatment is available only once 
during any 2-year period. In addition, if the taxpayer 
purchases more than one residence during the replacement period 
and such residences are each used as the taxpayer's principal 
residence within 2 years after the date of sale of the old 
residence, only the last residence so used is treated as the 
replacement residence.
    Special rules apply, however, if residences are sold in 
order to relocate for employment reasons. First, the number of 
times nonrecognition treatment is available during a 2-year 
period is not limited. Second, if a residence is sold within 2 
years after the sale of the old residence, the residence sold 
is treated as the last residence used by the taxpayer and thus 
as the only replacement residence.
    The determination whether property is used by a taxpayer as 
a principal residence depends upon all the facts and 
circumstances in each case, including the good faith of the 
taxpayer. No safe harbor is provided for sales of principal 
residences incident to divorce or marital separation.

                           Reasons for Change

    The committee believes that the rollover provision 
governing the sale of a principal residence is unnecessarily 
complex, in part due to the different set of rules that applies 
depending on whether the sale is work-related. The bill 
simplifies the rollover provision by applying only one set of 
rules to the sale of a principal residence regardless of 
whether the sale is work-related.
    Further, in the case of a divorce or marital separation, 
the determination of principal residence for one or both 
spouses may be unduly complex for both the taxpayer and the 
Internal Revenue Service. The creation of a safe-harbor rule 
for certain sales pursuant to a divorce or marital separation 
will ease administration of the law while still preserving the 
policy that the rollover is available only for the sale of an 
individual's principal residence.

                       Explanation of Provisions

Multiple rollovers

    Under the bill, gain is rolled over from one residence to 
another residence in the order the residences are purchased and 
used, regardless of the taxpayer's reasons for the sale of the 
old residence. In addition, gain may be rolled over more than 
once within a 2-year period. Thus, the rules that formerly 
applied only if a taxpayer sold his residence in order to 
relocate for employment purposes will apply in all cases. As 
under present law, the basis of each succeeding residence is 
reduced by the amount of gain not recognized on the sale of the 
prior residence.

Rollovers in the case of divorce or separation

    The bill provides a safe harbor in the determination of 
principal residence in certain cases incident to divorce or 
marital separation. Specifically, the bill provides that a 
residence is treated as the taxpayer's principal residence at 
the time of sale if first, the residence is sold pursuant to a 
divorce or marital separation and second, the taxpayer used 
such residence as his or her principal residence at any time 
during the 2-year period ending on the date of sale.

                             Effective Date

    The provisions apply to sales of old residences (within the 
meaning of sec. 1034) after the date of enactment.

2. One-time exclusion of gain from sale of principal residence for 
        certain spouses (sec. 14103 of the bill and sec. 121 of the 
        code)

                              Present Law

    In general, a taxpayer may exclude from gross income up to 
$125,000 of gain from the sale or exchange of a principal 
residence if the taxpayer first, has attained age 55 before the 
sale, and second, has used the residence as a principal 
residence for 3 or more years of the 5 years preceding the 
sale. This election is allowed only once in a lifetime unless 
all previous elections are revoked. For these purposes, sales 
on or before July 26, 1978 are not counted against the once in 
a lifetime limit.

                           Reasons for Change

    The committee believes that present law constitutes a trap 
for the unwary which needs to be corrected. Under present law, 
a well informed individual may make a section 121 election 
immediately before marriage to another individual (who has a 
section 121 election in effect) to exclude up to $125,000 of 
gain on a principal residence owned before marriage. However, a 
less knowledgeable, but otherwise similarly situated 
individual, who does not make the election before marriage to 
another individual who has a section 121 election in effect is 
denied the $125,000 exclusion. The committee believes that 
under limited circumstances the $125,000 exclusion should be 
made available to such an individual.

                        Explanation of Provision

    The bill allows an exclusion to an individual who otherwise 
qualifies for an exclusion under section 121 of the code but 
for a marriage to a spouse with an existing election in effect. 
The exclusion will only be available if the individual held the 
property which is the subject of the exclusion for at least 3 
years prior to marrying the spouse with the existing election.

                             Effective Date

    The bill is effective for sales or exchanges after 
September 13, 1995.

3. Payment of taxes by commercially acceptable means (sec. 14111 of the 
        bill and sec. 6311 of the code)

                              Present Law

    Payment of taxes may be made by checks or money orders, to 
the extent and under the conditions provided by regulations.

                           Reasons for Change

    Additional payment mechanisms (such as credit cards, debit 
cards, and charge cards) have become commonly used and reliable 
forms of payment. Some taxpayers may find paying taxes by these 
mechanisms more convenient than paying by check or money order.

                        Explanation of Provision

In general

    The Internal Revenue Service [IRS] is engaged in a long-
term modernization of its information systems, the Tax Systems 
Modernization [TSM] Program. This modernization is intended to 
address deficiencies in the current IRS information systems and 
to plan effectively for future information system needs and 
requirements. The systems changes are designed to reduce the 
burden on taxpayers, generate additional revenue through 
improved voluntary compliance, and achieve productivity gains 
throughout the IRS. One key element of this program is 
electronic filing of tax returns.
    At the present time, increasing reliance is being placed 
upon electronic funds transfers for payment of obligations. In 
light of this, the IRS seeks to integrate these payment methods 
in its TSM program, including electronic filing of returns, as 
well as into its traditional collection functions. The bill 
allows the IRS to accept payment by any commercially acceptable 
means that the Secretary deems appropriate, to the extent and 
under the conditions provided in Treasury regulations. This 
will include, for example, electronic funds transfers, 
including those arising from credit cards, debit cards, and 
charge cards.
    The IRS contemplates that it will proceed to negotiate 
contracts to implement this provision with one or more private 
sector credit and debit card systems. The bill provides that in 
no event will the Federal Government pay any fees with respect 
to any such contracts.

Billing error resolution

    In the course of processing these transactions, it will be 
necessary to resolve billing errors and other disputes. The 
Internal Revenue Code contains mechanisms for the determination 
of tax liability, defenses and other taxpayer protections, and 
the resolution of disputes with respect to those liabilities. 
The Truth-in-Lending Act contains provisions for determination 
of credit card liabilities, defenses and other consumer 
protections, and the resolution of disputes with respect to 
these liabilities.
    The bill excludes credit card, debit card, and charge card 
issuers and processing mechanisms from the resolution of tax 
liability, but makes IRS subject to the truth-in-lending 
provisions insofar as those provisions impose obligations and 
responsibilities with regard to the ``billing error'' 
resolution process. It is not intended that consumers obtain 
additional ways to dispute their tax liabilities under the 
truth-in-lending provisions.
    The bill also specifically includes the use of debit cards 
in this provision and provides that the corresponding defenses 
and ``billing error'' provisions of the Electronic Fund 
Transfer Act will apply in a similar manner.
    The bill adds new section 6311(d)(3) to the code. This 
section describes the circumstances under which section 161 of 
the Truth-in-Lending Act [TILA] and section 908 of the 
Electronic Fund Transfer Act [EFTA] apply to disputes that may 
arise in connection with payments of taxes made by credit card 
or debit card. Subsections (A) through (C) recognize that 
``billing errors'' relating to the credit card account, such as 
an error arising from a credit card transaction posted to a 
cardholder's account without the cardholder's authorization, an 
amount posted to the wrong cardholder's account, or an 
incorrect amount posted to a cardholder's account as a result 
of a computational error or numerical transposition, are 
governed by the billing error provisions of section 161 of 
TILA. Similarly, subsections 6311(d)(3)(A)-(C) provide that 
errors such as those described above which arise in connection 
with payments of internal revenue taxes made by debit card, are 
governed by section 908 of EFTA.
    The Internal Revenue Code provides that refunds are only 
authorized to be paid to the person who made the overpayment 
(generally the taxpayer). Subsection 6311(d)(3)(E), however, 
provides that where a taxpayer is entitled to receive funds as 
a result of the correction of a billing error made under 
section 161 of TILA in connection with a credit card 
transaction, or under section 908 of EFTA in connection with a 
debit card transaction, the IRS is authorized to utilize the 
appropriate credit card or debit card system to initiate a 
credit to the taxpayer's credit card or debit card account. The 
IRS may, therefore, provide such funds through the taxpayer's 
credit card or debit card account rather than directly to the 
taxpayer.
    On the other hand, subsections 6311(d)(3)(A)-(C) provide 
that any alleged error or dispute asserted by a taxpayer 
concerning the merits of the taxpayer's underlying tax 
liability or tax return is governed solely by existing tax 
laws, and is not subject to section 161 or section 170 of TILA, 
section 908 of EFTA, or any similar provisions of State law. 
Absent the exclusion from section 170 of TILA, in a collection 
action brought against the cardholder by the card issuer the 
cardholder might otherwise assert as a defense that the IRS had 
incorrectly computed his tax liability. A collection action 
initiated by a credit card issuer against the taxpayer/
cardholder will be an inappropriate vehicle for the 
determination of a taxpayer's tax liability, especially since 
the United States will not be a party to such an action.
    Similarly, without the exclusion from section 161 of TILA 
and section 908 of EFTA, a taxpayer could contest the merits of 
his tax liability by putting the charge which appears on the 
credit card bill in dispute. Pursuant to TILA or EFTA, the 
taxpayer's card issuer will have to investigate the dispute, 
thereby finding itself in the middle of a dispute between the 
IRS and the taxpayer. It is believed that it is improper to 
attempt to resolve tax disputes through the billing process. It 
is also noted that the taxpayer retains the traditional, 
existing remedies for resolving tax disputes, such as resolving 
the dispute administratively with the IRS, filing a petition 
with the Tax Court after receiving a statutory notice of 
deficiency, or paying the disputed tax and filing a claim for 
refund (and subsequently filing a refund suit if the claim is 
denied or not acted upon).

Creditor status

    The TILA imposes various responsibilities and obligations 
on creditors. Although the definition of the term ``creditor'' 
set forth in 15 U.S.C. sec. 1602 is limited, and will generally 
not include the IRS, in the case of an open-end credit plan 
involving a credit card, the card issuer and any person who 
honors the credit card are, pursuant to 15 U.S.C. sec. 1602(f), 
creditors.
    In addition, 12 CFR sec. 226.12(e) provides that the 
creditor must transmit a credit statement to the card issuer 
within 7 business days from accepting the return or forgiving 
the debt. There is a concern that the response deadlines 
otherwise imposed by 12 CFR sec. 226.12(e), if applicable, will 
be difficult for the IRS to comply with (given the volume of 
payments the IRS is likely to receive in peak periods). This 
could subject the IRS to unwarranted damage actions. 
Consequently, the bill generally provides an exception to 
creditor status for the IRS.

Privacy protections

    The bill also addresses privacy questions that arise from 
the IRS' participation in credit card processing systems. It is 
believed that taxpayers expect that the maximum possible 
protection of privacy will be accorded any transactions they 
have with the IRS. Accordingly, the bill provides the greatest 
possible protection of taxpayers' privacy that is consistent 
with developing and operating an efficient tax administration 
system. It is expected that the principle will be fully 
observed in the implementation of this provision.
    A key privacy issue is the use and redisclosure of tax 
information by financial institutions for purposes unrelated to 
the processing of credit card charges, i.e., marketing and 
related uses. To accept credit card charges by taxpayers, the 
IRS will have to disclose tax information to financial 
institutions to obtain payment and to resolve billing disputes. 
To obtain payment, the IRS will have to disclose, at a minimum, 
information on the ``credit slip,'' i.e., the dollar amount of 
the payment and the taxpayer's credit card number.
    The resolution of billing disputes may require the 
disclosure of additional tax information to financial 
institutions. In most cases, providing a copy of the credit 
slip and verifying the transaction amount will be sufficient. 
Conceivably, financial institutions could require some 
information regarding the underlying liability even where the 
dispute concerns a ``billing dispute'' matter. This additional 
information will not necessarily be shared as widely as the 
initial payment data. In lieu of disclosing further 
information, the IRS may elect to allow disputed amounts to be 
charged back to the IRS and to reinstate the corresponding tax 
liability.
    Despite the language in most cardholder agreements that 
permits redisclosure of credit card transaction information, 
the public may be largely unaware of how widely that 
information is shared. For example, some financial institutions 
may share credit, payment, and purchase information with 
private credit bureaus, who, in turn, may sell this information 
to direct mail marketers, and others. Without use and 
redisclosure restrictions, taxpayers may discover that some 
traditionally confidential tax information might be widely 
disseminated to direct mail marketers and others.
    It is intended that credit or debit card transaction 
information will generally be restricted to those uses 
necessary to process payments and resolve billing errors, as 
well as other purposes that are specified in the statute. The 
bill directs the Secretary to issue published procedures on 
what constitutes authorized uses and disclosures. It is 
anticipated that the Secretary's published procedures will 
prohibit the use of transaction information for marketing tax-
related services by the issuer or any marketing that targets 
only those who use their credit card to pay their taxes. It is 
also anticipated that the published procedures will prohibit 
the sale of transaction information to a third party.

                             Effective Date

    The provision is effective 9 months after the date of 
enactment. The IRS may, in this interim period, conduct 
internal tests and negotiate with card issuers, but may not 
accept credit or debit cards for payment of tax liability.

4. Simplified foreign tax credit limitation for individuals (sec. 14112 
        of the bill and sec. 904 of the code)

                              Present Law

    In order to compute the foreign tax credit, a taxpayer 
computes foreign source taxable income and foreign taxes paid 
in each of the applicable separate foreign tax credit 
limitation categories. In the case of an individual, this 
requires the filing of IRS form 1116, designed to elicit 
sufficient information to perform the necessary calculations.
    In many cases, individual taxpayers who are eligible to 
credit foreign taxes may have only a modest amount of foreign 
source gross income, all of which is income from investments 
(e.g., dividends from a foreign corporation subject to foreign 
withholding taxes or dividends from a domestic mutual fund that 
can pass through its foreign taxes to the shareholder (see sec. 
853)). Taxable income of this type ordinarily is subject to the 
single foreign tax credit limitation category known as passive 
income. However, under certain circumstances, the code treats 
investment-type income (e.g., dividends and interest) as income 
in several other separate limitation categories (e.g., high 
withholding tax interest income, general limitation income) 
designed to accomplish certain policy objectives or forestall 
certain abuses. For this reason, any taxpayer with foreign 
source gross income is required to provide sufficient detail on 
form 1116 to ensure that foreign source taxable income from 
investments, as well as all other foreign source taxable 
income, is allocated to the correct limitation category.

                           Reasons for Change

    The committee believes that a significant number of 
individuals are entitled to credit relatively small amounts of 
foreign tax imposed at modest effective tax rates on foreign 
source investment income. For taxpayers in this class, 
applicable foreign tax credit limitations typically exceed the 
amounts of taxes paid. Therefore, relieving these taxpayers 
from application of the full panoply of foreign tax credit 
rules may achieve significant reduction in the complexity of 
the tax law without significantly altering actual tax 
liabilities. At the same time, however, the committee believes 
that the benefits of simplified treatment should be limited to 
those cases where the taxpayer is receiving a payee statement 
showing the amount of the foreign source income and the foreign 
tax.

                        Explanation of Provision

    The bill allows individuals with no more than $200 ($400 in 
the case of married persons filing jointly) of creditable 
foreign taxes, and no foreign source income other than passive 
income, to elect a simplified foreign tax credit limitation 
equal to the lesser of 25 percent of the individual's foreign 
source gross income or the amount of the creditable foreign 
taxes paid or accrued by the individual during the taxable 
year. (It is intended that an individual electing this 
simplified limitation calculation not be required to file form 
1116 in order to obtain the benefit of the credit.) A person 
who elects the simplified foreign tax credit limitation is not 
allowed a credit for any foreign tax not shown on a payee 
statement (as that term is defined in sec. 6724(d)(2)) 
furnished to him or her. Nor is the person entitled to treat 
any excess credits for a taxable year to which the election 
applied as a carryover to another taxable year. Because the 
limitation for a taxable year to which the election applies can 
be no more than the creditable foreign taxes actually paid for 
the taxable year, it is also the case under the bill that no 
excess credits from another year can be carried over to the 
taxable year to which the election applies.
    For purposes of the simplified limitation, passive income 
generally is defined to include all types of income that is 
foreign personal holding company income under the subpart F 
rules, plus income inclusions from passive foreign corporations 
(as defined in title IV of the bill), so long as the income is 
shown on a payee statement furnished to the individual. Thus, 
for purposes of the simplified limitation, passive income 
includes all dividends, interest (and income equivalent to 
interest), royalties, rents, and annuities; net gains from 
dispositions of property giving rise to such income; net gains 
from certain commodities transactions; and net gains from 
foreign currency transactions that give rise to foreign 
currency gains and losses as defined in section 988. The 
statutory exceptions to treating these types of income as 
passive for foreign tax credit limitation purposes, such as the 
exceptions for high-taxed income and high-withholding-tax 
interest, are not applicable in determining eligibility to use 
the simplified limitation.
    Although an estate or trust generally computes taxable 
income and credits in the same manner as in the case of an 
individual (code sec. 641(b); Treas. Reg. sec. 1.641(b)-1), the 
simplified limitation does not apply to an estate or trust.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

5. Treatment of personal transactions by individuals under foreign 
        currency rules (sec. 14113 of the bill and sec. 988 of the 
        code)

                              Present Law

    When a U.S. taxpayer with a U.S. dollar functional currency 
makes a payment in a foreign currency, gain or loss (referred 
to as ``exchange gain or loss'') arises from any change in the 
value of the foreign currency relative to the U.S. dollar 
between the time the currency was acquired (or the obligation 
to pay was incurred) and the time that the payment is made. 
Gain or loss results because foreign currency, unlike the U.S. 
dollar, is treated as property for Federal income tax purposes.
    Exchange gain or loss can arise in the course of a trade or 
business or in connection with an investment transaction. 
Exchange gain or loss can also arise where foreign currency was 
acquired for personal use. For example, the IRS has ruled that 
a taxpayer who converts U.S. dollars to a foreign currency for 
personal use--while traveling abroad--realizes exchange gain or 
loss on reconversion of appreciated or depreciated foreign 
currency (Rev. Rul. 74-7, 1974-1 C.B. 198).
    Prior to the Tax Reform Act of 1986 (``1986 Act''), most of 
the rules for determining the Federal income tax consequences 
of foreign currency transactions were embodied in a series of 
court cases and revenue rulings issued by the IRS. Additional 
rules of limited application were provided by Treasury 
regulations and, in a few instances, statutory bills. Pre-1986 
law was believed to be unclear regarding the character, the 
timing of recognition, and the source of gain or loss due to 
fluctuations in the exchange rate of foreign currency. The 
result of prior law was uncertainty of tax treatment for many 
legitimate transactions, as well as opportunities for tax-
motivated transactions. Therefore, in the 1986 act, Congress 
determined that a comprehensive set of rules should be provided 
for the U.S. tax treatment of transactions involving 
``nonfunctional currencies;'' that is, currencies other than 
the taxpayer's ``functional currency.''
    However, the 1986 Act provisions designed to clarify the 
treatment of currency transactions, primarily found in section 
988, apply to transactions entered into by an individual only 
to the extent that expenses attributable to such transactions 
will be deductible under section 162 (as a trade or business 
expense) or section 212 (as an expense of producing income, 
other than expenses incurred in connection with the 
determination, collection, or refund of taxes). Therefore, the 
principles of pre-1986 law continue to apply to personal 
currency transactions.96
    \96\ See, e.g., Rev. Rul. 90-79, 1990-2 C.B. 187 (where the 
taxpayer purchased a house in a foreign country, financed by a foreign 
currency loan, and the currency appreciates before the house is sold 
and the loan is repaid, the taxpayer's exchange loss on repayment of 
the loan is not deductible under sec. 165 and does not offset taxable 
gain on the sale of the house).
---------------------------------------------------------------------------

                           Reasons for Change

    An individual who lives or travels abroad generally cannot 
use U.S. dollars to make all of the purchases incident to 
ordinary daily life. Instead, the local currency often must be 
used, yet the individual will not be treated for tax purposes 
as having changed his or her functional currency to the local 
currency. If it is necessary to treat foreign currency in this 
instance as property giving rise to U.S. dollar income or loss 
every time it was, in effect, ``bartered'' for goods or 
services, the U.S. individual living in or visiting a foreign 
country will have a significant administrative burden that may 
bear little or no relation to whether U.S.-dollar measured 
income has increased or decreased. An analogous issue arises 
for a corporation that has a qualified business unit [QBU] in a 
foreign country but nevertheless uses the U.S. dollar as its 
functional currency pursuant to section 986(b)(3). Complexity 
concerns aside, Congress could have required in that case that 
gain or loss be computed on each transaction carried out in the 
local currency. Instead, however, Congress directed the 
Treasury to adopt a method of translation of the QBU's results 
that merely approximates the results of determining exchange 
gain or loss on a transaction-by-transaction basis.97 The 
committee believes that individuals also should be given relief 
from the requirement to keep track of gains on an actual 
transaction-by-transaction basis in certain cases.
    \97\ See Staff of the Joint Committee on Taxation, 100th Cong., 1st 
Sess., General Explanation of the Tax Reform Act of 1986, at 1096 
(1987); Treas. Reg. sec. 1.985-3.
---------------------------------------------------------------------------

                        Explanation of Provision

    In a case where an individual acquires nonfunctional 
currency and then disposes of it in a personal transaction, and 
where exchange rates have changed in the intervening period, 
the bill provides for nonrecognition of an individual's 
resulting exchange gain provided that such gain does not exceed 
$200. The bill does not change the treatment of resulting 
exchange losses. It is understood that under other code 
provisions, such losses typically are not deductible by 
individuals (e.g., sec. 165(c)).

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

6. Treatment of certain reimbursed expenses of rural mail carriers 
        (sec. 14114 of the bill and sec. 162 of the code)

                              Present Law

    A taxpayer who uses his or her automobile for business 
purposes may deduct the business portion of the actual 
operation and maintenance expenses of the vehicle, plus 
depreciation (subject to the limitations of sec. 280F). 
Alternatively, the taxpayer may elect to utilize a standard 
mileage rate in computing the deduction allowable for business 
use of an automobile that has not been fully depreciated. Under 
this election, the taxpayer's deduction equals the applicable 
rate multiplied by the number of miles driven for business 
purposes and is taken in lieu of deductions for depreciation 
and actual operation and maintenance expenses.
    An employee of the U.S. Postal Service may compute his 
deduction for business use of an automobile in performing 
services involving the collection and delivery of mail on a 
rural route by using, for all business use mileage, 150 percent 
of the standard mileage rate.
    Rural letter carriers are paid an equipment maintenance 
allowance [EMA] to compensate them for the use of their 
personal automobiles in delivering the mail. The tax 
consequences of the EMA are determined by comparing it with the 
automobile expense deductions that each carrier is allowed to 
claim (using either the actual expenses method or the 150 
percent of the standard mileage rate). If the EMA exceeds the 
allowable automobile expense deductions, the excess generally 
is subject to tax. If the EMA falls short of the allowable 
automobile expense deductions, a deduction is allowed only to 
the extent that the sum of this shortfall and all other 
miscellaneous itemized deductions exceeds 2 percent of the 
taxpayer's adjusted gross income.

                           Reasons for Change

    The filing of tax returns by rural letter carriers can be 
complex. Under present law, those who are reimbursed at more 
than the 150 percent rate must report their reimbursement as 
income and deduct their expenses as miscellaneous itemized 
deductions (subject to the two-percent floor). Permitting the 
income and expenses to wash, so that neither will have to be 
reported on the rural letter carrier's tax return, will 
simplify these tax returns.

                        Explanation of Provision

    The bill repeals the special rate for Postal Service 
employees of 150 percent of the standard mileage rate. In its 
place, the bill provides that the rate of reimbursement 
provided by the Postal Service to rural letter carriers is 
considered to be equivalent to their expenses. The rate of 
reimbursement that is considered to be equivalent to their 
expenses is the rate of reimbursement contained in the 1991 
collective bargaining agreement, which may in the future be 
increased by no more than the rate of inflation.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 1995.

7. Exclusion of combat pay from withholding limited to amount excluded 
        from gross income (sec. 14115 of the bill and sec. 3401 of the 
        code)

                              Present Law

Exclusion for combat pay

    Gross income does not include certain combat pay of members 
of the Armed Forces (code sec. 112). If enlisted personnel 
serve in a combat zone during any part of any month, military 
pay for that month is excluded from gross income. In addition, 
if enlisted personnel are hospitalized as a result of injuries, 
wounds, or disease incurred in a combat zone, military pay for 
that month is also excluded from gross income; this exclusion 
is limited, however, to hospitalization during any month 
beginning not more than 2 years after the end of combat in the 
zone. In the case of commissioned officers, these exclusions 
from income are limited to $500 per month of military pay.

Income tax withholding

    There is no income tax withholding with respect to military 
pay for a month in which a member of the Armed Forces of the 
United States is entitled to the benefits of section 112 (sec. 
3401(a)(2)). With respect to enlisted personnel, this income 
tax withholding rule parallels the exclusion from income under 
section 112: there is total exemption from income tax 
withholding and total exclusion from income. With respect to 
officers, however, the withholding rule is not parallel: there 
is total exemption from income tax withholding, although the 
exclusion from income is limited to $500 per month.

                           Reasons for Change

    In most instances, the wage withholding rules closely 
parallel the income inclusion rules. Consequently, most 
individuals whose income is subject to withholding may 
essentially rely on withholding to fulfill their tax 
obligations. The discrepancy between the withholding rules and 
the exclusion rules with respect to combat pay could cause 
affected taxpayers (primarily officers) to be faced with 
substantial additional tax liability at the time of filing 
their tax returns as a result of underwithholding. Paying the 
additional tax liability with their tax returns could lead to 
greater financial hardship than would withholding that is 
parallel to the exclusion rules.

                        Explanation of Provision

    The bill makes the income tax withholding exemption rules 
parallel to the rules providing an exclusion from income for 
combat pay.

                             Effective Date

    The provision is effective for renumeration paid after 
December 31, 1995.

8. Treatment of traveling expenses of certain Federal employees engaged 
        in criminal investigations (sec. 14116 of the bill and sec. 162 
        of the code)

                              Present Law

    Unreimbursed ordinary and necessary travel expenses paid or 
incurred by an individual in connection with temporary 
employment away from home (e.g., transportation costs and the 
cost of meals and lodging) are generally deductible, subject to 
the two-percent floor on miscellaneous itemized deductions. 
Travel expenses paid or incurred in connection with indefinite 
employment away from home, however, are not deductible. A 
taxpayer's employment away from home in a single location is 
indefinite rather than temporary if it lasts for 1 year or 
more; thus, no deduction is permitted for travel expenses paid 
or incurred in connection with such employment (sec. 162(a)). 
If a taxpayer's employment away from home in a single location 
lasts for less than 1 year, whether such employment is 
temporary or indefinite is determined on the basis of the facts 
and circumstances.

                           Reasons for Change

    The committee believes that it would be inappropriate if 
this provision in the tax laws were to be a hinderance to the 
investigation of a Federal crime.

                        Explanation of Provision

    The 1-year limitation with respect to deductibility of 
expenses while temporarily away from home does not include any 
period during which a Federal employee is certified by the 
Attorney General (or the Attorney General's designee) as 
travelling on behalf of the Federal Government in a temporary 
duty status to investigate or provide support services for the 
investigation of a Federal crime. Thus, expenses for these 
individuals during these periods are fully deductible, 
regardless of the length of the period for which certification 
is given (provided that the other requirements for 
deductibility are satisfied).

                             Effective Date

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

                   subtitle b. pension simplification

  A. Simplified Distribution Rules (secs. 14201-14204 of the bill and 
        secs. 72(d), 101(b), 401(a)(9), and 402(d) of the code)

                              Present Law

In general

    Under present law, a distribution of benefits from a tax-
favored retirement arrangement generally is includible in gross 
income in the year it is paid or distributed under the rules 
relating to the taxation of annuities. A tax-favored retirement 
arrangement includes first, a qualified pension plan (sec. 
401(a)), second, a qualified annuity plan (sec. 403(a)), and 
third, a tax-sheltered annuity (sec. 403(b)). Special rules 
apply in the case of lump-sum distributions from a qualified 
plan, distributions that are rolled over to an individual 
retirement arrangement [IRA], and employer-provided death 
benefits.

Lump-sum distributions

    Under present law, lump-sum distributions from qualified 
plans and annuities are eligible for special 5-year forward 
income averaging (sec. 402(d)). In general, a lump-sum 
distribution is a distribution within one taxable year of the 
balance to the credit of an employee that becomes payable to 
the recipient first, on account of the death of the employee, 
second, after the employee attains age 59\1/2\, third, on 
account of the employee's separation from service, or fourth, 
in the case of self-employed individuals, on account of 
disability. Lump-sum treatment is not available for 
distributions from a tax-sheltered annuity.
    A taxpayer is permitted to make an election with respect to 
a lump-sum distribution received on or after the employee 
attains age 59\1/2\ to use 5-year forward income averaging 
under the tax rates in effect for the taxable year in which the 
distribution is made. In general, this election allows the 
taxpayer to pay a separate tax on the lump-sum distribution 
that approximates the tax that would be due if the lump-sum 
distribution were received in 5 equal installments. If the 
election is made, the taxpayer is entitled to deduct the amount 
of the lump-sum distribution from gross income. Only one such 
election on or after age 59\1/2\ may be made with respect to 
any employee.
    Special transition rules adopted in the Tax Reform Act of 
1986 are available with respect to an employee who attained age 
50 before January 1, 1986. Under these rules, an individual, 
trust, or estate may elect to use 5-year forward income 
averaging (using present-law tax rates) or 10-year forward 
income averaging (using the tax rates in effect prior to the 
Tax Reform Act of 1986) with regard to a single lump-sum 
distribution, without regard to whether the employee has 
attained age 59\1/2\. In addition, an individual, trust, or 
estate receiving a lump-sum distribution with respect to such 
employee may elect to retain the capital gains character of the 
pre-1974 portion of the lump-sum distribution (using a tax rate 
of 20 percent).

Employer-provided death benefits

    Under present law, the beneficiary or estate of a deceased 
employee generally can exclude up to $5,000 in benefits paid by 
or on behalf of an employer by reason of the employee's death 
(sec. 101(b)).

Recovery of basis

    Qualified plan distributions other than lump-sum 
distributions generally are includible in gross income in the 
year they are paid or distributed under the rules relating to 
taxation of annuities (sec. 402(a)). Amounts received as an 
annuity generally are includible in income in the year 
received, except to the extent they represent the return of the 
recipient's investment in the contract (i.e., basis) (sec. 
72(b)). Under present law, a pro-rata basis recovery rule 
generally applies, so that the portion of any annuity payment 
that represents nontaxable return of basis is determined by 
applying an exclusion ratio equal to the employee's total 
investment in the contract divided by the total expected 
payments over the term of the annuity.
    Under a simplified alternative method provided by the 
Internal Revenue Service [IRS] (Notice 88-118) for payments 
from or under qualified retirement arrangements, the taxable 
portion of qualifying annuity payments is determined under a 
simplified exclusion ratio method.
    Under both the pro-rata and simplified alternative methods, 
in no event can the total amount excluded from income as 
nontaxable return of basis be greater than the recipient's 
total investment in the contract.

Required distributions

    Present law provides uniform minimum distribution rules 
generally applicable to all types of tax-favored retirement 
vehicles, including qualified plans and annuities, IRA's, and 
tax-sheltered annuities.
    Under present law, a qualified plan is required to provide 
that the entire interest of each participant will be 
distributed beginning no later than the participant's required 
beginning date (sec. 401(a)(9)). The required beginning date is 
generally April 1 of the calendar year following the calendar 
year in which the plan participant or IRA owner attains age 
70\1/2\. In the case of a governmental plan or a church plan, 
the required beginning date is the later of first, such April 
1, or second, the April 1 of the year following the year in 
which the participant retires.

                           Reasons for Change

    In almost all cases, the responsibility for determining the 
tax liability associated with a distribution from a qualified 
plan, tax-sheltered annuity, or IRA rests with the individual 
receiving the distribution. Under present law, this task can be 
burdensome. Among other things, the taxpayer must consider 
first, whether special tax rules apply that reduce the tax that 
otherwise would be paid, second, the amount of the taxpayer's 
basis in the plan, annuity, or IRA and the rate at which such 
basis is to be recovered, and third, whether or not a portion 
of the distribution is excludable from income as a death 
benefit.
    The number of special rules for taxing pension 
distributions makes it difficult for taxpayers to determine 
which method is best for them and also increases the likelihood 
of error. In addition, the specifics of each of the rules 
create complexity. For example, the present-law rules for 
determining the rate at which a participant's basis in a 
qualified plan is recovered often entail calculations that the 
average participant has difficulty performing. These rules 
require a fairly precise estimate of the period over which 
benefits are expected to be paid. The IRS publication on 
taxation of pension distributions (Publication 939) contains 
over 60 pages of actuarial tables used to determine total 
expected payments.
    The original intent of the income averaging rules for 
pension distributions was to prevent a bunching of taxable 
income because a taxpayer received all of the benefits in a 
qualified plan in a single taxable year. Liberalization of the 
rollover rules in the Unemployment Compensation Amendments of 
1992 increased taxpayers' ability to determine the time of the 
income inclusion of pension distributions, and eliminates the 
need for special rules such as 5-year forward income averaging 
to prevent bunching of income.
    It is inappropriate to require all participants to commence 
distributions by age 70\1/2\ without regard to whether the 
participant is still employed by the employer. However, the 
accrued benefit of employees who retire after age 70\1/2\ 
generally should be actuarially increased to take into account 
the period after age 70\1/2\ in which the employee was not 
receiving benefits.

                       Explanation of Provisions

In general

    The bill sunsets 5-year averaging for lump-sum 
distributions from qualified plans, repeals the $5,000 death 
benefit exclusion, and simplifies the basis recovery rules 
applicable to distributions from qualified plans. In addition, 
the bill modifies the rule that generally requires all 
participants to commence distributions by age 70\1/2\.

Special rules for lump-sum distributions

    The bill sunsets the special 5-year forward income 
averaging rule. Thus, the bill repeals the separate tax paid on 
a lump-sum distribution and also repeals the deduction from 
gross income for taxpayers who elect to pay the separate tax on 
a lump-sum distribution. The bill preserves the transition 
rules adopted in the Tax Reform Act of 1986.

Employer-provided death benefits

    The bill repeals the exclusion from gross income of up to 
$5,000 in employer-provided death benefits.

Recovery of basis

    Under the bill, the portion of an annuity distribution from 
a qualified retirement plan, qualified annuity, or tax-
sheltered annuity that represents nontaxable return of basis 
generally is determined under a method similar to the present-
law simplified alternative method provided by the IRS. Under 
the simplified method provided in the bill, the portion of each 
annuity payment that represents nontaxable return of basis 
generally is equal to the employee's total investment in the 
contract as of the annuity starting date, divided by the number 
of anticipated payments determined by reference to the age of 
the participant in accordance with the table below. The number 
of anticipated payments listed in the table is based on the 
employee's age on the annuity starting date. If the number of 
payments is fixed under the terms of the annuity, that number 
is used instead of the number of anticipated payments listed in 
the table.

If the age of the prThe number of anticipated payments is:g date is:
    Not more than 55..............................................   300
    More than 55 but not more than 60.............................   260
    More than 60 but not more than 65.............................   240
    More than 65 but not more than 70.............................   170
    More than 70..................................................   120

    The simplified method is not available if the primary 
annuitant has attained age 75 on the annuity starting date 
unless there are fewer than 5 years of guaranteed payments 
under the annuity. If, in connection with commencement of 
annuity payments, the recipient receives a lump-sum payment 
that is not part of the annuity stream, such payment is taxable 
under the rules relating to annuities (sec. 72) as if received 
before the annuity starting date, and the investment in the 
contract used to calculate the simplified exclusion ratio for 
the annuity payments is reduced by the amount of the payment. 
As under present law, in no event is the total amount excluded 
from income as nontaxable return of basis greater than the 
recipient's total investment in the contract.

Required distributions

    The bill modifies the rule that requires all participants 
in qualified plans to commence distributions by age 70\1/2\ 
without regard to whether the participant is still employed by 
the employer and generally replaces it with the rule in effect 
prior to the Tax Reform Act of 1986. Under the bill, 
distributions generally are required to begin by April 1 of the 
calendar year following the later of first, the calendar year 
in which the employee attains age 70\1/2\ or second, the 
calendar year in which the employee retires. However, in the 
case of a 5-percent owner of the employer, distributions are 
required to begin no later than the April 1 of the calendar 
year following the year in which the 5-percent owner attains 
age 70\1/2\.
    In addition, in the case of an employee (other than a 5-
percent owner) who retires in a calendar year after attaining 
age 70\1/2\, the bill generally requires the employee's accrued 
benefit to be actuarially increased to take into account the 
period after age 70\1/2\ in which the employee was not 
receiving benefits under the plan. Thus, under the bill, the 
employee's accrued benefit is required to reflect the value of 
benefits that the employee would have received if the employee 
had retired at age 70\1/2\ and had begun receiving benefits at 
that time.
    The actuarial adjustment rule and the rule requiring 5-
percent owners to begin distributions after attainment of age 
70\1/2\ do not apply, under the bill, in the case of a 
governmental plan or church plan.

                             Effective Date

    The simplified distribution rules generally apply to years 
beginning after December 31, 1995. The modifications to the 
basis recovery rules apply with respect to annuity starting 
dates after December 31, 1995. The sunset of 5-year forward 
averaging is effective with respect to taxable years beginning 
after December 31, 1995.

                  B. Increased Access to Pension Plans

1. Modifications of simplified employee pensions [SEP's] (sec. 14211 of 
        the bill and sec. 408(k)(6) of the code)

                              Present Law

    Under present law, certain employers (other than tax-exempt 
and governmental employers) can establish a simplified employee 
pension (``SEP'') for the benefit of their employees under 
which the employees can elect to have contributions made to the 
SEP or to receive the contributions in cash (sec. 408(k)(6)). 
The amounts the employee elects to have contributed to the SEP 
are not currently includible in income. Elective deferrals 
under a SEP are to be treated in the same manner as elective 
deferrals under a qualified cash or deferred arrangement and, 
thus, are subject to the $9,240 (for 1995) limit on elective 
deferrals.
    The election to have amounts contributed to a SEP or 
received in cash is available only if at least 50 percent of 
the eligible employees of the employer elect to have amounts 
contributed to the SEP. In addition, such election is available 
for a taxable year only if the employer maintaining the SEP had 
25 or fewer eligible employees at all times during the prior 
taxable year.
    Under present law, elective deferrals under SEP's are 
subject to a special nondiscrimination test. The amount 
eligible to be deferred as a percentage of each highly 
compensated employee's compensation (i.e., the deferral 
percentage) is limited by the average deferral percentage 
(based solely on elective deferrals) for all nonhighly 
compensated employees who are eligible to participate. The 
deferral percentage for each highly compensated employee 
(taking into account only the first $150,000 (for 1995) of 
compensation) in any year cannot exceed 125 percent of the 
average deferral percentage for all other eligible employees 
for that year. Nonelective SEP contributions may not be 
combined with the elective SEP deferrals for purposes of this 
test. An employer may not make any other SEP contributions 
conditioned on elective SEP deferrals. If the 125-percent test 
is not satisfied, rules similar to the rules applicable to 
excess contributions to a cash or deferred arrangement (sec. 
401(k)) are applied (see C.4., below).

                           Reasons for Change

    Further simplification and broadening of the rules 
applicable to plans of small employers should encourage more 
small employers to establish plans for their employees.

                       Explanation of Provisions

    The bill modifies the rules relating to salary reduction 
SEP's by providing that such SEP's may be established by 
employers with 100 or fewer employees. The bill also repeals 
the requirement that at least half of eligible employees 
actually participate in a salary reduction SEP. The bill also 
modifies the special nondiscrimination test applicable to 
elective deferrals under SEP's so that the maximum permitted 
actual deferral percentage for highly compensated employees for 
the year is determined by reference to the actual deferral 
percentage for nonhighly compensated employees for the 
preceding, rather than the current, year (see C.4., below). The 
bill permits a salary reduction SEP to satisfy the design-based 
safe harbor available to qualified cash or deferred 
arrangements (see C.4., below).

                             Effective Date

    The provisions relating to SEP's apply to years beginning 
after December 31, 1995.

2. State and local governments and tax-exempt organizations eligible 
        under section 401(k) (sec. 14212 of the bill and sec. 401(k) of 
        the code)

                              Present Law

    Under present law, if a tax-qualified profit-sharing or 
stock bonus plan meets certain requirements, then an employee 
is not required to include in income any employer contributions 
to the plan merely because the employee could have elected to 
receive the amount contributed in cash (sec. 401(k)). Plans 
containing this feature are referred to as cash or deferred 
arrangements. Tax-exempt and State and local governmental 
organizations are generally prohibited from establishing 
qualified cash or deferred arrangements. Because of this 
limitation, many of such employers are precluded from 
maintaining broad-based, funded, elective deferral arrangements 
for their employees.

                           Reasons for Change

    Nongovernmental tax-exempt entities and State and local 
governments should be permitted to maintain qualified cash or 
deferred arrangements for their employees on the same basis as 
other employers. The committee believes, however, that such 
employers should be encouraged to provide benefits through 
qualified cash or deferred arrangements, rather than through 
unfunded deferred compensation plans. Benefits provided through 
qualified cash or deferred arrangements are held in a qualified 
pension trust, which provides greater benefit security to plan 
participants. In addition, qualified cash or deferred 
managements must cover a broad group of employees. Thus, the 
committee believes it is generally appropriate to restrict the 
availability of qualified cash or deferred arrangements to 
those State and local governments and tax-exempt entities that 
do not maintain unfunded deferred compensation plans for their 
employees.

                        Explanation of Provision

    The bill allows tax-exempt organizations and State and 
local governments and their agencies and instrumentalities to 
maintain cash or deferred arrangements, unless the entity 
maintains a section 457 plan. Thus, any organization, including 
an Indian tribe, previously denied eligibility on the ground 
that they are a tax-exempt organization or a State or local 
government or agency or instrumentality thereof is eligible to 
maintain a cash or deferred arrangement for its employees under 
the bill.
    The bill does not alter the ability of certain State and 
local governments and tax-exempt organizations to continue to 
maintain qualified cash or deferred arrangements even though 
the employer also maintains a section 457 plan. Thus, qualified 
cash or deferred arrangements first, of rural cooperatives, 
second, adopted by State and local governments before May 6, 
1986, and third, adopted by tax-exempt organizations before 
July 2, 1986, may continued to be maintained even if the 
employer maintains a section 457 plan.

                             Effective Date

    The provision is effective with respect to years beginning 
after December 31, 1996.

                    C. Nondiscrimination Provisions

1. Definition of highly compensated employees (sec. 14221 of the bill 
        and secs. 401(a)(17), 404(l), and 414(q) of the code)

                              Present Law

    For purposes of the rules applying to qualified retirement 
plans under the code, an employee, including a self-employed 
individual, generally is treated as highly compensated with 
respect to a year if, at any time during the year or the 
preceding year, the employee: First, was a 5-percent owner of 
the employer; second, received more than $100,000 (for 1995) in 
annual compensation from the employer; third, received more 
than $66,000 (for 1995) in annual compensation from the 
employer and was one of the top-paid 20 percent of employees 
during the same year; or fourth, was an officer of the employer 
who received compensation greater than $60,000 (for 1995). If, 
for any year, no officer has compensation in excess of $60,000 
(for 1995), then the highest paid officer of the employer for 
such year is treated as a highly compensated employee. These 
dollar amounts are adjusted annually for inflation at the same 
time and in the same manner as the adjustments to the dollar 
limit on benefits under a defined benefit pension plan (sec. 
415(d)).

                           Reasons for Change

    Under present law, the administrative burden on plan 
sponsors to determine which employees are highly compensated 
can be significant. The various categories of highly 
compensated employees require employers to perform a number of 
calculations that for many employers have largely duplicative 
results.

                        Explanation of Provision

    The bill provides that an employee is highly compensated 
with respect to a year if the employee first, was a 5-percent 
owner of the employer at any time during the year or the 
preceding year, or second, had compensation for the preceding 
year in excess of $80,000. The $80,000 threshold is adjusted 
for cost-of-living increases in the same manner and at the same 
time as the limitations on contributions and benefits (sec. 
415(d)) (using a base period ending September 30, 1995). The 
bill also repeals the requirement that if, for a plan year, 
there are no highly compensated employees, the highest paid 
officer is treated as a highly compensated employee.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 1995.

2. Repeal of family aggregation rules (sec. 14222 of the bill and sec. 
        401(a)(26) of the code)

                              Present Law

Treatment of family members

    A special rule applies with respect to the treatment of 
family members of certain highly compensated employees for 
purposes of the nondiscrimination rules applicable to qualified 
plans. Under the special rule, if an employee is a family 
member of either a 5-percent owner or 1 of the top-10 highly 
compensated employees by compensation, then any compensation 
paid to such family member and any contribution or benefit 
under the plan on behalf of such family member is aggregated 
with the compensation paid and contributions or benefits on 
behalf of the 5-percent owner or the highly compensated 
employee in the top-10 employees by compensation. Therefore, 
such family member and employee are treated as a single highly 
compensated employee. An individual is considered a family 
member if, with respect to an employee, the individual is a 
spouse, lineal ascendant or descendant, or spouse of a lineal 
ascendant or descendant of the employee.
    Similar family aggregation rules apply with respect to the 
$150,000 (for 1995) limit on compensation that may be taken 
into account under a qualified plan (sec. 401(a)(17)) and for 
deduction purposes (sec. 404(l)). However, under such 
provisions, only the spouse of the employee and lineal 
descendants of the employee who have not attained age 19 are 
taken into account.

                           Reasons for Change

    The family aggregation rules impose undue restrictions on 
the ability of a family-owned small business to provide 
adequate retirement benefits for all members of the family 
working for the business. In addition, the complexity of the 
calculations required under the family aggregation rules 
appears to be unnecessary in light of the numerous other 
provisions that ensure that qualified pension plans do not 
disproportionately favor highly compensated employees.

                        Explanation of Provision

    The bill repeals the family aggregation rules.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 1995.

3. Modification of additional participation requirements (sec. 14223 of 
        the bill and section 401(a)(26) of the code)

                              Present Law

    Under present law, a plan is not a qualified plan unless it 
benefits no fewer than the lesser of (a) 50 employees of the 
employer or (b) 40 percent of all employees of the employer 
(sec. 401(a)(26)). This requirement may not be satisfied by 
aggregating comparable plans, but may be applied separately to 
different lines of business of the employer. A line of business 
of the employer does not qualify as a separate line of business 
unless it has at least 50 employees.

                           Reasons for Change

    The minimum participation rule was adopted in the Tax 
Reform Act of 1986 because the Congress believed that it was 
inappropriate to permit an employer to maintain multiple plans, 
each of which covered a very small number of employees. 
Although plans that are aggregated for nondiscrimination 
purposes are required to satisfy comparability requirements 
with respect to the amount of contributions or benefits, such 
an arrangement may still discriminate in favor of highly 
compensated employees.
    However, it is appropriate to better target the minimum 
participation rule by limiting the scope of the rule to defined 
benefit pension plans and increasing the minimum number of 
employees required to be covered under very small plans.
    Also, the arbitrary requirement that a line of business 
must have at least 50 employees requires application of the 
minimum participation rule on an employer-wide basis in some 
cases in which the employer truly has separate lines of 
business.

                        Explanation of Provision

    The bill provides that the minimum participation rule 
applies only to defined benefit pension plans. In addition, the 
bill provides that a defined benefit pension plan does not 
satisfy the rule unless it benefits no fewer than the lesser of 
first, 50 employees or second, the greater of (a) 40 percent of 
all employees of the employer or (b) 2 employees (1 employee if 
there is only 1 employee).
    The bill provides that the requirement that a line of 
business has at least 50 employees does not apply in 
determining whether a plan satisfies the minimum participation 
rule on a separate line of business basis.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 1995.

4. Nondiscrimination rules for qualified cash or deferred arrangements 
        and matching contributions (sec. 14224 of the bill and secs. 
        401(k) and (m) of the code)

                              Present Law

    A profit-sharing or stock bonus plan, a pre-ERISA money 
purchase pension plan, or a rural cooperative plan may include 
a qualified cash or deferred arrangement (sec. 401(k)). Under 
such an arrangement, an employee may elect to have the employer 
make payments as contributions to a plan on behalf of the 
employee, or to the employee directly in cash. Contributions 
made at the election of the employee are called elective 
deferrals. The maximum annual amount of elective deferrals that 
can be made by an individual is $9,240 for 1995. This dollar 
limit is indexed for inflation. A special nondiscrimination 
test applies to cash or deferred arrangements.
    The special nondiscrimination test applicable to elective 
deferrals under qualified cash or deferred arrangements is 
satisfied if the actual deferral percentage [ADP] for eligible 
highly compensated employees for a plan year is equal to or 
less than either first, 125 percent of the ADP of all nonhighly 
compensated employees eligible to defer under the arrangement, 
or second, the lesser of 200 percent of the ADP of all eligible 
nonhighly compensated employees or such ADP plus 2 percentage 
points. The ADP for a group of employees is the average of the 
ratios (calculated separately for each employee in the group) 
of the contributions paid to the plan on behalf of the employee 
to the employee's compensation.
    Employer matching contributions and after-tax employee 
contributions under qualified defined contribution plans are 
subject to a special nondiscrimination test similar to the 
special nondiscrimination test applicable to qualified cash or 
deferred arrangements.
    The special nondiscrimination test is satisfied for a plan 
year if the actual contribution percentage [ACP] for eligible 
highly compensated employees does not exceed the greater of 
first, 125 percent of the ACP for all other eligible employees, 
or second, the lesser of 200 percent of the contribution 
percentage for all other eligible employees, or such percentage 
plus 2 percentage points. The ACP for a group of employees for 
a plan year is the average of the ratios (calculated separately 
for each employee in the group) of the sum of matching and 
employee contributions on behalf of each such employee to the 
employee's compensation for the year.
    To determine the amount of excess contributions and the 
employees to whom they are allocated, the elective deferrals of 
highly compensated employees are reduced in the order of their 
actual deferral percentage beginning with those highly 
compensated employees with the highest actual deferral 
percentages.

                           Reasons for Change

    The sources of complexity generally associated with the 
nondiscrimination requirements for qualified cash or deferred 
arrangements and matching contributions are the recordkeeping 
necessary to monitor employee elections, the calculations 
involved in applying the tests, and the correction mechanism, 
i.e., what to do if the plan fails the tests.
    The committee believes that the complexity of 
nondiscrimination requirements, particularly after the Tax 
Reform Act of 1986 changes that imposed a dollar cap on 
elective deferrals ($9,240 in 1995), is not justified by the 
marginal additional participation of rank-and-file employees 
that might be achieved by the operation of these requirements. 
The result that the nondiscrimination rules are intended to 
produce can also be achieved by creating an incentive for 
employers to provide certain matching contributions or 
nonelective contributions on behalf of rank-and-file employees. 
Such contributions should create a sufficient inducement to 
rank-and-file employee participation. Thus the committee 
believes it is appropriate to provide a design-based safe 
harbor for qualified cash or deferred arrangements. Plans that 
satisfy the safe harbors would not have to satisfy the 
nondiscrimination tests for cash or deferred arrangements.
    In addition, the significant simplification that a design-
based safe harbor test achieves may reduce the complexity of 
the qualified cash or deferred arrangement requirements enough 
to encourage additional employers to establish such plans, 
thereby expanding employee access to voluntary retirement 
savings arrangements. The adoption of a nondiscrimination safe 
harbor that eliminates the testing of actual plan contributions 
removes a significant administrative burden that may act as a 
deterrent to employers who would not otherwise set up such a 
plan. Thus, the adoption of a simpler nondiscrimination test 
may encourage more employers, particularly small employers, who 
do not now provide any tax-favored retirement plan for their 
employees, to set up such plans.
    A design-based nondiscrimination test provides certainty to 
an employer and plan participants that does not exist under 
present law. Under such a test, an employer will know at the 
beginning of each plan year whether the plan satisfies the 
nondiscrimination requirements for the year.
    Simplifying the nondiscrimination tests will also reduce 
administrative burdens for those plans that do not utilize the 
safe harbor. The method of distributing excess contributions 
under present law can result in a greater reduction in 
contributions for highly compensated employees at the low end 
of the group of highly compensated employees than highly 
compensated employees with greater compensation. The correction 
mechanism should be modified to prevent this result.

                        Explanation of Provision

In general

    The bill modifies the present-law nondiscrimination test 
applicable to elective deferrals and employer matching and 
after-tax employee contributions to provide that the maximum 
permitted actual deferral percentage for highly compensated 
employees for the year is determined by reference to the actual 
deferral percentage for nonhighly compensated employees for the 
preceding, rather than the current, year. In the case of the 
first plan year of a qualified cash or deferred arrangement, 
the actual deferral percentage of nonhighly compensated 
employees for the previous year is deemed to be 3 percent or, 
at the election of the employer, the actual deferral percentage 
for such first plan year.
    In addition, the bill adds alternative methods of 
satisfying the special nondiscrimination requirements 
applicable to elective deferrals and employer matching 
contributions. Under these safe harbor rules, a cash or 
deferred arrangement is treated as satisfying the actual 
deferral percentage test if the plan of which the arrangement 
is a part (or any other plan of the employer maintained with 
respect to the employees eligible to participate in the cash or 
deferred arrangement) meets first, one of two contribution 
requirements and second, a notice requirement. A plan satisfies 
the safe harbor with respect to matching contributions if 
first, the plan meets the contribution and notice requirements 
under the safe harbor for cash or deferred arrangements and 
second, the plan satisfies a special limitation on matching 
contributions. These safe harbors permit a plan to satisfy the 
special nondiscrimination tests through plan design, rather 
than through the testing of actual contributions.
    The bill also modifies the method of determining excess 
contributions under the present-law nondiscrimination test.

Safe harbor for cash or deferred arrangements

    A plan satisfies the contribution requirements under the 
safe harbor rule for qualified cash or deferred arrangements if 
the plan either first, satisfies a matching contribution 
requirement or second, the employer makes a nonelective 
contribution to a defined contribution plan of at least 3 
percent of an employee's compensation on behalf of each 
nonhighly compensated employee who is eligible to participate 
in the arrangement without regard to whether the employee makes 
elective contributions under the arrangement.
    A plan satisfies the matching contribution requirement if, 
under the arrangement: First, the employer makes a matching 
contribution on behalf of each nonhighly compensated employee 
that is equal to (a) 100 percent of the employee's elective 
contributions up to 3 percent of compensation and (b) 50 
percent of the employee's elective contributions from 3 to 5 
percent of compensation; and second, the level of match for 
highly compensated employees is not greater than the match rate 
for nonhighly compensated employees at any level of 
compensation.
    Alternatively, if the matching contribution requirement is 
not satisfied at some level of employee compensation, the 
requirement is deemed to be satisfied if first, the level of 
employer matching contributions does not increase as employee 
elective contributions increase and second, the aggregate 
amount of matching contributions with respect to elective 
contributions up to that level of compensation at least equals 
the amount of matching contributions that would be made if 
matching contributions satisfied the percentage requirements. 
For example, the alternative test would be satisfied if an 
employer matches 125 percent of an employee's elective 
contributions up to the first 3 percent of compensation, 25 
percent of elective deferrals from 3 to 4 percent of 
compensation, and provides no match thereafter. This is because 
the employer match does not increase and the aggregate amount 
of matching contributions is at least equal to the matching 
contributions required under the general safe harbor rule.
    Employer matching and nonelective contributions used to 
satisfy the contribution requirements of the safe harbor rules 
are required to be nonforfeitable and subject to the 
restrictions on withdrawals that apply to an employee's 
elective deferrals under a qualified cash or deferred 
arrangement (sec. 401(k)(2)(B) and (C)).
    The notice requirement is satisfied if each employee 
eligible to participate in the arrangement is given written 
notice, within a reasonable period before any year, of the 
employee's rights and obligations under the arrangement.

Alternative method of satisfying special nondiscrimination test for 
        matching contributions

    The bill provides a safe harbor method of satisfying the 
special nondiscrimination test applicable to employer matching 
contributions. Under this safe harbor, a plan is treated as 
meeting the special nondiscrimination test if first, the plan 
meets the contribution and notice requirements applicable under 
the safe harbor method of satisfying the special 
nondiscrimination requirement for qualified cash or deferred 
arrangements, and second, the plan satisfies a special 
limitation on matching contributions. After-tax employee 
contributions are tested separately under the ACP test.
    The limitation on matching contributions is satisfied if 
first, the matching contributions on behalf of any employee may 
not be made with respect to employee contributions or elective 
deferrals in excess of 6 percent of compensation and second, 
the level of an employer's matching contribution does not 
increase as an employee's contributions or elective deferrals 
increase.

Simplified employee pensions [SEP's]

    The bill modifies the present-law nondiscrimination test 
applicable to salary reduction SEP's to provide that the 
average of the deferral percentages of all nonhighly 
compensated employees for the preceding, rather than the 
current, year is to be used. In addition, the bill provides 
that a salary reduction SEP is permitted to use the safe harbor 
for qualified cash or deferred arrangements, including the 
special rule for the first year of a plan.

Distribution of excess contributions

    Under the bill, the total amount of excess contributions 
are determined in the same manner as under present law, but the 
distribution of excess contributions are required to be made on 
the basis of the amount of contribution by, or on behalf of, 
each highly compensated employee. Thus, under the bill, excess 
contributions are deemed attributable first to those highly 
compensated employees who have made the greatest dollar amount 
of elective deferrals under the plan. This modified 
distribution method also applies to excess contributions that 
are treated as distributed to an employee and then contributed 
by the employee to the plan (recharacterization).
    For example, assume that an employer maintains a qualified 
cash or deferred arrangement under section 401(k). Assume 
further that the actual deferral percentage [ADP] for the 
eligible nonhighly compensated employees is 2 percent. In 
addition, assume the following facts with respect to the 
eligible highly compensated employees:

----------------------------------------------------------------------------------------------------------------
                                                                                                     Deferral   
                            Employees                              Compensation      Deferral        (percent)  
----------------------------------------------------------------------------------------------------------------
A...............................................................        $200,000          $7,000             3.5
B...............................................................         200,000           7,000             3.5
C...............................................................          70,000           7,000            10.0
D...............................................................          70,000           5,250             7.5
E...............................................................          70,000           2,100             3.0
F...............................................................          70,000           1,750             2.5
----------------------------------------------------------------------------------------------------------------

    Under these facts, the highly compensated employees' ADP is 
5 percent, which fails to satisfy the special nondiscrimination 
requirements.
    Under present law, the highly compensated employees with 
the highest deferral percentages would have their deferrals 
reduced until the ADP of the highly compensated employees is 4 
percent. Accordingly, C and D would have their deferrals 
reduced to $4,025 (i.e., a deferral percentage of 5.75 
percent). The reduction thus is $2,975 for C and $1,225 for D, 
for a total reduction of $4,200.
    Under the bill, the amount of the total reduction is 
calculated in the same manner as under present law so that the 
total reduction remains $4,200. However, this total reduction 
of $4,200 is allocated to highly compensated employees based on 
the employees with the largest contributions. Thus, A, B, and C 
would each be reduced by $1,400 from $7,000 to $5,600. The ADP 
test would not be performed again.
    It is intended that the Secretary interpret and apply the 
section 401(k) and 401(m) nondiscrimination tests in a manner 
consistent with the modified distribution rule. For example, a 
plan will not fail to be a qualified cash or deferred 
arrangement merely because the plan fails to satisfy the 
section 401(k) nondiscrimination test after excess 
contributions are distributed or recharacterized under the 
modified distribution rule.

                             Effective Date

    The provision is effective for plan years beginning after 
December 31, 1995.

                D. Miscellaneous Pension Simplification

1. Treatment of leased employees (sec. 14231 of the bill and sec. 
        414(n) of the code)

                              Present Law

    An individual (a leased employee) who performs services for 
another person (the recipient) may be required to be treated as 
the recipient's employee for various employee benefit 
provisions if the services are performed pursuant to an 
agreement between the recipient and any other person (the 
leasing organization) who is otherwise treated as the 
individual's employer (sec. 414(n)). The individual is to be 
treated as the recipient's employee only if the individual has 
performed services for the recipient on a substantially full-
time basis for a year, and the services are of a type 
historically performed by employees in the recipient's business 
field.
    An individual who otherwise is treated as a recipient's 
leased employee will not be treated as such an employee if the 
individual participates in a safe harbor plan maintained by the 
leasing organization meeting certain requirements. Each leased 
employee is to be treated as an employee of the recipient, 
regardless of the existence of a safe-harbor plan, if more than 
20 percent of an employer's nonhighly compensated work force 
are leased.

                           Reasons for Change

    The leased employee rules are complex and have unexpected 
and sometimes indefensible results, especially as interpreted 
under regulations proposed by the Secretary. For example, under 
the ``historically performed'' standard, the employees and 
partners of a law firm may be the leased employees of a client 
of the firm if they work a sufficient number of hours for the 
client and if it is not unusual for employers in that business 
field to have in-house counsel. While arguably meeting the 
present-law leased employee definition, it is believed that 
situations such as this are outside the intended scope of the 
rules.

                        Explanation of Provision

    The present-law ``historically performed'' test is replaced 
with a new rule defining who must be considered a leased 
employee. Under the bill, an individual is not considered a 
leased employee unless the individual's services are performed 
under significant direction or control by the service 
recipient. As under present law, the determination of whether 
someone is a leased employee is made after determining whether 
the individual is a common-law employee of the service 
recipient. Thus, an individual who is not a common-law employee 
of the service recipient could nevertheless be a leased 
employee of the service recipient. Similarly, the fact that a 
person is or is not found to perform services under significant 
direction or control of the recipient for purposes of the 
employee leasing rules is not determinative of whether the 
person is or is not a common-law employee of the recipient.
    Whether services are performed by an individual under 
significant direction or control by the service recipient 
depends on the facts and circumstances. Factors that are 
relevant in determining whether significant direction or 
control exists include whether the individual is required to 
comply with instructions of the service recipient about when, 
where, and how he or she is to perform the services, whether 
the services must be performed by a particular person, whether 
the individual is subject to the supervision of the service 
recipient, and whether the individual must perform services in 
the order or sequence set by the service recipient. Factors 
that generally are not relevant in determining whether such 
direction or control exists include whether the service 
recipient has the right to hire or fire the individual and 
whether the individual works for others.
    For example, an individual who works under the direct 
supervision of the service recipient would be considered to be 
subject to significant direction or control of the service 
recipient even if another company hired and trained the 
individual, had the ultimate (but unexercised) legal right to 
control the individual, paid his wages, withheld his employment 
and income taxes, and had the exclusive right to fire him. 
Thus, for example, temporary secretaries, receptionists, word 
processing personnel and similar office personnel who are 
subject to the day-to-day control of the employer in 
essentially the same manner as a common law employee are 
treated as leased employees if the period of service threshold 
is reached.
    On the other hand, an individual who is a common-law 
employee of Company A who performs services for Company B on 
the business premises of Company B under the supervision of 
Company A would generally not be considered to be under 
significant direction or control of Company B. The supervision 
by Company A must be more than nominal, however, and not merely 
a mechanism to avoid the literal language of the direction or 
control test.
    An example of the situation in the preceding paragraph 
might be a work crew that comes into a factory to install, 
repair, maintain, or modify equipment or machinery at the 
factory, and that includes a supervisor who is an employee of 
the equipment (or equipment repair) company and who has the 
authority to direct and control the crew, and who actually does 
exercise such direction and control. In this situation, the 
supervisor and his or her crew are not the leased employees of 
the manufacturer, even if the supervisor is in frequent 
communication with the employees of the manufacturer and even 
if the supervisor and his or her crew are required to comply 
with the safety and environmental precautions of the 
manufacturer.
    Under the direction or control test, clerical and similar 
support staff (e.g., secretaries and nurses in a doctor's 
office) generally would be considered to be subject to 
significant direction or control of the service recipient and 
would be leased employees provided the other requirements of 
section 414(n) are met. On the other hand, outside 
professionals who maintain their own businesses (e.g., lawyers 
and accountants) generally would not be considered to be 
subject to such primary control. However, the Secretary is 
encouraged to continue efforts to prevent abuses in the leased 
manager area.
    In many cases, the historically performed test is overly 
broad, and results in the unintended treatment of individuals 
as leased employees. One of the principal purposes for changing 
the leased employee rules is to relieve the unnecessary 
hardship and uncertainty created for employers in these 
circumstances. However, it is not intended that the direction 
or control test enable employers to engage in abusive 
practices. Thus, it is intended that the Secretary interpret 
and apply the leased employee rules in a manner so as to 
prevent abuses. This ability to prevent abuses under the 
leasing rules is in addition to the present-law authority of 
the Secretary under section 414(o). For example, one 
potentially abusive situation exists where the benefit 
arrangements of the service recipient overwhelmingly favor its 
highly compensated employees, the employer has no or very few 
nonhighly compensated common-law employees, yet the employer 
makes substantial use of the services of nonhighly compensated 
individuals who are not its common-law employees.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 1995, except that the changes do not apply to 
relationships that have been previously determined by an IRS 
ruling not to involve leased employees. In applying the leased 
employee rules to years beginning before the effective date, 
the Secretary is directed to use a reasonable interpretation of 
the statute to apply the leasing rules to prevent abuse.

2. Plans covering self-employed individuals (sec. 14232 of the bill and 
        sec. 401(d) of the code)

                              Present Law

    Prior to the Tax Equity and Fiscal Responsibility Act of 
1982 [TEFRA], different rules applied to retirement plans 
maintained by incorporated employers and unincorporated 
employers (such as partnerships and sole proprietors). In 
general, plans maintained by unincorporated employers were 
subject to special rules in addition to the other qualification 
requirements of the code. Most, but not all, of this disparity 
was eliminated by TEFRA. Under present law, certain special 
aggregation rules apply to plans maintained by owner employees 
of unincorporated businesses that do not apply to other 
qualified plans (sec. 401(d) (1) and (2)).

                           Reasons for Change

    The remaining special aggregation rules for plans 
maintained by unincorporated employers are unnecessary and 
should be eliminated. Applying the same set of rules to all 
types of plans would make the qualification standards easier to 
apply and administer.

                        Explanation of Provision

    The bill eliminates the special aggregation rules that 
apply to plans maintained by self-employed individuals that do 
not apply to other qualified plans.

                             Effective Date

    The provision is effective for years beginning after 
December 31, 1995.

3. Elimination of special vesting rule for multiemployer plans (sec. 
        14233 of the bill and sec. 411(a) of the code)

                              Present Law

    Under present law, except in the case of multiemployer 
plans, a plan is not a qualified plan unless a participant's 
employer-provided benefit vests at least as rapidly as under 
one of two alternative minimum vesting schedules. A plan 
satisfies the first schedule if a participant acquires a 
nonforfeitable right to 100 percent of the participant's 
accrued benefit derived from employer contributions upon the 
participant's completion of 5 years of service. A plan 
satisfies the second schedule if a participant has a 
nonforfeitable right to at least 20 percent of the 
participant's accrued benefit derived from employer 
contributions after 3 years of service, 40 percent at the end 
of 4 years of service, 60 percent at the end of 5 years of 
service, 80 percent at the end of 6 years of service, and 100 
percent at the end of 7 years of service.
    In the case of a multiemployer plan, a participant's 
accrued benefit derived from employer contributions is required 
to be 100 percent vested no later than upon the participant's 
completion of 10 years of service. This special rule applies 
only to employees covered by the plan pursuant to a collective 
bargaining agreement.

                           Reasons for Change

    The present-law vesting rules for multiemployer plans add 
to complexity because there are different vesting schedules for 
different types of plans, and different vesting schedules for 
persons within the same multiemployer plan. In addition, the 
present-law rule prevents some workers from earning a pension 
under a multiemployer plan. Conforming the multiemployer plan 
rules to the rules for other plans would mean that workers 
could earn additional benefits.

                        Explanation of Provision

    The bill conforms the vesting rules for multiemployer plans 
to the rules applicable to other qualified plans.

                             Effective Date

    The provision is effective for plan years beginning on or 
after the earlier of first, the later of January 1, 1996, or 
the date on which the last of the collective bargaining 
agreements pursuant to which the plan is maintained terminates, 
or second, January 1, 1998, with respect to participants with 
an hour of service after the effective date.

4. Distributions under rural cooperative plans (sec. 14232 of the bill 
        and sec. 401(k)(7) of the code)

                              Present Law

    Under present law, a qualified cash or deferred arrangement 
can permit withdrawals by participants only after the earlier 
of first, the participant's separation from service, death, or 
disability, second, termination of the arrangement, third, in 
the case of a profit-sharing or stock bonus plan, the 
attainment of age 59\1/2\, or fourth, in the case of a profit-
sharing or stock bonus plan, upon hardship of the participant 
(sec. 401(k)(2)(B)). In the case of a rural cooperative 
qualified cash or deferred arrangement, which is part of a 
money purchase pension plan, withdrawals by participants cannot 
occur upon attainment of age 59\1/2\ or upon hardship.

                           Reasons for Change

    It is appropriate to permit qualified cash or deferred 
arrangements of rural cooperatives to permit distributions to 
plan participants under the same circumstances as other 
qualified cash or deferred arrangements.

                        Explanation of Provision

    The bill provides that a rural cooperative plan that 
includes a qualified cash or deferred arrangement will not be 
treated as violating the qualification requirements merely 
because the plan permits distributions to plan participants 
after the attainment of age 59\1/2\.

                             Effective Date

    The provision is effective for distributions after December 
31, 1995.

5. Treatment of governmental plans under section 415 (sec. 14235 of the 
        bill and secs. 415 and 457 of the code)

                              Present Law

    Present law imposes limits on contributions and benefits 
under qualified plans based on the type of plan (sec. 415). The 
limits apply to plans maintained by private and public 
employers. Certain special rules apply to governmental plans.
    In the case of a defined contribution plan, the annual 
additions to the plan with respect to each plan participant are 
limited to the lesser of first, 25 percent of compensation, or 
second, $30,000 (for 1995). The limit on the annual benefits 
payable by a defined benefit pension plan is generally the 
lesser of first, 100 percent of average compensation for the 3 
years in which it was highest, or second, $120,000 (for 1995). 
The dollar limit are increased for inflation. The dollar limit 
is reduced actuarially if payment of benefits is to begin 
before the Social Security retirement age, and increased if 
benefits are to begin after that age.
     For purpose of these limits, present law provides that 
compensation generally does not include employer contributions 
to certain employee plans under a salary reduction agreement.
     Under special rules for plans maintained by State or local 
governments, such plans may provide benefits greater than those 
permitted by the limits on benefits applicable to plans 
maintained by private employers.

                           Reasons for Change

     The limits on contributions and benefits create unique 
problems for plans maintained by public employers.

                        Explanation of Provision

     The bill makes the following modifications to the limits 
on contributions and benefits as applied to governmental plans: 
First, compensation includes employer contributions to certain 
employee plans under a salary reduction arrangement; second, 
the 100 percent of compensation limitation does not apply; and 
third, the defined benefit pension plan limitation does not 
apply to certain disability and survivor benefits. The bill 
also permits State and local government employers to maintain 
excess benefit plans (i.e., plans that provide benefits that 
cannot be provided under a qualified plan due to the limits on 
contributions and benefits) without regard to the limits on 
unfunded deferred compensation arrangements of State and local 
government employers (sec. 457). Benefits provided by such 
plans are subject to the same tax rules applicable to excess 
plans maintained by private employers (e.g., sec. 83).

                             Effective Date

     The provision is effective for years beginning on or after 
January 1, 1996. Governmental plans are treated as if in 
compliance with the requirements of section 415 for years 
beginning before January 1, 1996.

6. Uniform retirement age (sec. 14236 of the bill and sec. 401(a)(5) of 
        the code)

                               Present Law

     A qualified plan generally must provide that payment of 
benefits under the plan must begin no later than 60 days after 
the end of the plan year in which the participant reaches age 
65. Also, for purpose of the vesting and benefit accrual rules, 
normal retirement age generally can be no later than age 65. 
For purposes of applying the limits on contributions and 
benefits (sec. 415), Social Security retirement age is 
generally used as retirement age. The Social Security 
retirement age as used for such purposes is presently age 65, 
but is scheduled to gradually increase.

                           Reasons for Change

     Many plans base benefits on Social Security retirement age 
so that the benefits under the plan complement Social Security. 
Under present law, plans that do so may fail applicable 
nondiscrimination tests. It is believed that the Social 
Security retirement age is an appropriate age for use under 
plans maintained by private employers.

                        Explanation of Provision

     The bill provides that for purposes of the general 
nondiscrimination rule (sec. 401(a)(4)) the Social Security 
retirement age (as defined in sec. 415) is a uniform retirement 
age and that subsidized early retirement benefits and joint and 
survivor annuities are not treated as not being available to 
employees on the same terms merely because they are based on an 
employee's Social Security retirement age (as defined in sec. 
415).

                             Effective Date

     The provision is effective for years beginning after 
December 31, 1995.

7. Uniform penalty provisions to apply to certain pension reporting 
        requirements (sec. 14237 of the bill and secs. 6652(i) and 
        6724(d) of the code)

                               Present Law

     Any person who fails to file an information report with 
the IRS on or before the prescribed filing date is subject to 
penalties for each failure. The general penalty structure 
provides that the amount of the penalty is to vary with the 
length of time within which the taxpayer corrects the failure, 
and allows taxpayers to correct a de minimis number of errors 
and avoid penalties entirely (sec. 6721). A different, flat-
amount penalty applies for each failure to provide information 
reports to the IRS or statements to payees relating to pension 
payments (sec. 6652(e)).

                           Reasons for Change

     Conforming the information-reporting penalties that apply 
with respect to pension payments to the general information-
reporting penalty structure would simplify the overall penalty 
structure through uniformity and provide more appropriate 
information-reporting penalties with respect to pension 
payments.

                        Explanation of Provision

     The bill incorporates into the general penalty structure 
the penalties for failure to provide information reports 
relating to pension payments to the IRS and to recipients. 
Thus, information reports with respect to pension payments are 
treated in a similar fashion to other information reports. The 
bill also modifies the penalty for failure to provide the 
notice required with respect to distributions that are eligible 
for rollover treatment (sec. 402(b)).

                             Effective Date

     The provision applies to returns and statements the due 
date (determined without regard to extensions) for which is 
after December 31, 1995.

8. Contributions on behalf of disabled employees (sec. 14238 of the 
        bill and sec. 415(c)(3) of the code)

                               Present Law

     Under present law, an employer may elect to continue 
deductible contributions to a defined contribution plan on 
behalf of an employee who is permanently and totally disabled. 
For purposes of the limit on annual additions (sec. 415(c)), 
the compensation of a disabled employee is deemed to be equal 
to the annualized compensation of the employee prior to the 
employee's becoming disabled. Contributions are not permitted 
on behalf of disabled employees who were officers, owners, or 
highly compensated before they became disabled.

                           Reasons for Change

     It is appropriate to facilitate the provision of benefits 
for disabled employees, if it is done on a nondiscriminatory 
basis.

                        Explanation of Provision

     The bill provides that the special rule for contributions 
on behalf of disabled employees is applicable without an 
employer election and to highly compensated employees if the 
defined contribution plan provides for the continuation of 
contributions on behalf of all participants who are permanently 
and totally disabled.

                             Effective Date

     The provision applies to years beginning after December 
31, 1995.

9. Treatment of deferred compensation plans of State and local 
        governments and tax-exempt organizations (sec. 14239 of the 
        bill and sec. 457(e) of the code)

                               Present Law

     Under a general principle of the Federal income tax 
system, individuals are taxed currently not only on 
compensation actually received, but also on compensation 
constructively received during the taxable year. An individual 
is treated as having constructively received compensation 
during the current taxable year if the compensation would have 
been payable during the current taxable year but for the 
individual's election to defer receipt of the compensation to a 
later taxable year.
     An exception to this rule applies to compensation deferred 
under an eligible unfunded deferred compensation plan (a sec. 
457 plan) of a tax-exempt or State or local governmental 
employer.
     Under a section 457 plan, an employee who elects to defer 
the receipt of current compensation will be taxed on the 
amounts deferred when such amounts are paid or made available. 
The maximum annual deferral under such a plan is the lesser of 
first, $7,500 or second, 33\1/3\ percent of compensation (net 
of the deferral).
     In general, amounts deferred under a section 457 plan may 
not be made available to an employee before the earlier of 
first, the calendar year in which the participant attains age 
70\1/2\, second, when the participant is separated from service 
with the employer, or third, when the participant is faced with 
an unforeseeable emergency. Amounts that are made available to 
an employee upon separation from service are includible in 
gross income in the taxable year in which they are made 
available.
     Under present law, benefits under a section 457 plan are 
not treated as made available if the participant may elect to 
receive a lump sum payable after separation from service and 
within 60 days of the election. This exception to the general 
rules is available only if the total amount payable to the 
participant under the plan does not exceed $3,500 and no 
additional amounts may be deferred under the plan with respect 
to the participant.

                           Reasons for Change

     It is appropriate to index the dollar limits on deferrals 
under section 457 plans to maintain the value of the deferral 
and to provide two additional exceptions to the principle of 
constructive receipt with respect to distributions from such 
plans.

                        Explanation of Provision

     The bill makes three changes to the rules governing 
unfunded deferred compensation plans of tax-exempt and 
governmental employers.
     First, the bill permits in-service distributions of 
accounts that do not exceed $3,500 if no amount has been 
deferred under the plan with respect to the account for 2 years 
and there has been no prior distribution under this cash-out 
rule.
     Second, the bill increases the number of elections that 
can be made with respect to the time distributions must begin 
under the plan. The bill provides that the amount payable to a 
participant under a section 457 plan is not to be treated as 
made available merely because the participant may elect to 
defer commencement of distributions under the plan if first, 
the election is made after amounts may be distributed under the 
plan but before the actual commencement of benefits, and 
second, the participant makes only 1 such additional election. 
This additional election is permitted without the need for 
financial hardship, and the election can only be to a date that 
is after the date originally selected by the participant.
     Third, the bill provides for indexing of the dollar limit 
on deferrals. No rounding rules apply to such indexing.

                             Effective Date

     The provision is effective for taxable years beginning 
after December 31, 1995.

10. Trust requirement for deferred compensation plans of State and 
        local governments (sec. 14240 of the bill and sec. 457 of the 
        code)

                              Present Law

     Compensation deferred under an eligible unfunded deferred 
compensation plan (a ``sec. 457 plan'') of a tax-exempt or 
State and local governmental employer is not includible in 
gross income until paid or made available. One of the 
requirements for a section 457 plan is that the maximum annual 
amount that can be deferred is the lesser of $7,500 or 33\1/3\ 
percent of the individual's taxable compensation. This maximum 
limit is coordinated with the annual limit on elective 
deferrals under qualified cash or deferred arrangements (sec. 
401(k) plans) and similar arrangements.
     Amounts deferred under a section 457 plan generally may 
not be made available to an employee before the earlier of 
first, the calendar year in which the employee attains age 
70\1/2\, second, when the employee is separated from service 
with the employer, or third, when the employee is faced with an 
unforeseeable emergency. Amounts that are made available to an 
employee upon separation from service are includible in gross 
income in the taxable year in which they are made available.
     Another requirement of a section 457 plan is that (until 
the compensation is made available to the participant) all 
amounts of compensation deferred under the plan, all property 
and rights purchased with such amounts, and all income 
attributable to such amounts, property, or rights must remain 
solely the property and rights of the employer, subject only to 
the claims of the employer's general creditors. Consequently, 
compensation deferred by employees under a section 457 plan are 
not protected from the employer's general creditors in case of 
the employer's bankruptcy. By contrast, the assets of a 
qualified cash or deferred arrangement must be held in trust 
for the exclusive benefit of employees and cannot be used by 
the employer or the employer's creditors.
    Amounts deferred under plans of tax-exempt and governmental 
employers that do not meet the requirements of section 457 are 
includible in gross income in the first year in which there is 
no substantial risk of forfeiture of such amounts.

                           Reasons for Change

    The committee is concerned about the potential for 
employees of certain State and local governments to lose 
significant portions of their retirement savings because their 
employer has chosen to provide benefits through an unfunded 
deferred compensation plan rather than a qualified pension 
plan. The committee believes, in general, that it is 
appropriate to encourage such employers to provide benefits 
under qualified pension plans, including qualified cash or 
deferred arrangements. However, the committee also recognizes 
that employers may not want to incur the administrative costs 
of terminating their unfunded deferred compensation plans (sec. 
457 plans) and establishing qualified plans. Therefore, the 
committee finds it appropriate to require that benefits under a 
section 457 plan of a State and local government should be held 
in a trust (or custodial account or annuity contract) to 
insulate the retirement benefits of employees from the claims 
of the employer's creditors. The committee continues to believe 
that qualified plans provide the best benefit protections to 
employees and employers should be encouraged to provide 
retirement benefits through such plans rather than section 457 
plans.

                        Explanation of Provision

    Under the bill, all amounts deferred (including amounts 
deferred prior to the effective date of the bill) under a 
section 457 plan maintained by a State and local governmental 
employer are to be held in trust (or custodial account or 
annuity contract) for the exclusive benefit of employees. 
Consequently, the requirement that amounts deferred under a 
section 457 plan be subject only to the claims of the 
employer's creditors is repealed with respect to State and 
local governmental section 457 plans. The trust (or custodial 
account or annuity contract) is provided tax-exempt status and, 
as under present law, amounts are not includible in income 
until made available to the employee. Amounts are not 
considered made available merely because they are held in a 
trust, custodial account, or annuity contract.
    All other present-law requirements applicable to section 
457 plans, including the annual limit on the maximum amount of 
deferral and the restrictions on when amounts deferred can be 
made available, still apply. Further, to the extent these 
requirements, including the trust requirement, are not 
satisfied, amounts deferred are includible in the employee's 
income when there is no substantial risk of forfeiture.
    The bill does not modify the present-law rules applicable 
to section 457 plans of nongovernmental tax-exempt employers or 
the rules applicable to nonqualified plans of other employers.

                             Effective Date

    The provision is effective on the later of first, January 
1, 1996, or second, 90 days after the date of enactment. 
Amounts deferred under a section 457 plan maintained by a State 
or local government prior to such date are required to be held 
in trust (or custodial account or annuity contract) by such 
date.

11. Correction of GATT interest and mortality rate provisions in the 
        Retirement Protection Act (sec. 14241 of the bill and sec. 
        767(d)(3)(A) of the Uruguay Round Agreements Act [GATT])

                              Present Law

    Present law imposes limits on contributions and benefits 
under qualified plans based on the type of plan, i.e., based on 
whether the plan is a defined contribution plan or a defined 
benefit pension plan (sec. 415). An overall limit applies if an 
individual is a participant in both a defined benefit pension 
plan and a defined contribution plan.
    In the case of a defined contribution plan, annual 
additions to the plan with respect to each participant for a 
limitation year generally cannot exceed the lesser of first, 25 
percent of compensation or second, $30,000 (for 1995).
    The limit on the annual benefits payable by a defined 
benefit pension plan is generally the lesser of first, 100 
percent of average compensation for the 3 years in which it was 
the highest or second, $120,000 (for 1995). If a benefit is 
payable under the plan in a form other than a straight life 
annuity, then the benefit must be actuarially adjusted to an 
equivalent annual straight life annuity before applying the 
limit on benefits. In addition, if a benefit is payable 
beginning at an age other than the participant's Social 
Security retirement age, the $120,000 dollar limitation is 
actuarially adjusted so that it equals an annual benefit that 
is equivalent to the dollar limitation at the participant's 
Social Security retirement age. The limit is reduced if 
benefits begin before Social Security retirement age, and 
increased if benefits begin after Social Security retirement 
age.
    The Retirement Protection Act of 1994, enacted as part of 
the implementing legislation for the General Agreement on 
Tariffs and Trade [GATT], modified the actuarial assumptions 
that must be used in adjusting benefits and limitations. In 
general, in adjusting a benefit that is payable in a form other 
than a straight life annuity and in adjusting the dollar 
limitation if benefits begin before Social Security retirement 
age, the interest rate to be used cannot be less than 5 percent 
or the rate specified in the plan. Under the Retirement 
Protection Act, if the benefit is payable in a form subject to 
the requirements of section 417(e)(3),98 then the interest 
rate on 30-year Treasury securities is substituted for 5 
percent.99 Also under the Retirement Protection Act, for 
purposes of adjusting any limit or benefit, the mortality table 
prescribed by the Secretary must be used.
    \98\ Benefits subject to these rules include all forms of benefit 
except nondecreasing annuity benefits payable for the life of the 
participant or, in the case of a preretirement survivor annuity, the 
life of the surviving spouse. For this purpose, a nondecreasing annuity 
includes a qualified joint and survivor annuity, a qualified 
preretirement survivor annuity, and an annuity that decreases merely 
because of the cessation or reduction of Social Security supplements or 
qualified disability payments. See Rev. Rul. 95-29, 1995-15 I.R.B. 10 
(April 10, 1995).
    \99\ In adjusting the $120,000 limit in the case of benefits that 
begin after Social Security retirement age, the interest rate used may 
not be greater than the lesser of 5 percent or the rate specified in 
the plan.
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    This provision of the Retirement Protection Act is 
generally effective as of the first day of the first limitation 
year beginning in 1995.100
    \100\ An employer may elect to treat the changes as being effective 
on or after December 8, 1994 (the date of enactment of the Retirement 
Protection Act).
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    The maximum benefit payable under present law may be less 
than the maximum benefit payable under prior law because the 
30-year Treasury rate required to be used to adjust benefits 
and limits under the Retirement Protection Act is higher than 
the 5-percent interest rate used under prior law. A plan is 
permitted, but not required, to reduce benefits as of the last 
day of the last limitation year beginning before January 1, 
1995, below the level that would have been paid under prior 
law. A plan will not be treated as violating the code rule 
prohibiting cutbacks in accrued benefits (sec. 411(d)(6)) 
merely because it reduces benefits to comply with this 
provision of the Retirement Protection Act. Thus, a 
participant's accrued benefit may be reduced if the reduction 
results solely from the application of this provision.
    The Retirement Protection Act made similar changes to the 
interest rate and mortality assumptions used to calculate the 
value of lump-sum distributions for purposes of the rule 
permitting involuntary distributions of certain accrued 
benefits (sec. 417(e)). In the case of a plan adopted and in 
effect before December 8, 1995, those provisions do not apply 
before the earlier of first, the date a plan amendment applying 
the new assumptions is adopted or made effective (whichever is 
later), or second, the first day of the first plan year 
beginning after December 31, 1999.

                           Reasons for Change

    The committee is aware that the GATT provisions enacted in 
the 103d Congress had the result of reducing the benefit 
payments to certain pension plan beneficiaries. The committee 
believes that it is appropriate to ameliorate this result by 
providing the same transition period for the modifications to 
limits on contributions and benefits to that provided under 
similar GATT provisions.

                        Explanation of Provision

    The bill conforms the effective date of the new interest 
rate and mortality assumptions that must be used under section 
415 to calculate the limits on benefits and contributions to 
the effective date of the provision relating to the calculation 
of lump-sum distributions under section 417(e). Under the bill, 
a plan is not required to use the new assumptions in 
determining the maximum payable benefit under section 415 with 
respect to benefits accrued before the earlier of first, the 
date a plan amendment applying the new assumptions is adopted 
or made effective (whichever is later), or second, the first 
day of the first limitation year beginning after December 31, 
1999. This rule applies only in the case of plans that were 
adopted and in effect before the date of enactment of the 
Retirement Protection Act (December 8, 1994).
    Until the new assumptions apply, the limit on benefits 
under section 415 is calculated under the law in effect 
immediately prior to the enactment of the Retirement Protection 
Act, and consistent with plan provisions in effect immediately 
prior to the enactment of the Retirement Protection Act 
(provided they are consistent with the law in effect 
immediately prior to the enactment of the Retirement Protection 
Act).
    To the extent plans have already been amended to reflect 
the new assumptions, plan sponsors are permitted within 1 year 
of the date of enactment to amend the plan to retroactively 
reverse such amendment. This rule applies only in the case of a 
plan amendment that was adopted or made effective on or before 
the date of enactment

                             Effective Date

    The provision is effective as if included in the Retirement 
Protection Act.

12. Multiple salary reduction agreements permitted under section 403(b) 
        (sec. 14242 of the bill and sec. 403(b) of the code)

                              Present Law

    Under Treasury regulations, a participant in a tax-
sheltered annuity plan (sec. 403(b)) is not permitted to enter 
into more than one salary reduction agreement in any taxable 
year. These regulations further provide that a salary reduction 
agreement is effective only with respect to amounts ``earned'' 
after the agreement becomes effective, and that a salary 
reduction agreement must be irrevocable with respect to amounts 
earned while the agreement is in effect.
    These restrictions do not apply to other elective deferral 
arrangements such as a qualified cash or deferred arrangement 
(sec. 401(k)). Under Treasury regulations, participants in a 
qualified cash or deferred arrangement may enter into more than 
one salary reduction agreement in a taxable year, such an 
agreement is effective with respect to compensation currently 
available to the participant after the agreement becomes 
effective even though previously ``earned,'' and the agreement 
may be revoked by the participant.

                           Reasons for Change

    It is appropriate to conform the treatment of salary 
reduction agreements under section 403(b) to the treatment of 
qualified cash or deferred arrangements.

                        Explanation of Provision

    The bill provides that for participants in a tax-sheltered 
annuity plan, the frequency that a salary reduction agreement 
may be entered into, the compensation to which such agreement 
applies, and the ability to revoke such agreement shall be 
determined under the rules applicable to qualified cash or 
deferred arrangements.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 1995.

13. Waiver of minimum waiting period for qualified plan distributions 
        (sec. 14243 of the bill and sec. 417(a) of the code)

                              Present Law

    Present law contains a number of rules designed to provide 
income to the surviving spouse of a deceased employee. Under 
these spousal protection rules, defined benefit pension plans 
and money purchase pension plans are required to provide that 
vested retirement benefits with a present value in excess of 
$3,500 are payable in the form of a qualified joint and 
survivor annuity [QJSA] or, in the case of a participant who 
dies before the annuity starting date, a qualified 
preretirement survivor annuity [QPSA].
    Benefits from a plan subject to the survivor benefit rules 
may be paid in a form other than a QJSA or QPSA if the 
participant waives the QJSA or QPSA (or both) and the 
applicable notice, election, and spousal consent requirements 
are satisfied.
    Present law contains detailed rules regarding the waiver of 
the QJSA or QPSA forms of benefit and the spousal consent 
requirements. Generally an election to waive the QJSA or QPSA 
forms of benefit must be in writing, and, if the participant is 
married on the annuity starting date, must be accompanied by a 
written spousal consent acknowledging the effect of such 
consent and witnessed by a plan representative or notary 
public. Both the participant's waiver and the spousal consent 
must state the specific nonspouse beneficiary who will receive 
the benefit, and, in the case of a QJSA waiver, must specify 
the particular optional form of benefit that will be paid. The 
waiver will not be valid unless the participant has previously 
received a written explanation of first, the terms and 
conditions of the QJSA or QPSA forms of benefit, second, the 
participant's right to make, and the effect of, an election to 
waive these forms of benefits, third, the rights of the 
participant's spouse, and fourth, the right to make, and the 
effect of, a revocation of an election to waive these forms of 
benefits.
    Final Treasury regulations provide that in the case of a 
QJSA, this written explanation must generally be provided to 
participants no less than 30 days and no more than 90 days 
before the annuity starting date.101 Under these 
regulations, even if a participant has elected to waive the 
QJSA and the spouse has consented to the distribution, the 
distribution from the plan cannot be made until 30 days after 
the written explanation was provided to the 
participant.102
    \101\ T.D. 8219 (August 19, 1988).
    \102\ On September 15, 1995 (after public release of the 
provision), Treasury issued temporary regulations (T.D. 8620) which 
provide that a plan may permit a participant to elect (with any 
applicable spousal consent) a distribution with an annuity starting 
date before 30 days have elapsed since the explanation was provided, as 
long as the distribution commences more than 7 days after the 
explanation was provided. Consequently, even if the participant (and 
spouse, if applicable) has elected to waive the minimum waiting period 
for receiving a qualified plan distribution, the distribution from the 
plan cannot be made until 7 days have elapsed since the explanation was 
provided to the participant.
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                           Reasons for Change

    The committee believes that the notice period applicable to 
a QJSA should not prevent the payment of benefits if such 
period is waived by the plan participant and, if applicable, 
the participant's spouse.

                        Explanation of Provision

    The bill provides that the minimum period prescribed by the 
Secretary of the Treasury in regulations between the date the 
explanation of the QJSA is provided and the annuity starting 
date shall not apply if waived by the participant and, if 
applicable, the participant's spouse. For example, if the 
participant has not elected to waive the QJSA, only the 
participant need waive the minimum waiting period.

                             Effective Date

    The provision is effective with respect to plan years 
beginning after December 31, 1995.

14. Repeal of combined plan limit (sec. 415(e)) (sec. 14244 of the bill 
        and sec. 415(e) of the code)

                              Present Law

In general

    Present law provides limits on contributions and benefits 
under qualified plans based on the type of plan, i.e., based on 
whether the plan is a defined contribution plan or a defined 
benefit pension plan (sec. 415). An overall limit applies if an 
individual is a participant in both a defined benefit pension 
plan and a defined contribution plan.

Defined contribution plan limit

    Under a defined contribution plan, annual additions to the 
plan with respect to each participant for a limitation year 
cannot exceed the lesser of first, 25 percent of compensation 
or second, $30,000 (for 1995). Annual additions generally are 
the sum of employer contributions, employee contributions, and 
forfeitures with respect to an individual under all defined 
contribution plans of the same employer. The $30,000 limit is 
indexed for inflation in $5,000 increments.

Defined benefit plan limit

    The limit on the annual benefit payable to (or with respect 
to) a participant by all defined benefit pension plans of the 
same employer is generally the lesser of first, 100 percent of 
average compensation for the 3 years in which it was the 
highest, or second, $120,000 (for 1995). The $120,000 limit is 
indexed for inflation in $5,000 increments. If a benefit is 
payable under the plan in a form other than a straight life 
annuity, then the benefit must be actuarially adjusted to an 
equivalent annual straight life annuity before applying the 
limit on benefits. In addition, if a benefit is payable 
beginning at an age other than the participant's Social 
Security retirement age, the $120,000 dollar limitation is 
actuarially adjusted so that it equals an annual benefit that 
is equivalent to the dollar limitation at the participant's 
Social Security retirement age. The limit is reduced if 
benefits begin before Social Security retirement age, and 
increased if benefits begin after Social Security retirement 
age.

Combined plan limit

    An additional limit applies if an employee participates in 
both a defined benefit pension plan and a defined contribution 
plan maintained by the same employer (sec. 415(e)). The 
combined plan limitation is designed to prevent avoidance of 
the separate plan limits through the creation of different 
types of plans.
    The combined limit is satisfied if the sum of the ``defined 
benefit plan fraction'' and the ``defined contribution plan 
fraction'' is not greater than 1.0. Although the sum of these 
fractions may not exceed 1.0, the plan fractions effectively 
provide an aggregate limit of the lesser of 1.25 (as applied 
with respect to the dollar limits) or 1.4 (as applied with 
respect to the percentage limits).
    The defined benefit plan fraction is designed to measure 
the portion of the maximum permitted defined benefit plan limit 
that the employee actually uses. The numerator is the 
participant's projected normal retirement benefit determined at 
the close of the year. The denominator is generally the lesser 
of 125 percent of the dollar limitation for the year, or 140 
percent of the employee's average compensation for the 3 years 
of employment in which the employee's average compensation was 
highest.
    The defined contribution plan fraction measures the portion 
that the employee actually uses of the maximum permitted 
contributions to a defined contribution plan for the employee's 
total years of service with the employer. The numerator is 
generally the total of the contributions and forfeitures 
allocated to the employee's account for each of the employee's 
years of service with the employer through the close of the 
year for which the fraction is being determined. The 
denominator is the sum of the lesser of the following amounts, 
computed separately for such year and each prior year of 
service with the employer: First, 125 percent of the dollar 
amount in effect for such year, or second, 140 percent of the 
25 percent of compensation limit for the participant.

                           Reasons for Change

    One of the most significant sources of complexity relating 
to qualified pension plans is the calculation of the combined 
plan limit under section 415(e). Many new employers do not 
establish defined benefit pension plans, which provide 
employees with the greatest retirement income security. One of 
the reasons that defined benefit pension plans are not being 
established is because of the complex rules governing these 
plan and the significant administrative costs entailed in 
maintaining them. Section 415(e) is just one of the deterrents 
to the establishment and maintenance of qualified defined 
benefit pension plans. Thus, the committee does not believe 
that the administrative costs associated with section 415(e) 
and the complexity of the calculations required are justified. 
Further, the committee believes that section 415(e) may have 
the effect of discouraging employers from providing adequate 
retirement benefits to their employees.

                        Explanation of Provision

    The bill repeals the combined limit for participants in 
both a defined contribution plan and a defined benefit pension 
plan maintained by the same employer.

                             Effective Date

    The repeal of the combined plan limit applies to limitation 
years beginning after December 31, 1996.

15. Date for adoption of plan amendments (sec. 14245 of the bill)

                              Present Law

    Under regulations, plan amendments to reflect amendments to 
the code generally must be made within the remedial amendment 
period. Such period generally ends at the time prescribed by 
law for filing the income tax return of the employer for the 
employer's taxable year in which the change in law occurs. The 
plan must be operated in accordance with the law at all times, 
and any plan amendment must apply retroactively to the period 
following the effective date of the change which it reflects.

                           Reasons for Change

    Plan sponsors should have adequate time to amend plan 
documents.

                        Explanation of Provision

    The bill provides that any plan amendments required by the 
bill are not required to be made before the first plan year 
beginning on or after January 1, 1997, if first, the plan is 
operated in accordance with the applicable provision, second, 
the plan is amended to comply with the required changes no 
later than the first day of the first plan year beginning after 
December 31, 1996, and third, the amendment is retroactive to 
the effective date of the applicable provision.

                             Effective Date

    The provision is effective on the date of enactment.

                 Subtitle C. Treatment of Partnerships

                         A. General Provisions

1. Simplified flow-through for large partnerships (sec. 14301 of the 
        bill and new secs. 771-777 of the code)

                              Present Law

Treatment of partnerships in general

    A partnership generally is treated as a conduit for Federal 
income tax purposes. Each partner takes into account separately 
his distributive share of the partnership's items of income, 
gain, loss, deduction or credit. The character of an item is 
the same as if it had been directly realized or incurred by the 
partner. Limitations affecting the computation of taxable 
income generally apply at the partner level.
    The taxable income of a partnership is computed in the same 
manner as that of an individual, except that no deduction is 
permitted for personal exemptions, foreign taxes, charitable 
contributions, net operating losses, certain itemized 
deductions, or depletion. Elections affecting the computation 
of taxable income derived from a partnership are made by the 
partnership, except for certain elections such as those 
relating to discharge of indebtedness income and the foreign 
tax credit.

Capital gains

    The net capital gain of an individual is taxed generally at 
the same rates applicable to ordinary income, subject to a 
maximum marginal rate of 28 percent. Net capital gain is the 
excess of net long-term capital gain over net short-term 
capital loss. Individuals with a net capital loss generally may 
deduct up to $3,000 of the loss each year against ordinary 
income. Net capital losses in excess of the $3,000 limit may be 
carried forward indefinitely.
    A special rule applies to gains and losses on the sale, 
exchange or involuntary conversion of certain trade or business 
assets (sec. 1231). In general, net gains from such assets are 
treated as long-term capital gains but net losses are treated 
as ordinary losses.
    A partner's share of a partnership's net short-term capital 
gain or loss and net long-term capital gain or loss from 
portfolio investments is separately reported to the partner. A 
partner's share of a partnership's net gain or loss under 
section 1231 generally is also separately reported.

Deductions

    Miscellaneous itemized deductions (e.g., certain investment 
expenses) are deductible only to the extent that, in the 
aggregate, they exceed 2 percent of the individual's adjusted 
gross income.
    In general, taxpayers are allowed a deduction for 
charitable contributions, subject to certain limitations. The 
deduction allowed an individual generally cannot exceed 50 
percent of the individual's adjusted gross income for the 
taxable year. The deduction allowed a corporation generally 
cannot exceed 10 percent of the corporation's taxable income. 
Excess contributions are carried forward for 5 years.
    A partner's distributive share of a partnership's 
miscellaneous itemized deductions and charitable contributions 
are separately reported to the partner.

Credits in general

    Each partner is allowed his distributive share of credits 
against his taxable income. A refundable credit for gasoline 
used for exempt purposes is allowed. Nonrefundable credits for 
clinical testing expenses for certain drugs for rare diseases, 
for producing fuel from nonconventional sources, and for the 
general business credit are also allowed. The general business 
credit includes the investment credit (which in turn includes 
the rehabilitation credit), the targeted jobs credit, the 
alcohol fuels credit, the research credit, and the low-income 
housing credit.
    The credits for clinical testing expenses and for the 
production of fuel from nonconventional sources are limited to 
the excess of regular tax over tentative minimum tax. Excess 
credits generally cannot be carried to another taxable year. 
The amount of general business credit allowable in a taxable 
year is limited to the excess of a partner's net income over 
the greater of first, the tentative minimum tax for the year or 
second, 25 percent of the taxpayer's net regular tax liability 
in excess of $25,000. The general business credit in excess of 
this amount is carried back 3 years and forward 15 years.
    The benefit of the investment credit and the low-income 
housing credit is recaptured if, within a specified time 
period, the partner transfers his partnership interest or the 
partnership converts or transfers the property for which the 
credit was allowed.

Foreign taxes

    The foreign tax credit generally allows U.S. taxpayers to 
reduce U.S. income tax on foreign income by the amount of 
foreign income taxes paid or accrued with respect to that 
income. In lieu of electing the foreign tax credit, a taxpayer 
may deduct foreign taxes. The total amount of the credit may 
not exceed the same proportion of the taxpayer's U.S. tax which 
the taxpayer's foreign source taxable income bears to the 
taxpayer's worldwide taxable income for the taxable year.

Unrelated business taxable income

    Tax-exempt organizations are subject to tax on income from 
unrelated businesses. Certain types of income (such as 
dividends, interest and certain rental income) are not treated 
as unrelated business taxable income. Thus, for a partner that 
is an exempt organization, whether partnership income is 
unrelated business taxable income depends on the character of 
the underlying income. Income from a publicly traded 
partnership, however, is treated as unrelated business taxable 
income regardless of the character of the underlying income.

Special rules related to oil and gas activities

    Taxpayers involved in the search for and extraction of 
crude oil and natural gas are subject to certain special tax 
rules. As a result, in the case of partnerships engaged in such 
activities, certain specific information is separately reported 
to partners.
    A taxpayer who owns an economic interest in a producing 
deposit of natural resources (including crude oil and natural 
gas) is permitted to claim a deduction for depletion of the 
deposit as the minerals are extracted. In the case of oil and 
gas produced in the United States, a taxpayer generally is 
permitted to claim the greater of a deduction for cost 
depletion or percentage depletion. Cost depletion is computed 
by multiplying a taxpayer's adjusted basis in the depletable 
property by a fraction, the numerator of which is the amount of 
current year production from the property and the denominator 
of which is the property's estimated reserves as of the 
beginning of that year. Percentage depletion is equal to a 
specified percentage (generally, 15 percent in the case of oil 
and gas) of gross income from production. Cost depletion is 
limited to the taxpayer's basis in the depletable property; 
percentage depletion is not so limited. Once a taxpayer has 
exhausted its basis in the depletable property, it may continue 
to claim percentage depletion deductions (generally referred to 
as ``excess percentage depletion'').
    Certain limitations apply to the deduction for oil and gas 
percentage depletion. First, percentage depletion is not 
available to oil and gas producers who also engage (directly or 
indirectly) in significant levels of oil and gas retailing or 
refining activities (so-called integrated producers of oil and 
gas). Second, the deduction for percentage depletion may be 
claimed by a taxpayer only with respect to up to 1,000 barrels-
per-day of production. Third, the percentage depletion 
deduction may not exceed 100 percent of the taxpayer's net 
income for the taxable year from the depletable oil and gas 
property. Fourth, a percentage depletion deduction may not be 
claimed to the extent that it exceeds 65 percent of the 
taxpayer's pre-percentage depletion taxable income.
    In the case of a partnership that owns depletable oil and 
gas properties, the depletion allowance is computed separately 
by the partners and not by the partnership. In computing a 
partner's basis in his partnership interest, basis is increased 
by the partner's share of any partnership-related excess 
percentage depletion deductions and is decreased (but not below 
zero) by the partner's total amount of depletion deductions 
attributable to partnership property.
    Intangible drilling and development costs [IDC's] incurred 
with respect to domestic oil and gas wells generally may be 
deducted at the election of the taxpayer. In the case of 
integrated producers, no more than 70 percent of IDC's incurred 
during a taxable year may be deducted. IDC's not deducted are 
capitalized and generally are either added to the property's 
basis and recovered through depletion deductions or amortized 
on a straight-line basis over a 60-month period.
    The special treatment granted to IDC's incurred in the 
pursuit of oil and gas may give rise to an item of tax 
preference or (in the case of corporate taxpayers) an adjusted 
current earnings [ACE] adjustment for the alternative minimum 
tax. The tax preference item is based on a concept of ``excess 
IDC's.'' In general, excess IDC's are the excess of IDC's 
deducted for the taxable year over the amount of those IDC's 
that would have been deducted had they been capitalized and 
amortized on a straight-line basis over 120 months commencing 
with the month production begins from the related well. The 
amount of tax preference is then computed as the difference 
between the excess IDC amount and 65 percent of the taxpayer's 
net income from oil and gas (computed without a deduction for 
excess IDC's). For IDC's incurred in taxable years beginning 
after 1992, the ACE adjustment related to IDC's is repealed for 
taxpayers other than integrated producers. Moreover, beginning 
in 1993, the IDC tax preference generally is repealed for 
taxpayers other than integrated producers. In this case, 
however, the repeal of the excess IDC preference may not result 
in more than a 40 percent reduction (30 percent for taxable 
years beginning in 1993) in the amount of the taxpayer's 
alternative minimum taxable income computed as if that 
preference had not been repealed.

Passive losses

    The passive loss rules generally disallow deductions and 
credits from passive activities to the extent they exceed 
income from passive activities. Losses not allowed in a taxable 
year are suspended and treated as current deductions from 
passive activities in the next taxable year. These losses are 
allowed in full when a taxpayer disposes of the entire interest 
in the passive activity to an unrelated person in a taxable 
transaction. Passive activities include trade or business 
activities in which the taxpayer does not materially 
participate. (Limited partners generally do not materially 
participate in the activities of a partnership.) Passive 
activities also include rental activities (regardless of the 
taxpayer's material participation).103 Portfolio income 
(such as interest and dividends), and expenses allocable to 
such income, are not treated as income or loss from a passive 
activity.
    \103\ An individual who actively participates in a rental real 
estate activity and holds at least a 10-percent interest may deduct up 
to $25,000 of passive losses. The $25,000 amount phases out as the 
individual's income increases from $100,000 to $150,000.
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    The $25,000 allowance also applies to low-income housing 
and rehabilitation credits (on a deduction equivalent basis), 
regardless of whether the taxpayer claiming the credit actively 
participates in the rental real estate activity generating the 
credit. In addition, the income phaseout range for the $25,000 
allowance for rehabilitation credits is $200,000 to $250,000 
(rather than $100,000 to $150,000). For interests acquired 
after December 31, 1989 in partnerships holding property placed 
in service after that date, the $25,000 deduction-equivalent 
allowance is permitted for the low-income housing credit 
without regard to the taxpayer's income.
    A partnership's operations may be treated as multiple 
activities for purposes of the passive loss rules. In such 
case, the partnership must separately report items of income 
and deductions from each of its activities.
    Income, loss and other items from a publicly traded 
partnership are treated as separate from income and loss from 
any other publicly traded partnership, and also as separate 
from any income or loss from passive activities.
    The Omnibus Budget Reconciliation Act of 1993 added a rule, 
effective for taxable years beginning after December 31, 1993, 
treating a taxpayer's rental real estate activities in which he 
materially participates as not subject to limitation under the 
passive loss rules if the taxpayer meets eligibility 
requirements relating to real property trades or businesses in 
which he performs services (sec. 469(c)(7)). Real property 
trade or business means any real property development, 
redevelopment, construction, reconstruction, acquisition, 
conversion, rental, operation, management, leasing, or 
brokerage trade or business. An individual taxpayer generally 
meets the eligibility requirements if first, more than half of 
the personal services the taxpayer performs in trades or 
business during the taxable year are performed in real property 
trades or businesses in which the taxpayer materially 
participates, and second, such taxpayer performs more than 750 
hours of services during the taxable year in real property 
trades or businesses in which the taxpayer materially 
participates.

REMIC's

    A tax is imposed on partnerships holding a residual 
interest in a real estate mortgage investment conduit [REMIC]. 
The amount of the tax is the amount of excess inclusions 
allocable to partnership interests owned by certain tax-exempt 
organizations (``disqualified organizations'') multiplied by 
the highest corporate tax rate.

Contribution of property to a partnership

    In general, a partner recognizes no gain or loss upon the 
contribution of property to a partnership. However, income, 
gain, loss and deduction with respect to property contributed 
to a partnership by a partner must be allocated among the 
partners so as to take into account the difference between the 
basis of the property to the partnership and its fair market 
value at the time of contribution. In addition, the 
contributing partner must recognize gain or loss equal to such 
difference if the property is distributed to another partner 
within 5 years of its contribution (sec. 704(c)), or if other 
property is distributed to the contributor within the 5-year 
period (sec. 737).

Election of optional basis adjustments

    In general, the transfer of a partnership interest or a 
distribution of partnership property does not affect the basis 
of partnership assets. A partnership, however, may elect to 
make certain adjustments in the basis of partnership property 
(sec. 754). Under a section 754 election, the transfer of a 
partnership interest generally results in an adjustment in the 
partnership's basis in its property for the benefit of the 
transferee partner only, to reflect the difference between that 
partner's basis for his interest and his proportionate share of 
the adjusted basis of partnership property (sec. 743(b)). Also 
under the election, a distribution of property to a partner in 
certain cases results in an adjustment in the basis of other 
partnership property (sec. 734(b)).

Terminations

    A partnership terminates if either first, all partners 
cease carrying on the business, financial operation or venture 
of the partnership, or second, within a 12-month period 50 
percent or more of the total partnership interests are sold or 
exchanged (sec. 708).

                           Reasons for Change

    The requirement that each partner take into account 
separately his distributive share of a partnership's items of 
income, gain, loss, deduction and credit can result in the 
reporting of a large number of items to each partner. The 
schedule K-1, on which such items are reported, contains space 
for more than 40 items. Reporting so many separately stated 
items is burdensome for individual investors with relatively 
small, passive interests in large partnerships. In many 
respects such investments are indistinguishable from those made 
in corporate stock or mutual funds, which do not require 
reporting of numerous separate items.
    In addition, the number of items reported under the current 
regime makes it difficult for the Internal Revenue Service to 
match items reported on the K-1 against the partner's income 
tax return. Matching is also difficult because items on the K-1 
are often modified or limited at the partner level before 
appearing on the partner's tax return.
    By significantly reducing the number of items that must be 
separately reported to partners, the provision eases the 
reporting burden of partners and facilitates matching by the 
IRS. Moreover, it is understood that the Internal Revenue 
Service is considering restricting the use of substitute 
reporting forms by large partnerships. Reduction of the number 
of items makes possible a short standardized form.

                       Explanation of Provisions

In general

    The bill modifies the tax treatment of a large partnership 
(generally, a partnership with at least 250 partners, or an 
electing partnership with at least 100 partners) and its 
partners. The provision provides that each partner takes into 
account separately the partner's distributive share of the 
following items, which are determined at the partnership level: 
First, taxable income or loss from passive loss limitation 
activities; second, taxable income or loss from other 
activities (e.g., portfolio income or loss); third, net capital 
gain or loss to the extent allocable to passive loss limitation 
activities and other activities; fourth, tax-exempt interest; 
fifth, net alternative minimum tax adjustment separately 
computed for passive loss limitation activities and other 
activities; sixth, general credits; seventh, low-income housing 
credit; eighth, rehabilitation credit; ninth, credit for 
producing fuel from a nonconventional source; tenth, creditable 
foreign taxes and foreign source items; and eleventh, any other 
items to the extent that the Secretary determines that separate 
treatment of such items is appropriate.104 Separate 
treatment may be appropriate, for example, should changes in 
the law necessitate such treatment for any items.
    \104\ In determining the amounts required to be separately taken 
into account by a partner, those provisions of the large partnership 
rules governing computations of taxable income would be applied 
separately with respect to that partner by taking into account that 
partner's distributive share of the partnership's items of income, 
gain, loss, deduction or credit. This rule permits partnerships to make 
otherwise valid special allocations of partnership items to partners.
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    Under the bill, the taxable income of a large partnership 
is computed in the same manner as that of an individual, except 
that the items described above are separately stated and 
certain modifications are made. These modifications include 
disallowing the deduction for personal exemptions, the net 
operating loss deduction and certain itemized 
deductions.105 All limitations and other provisions 
affecting the computation of taxable income or any credit 
(except for the at risk, passive loss and itemized deduction 
limitations, and any other provision specified in regulations) 
are applied at the partnership (and not the partner) level.
    \105\ A large partnership would be allowed a deduction under 
section 212 for expenses incurred for the production of income, subject 
to 70-percent disallowance. No income from a large partnership would be 
treated as fishing or farming income.
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    All elections affecting the computation of taxable income 
or any credit generally are made by the partnership.

Capital gains

    Under the bill, netting of capital gains and losses occurs 
at the partnership level. A partner in a large partnership 
takes into account separately his distributive share of the 
partnership's net capital gain or net capital loss.106 
Such net capital gain or loss is treated as long-term capital 
gain or loss.
    \106\ The term ``net capital gain'' has the same meaning as in 
section 1222(11). The term ``net capital loss'' means the excess of the 
losses from sales or exchanges of capital assets over the gains from 
sales or exchanges of capital assets. Thus, the partnership cannot 
offset any portion of capital losses against ordinary income.
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    Any excess of net short-term capital gain over net long-
term capital loss is consolidated with the partnership's other 
taxable income and is not separately reported.
    A partner's distributive share of the partnership's net 
capital gain is allocated between passive loss limitation 
activities and other activities. The net capital gain is 
allocated to passive loss limitation activities to the extent 
of net capital gain from sales and exchanges of property used 
in connection with such activities, and any excess is allocated 
to other activities. A similar rule applies for purposes of 
allocating any net capital loss.
    Any gains and losses of the partnership under section 1231 
are netted at the partnership level. Net gain is treated as 
long-term capital gain and is subject to the rules described 
above. Net loss is treated as ordinary loss and consolidated 
with the partnership's other taxable income.

Deductions

    The bill contains two special rules for deductions. First, 
miscellaneous itemized deductions are not separately reported 
to partners. Instead, 70 percent of the amount of such 
deductions is disallowed at the partnership level; 107 the 
remaining 30 percent is allowed at the partnership level in 
determining taxable income, and is not subject to the two-
percent floor at the partner level.
    \107\ The ``70 percent'' figure is intended to approximate the 
amount of such deductions that would be denied at the partner level as 
a result of the two-percent floor.
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    Second, charitable contributions are not separately 
reported to partners under the bill. Instead, the charitable 
contribution deduction is allowed at the partnership level in 
determining taxable income, subject to the limitations that 
apply to corporate donors.

Credits in general

    Under the bill, general credits are separately reported to 
partners as a single item. General credits are any credits 
other than the low-income housing credit, the rehabilitation 
credit and the credit for producing fuel from a nonconventional 
source. A partner's distributive share of general credits is 
taken into account as a current year general business credit. 
Thus, for example, the credit for clinical testing expenses is 
subject to the present law limitations on the general business 
credit. The refundable credit for gasoline used for exempt 
purposes and the refund or credit for undistributed capital 
gains of a regulated investment company are allowed to the 
partnership, and thus are not separately reported to partners.
    In recognition of their special treatment under the passive 
loss rules, the low-income housing and rehabilitation credits 
are separately reported.108 In addition, the credit for 
producing fuel from a nonconventional source is separately 
reported.
    \108\ It is understood that the rehabilitation and low-income 
housing credits which are subject to the same passive loss rules (i.e., 
in the case of the low-income housing credit, where the partnership 
interest was acquired or the property was placed in service before 
1990) could be reported together on the same line.
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    The bill imposes credit recapture at the partnership level 
and determines the amount of recapture by assuming that the 
credit fully reduced taxes. Such recapture is applied first to 
reduce the partnership's current year credit, if any; the 
partnership is liable for any excess over that amount. Under 
the bill, the transfer of an interest in a large partnership 
does not trigger recapture.

Foreign taxes

    The bill retains present-law treatment of foreign taxes. 
The partnership reports to the partner creditable foreign taxes 
and the source of any income, gain, loss or deduction taken 
into account by the partnership. Elections, computations and 
limitations are made by the partner.

Tax-exempt interest

    The bill retains present-law treatment of tax-exempt 
interest. Interest on a State or local bond is separately 
reported to each partner.

Unrelated business taxable income

    The bill retains present-law treatment of unrelated 
business taxable income. Thus, a tax-exempt partner's 
distributive share of partnership items is taken into account 
separately to the extent necessary to comply with the rules 
governing such income.

Passive losses

    Under the bill, a partner in a large partnership takes into 
account separately his distributive share of the partnership's 
taxable income or loss from passive loss limitation activities. 
The term ``passive loss limitation activity'' means any 
activity involving the conduct of a trade or business 
(including any activity treated as a trade or business under 
sec. 469(c)(5) or (6)) and any rental activity. A partner's 
share of a large partnership's taxable income or loss from 
passive loss limitation activities is treated as an item of 
income or loss from the conduct of a trade or business which is 
a single passive activity, as defined in the passive loss 
rules. Thus, a large partnership generally is not required to 
separately report items from multiple activities.
    A partner in a large partnership also takes into account 
separately his distributive share of the partnership's taxable 
income or loss from activities other than passive loss 
limitation activities. Such distributive share is treated as an 
item of income or expense with respect to property held for 
investment. Thus, portfolio income (e.g., interest and 
dividends) is reported separately and is reduced by portfolio 
deductions and allocable investment interest expense.
    In the case of a partner holding an interest in a large 
partnership which is not a limited partnership interest, such 
partner's distributive share of any items are taken into 
account separately to the extent necessary to comply with the 
passive loss rules. Thus, for example, income of a large 
partnership is not treated as passive income with respect to 
the general partnership interest of a partner who materially 
participates in the partnership's trade or business.
    Under the bill, the requirement that the passive loss rule 
be separately applied to each publicly traded partnership (sec. 
469(k) of the code) continues to apply.

Alternative minimum tax

    Under the bill, alternative minimum tax [AMT] adjustments 
and preferences are combined at the partnership level. A large 
partnership would report to partners a net AMT adjustment 
separately computed for passive loss limitation activities and 
other activities. In determining a partner's alternative 
minimum taxable income, a partner's distributive share of any 
net AMT adjustment is taken into account instead of making 
separate AMT adjustments with respect to partnership items. The 
net AMT adjustment is determined by using the adjustments 
applicable to individuals (in the case of partners other than 
corporations), and by using the adjustments applicable to 
corporations (in the case of corporate partners). Except as 
provided in regulations, the net AMT adjustment is treated as a 
deferral preference for purposes of the section 53 minimum tax 
credit.

Discharge of indebtedness income

    If a large partnership has income from the discharge of any 
indebtedness, such income is separately reported to each 
partner. In addition, the rules governing such income (sec. 
108) are applied without regard to the large partnership rules. 
Partner-level elections under section 108 are made by each 
partner separately. Thus, for example, the large partnership 
provisions do not affect section 108(d)(6), which provides that 
certain section 108 rules apply at the partner level, or 
section 108(b)(5), which provides for an election to reduce the 
basis of depreciable property. The large partnership provisions 
also do not affect the election under 108(c) (added by the 
Omnibus Budget Reconciliation Act of 1993) to exclude discharge 
of indebtedness income with respect to qualified real property 
business indebtedness.

REMICs

    For purposes of the tax on partnerships holding residual 
interests in REMICs, all interests in a large partnership are 
treated as held by disqualified organizations. Thus, a large 
partnership holding a residual interest in a REMIC is subject 
to a tax equal to the excess inclusions multiplied by the 
highest corporate rate. The amount subject to tax is excluded 
from partnership income.
            Election of optional basis adjustments
    Under the bill, a large partnership may still elect to 
adjust the basis of partnership assets with respect to 
transferee partners. The computation of a large partnership's 
taxable income is made without regard to the section 743(b) 
adjustment. As under present law, the section 743(b) adjustment 
is made only with respect to the transferee partner. In 
addition, a large partnership is permitted to adjust the basis 
of partnership property under section 734(b) if property is 
distributed to a partner, as under present law.

Terminations

    The bill provides that a large partnership does not 
terminate for tax purposes solely because 50 percent of its 
interests are sold or exchanged within a 12-month period.

Partnerships and partners subject to large partnership rules

            Definition of large partnership
    A ``large partnership'' is any partnership with at least 
250 partners in any preceding taxable year beginning after 
December 31, 1995.109 Any partnership treated as a large 
partnership for a taxable year is so treated for all succeeding 
years, even if the number of partners falls below 250. 
Regulations may provide, however, that if the number of 
partners in any taxable year falls below 100, the partnership 
is not treated as a large partnership. Partnerships with at 
least 100 partners can elect to be treated as large 
partnerships. The election applies to the year for which made 
and all subsequent years and cannot be revoked without the 
Secretary's consent.
    \109\ The number of partners is determined by counting only persons 
directly holding partnership interests in the taxable year, including 
persons holding through nominees; persons holding indirectly (e.g., 
through another partnership) are not counted. It is not necessary for a 
partnership to have 250 or more partners at any one time in a taxable 
year for the partnership to constitute a large partnership.
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            Special rules for certain service partnerships
    A large partnership does not include any partnership if 
substantially all the partners are: First, individuals 
performing substantial services in connection with the 
partnership's activities, or personal service corporations the 
owner-employees of which perform such services; second, retired 
partners who had performed such services; or third, spouses of 
partners who had performed such services. In addition, the term 
``partner'' does not include any individual performing 
substantial services in connection with the partnership's 
activities and holding a partnership interest, or an individual 
who formerly performed such services and who held a partnership 
interest at the time the individual performed such services.

Exclusion for commodity partnerships

    The large partnership rules do not apply to any partnership 
the principal activity of which is the buying and selling of 
commodities (not described in sec. 1221(1)), or options, 
futures or forwards with respect to commodities.

Special rules for partnerships holding oil and gas properties

            Election to use simplified reporting
    In general, a large partnership that otherwise meets the 
qualifications for simplified reporting is not required to 
report information to its partners under the rules of that 
regime if it is substantially engaged in oil and gas related 
activities. Rather, such a partnership continues to report 
information to its partners as under present law. The bill 
permits such a partnership, however, to elect to utilize the 
simplified reporting regime, as modified for oil and gas 
purposes. If an election is made for any taxable year, it will 
also apply for all subsequent taxable years unless revoked with 
the consent of the Secretary.
    A partnership is considered to be substantially engaged in 
oil and gas activities if at least 25 percent of the average 
value of its assets during the taxable year consists of oil or 
gas properties.110 In making this determination, a 
partnership is treated as owning its proportionate share of 
assets of any partnership in which it holds an interest.
    \110\ For this purpose, ``oil or gas properties'' means the mineral 
interests in oil or gas which are of a character with respect to which 
a deduction for depletion is allowable under section 611.
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            Simplified reporting treatment of large partnerships with 
                    oil and gas activities
    The bill provides special rules for large partnerships with 
oil and gas activities that operate under the simplified 
reporting regime (i.e., either first, large partnerships that 
are substantially engaged in oil and gas activities and which 
elect to use the regime, or second, large partnerships that are 
not substantially engaged in oil and gas operations, but do 
have some oil and gas activities). These partnerships are 
collectively referred to herein as ``oil and gas large 
partnerships.'' Generally, the bill provides that an oil and 
gas large partnership reports information to its partners under 
the general simplified large partnership reporting regime 
described above. To prevent the extension of percentage 
depletion deductions to persons excluded therefrom under 
present law, however, certain partners are treated as 
disqualified persons under the bill.
    The treatment of a disqualified person's distributive share 
of any item of income, gain, loss, deduction, or credit 
attributable to any partnership oil or gas property is 
determined under the bill without regard to the special rules 
applicable to large partnerships. Thus, an oil and gas large 
partnership reports information related to oil and gas 
activities to a partner who is a disqualified person in the 
same manner and to the same extent that it reports such 
information to that partner under present law. The simplified 
reporting rules of the bill, however, apply with respect to 
reporting such a partner's share of items not related to oil 
and gas activities.
    The bill defines two categories of taxpayers as 
disqualified persons. The first category encompasses taxpayers 
who do not qualify for the deduction for percentage depletion 
under section 613A (i.e., integrated producers of oil and gas). 
The second category includes any person whose average daily 
production of oil and gas (for purposes of determining the 
depletable oil and natural gas quantity under section 
613A(c)(2)) is at least 500 barrels for its taxable year in 
which (or with which) the partnership's taxable year ends. In 
making this computation, all production of domestic crude oil 
and natural gas attributable to the partner is taken into 
account, including such partner's proportionate share of any 
production of the large partnership.
    A taxpayer that falls within a category of disqualified 
person has the responsibility of notifying any large 
partnership in which it holds a direct or indirect interest 
(e.g., through a pass-through entity) of its status as such. 
Thus, for example, if an integrated producer owns an interest 
in a partnership which in turn owns an interest in an oil and 
gas large partnership, it is responsible for providing the 
management of the large partnership information regarding its 
status as a disqualified person and details regarding its 
indirect interest in the large partnership.
    Under the bill, an oil and gas large partnership computes 
its deduction for oil and gas depletion under the general 
statutory rules (subject to certain exceptions described below) 
under the assumptions that the partnership is the taxpayer and 
that it qualifies for the percentage depletion deduction. The 
amount of the depletion deduction, as well as other oil and gas 
related items, generally are reported to each partner (other 
than to partners who are disqualified persons) as components of 
that partner's distributive share of taxable income or loss 
from passive loss limitation activities. The bill provides that 
in computing the partnership's oil and gas percentage depletion 
deduction, the 1,000-barrel-per-day limitation does not apply. 
In addition, an oil and gas large partnership is allowed to 
compute percentage depletion under the bill without applying 
the 65-percent-of-taxable-income limitation under section 
613A(d)(1).
    As under present law, an election to deduct IDC's under 
section 263(c) is made at the partnership level. Since the bill 
treats those taxpayers required by the code (sec. 291) to 
capitalize 30 percent of IDC's as disqualified persons, an oil 
and gas large partnership may pass through a full deduction of 
IDC's to its partners who are not disqualified persons. In 
contrast to present law, an oil and gas large partnership also 
has the responsibility with respect to its partners who are not 
disqualified persons for making an election under section 59(e) 
to capitalize and amortize certain specified IDC's. Partners 
who are disqualified persons are permitted to make their own 
separate section 59(e) elections under the bill.
    Consistent with the general reporting regime for large 
partnerships, the bill provides that a single AMT adjustment 
(under either corporate or noncorporate principles, as the case 
may be) is made and reported to the partners (other than 
disqualified persons) of an oil and gas large partnership as a 
separate item. This separately-reported item is affected by the 
limitation on the repeal of the tax preference for excess 
IDC's. For purposes of computing this limitation, the bill 
treats an oil and gas large partnership as the taxpayer. Thus, 
the limitation on repeal of the IDC preference is applied at 
the partnership level and is based on the cumulative reduction 
in the partnership's alternative minimum taxable income 
resulting from repeal of that preference.
    The bill provides that in making partnership-level 
computations, any item of income, gain, loss, deduction, or 
credit attributable to a partner who is a disqualified person 
is disregarded. For example, in computing the partnership's net 
income from oil and gas for purposes of determining the IDC 
preference (if any) to be reported to partners who are not 
disqualified persons as part of the AMT adjustment, 
disqualified persons' distributive shares of the partnership's 
net income from oil and gas are not to be taken into account.

Regulatory authority

    The Secretary of the Treasury is granted authority to 
prescribe such regulations as may be appropriate to carry out 
the purposes of the provisions.

                             Effective Date

    The provisions generally applies to partnership taxable 
years beginning after December 31, 1995.

2. Simplified audit procedures for large partnerships (sec. 14302 of 
        the bill and secs. 6240, 6241, 6242, 6245, 6246, 6247, 6249, 
        6251, 6255, and 6256 of the code)

                              Present Law

In general

    Prior to 1982, regardless of the size of a partnership, 
adjustments to a partnership's items of income, gain, loss, 
deduction, or credit had to be made in separate proceedings 
with respect to each partner individually. Because a large 
partnership sometimes had many partners located in different 
audit districts, adjustments to items of income, gains, losses, 
deductions, or credits of the partnership had to be made in 
numerous actions in several jurisdictions, sometimes with 
conflicting outcomes.
    The Tax Equity and Fiscal Responsibility Act of 1982 
[TEFRA] established unified audit rules applicable to all but 
certain small (10 or fewer partners) partnerships. These rules 
require the tax treatment of all ``partnership items'' to be 
determined at the partnership, rather than the partner, level. 
Partnership items are those items that are more appropriately 
determined at the partnership level than at the partner level, 
as provided by regulations.
    Under the TEFRA rules, a partner must report all 
partnership items consistently with the partnership return or 
must notify the IRS of any inconsistency. If a partner fails to 
report any partnership item consistently with the partnership 
return, the IRS may make a computational adjustment and 
immediately assess any additional tax that results.

Administrative proceedings

    Under the TEFRA rules, a partner must report all 
partnership items consistently with the partnership return or 
must notify the IRS of any inconsistency. If a partner fails to 
report any partnership item consistently with the partnership 
return, the IRS may make a computational adjustment and 
immediately assess any additional tax that results.
    The IRS may challenge the reporting position of a 
partnership by conducting a single administrative proceeding to 
resolve the issue with respect to all partners. But the IRS 
must still assess any resulting deficiency against each of the 
taxpayers who were partners in the year in which the 
understatement of tax liability arose.
    Any partner of a partnership can request an administrative 
adjustment or a refund for his own separate tax liability. Any 
partner also has the right to participate in partnership-level 
administrative proceedings. A settlement agreement with respect 
to partnership items binds all parties to the settlement.

Tax matters partner

    The TEFRA rules establish the ``Tax Matters Partner'' as 
the primary representative of a partnership in dealings with 
the IRS. The Tax Matters Partner is a general partner 
designated by the partnership or, in the absence of 
designation, the general partner with the largest profits 
interest at the close of the taxable year. If no Tax Matters 
Partner is designated, and it is impractical to apply the 
largest profits interest rule, the IRS may select any partner 
as the Tax Matters Partner.

Notice requirements

    The IRS generally is required to give notice of the 
beginning of partnership-level administrative proceedings and 
any resulting administrative adjustment to all partners whose 
names and addresses are furnished to the IRS. For partnerships 
with more than 100 partners, however, the IRS generally is not 
required to give notice to any partner whose profits interest 
is less than one percent.

Adjudication of disputes concerning partnership items

    After the IRS makes an administrative adjustment, the Tax 
Matters Partner (and, in limited circumstances, certain other 
partners) may file a petition for readjustment of partnership 
items in the Tax Court, the district court in which the 
partnership's principal place of business is located, or the 
Claims Court.

Statute of limitations

    The IRS generally cannot adjust a partnership item for a 
partnership taxable year if more than 3 years have elapsed 
since the later of the filing of the partnership return or the 
last day for the filing of the partnership return.

                           Reasons for Change

    Present audit procedures for large partnerships are 
inefficient and more complex than those for other large 
entities. The IRS must assess any deficiency arising from a 
partnership audit against a large number of partners, many of 
whom cannot easily be located and some of whom are no longer 
partners. In addition, audit procedures are cumbersome and can 
be complicated further by the intervention of partners acting 
individually.

                        Explanation of Provision

    The bill creates a new audit system for large partnerships. 
The provision defines ``large partnership'' the same way for 
audit and reporting purposes (generally partnerships with at 
least 250 partners) except that certain oil and gas 
partnerships exempted from the large partnership reporting 
requirements are large partnerships for the audit rules.
    As under present law, large partnerships and their partners 
are subject to unified audit rules. Thus, the tax treatment of 
``partnership items'' are determined at the partnership, rather 
than the partner, level. The term ``partnership items'' is 
defined as under present law.
    Unlike present law, however, partnership adjustments 
generally will flow through to the partners for the year in 
which the adjustment takes effect. Thus, the current-year 
partners' share of current-year partnership items of income, 
gains, losses, deductions, or credits will be adjusted to 
reflect partnership adjustments that take effect in that year. 
The adjustments generally will not affect prior-year returns of 
any partners (except in the case of changes to any partner's 
distributive shares).
    In lieu of flowing an adjustment through to its partners, 
the partnership may elect to pay an imputed underpayment. The 
imputed underpayment generally is calculated by netting the 
adjustments to the income and loss items of the partnership and 
multiplying that amount by the highest tax rate (whether 
individual or corporate). A partner may not file a claim for 
credit or refund of his allocable share of the payment. A 
partnership may make this election only if it meets 
requirements set forth in Treasury regulations designed to 
ensure payment (for example, in the case of a foreign 
partnership).
    Regardless of whether a partnership adjustment flows 
through to the partners, an adjustment must be offset if it 
requires another adjustment in a year after the adjusted year 
and before the year the offsetted adjustment takes effect. For 
example, if a partnership expensed a $1,000 item in year 1, and 
it was determined in year 4 that the item should have been 
capitalized and amortized ratably over 10 years, the adjustment 
in year 4 would be $700, apart from any interest or penalty. 
(The $900 adjustment for the improper deduction would be offset 
by $200 of adjustments for amortization deductions.) The year 4 
partners would be required to include an additional $700 in 
income for that year. The partnership may ratably amortize the 
remaining $700 of expenses in years 4-10.
    In addition, the partnership, rather than the partners 
individually, generally is liable for any interest and 
penalties that result from a partnership adjustment. Interest 
is computed for the period beginning on the return due date for 
the adjusted year and ending on the earlier of the return due 
date for the partnership taxable year in which the adjustment 
takes effect or the date the partnership pays the imputed 
underpayment. Thus, in the above example, the partnership would 
be liable for 4 years' worth of interest (on a declining 
principal amount).
    Penalties (such as the accuracy and fraud penalties) are 
determined on a year-by-year basis (without offsets) based on 
an imputed underpayment. All accuracy penalty criteria and 
waiver criteria (such as reasonable cause, substantial 
authority, etc.) are determined as if the partnership were a 
taxable individual. Accuracy and fraud penalties are assessed 
and accrue interest in the same manner as if asserted against a 
taxable individual.
    Any payment (for Federal income taxes, interest, or 
penalties) that a large partnership is required to make is 
nondeductible.
    If a partnership ceases to exist before a partnership 
adjustment takes effect, the former partners are required to 
take the adjustment into account, as provided by regulations. 
Regulations are also authorized to prevent abuse and to enforce 
efficiently the audit rules in circumstances that present 
special enforcement considerations (such as partnership 
bankruptcy).

Administrative proceedings

    Under the large partnership audit rules, a partner is not 
permitted to report any partnership items inconsistently with 
the partnership return, even if the partner notifies the IRS of 
the inconsistency. The IRS could treat a partnership item that 
was reported inconsistently by a partner as a mathematical or 
clerical error and immediately assess any additional tax 
against that partner.
    As under present law, the IRS could challenge the reporting 
position of a partnership by conducting a single administrative 
proceeding to resolve the issue with respect to all partners. 
Unlike under present law, however, partners will have no right 
individually to participate in settlement conferences or to 
request a refund.

Partnership representative

    The bill requires each large partnership to designate a 
partner or other person to act on its behalf. If a large 
partnership fails to designate such a person, the IRS is 
permitted to designate any one of the partners as the person 
authorized to act on the partnership's behalf. After the IRS's 
designation, a large partnership could still designate a 
replacement for the IRS-designated partner.

Notice requirements

    Unlike under present law, the IRS is not required to give 
notice to individual partners of the commencement of an 
administrative proceeding or of a final adjustment. Instead, 
the IRS is authorized to send notice of a partnership 
adjustment to the partnership itself by certified or registered 
mail. The IRS could give proper notice by mailing the notice to 
the last known address of the partnership, even if the 
partnership had terminated its existence.

Adjudication of disputes concerning partnership items

    As under present law, an administrative adjustment could be 
challenged in the Tax Court, the district court in which the 
partnership's principal place of business is located, or the 
Claims Court. However, only the partnership, and not partners 
individually, can petition for a readjustment of partnership 
items.
    If a petition for readjustment of partnership items is 
filed by the partnership, the court with which the petition is 
filed will have jurisdiction to determine the tax treatment of 
all partnership items of the partnership for the partnership 
taxable year to which the notice of partnership adjustment 
relates, and the proper allocation of such items among the 
partners. Thus, the court's jurisdiction is not limited to the 
items adjusted in the notice.

Statute of limitations

    Absent an agreement to extend the statute of limitations, 
the IRS generally could not adjust a partnership item of a 
large partnership more than 3 years after the later of the 
filing of the partnership return or the last day for the filing 
of the partnership return. Special rules apply to false or 
fraudulent returns, a substantial omission of income, or the 
failure to file a return. The IRS would assess and collect any 
deficiency of a partner that arises from any adjustment to a 
partnership item subject to the limitations period on 
assessments and collection applicable to the year the 
adjustment takes effect (secs. 6248, 6501, and 6502).

Regulatory authority

    The Secretary of the Treasury is granted authority to 
prescribe regulations as may be necessary to carry out the 
simplified audit procedure provisions, including regulations to 
prevent abuse of the provisions through manipulation. The 
regulations may include rules that address transfers of 
partnership interests, in anticipation of a partnership 
adjustment, to persons who are tax-favored (e.g., corporations 
with net operating losses, tax-exempt organizations, and 
foreign partners) or persons who are expected to be unable to 
pay tax (e.g., shell corporations). For example, if prior to 
the time a partnership adjustment takes effect, a taxable 
partner transfers a partnership interest to a nonresident alien 
to avoid the tax effect of the partnership adjustment, the 
rules may provide, among other things, that income related to 
the partnership adjustment is treated as effectively connected 
taxable income, that the partnership adjustment is treated as 
taking effect before the partnership interest was transferred, 
or that the former partner is treated as a current partner to 
whom the partnership adjustment is allocated.

                             Effective Date

    The provision applies to partnership taxable years 
beginning after December 31, 1995.

3. Due date for furnishing information to partners of large 
        partnerships (sec. 14303 of the bill and sec. 6031(b) of the 
        code)

                              Present Law

    A partnership required to file an income tax return with 
the Internal Revenue Service must also furnish an information 
return to each of its partners on or before the day on which 
the income tax return for the year is required to be filed, 
including extensions. Under regulations, a partnership must 
file its income tax return on or before the 15th day of the 4th 
month following the end of the partnership's taxable year (on 
or before April 15, for calendar year partnerships). This is 
the same deadline by which most individual partners must file 
their tax returns.

                           Reasons for Change

    Information returns that are received on or shortly before 
April 15 (or later) are difficult for individuals to use in 
preparing their tax returns (or in computing their payments) 
that are due on that date.

                        Explanation of Provision

    The bill provides that a large partnership must furnish 
information returns to partners by the first March 15 following 
the close of the partnership's taxable year. Large partnerships 
are only those partnerships subject to the simplified reporting 
rules for large partnerships (generally, those with at least 
250 partners, or electing partnerships with at least 100 
partners).
    The provision also provides that, if the partnership is 
required to provide copies of the information returns to the 
Internal Revenue Service on magnetic media, each schedule (such 
as each Schedule K-1) with respect to each partner is treated 
as a separate information return with respect to the corrective 
periods and penalties that are generally applicable to all 
information returns.

                             Effective Date

    The provision is effective for partnership taxable years 
beginning after December 31, 1995.

4. Partnership returns required on magnetic media (sec. 14304 of the 
        bill and sec. 6011 of the code)

                              Present Law

    Partnerships are permitted, but not required, to provide 
the tax return of the partnership (form 1065), as well as 
copies of the schedules sent to each partner (form K-1), to the 
Internal Revenue Service on magnetic media.

                           Reasons for Change

    Most entities that file large numbers of documents with the 
Internal Revenue Service must do so on magnetic media. 
Conforming the reporting provisions for large partnerships to 
the generally applicable information reporting rules will 
facilitate integration of partnership information into already 
existing data systems.

                        Explanation of Provision

    The bill provides generally that any partnership is 
required to provide the tax return of the partnership (form 
1065), as well as copies of the schedule sent to each partner 
(form K-1), to the Internal Revenue Service on magnetic media. 
An exception is provided for partnerships with 100 or fewer 
partners.

                             Effective Date

    The provision is effective for partnership taxable years 
beginning after December 31, 1995.

5. Treatment of partnership items of individual retirement accounts 
        (sec. 14305 of the bill and sec. 6012 of the code)

                               Present Law

Return filing requirements

     An individual retirement account [IRA] is a trust which 
generally is exempt from taxation except for the taxes imposed 
on income from an unrelated trade or business. A fiduciary of a 
trust that is exempt from taxation (but subject to the taxes 
imposed on income from an unrelated trade or business) 
generally is required to file a return on behalf of the trust 
for a taxable year if the trust has gross income of $1,000 or 
more included in computing unrelated business taxable income 
for that year (Treas. Reg. sec. 1.6012-3(a)(5)).
     Unrelated business taxable income is the gross income 
(including gross income from a partnership) derived by an 
exempt organization from an unrelated trade or business, less 
certain deductions which are directly connected with the 
carrying on of such trade or business (sec. 512(a)(1)). In 
calculating unrelated business taxable income, exempt 
organizations (including IRA's) generally also are permitted a 
specific deduction of $1,000 (sec. 512(b)(12)).

Unified audits of partnerships

     All but certain small partnerships are subject to unified 
audit rules established by the Tax Equity and Fiscal 
Responsibility Act of 1982. These rules require the tax 
treatment of all ``partnership items'' to be determined at the 
partnership, rather than the partner, level. Partnership items 
are those items that are more appropriately determined at the 
partnership level than at the partner level, including such 
items as gross income and deductions of the partnership.

                           Reasons for Change

     Under present law, tax returns often must be filed for 
IRA's that have no taxable income and, consequently, no tax 
liability. The filing of these returns by taxpayers, and the 
processing of these returns by the IRS, impose significant 
costs. Imposing this burden is unnecessary to the extent that 
the income of the IRA has been derived from an interest in a 
partnership that is subject to partnership-level audit rules. 
In these circumstances, the appropriateness of any deductions 
may be determined at the partnership level, and an additional 
filing is unnecessary to facilitate this determination.

                        Explanation of Provision

     The bill modifies the filing threshold for an IRA with an 
interest in a partnership that is subject to the partnership-
level audit rules. A fiduciary of such an IRA could treat the 
trust's share of partnership taxable income as gross income, 
for purposes of determining whether the trust meets the $1,000 
gross income filing threshold. A fiduciary of an IRA that 
receives taxable income from a partnership that is subject to 
partnership-level audit rules of less than $1,000 (before the 
$1,000 specific deduction) is not required to file an income 
tax return if the IRA does not have any other income from an 
unrelated trade or business.

                             Effective Date

     The provision applies to taxable years beginning after 
December 31, 1995.

                    B. Other Partnership Audit Rules

1. Treatment of partnership items in deficiency proceedings (sec. 14311 
        of the bill and sec. 6234 of the code)

                               Present Law

     Partnership proceedings under rules enacted in TEFRA 
111 must be kept separate from deficiency proceedings 
involving the partners in their individual capacities. Prior to 
the Tax Court's opinion in Munro v. Commissioner, 92 T.C. 71 
(1989), the IRS computed deficiencies by assuming that all 
items that were subject to the TEFRA partnership procedures 
were correctly reported on the taxpayer's return. However, 
where the losses claimed from TEFRA partnerships were so large 
that they offset any proposed adjustments to nonpartnership 
items, no deficiency could arise from a non-TEFRA proceeding, 
and if the partnership losses were subsequently disallowed in a 
partnership proceeding, the non-TEFRA adjustments might be 
uncollectible because of the expiration of the statute of 
limitations with respect to nonpartnership items.
    \111\ Tax Equity and Fiscal Responsibility Act of 1982.
---------------------------------------------------------------------------
     Faced with this situation in Munro, the IRS issued a 
notice of deficiency to the taxpayer that presumptively 
disallowed the taxpayer's TEFRA partnership losses for 
computational purposes only. Although the Tax Court ruled that 
a deficiency existed and that the court had jurisdiction to 
hear the case, the court disapproved of the methodology used by 
the IRS to compute the deficiency. Specifically, the court held 
that partnership items (whether income, loss, deduction, or 
credit) included on a taxpayer's return must be completely 
ignored in determining whether a deficiency exists that is 
attributable to nonpartnership items.

                           Reasons for Change

     The opinion in Munro creates problems for both taxpayers 
and the IRS. For example, a taxpayer would be harmed in the 
case where he has invested in a TEFRA partnership and is also 
subject to the deficiency procedures with respect to 
nonpartnership item adjustments, since computing the tax 
liability without regard to partnership items will have the 
same effect as if the partnership items were disallowed. If the 
partnership items were losses, the effect will be a greatly 
increased deficiency for the nonpartnership items. If, when the 
partnership proceedings are completed, the taxpayer is 
ultimately allowed any part of the losses, the taxpayer will 
receive part of the increased deficiency back in the form of an 
overpayment. However, in the interim, the taxpayer will have 
been subject to assessment and collection of a deficiency 
inflated by items still in dispute in the partnership 
proceeding. In essence, a taxpayer in such a case would be 
deprived of a prepayment forum with respect to the partnership 
item adjustments. The IRS would be harmed if a taxpayer's 
income is primarily from a TEFRA partnership, since the IRS may 
be unable to adjust nonpartnership items such as medical 
expense deductions, home mortgage interest deductions on 
charitable contribution deductions because there would be no 
deficiency since, under Munro, the income must be ignored.

                        Explanation of Provision

     The bill overrules Munro and allow the IRS to return to 
its prior practice of computing deficiencies by assuming that 
all TEFRA items whose treatment has not been finally determined 
had been correctly reported on the taxpayer's return. This 
eliminates the need to do special computations that involve the 
removal of TEFRA items from a taxpayer's return, and will 
restore to taxpayers a prepayment forum with respect to the 
TEFRA items. In addition, the provision provides a special rule 
to address the factual situation presented in Munro.
     Specifically, the bill provides a declaratory judgment 
procedure in the Tax Court for adjustments to an oversheltered 
return. An oversheltered return is a return that shows no 
taxable income and a net loss from TEFRA partnerships. In such 
a case, the IRS is authorized to issue a notice of adjustment 
with respect to non-TEFRA items, notwithstanding that no 
deficiency would result from the adjustment. However, the IRS 
could only issue such a notice if a deficiency would have 
arisen in the absence of the net loss from TEFRA partnerships.
     The Tax Court is granted jurisdiction to determine the 
correctness of such an adjustment as well as to make a 
declaration with respect to any other item for the taxable year 
to which the notice of adjustment relates, except for 
partnership items and affected items which require partner-
level determinations. No tax is due upon such a determination, 
but a decision of the Tax Court is treated as a final decision, 
permitting an appeal of the decision by either the taxpayer or 
the IRS. An adjustment determined to be correct would thus have 
the effect of increasing the taxable income that is deemed to 
have been reported on the taxpayer's return. If the taxpayer's 
partnership items were then adjusted in a subsequent 
proceeding, the IRS has preserved its ability to collect tax on 
any increased deficiency attributable to the nonpartnership 
items.
     Alternatively, if the taxpayer chooses not to contest the 
notice of adjustment within the 90-day period, the bill 
provides that when the taxpayer's partnership items are finally 
determined, the taxpayer has the right to file a refund claim 
for tax attributable to the items adjusted by the earlier 
notice of adjustment for the taxable year. Although a refund 
claim is not generally permitted with respect to a deficiency 
arising from a TEFRA proceeding, such a rule is appropriate 
with respect to a defaulted notice of adjustment because 
taxpayers may not challenge such a notice when issued since it 
does not require the payment of additional tax.
    In addition, the bill incorporates a number of provisions 
intended to clarify the coordination between TEFRA audit 
proceedings and individual deficiency proceedings. Under these 
provisions, any adjustment with respect to a nonpartnership 
item that caused an increase in tax liability with respect to a 
partnership item would be treated as a computational adjustment 
and assessed after the conclusion of the TEFRA proceeding. 
Accordingly, deficiency procedures do not apply with respect to 
this increase in tax liability, and the statute of limitations 
applicable to TEFRA proceedings are controlling.

                             Effective Date

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

2. Partnership return to be determinative of audit procedures to be 
        followed (sec. 14312 of the bill and sec. 6231 of the code)

                              Present Law

    TEFRA established unified audit rules applicable to all 
partnerships, except for partnerships with 10 or fewer 
partners, each of whom is a natural person (other than a 
nonresident alien) or an estate, and for which each partner's 
share of each partnership item is the same as that partner's 
share of every other partnership item. Partners in the exempted 
partnerships are subject to regular deficiency procedures.

                           Reasons for Change

    The IRS often finds it difficult to determine whether to 
follow the TEFRA partnership procedures or the regular 
deficiency procedures. If the IRS determines that there were 
fewer than 10 partners in the partnership but was unaware that 
one of the partners was a nonresident alien or that there was a 
special allocation made during the year, the IRS might 
inadvertently apply the wrong procedures and possibly 
jeopardize any assessment. Permitting the IRS to rely on a 
partnership's return would simplify the IRS' task.

                        Explanation of Provision

    The bill permits the IRS to apply the TEFRA audit 
procedures if, based on the partnership's return for the year, 
the IRS reasonably determines that those procedures should 
apply. Similarly, the provision permits the IRS to apply the 
normal deficiency procedures if, based on the partnership's 
return for the year, the IRS reasonably determines that those 
procedures should apply.

                             Effective Date

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

3. Provisions relating to statute of limitations

            a. Suspend statute when an untimely petition is filed (sec. 
                    14313(a) of the bill and sec. 6229 of the code)

                              Present Law

    In a deficiency case, section 6503(a) provides that if a 
proceeding in respect of the deficiency is placed on the docket 
of the Tax Court, the period of limitations on assessment and 
collection is suspended until the decision of the Tax Court 
becomes final, and for 60 days thereafter. The counterpart to 
this provision with respect to TEFRA cases is contained in 
section 6229(d). That section provides that the period of 
limitations is suspended for the period during which an action 
may be brought under section 6226 and, if an action is brought 
during such period, until the decision of the court becomes 
final, and for 1 year thereafter. As a result of this 
difference in language, the running of the statute of 
limitations in a TEFRA case will only be tolled by the filing 
of a timely petition whereas in a deficiency case, the statute 
of limitations is tolled by the filing of any petition, 
regardless of whether the petition is timely.

                           Reasons for Change

    Under present law, if an untimely petition is filed in a 
TEFRA case, the statute of limitations can expire while the 
case is still pending before the court. To prevent this from 
occurring, the IRS must make assessments against all of the 
investors during the pendency of the action and if the action 
is in the Tax Court, presumably abate such assessments if the 
court ultimately determines that the petition was timely. These 
steps are burdensome to the IRS and to taxpayers.

                        Explanation of Provision

    The bill conforms the suspension rule for the filing of 
petitions in TEFRA cases with the rule under section 6503(a) 
pertaining to deficiency cases. Under the provision, the 
statute of limitations in TEFRA cases is suspended by the 
filing of any petition under section 6226, regardless of 
whether the petition is timely or valid, and the suspension 
will remain in effect until the decision of the court becomes 
final, and for 1 year thereafter. Hence, if the statute of 
limitations is open at the time that an untimely petition is 
filed, the limitations period would no longer continue to run 
and possibly expire while the action is pending before the 
court.

                             Effective Date

    The provision is effective with respect to all cases in 
which the period of limitations has not expired under present 
law as of the date of enactment.
            b. Suspend statute of limitations during bankruptcy 
                    proceedings (sec. 14313(b) of the bill and sec. 
                    6229 of the code)

                              Present Law

    The period for assessing tax with respect to partnership 
items generally is the longer of the periods provided by 
section 6229 or section 6501. For partnership items that 
convert to nonpartnership items, section 6229(f) provides that 
the period for assessing tax shall not expire before the date 
which is 1 year after the date that the items become 
nonpartnership items. Section 6503(h) provides for the 
suspension of the limitations period during the pendency of a 
bankruptcy proceeding. However, this provision only applies to 
the limitations periods provided in sections 6501 and 6502.
    Under present law, because the suspension provision in 
section 6503(h) applies only to the limitations periods 
provided in section 6501 and 6502, some uncertainty exists as 
to whether section 6503(h) applies to suspend the limitations 
period pertaining to converted items provided in section 
6229(f) when a petition naming a partner as a debtor in a 
bankruptcy proceeding is filed. As a result, the limitations 
period provided in section 6229(f) may continue to run during 
the pendency of the bankruptcy proceeding, notwithstanding that 
the IRS is prohibited from making an assessment against the 
debtor because of the automatic stay provisions of the 
Bankruptcy Code.

                           Reasons for Change

    The ambiguity in present law makes it difficult for the IRS 
to adjust partnership items that convert to nonpartnership 
items by reason of a partner going into bankruptcy. In 
addition, any uncertainty may result in increased requests for 
the bankruptcy court to lift the automatic stay to permit the 
IRS to make an assessment with respect to the converted items.

                        Explanation of Provision

    The bill clarifies that the statute of limitations is 
suspended for a partner who is named in a bankruptcy petition. 
The suspension period is for the entire period during which the 
IRS is prohibited by reason of the bankruptcy proceeding from 
making an assessment, and for 60 days thereafter. The provision 
does not purport to create any inference as to the proper 
interpretation of present law.

                             Effective Date

    The provision is effective with respect to all cases in 
which the period of limitations has not expired under present 
law as of the date of enactment.
            c. Extend statute of limitations for bankrupt TMP's (sec. 
                    14313(c) of the bill and sec. 6229 of the code)

                              Present Law

    Section 6229(b)(1)(B) provides that the statute of 
limitations is extended with respect to all partners in the 
partnership by an agreement entered into between the tax 
matters partner [TMP] and the IRS. However, Temp. Treas. Reg. 
secs. 301.6231(a)(7)-1T(1)(4) and 301.6231(c)-7T(a) provide 
that upon the filing of a petition naming a partner as a debtor 
in a bankruptcy proceeding, that partner's partnership items 
convert to nonpartnership items, and if the debtor was the tax 
matters partner, such status terminates. These rules are 
necessary because of the automatic stay provision contained in 
11 U.S.C. sec. 362(a)(8). As a result, if a consent to extend 
the statute of limitations is signed by a person who would be 
the TMP but for the fact that at the time that the agreement is 
executed the person was a debtor in a bankruptcy proceeding, 
the consent would not be binding on the other partners because 
the person signing the agreement was no longer the TMP at the 
time that the agreement was executed.

                           Reasons for Change

    The IRS is not automatically notified of bankruptcy filings 
and cannot easily determine whether a taxpayer is in 
bankruptcy, especially if the audit of the partnership is being 
conducted by one district and the taxpayer resides in another 
district, as is frequently the situation in TEFRA cases. If the 
IRS does not discover that a person signing a consent is in 
bankruptcy, the IRS may mistakenly rely on that consent. As a 
result, the IRS may be precluded from assessing any tax 
attributable to partnership item adjustments with respect to 
any of the partners in the partnership.

                        Explanation of Provision

    The bill provides that unless the IRS is notified of a 
bankruptcy proceeding in accordance with regulations, the IRS 
can rely on a statute extension signed by a person who is the 
tax matters partner but for the fact that said person was in 
bankruptcy at the time that the person signed the agreement. 
Statute extensions granted by a bankrupt TMP in these cases are 
binding on all of the partners in the partnership. The 
provision is not intended to create any inference as to the 
proper interpretation of present law.

                             Effective Date

    The provision is effective for extension agreements entered 
into after the date of enactment.

4. Expansion of small partnership exception (sec. 14314 of the bill and 
        sec. 6231 of the code)

                              Present Law

    TEFRA established unified audit rules applicable to all 
partnerships, except for partnerships with 10 or fewer 
partners, each of whom is a natural person (other than a 
nonresident alien) or an estate, and for which each partner's 
share of each partnership item is the same as that partner's 
share of every other partnership item. Partners in the exempted 
partnerships are subject to regular deficiency procedures.

                           Reasons for Change

    The more existence of a C corporation as a partner or of a 
special allocation does not warrant subjecting the partnership 
and its partners of an otherwise small partnership to the TEFRA 
procedures.

                        Explanation of Provision

    The bill permits a small partnership to have a C 
corporation as a partner or to specially allocate items without 
jeopardizing its exception from the TEFRA rules. However, the 
provision retains the prohibition of present law against having 
a flow-through entity (other than an estate of a deceased 
partner) as a partner for purposes of qualifying for the small 
partnership exception.

                             Effective Date

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

5. Exclusion of partial settlements from 1-year limitation on 
        assessment (sec. 14315 of the bill and sec. 6229(f) of the 
        code)

                              Present Law

    The period for assessing tax with respect to partnership 
items generally is the longer of the periods provided by 
section 6229 or section 6501. For partnership items that 
convert to nonpartnership items, section 6229(f) provides that 
the period for assessing tax shall not expire before the date 
which is 1 year after the date that the items become 
nonpartnership items. Section 6231(b)(1)(C) provides that the 
partnership items of a partner for a partnership taxable year 
become nonpartnership items as of the date the partner enters 
into a settlement agreement with the IRS with respect to such 
items.

                           Reasons for Change

    When a partial settlement agreement is entered into, the 
assessment period for the items covered by the agreement may be 
different than the assessment period for the remaining items. 
This fractured statute of limitations poses a significant 
tracking problem for the IRS and necessitates multiple 
computations of tax with respect to each partner's investment 
in the partnership for the taxable year.

                        Explanation of Provision

    The bill provides that if a partner and the IRS enter into 
a settlement agreement with respect to some but not all of the 
partnership items in dispute for a partnership taxable year and 
other partnership items remain in dispute, the period for 
assessing any tax attributable to the settled items is 
determined as if such agreement had not been entered into. 
Consequently, the limitations period that is applicable to the 
last item to be resolved for the partnership taxable year is 
controlling with respect to all disputed partnership items for 
the partnership taxable year. The provision does not purport to 
create any inference as to the proper interpretation of present 
law.

                             Effective Date

    The provision is effective for settlements entered into 
after the date of enactment.

6. Extension of time for filing a request for administrative adjustment 
        (sec. 14316 of the bill and sec. 6227 of the code)

                              Present Law

    If an agreement extending the statute is entered into with 
respect to a non-TEFRA statute of limitations, that agreement 
also extends the statute of limitations for filing refund 
claims (sec. 6511(c)). There is no comparable provision for 
extending the time for filing refund claims with respect to 
partnership items subject to the TEFRA partnership rules.

                           Reasons for Change

    The absence of an extension for filing refund claims in 
TEFRA proceedings hinders taxpayers that may want to agree to 
extend the TEFRA statute of limitations but want to preserve 
their option to file a refund claim later.

                        Explanation of Provision

    The bill provides that if a TEFRA statute extension 
agreement is entered into, that agreement also extends the 
statute of limitations for filing refund claims attributable to 
partnership items or affected items until 6 months after the 
expiration of the limitations period for assessments.

                             Effective Date

    The provision is effective as if included in the amendments 
made by section 402 of the Tax Equity and Fiscal Responsibility 
Act of 1982.

7. Availability of innocent spouse relief in context of partnership 
        proceedings (sec. 14317 of the bill and sec. 6230 of the code)

                              Present Law

    In general, an innocent spouse may be relieved of liability 
for tax, penalties and interest if certain conditions are met 
(sec. 6013(e)). However, existing law does not provide the 
spouse of a partner in a TEFRA partnership with a judicial 
forum to raise the innocent spouse defense with respect to any 
tax or interest that relates to an investment in a TEFRA 
partnership.

                           Reasons for Change

    Providing a forum in which to raise the innocent spouse 
defense with respect to liabilities attributable to adjustments 
to partnership items (including penalties, additions to tax and 
additional amounts) would make the innocent spouse rules more 
uniform.

                        Explanation of Provision

    The bill provides both a prepayment forum and a refund 
forum for raising the innocent spouse defense in TEFRA cases.
    With respect to a prepayment forum, the provision provides 
that within 60 days of the date that a notice of computational 
adjustment relating to partnership items is mailed to the 
spouse of a partner, the spouse could request that the 
assessment be abated. Upon receipt of such a request, the 
assessment is abated and any reassessment will be subject to 
the deficiency procedures. If an abatement is requested, the 
statute of limitations does not expire before the date which is 
60 days after the date of the abatement. If the spouse files a 
petition with the Tax Court, the Tax Court only has 
jurisdiction to determine whether the requirements of section 
6013(e) have been satisfied. In making this determination, the 
treatment of the partnership items that gave rise to the 
liability in question is conclusive.
    Alternatively, the bill provides that the spouse of a 
partner could file a claim for refund to raise the innocent 
spouse defense. The claim has to be filed within 6 months from 
the date that the notice of computational adjustment is mailed 
to the spouse. If the claim is not allowed, the spouse could 
file a refund action. For purposes of any claim or suit under 
this provision, the treatment of the partnership items that 
gave rise to the liability in question is conclusive.

                             Effective Date

    The provision is effective as if included in the amendments 
made by section 402 of the Tax Equity and Fiscal Responsibility 
Act of 1982.

8. Determination of penalties at partnership level (sec. 14318 of the 
        bill and sec. 6221 of the code)

                              Present Law

    Partnership items include only items that are required to 
be taken into account under the income tax subtitle. Penalties 
are not partnership items since they are contained in the 
procedure and administration subtitle. As a result, penalties 
may only be asserted against a partner through the application 
of the deficiency procedures following the completion of the 
partnership-level proceeding.

                           Reasons for Change

    Many penalties are based upon the conduct of the taxpayer. 
With respect to partnerships, the relevant conduct often occurs 
at the partnership level. In addition, applying penalties at 
the partner level through the deficiency procedures following 
the conclusion of the unified proceeding at the partnership 
level increases the administrative burden on the IRS and can 
significantly increase the Tax Court's inventory.

                        Explanation of Provision

    The bill provides that the partnership-level proceeding is 
to include a determination of the applicability of penalties at 
the partnership level. However, the provision allows partners 
to raise any partner-level defenses in a refund forum.

                             Effective Date

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

9. Provisions relating to Tax Court jurisdiction (sec. 14319 of the 
        bill and secs. 6225 and 6226 of the code)

                              Present Law

    Improper assessment and collection activities by the IRS 
during the 150-day period for filing a petition or during the 
pendency of any Tax Court proceeding, ``may be enjoined in the 
proper court.'' Present law may be unclear as to whether this 
includes the Tax Court.
    For a partner other than the Tax Matters Partner to be 
eligible to file a petition for redetermination of partnership 
items in any court or to participate in an existing case, the 
period for assessing any tax attributable to the partnership 
items of that partner must not have expired. Since such a 
partner would only be treated as a party to the action if the 
statute of limitations with respect to them was still open, the 
law is unclear whether the partner would have standing to 
assert that the statute of limitations had expired with respect 
to them.

                           Reasons for Change

    Clarifying the Tax Court's jurisdiction simplifies the 
resolution of tax cases.

                        Explanation of Provision

    The bill clarifies that an action to enjoin premature 
assessments of deficiencies attributable to partnership items 
may be brought in the Tax Court. The provision also permits a 
partner to participate in an action or file a petition for the 
sole purpose of asserting that the period of limitations for 
assessing any tax attributable to partnership items has expired 
for that person. Additionally, the provision clarifies that the 
Tax Court has overpayment jurisdiction with respect to affected 
items.

                             Effective Date

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

10. Treatment of premature petitions filed by notice partners or 5-
        percent groups (sec. 14320 of the bill and sec. 6226 of the 
        code)

                              Present Law

    The Tax Matters Partner is given the exclusive right to 
file a petition for a readjustment of partnership items within 
the 90-day period after the issuance of the notice of a final 
partnership administrative adjustment (FPAA). If the Tax 
Matters Partner does not file a petition within the 90-day 
period, certain other partners are permitted to file a petition 
within the 60-day period after the close of the 90-day period. 
There are ordering rules for determining which action goes 
forward and for dismissing other actions.

                           Reasons for Change

    A petition that is filed within the 90-day period by a 
person who is not the Tax Matters Partner is dismissed. Thus, 
if the Tax Matters Partner does not file a petition within the 
90-day period and no timely and valid petition is filed during 
the succeeding 60-day period, judicial review of the 
adjustments set forth in the notice of FPAA is foreclosed and 
the adjustments are deemed to be correct.

                        Explanation of Provision

    The bill treats premature petitions filed by certain 
partners within the 90-day period as being filed on the last 
day of the following 60-day period under specified 
circumstances, thus affording the partnership with an 
opportunity for judicial review that is not available under 
present law.

                             Effective Date

    The provision is effective with respect to petitions filed 
after the date of enactment.

11. Bonds in case of appeals from certain proceedings (sec. 14321 of 
        the bill and sec. 7485 of the code)

                              Present Law

    A bond must be filed to stay the collection of deficiencies 
pending the appeal of the Tax Court's decision in a TEFRA 
proceeding. The amount of the bond must be based on the court's 
estimate of the aggregate deficiencies of the partners.

                           Reasons for Change

    The Tax Court cannot easily determine the aggregate changes 
in tax liability of all of the partners in a partnership who 
will be affected by the Court's decision in the proceeding. 
Clarifying the calculation of the bond amount would simplify 
the Tax Court's task.

                        Explanation of Provision

    The bill clarifies that the amount of the bond should be 
based on the Tax Court's estimate of the aggregate liability of 
the parties to the action (and not all of the partners in the 
partnership). For purposes of this provision, the amount of the 
bond could be estimated by applying the highest individual rate 
to the total adjustments determined by the Tax Court and 
doubling that amount to take into account interest and 
penalties.

                             Effective Date

    The provision is effective as if included in the amendments 
made by section 402 of the Tax Equity and Fiscal Responsibility 
Act of 1982.

12. Suspension of interest where delay in computational adjustment 
        resulting from certain settlements (sec. 14322 of the bill and 
        sec. 6601 of the code)

                              Present Law

    Interest on a deficiency generally is suspended when a 
taxpayer executes a settlement agreement with the IRS and 
waives the restrictions on assessments and collections, and the 
IRS does not issue a notice and demand for payment of such 
deficiency within 30 days. Interest on a deficiency that 
results from an adjustment of partnership items in TEFRA 
proceedings, however, is not suspended.

                           Reasons for Change

    Processing settlement agreements and assessing the tax due 
takes a substantial amount of time in TEFRA cases. A taxpayer 
is not afforded any relief from interest during this period.

                        Explanation of Provision

    The bill suspends interest where there is a delay in making 
a computational adjustment relating to a TEFRA settlement.

                             Effective Date

    The provision is effective with respect to adjustments 
relating to taxable years beginning after the date of 
enactment.

13. Special rules for administrative adjustment requests with respect 
        to bad debts or worthless securities (sec. 14323 of the bill 
        and sec. 6227 of the code)

                              Present Law

    The non-TEFRA statute of limitations for filing a claim for 
credit or refund generally is the later of first, 3 years from 
the date the return in question was filed or second, 2 years 
from the date the claimed tax was paid, whichever is later 
(sec. 6511(b)). However, an extended period of time, 7 years 
from the date the return was due, is provided for filing a 
claim for refund of an overpayment resulting from a deduction 
for a worthless security or bad debt (sec. 6511(d)).
    Under the TEFRA partnership rules, a request for 
administrative adjustment [RAA] must be filed within 3 years 
after the later of first, the date the partnership return was 
filed or second, the due date of the partnership return 
(determined without regard to extensions) (sec. 6227(a)(1)). In 
addition, the request must be filed before a final partnership 
administrative adjustment [FPAA] is mailed for the taxable year 
(sec. 6227(a)(2)). There is no special provision for extending 
the time for filing an RAA that relates to a deduction for a 
worthless security or an entirely worthless bad debt.

                           Reasons for Change

    Whether and when a stock or debt becomes worthless is a 
question of fact that may not be determinable until after the 
year in which it appears the loss has occurred. An extended 
statute of limitations allows partners in a TEFRA partnership 
the same opportunity to file a delayed claim for refund in 
these difficult factual situations as other taxpayers are 
permitted.
    Further, on past occasions, the IRS issued FPAAs that did 
not adjust the partnership's tax return. This action created 
wasteful paperwork, and may have, in some cases truncated the 
appeals rights of individual partners. A special rule is 
necessary to permit partners who may have been adversely 
impacted by this past practice of the IRS to avail themselves 
of the extended period irrespective of whether an FPAA has been 
issued.

                        Explanation of Provision

    The bill extends the time for the filing of an RAA relating 
to the deduction by a partnership for a worthless security or 
bad debt. In these circumstances, in lieu of the 3-year period 
provided in sec. 6227(a)(1), the period for filing an RAA is 7 
years from the date the partnership return was due with respect 
to which the request is made (determined without regard to 
extensions). The RAA is still required to be filed before the 
FPAA is mailed for the taxable year.

                             Effective Date

    The provision is effective as if included in the amendments 
made by section 402 of the Tax Equity and Fiscal Responsibility 
Act of 1982.

                     subtitle d. foreign provisions

  A. Modification of Passive Foreign Investment Company Provisions to 
 Eliminate Overlap with Subpart F and to Allow Mark-To-Market Election 
    (secs. 14401-14404 of the bill and secs. 1291-1297 of the code)

                              Present Law

Overview

    U.S. citizens and residents and U.S. corporations 
(collectively, ``U.S. persons'') are taxed currently by the 
United States on their worldwide income, subject to a credit 
against U.S. tax on foreign income based on foreign income 
taxes paid with respect to such income. A foreign corporation 
generally is not subject to U.S. tax on its income from 
operations outside the United States.112
    \112\ To the extent that a foreign corporation operates in the 
United States rather than in foreign countries, it generally pays U.S. 
tax like a U.S. corporation.
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    Income of a foreign corporation generally is taxed by the 
United States when it is repatriated to the United States 
through payment to the corporation's U.S. stockholders, subject 
to a foreign tax credit. However, a variety of regimes imposing 
current U.S. tax on income earned through a foreign corporation 
have been reflected in the code. Today the principal anti-
deferral regimes set forth in the code are the controlled 
foreign corporation rules of subpart F (secs. 951-964) and the 
passive foreign investment company rules (secs. 1291-1297). The 
operation and application of these two regimes are described 
below. Additional anti-deferral regimes set forth in the code 
are the foreign personal holding company rules (secs. 551-558); 
the personal holding company rules (secs. 541-547); the 
accumulated earnings tax (secs. 531-537); and the foreign 
investment company and electing foreign investment company 
rules (secs. 1246-1247). The anti-deferral regimes included in 
the code overlap such that a given taxpayer may be subject to 
multiple sets of anti-deferral rules.

Controlled foreign corporations

            In general
    A controlled foreign corporation [CFC] is defined in the 
code generally as any foreign corporation if U.S. persons own 
more than 50 percent of the corporation's stock (measured by 
vote or value), taking into account only those U.S. persons 
that own at least 10 percent of the stock (measured by vote 
only) (sec. 957). Stock ownership includes not only stock owned 
directly, but also all stock owned indirectly or constructively 
(sec. 958).
    Certain income of a CFC (sometimes referred to as ``subpart 
F income'') is subject to current U.S. tax under the code's 
subpart F provisions. When a CFC earns subpart F income, the 
United States generally taxes the corporation's 10-percent U.S. 
shareholders currently on their pro rata share of the subpart F 
income. In effect, the code treats those U.S. shareholders as 
having received a current distribution out of the subpart F 
income. The foreign tax credit may reduce the U.S. tax on such 
amounts.
    Subpart F income typically is income that is relatively 
movable from one taxing jurisdiction to another and that is 
subject to low rates of foreign tax. Subpart F income consists 
of foreign base company income (as defined in sec. 954), 
insurance income (as defined in sec. 953), and certain income 
relating to international boycotts and other violations of 
public policy (as defined in sec. 952(a)(3)-(5)). Subpart F 
income does not include the foreign corporation's income that 
is effectively connected with the conduct of a trade or 
business within the United States, which income is subject to 
current tax in the United States (sec. 952(b)).
             Foreign base company income
    Foreign base company income includes five categories of 
income: foreign personal holding company income, foreign base 
company sales income, foreign base company services income, 
foreign base company shipping income, and foreign base company 
oil-related income (sec. 954(a)). In computing foreign base 
company income, amounts of income in these five categories are 
reduced by allowable deductions (including taxes and interest) 
properly allocable to such amounts of income (sec. 954(b)(5)).
    One category of foreign base company income is foreign 
personal holding company income (sec. 954(c)). For subpart F 
purposes, foreign personal holding company income generally 
includes interest, dividends, and annuities; some rents and 
royalties; related party factoring income; net commodities 
gains; net foreign currency gains; and net gains from sales or 
exchanges of certain other property.
    Foreign personal holding company income under subpart F 
does not include certain dividends and interest received from a 
related corporation organized and operating in the same foreign 
country as the recipient, and certain rents and royalties 
received from a related corporation for the use of property 
within the country in which the recipient was created or 
organized (sec. 954(c)(3)). However, interest, rent, and 
royalty payments do not qualify for the exclusion to the extent 
that such payments reduce subpart F income of the payor. In 
addition, the exclusion does not apply to any dividends with 
respect to stock owned by a CFC to the extent that the 
distributed earnings and profits were accumulated by the 
distributing corporation during periods when the CFC did not 
hold the stock.
    In addition to foreign personal holding company income, 
foreign base company income includes foreign base company sales 
and services income, which consist respectively of income 
attributable to related party purchases and sales routed 
through the income recipient's country if that country is 
neither the origin nor the destination of the goods, and income 
from services performed outside the country of the 
corporation's incorporation for or on behalf of related 
persons. Foreign base company income also includes foreign base 
company shipping income. Finally, foreign base company income 
generally includes ``downstream'' oil-related income (i.e., 
foreign oil-related income other than extraction income).
            Current inclusion of subpart F income
    When a CFC earns subpart F income, the United States 
generally taxes the corporation's 10-percent U.S. shareholders 
currently on their pro rata share of the subpart F income (sec. 
951). In the case of a corporation that is a CFC for its entire 
taxable year, and a U.S. shareholder that owns the same 
proportion of stock in the corporation throughout the 
corporation's taxable year, the U.S. shareholder's pro rata 
share of subpart F income is the amount that would have been 
distributed with respect to the shareholder's stock if on the 
last day of the corporation's taxable year the CFC had 
distributed all of its subpart F income pro rata to all of its 
shareholders.
    Under a de minimis rule, none of a CFC's gross income for a 
taxable year is treated as foreign base company income or 
subpart F insurance income if the sum of the corporation's 
gross foreign base company income and gross subpart F insurance 
income for the year is less than the lesser of 5 percent of its 
gross income, or $1 million (sec. 954(b)(3)(A)). On the other 
hand, if more than 70 percent of a CFC's gross income is 
foreign base company income and/or subpart F insurance income, 
generally all of its income is treated as foreign base company 
income or insurance income (whichever is appropriate) (sec. 
954(b)(3)(B)).
    Income otherwise subject to current taxation as foreign 
base company income can be excluded from subpart F if the 
income did not in fact bear a materially lower tax than would 
be due on the same income earned directly by a U.S. corporation 
(sec. 954(b)(4)). Under this rule, subpart F income (other than 
foreign base company oil-related income) does not include items 
of income received by a CFC if the taxpayer establishes to the 
satisfaction of the Secretary that the income, measured under 
U.S. tax rules, was subject to an effective rate of foreign tax 
equal to at least 90 percent of the maximum U.S. corporate tax 
rate.
            Current inclusion of other earnings
    In addition to the current inclusion of subpart F income, a 
10-percent U.S. shareholder generally is taxable on its pro 
rata share of the lesser of first, the foreign corporation's 
average investment in U.S. property, to the extent that such 
investment exceeds the foreign corporation's earnings and 
profits that were previously taxed on that basis, or second, 
the foreign corporation's current or accumulated earnings and 
profits to the extent that such earnings have not been 
previously taxed as earnings invested in U.S. property or in 
excess passive assets; but only to the extent that such lesser 
amount exceeds the amount of such earnings that have been 
previously taxed as subpart F income (secs. 951(a)(1)(B), 956, 
and 959). Similarly, pursuant to section 956A which was enacted 
by the Omnibus Budget Reconciliation Act of 1993, a 10-percent 
U.S. shareholder generally is taxable on its pro rata share of 
the lesser of first, the foreign corporation's average 
investment in excess passive assets, to the extent that such 
investment exceeds the foreign corporation's earnings and 
profits that were previously taxed on that basis, or second, 
the foreign corporation's current or accumulated earnings and 
profits 113 to the extent that such earnings have not been 
previously taxed as earnings invested in U.S. property or in 
excess passive assets; but only to the extent that such lesser 
amount exceeds the amount of such earnings that have been 
previously taxed as subpart F income (secs. 951(a)(1)(C), 956A, 
and 959). The amounts of such investments are measured at the 
close of each calendar quarter of the taxable year.
    \113\ Accumulated earnings and profits are taken into account for 
this purpose only to the extent that they were accumulated in taxable 
years begining after September 30, 1993.
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            Distributions of previously taxed income
    Earnings and profits of a CFC that are (or previously have 
been) included in the incomes of the U.S. shareholders are not 
taxed again when such earnings are actually distributed to the 
U.S. shareholders (sec. 959(a)(1)). Similarly, such previously 
taxed income is not included in the incomes of the U.S. 
shareholders in the event that such earnings are invested in 
U.S. property (sec. 959(a)(2)) or in excess passive assets 
(sec. 959(a)(3)). Previously taxed income actually distributed 
from a lower-tier CFC to a higher tier CFC is disregarded in 
determining the subpart F income of the higher tier CFC that is 
included in the income of the U.S. shareholders. In the event 
that stock in the CFC is transferred subsequent to the income 
inclusion but prior to the actual distribution of previously 
taxed income, the transferee shareholder is similarly exempt 
from tax on the distribution to the extent of the proven 
identity of shareholder interest.
    Distributions by a CFC are allocated first to previously 
taxed income, then to other earnings and profits (sec. 959(c)). 
Therefore, a CFC may distribute its previously taxed income to 
its shareholders, resulting in no additional U.S. income 
taxation, before it makes any taxable dividend distributions of 
any current or accumulated non-subpart F earnings and profits. 
However, distributions for any taxable year are taken into 
account before income inclusions are determined for that year 
on account of earnings invested in U.S. property or excess 
passive assets. Such income inclusions, therefore, generate 
previously taxed income that can be distributed without further 
U.S. income taxation beginning in the following taxable year.

Passive foreign investment companies

    The Tax Reform Act of 1986 established an anti-deferral 
regime for passive foreign investment companies (PFIC's) and 
established separate rules for each of two types of PFIC's. One 
set of rules applies to PFIC's that are ``qualified electing 
funds,'' under which electing U.S. shareholders include 
currently in gross income their respective shares of a PFIC's 
total earnings, with a separate election to defer payment of 
tax, subject to an interest charge, on income not currently 
received. The second set of rules applies to PFIC's that are 
not qualified electing funds (``nonqualified funds''), under 
which the U.S. shareholders pay tax on income realized from a 
PFIC and an interest charge that is attributable to the value 
of deferral.
            Definition of passive foreign investment company
    A PFIC is any foreign corporation if first, 75 percent or 
more of its gross income for the taxable year consists of 
passive income, or second, 50 percent or more of the average 
fair market value of its assets consists of assets that 
produce, or are held for the production of, passive income 
(sec. 1296(a)). In the case of a CFC, as well as any other 
corporation that so elects, the asset test is applied using the 
adjusted bases of the corporation's assets rather than their 
fair market value (sec. 1296(a)(2)). Passive income for these 
purposes generally means income that satisfies the definition 
of foreign personal holding company income under subpart F (as 
discussed above); except as provided in regulations, however, 
passive income does not include certain active-business 
banking, insurance, or (in the case of the U.S. shareholders of 
a CFC) securities income, or certain amounts received from a 
related party (to the extent that the amounts are allocable to 
income of the related party which is not passive income) (sec. 
1296(b)). Passive assets for this purpose are generally those 
assets that produce or are held for the production of passive 
income.
    Special rules apply for the purpose of measuring the assets 
of the foreign corporation in the case of certain leased 
property. The code treats certain leased property as assets 
held by the foreign corporation for purposes of the PFIC asset 
test. This rule applies to tangible personal property with 
respect to which the foreign corporation is the lessee under a 
lease with a term of at least 12 months. The measure of leased 
property for purposes of applying the asset test is the 
unamortized portion of the present value of the payments under 
the lease. Property leased by a corporation is not taken into 
account in testing for PFIC status under the asset test either 
if the lessor is a related person or if a principal purpose of 
leasing the property was to avoid the PFIC provisions.
    In addition, in measuring the assets of a CFC for purposes 
of the PFIC asset test, adjusted basis is modified to take into 
account certain research and experimental expenditures and 
certain payments for the use of intangible property that is 
licensed to the CFC. First, the aggregate adjusted basis of the 
total assets of the CFC is increased by the total amount of 
research and development expenditures made by the CFC, for 
qualified research or experimental expenditures (as defined in 
section 174), taking into account payments and expenditures 
(including cost-sharing payments) made in the current taxable 
year and the 2 most recent preceding taxable years. In 
addition, the aggregate adjusted basis of the total assets of 
the CFC is increased by the amount of three times the total 
payments made during the taxable year to unrelated persons and 
related U.S. persons for the use of intangible property (as 
defined in section 936(h)(3)(B)) with respect to which the CFC 
is a licensee, and which the CFC uses in the active conduct of 
its trade or business. Payments made to related foreign persons 
are not taken into account.
    In determining whether foreign corporations that own 
subsidiaries are PFIC's, look-through treatment is provided in 
certain cases (sec. 1296(c)). Under this look-through rule, a 
foreign corporation that owns, directly or indirectly, at least 
25 percent of the value of the stock of another corporation is 
treated as owning a proportionate part of the other 
corporation's assets and income. Thus, amounts such as interest 
and dividends received from foreign or domestic subsidiaries 
are eliminated from the shareholder's income in applying the 
income test, and the stock or debt investment is eliminated 
from the shareholder's assets in applying the asset test.
    In addition, interest, dividends, rents, and royalties 
received from related persons that are not subject to look-
through treatment are excepted from treatment as passive income 
to the extent that, under regulations prescribed by the 
Secretary, those amounts are allocable to income of the payor 
that is not passive income (sec. 1296(b)(2)(C)).
    In measuring the assets of a foreign corporation, stock of 
certain U.S. corporations owned by another U.S. corporation 
which is at least 25-percent owned by the foreign corporation 
generally is treated as a nonpassive asset (sec. 1297(b)(8)). 
Under this rule, in determining whether a foreign corporation 
is a PFIC, stock of a regular domestic C corporation owned by a 
25-percent-owned domestic corporation is treated as an asset 
which does not produce passive income (and is not held for the 
production of passive income), and income derived from that 
stock is treated as income which is not passive income.
    Special exceptions from PFIC classification apply to start-
up companies (sec. 1297(b)(2)) and corporations changing 
businesses during the taxable year (sec. 1297(b)(3)). In both 
such cases, a corporation may have a substantially higher 
proportion of passive assets (and passive income, in some 
cases) than at other times in its history.
            General rule--nonqualified funds
    A U.S. person who is a shareholder in a PFIC that is not a 
``qualified electing fund'' (or has not been a qualified 
electing fund for all PFIC years in the holding period of the 
taxpayer) pays U.S. tax and an interest charge based on the 
value of tax deferral at the time the shareholder disposes of 
stock in the PFIC or upon receipt of an ``excess'' distribution 
(sec. 1291). Under this rule, gain recognized on disposition of 
stock in a nonqualified fund or income on receipt of an 
``excess'' distribution from a nonqualified fund is treated as 
ordinary income and is treated as earned pro rata over the 
shareholder's holding period of his or her investment. The 
portion treated as earned before the current year during the 
post-1986 period during which the foreign corporation was a 
PFIC is taxed at the highest applicable tax rate in effect for 
each respective year, and is subject to an interest charge. The 
interest charge is treated as interest for tax purposes. The 
total of such tax and interest is referred to as the ``deferred 
tax amount.'' Distributions from nonqualified funds are 
eligible for direct and deemed-paid foreign tax credits (under 
secs. 901 and 902) computed under special rules.
    An ``excess'' distribution is any current year distribution 
in respect of a share of stock that exceeds 125 percent of the 
average amount of distributions in respect of the share of 
stock received during the 3 preceding years (or, if shorter, 
the total number of years of the taxpayer's holding period 
prior to the current taxable year) (sec. 1291(b)). The 
determination of an excess distribution excludes from the 3-
year average distribution base that part of a prior-year excess 
distribution that is considered attributable to deferred 
earnings (i.e., that part of the excess distribution that was 
not allocable to pre-1986 or pre-PFIC years or to the current 
year). Any gain from the sale or disposition of such stock is 
also treated as an excess distribution. A distribution for this 
purpose includes any income inclusion on account of earnings of 
a CFC invested in U.S. property or excess passive assets.
            Qualified electing funds
    A U.S. person who owns (directly or indirectly under the 
attribution rules) stock in a PFIC may elect that the PFIC be 
treated as a ``qualified electing fund'' with respect to that 
shareholder (sec. 1295), with the result that the shareholder 
must include currently in gross income his or her pro rata 
share of the PFIC's total earnings and profits (sec. 1293). The 
amount currently included in the income of an electing 
shareholder is divided between a shareholder's pro rata share 
of the ordinary income of the PFIC and net capital gain income 
of the PFIC. This inclusion rule generally requires current 
payment of tax, absent a separate election to defer such 
payment. Foreign tax credits are generally allowed against U.S. 
tax on amounts included in income with respect to a qualified 
electing fund.
    The election for treatment as a qualified electing fund, 
which is made at the shareholder level, is available only where 
the PFIC complies with the requirements prescribed in Treasury 
regulations to determine the income of the PFIC and to 
ascertain any other information necessary to carry out the 
purposes of the PFIC provisions. The effect of the election is 
to treat a PFIC as a qualified electing fund with respect to 
each electing investor so that, for example, an electing 
investor will not be subject to the deferred tax and interest 
charge rules of section 1291 on receipt of a distribution if 
the election has been in effect for each of the PFIC's taxable 
years for which the company was a PFIC and which includes any 
portion of the investor's holding period.
    A U.S. shareholder's pro rata share of income generally is 
determined by aggregating a PFIC's income for the taxable year 
and attributing that income ratably over every day in the 
PFIC's year. Electing investors then include in income for the 
period in which they hold stock in the PFIC their daily 
ownership interest in the PFIC multiplied by the amount of 
income attributed to each day.
    The distribution of earnings and profits that were 
previously included in the income of an electing shareholder 
under these rules is not treated as a dividend to the 
shareholder, but does reduce the PFIC's earnings and profits 
(sec. 1293(c)). The basis of an electing shareholder's stock in 
a PFIC is increased by amounts currently included in income 
under these rules, and is decreased by any amount that is 
actually distributed but treated as previously taxed under 
section 1293(c) (sec. 1293(d)).
    U.S. investors in qualified electing funds may generally, 
subject to the payment of interest, elect to defer payment of 
U.S. tax on amounts included currently in income but for which 
no current distribution has been received (sec. 1294). An 
election to defer tax is treated as an extension of time to pay 
tax for which a U.S. shareholder is liable for interest. The 
disposition of stock in a PFIC generally terminates all 
previous extensions of time to pay tax with respect to the 
earnings attributable to that stock.
            Coordination of rules regarding nonqualified funds and 
                    qualified electing funds
    Gain recognized on disposition of stock in a PFIC by a U.S. 
investor and distributions received by the U.S. investor from 
the PFIC are not taxed under the rules applicable to 
nonqualified funds (i.e., sec. 1291) if the PFIC is a qualified 
electing fund for each of the corporation's taxable years which 
begin after December 31, 1986 and which includes any portion of 
the investor's holding period (sec. 1291(d)(1)). Therefore, if 
for any taxable year beginning after December 31, 1986, a 
foreign corporation is a PFIC but is not a qualified electing 
fund with respect to the U.S. investor, gains and distributions 
in any subsequent year will be subject to the rules applicable 
to nonqualified funds.
    Any U.S. person who owns stock (directly or indirectly 
under the attribution rules) in a PFIC which previously was not 
a qualified electing fund for a taxable year but which becomes 
one for the subsequent taxable year may elect to be taxed on 
the unrealized appreciation inherent in his or her PFIC stock 
up through the first day of the subsequent taxable year, pay 
all prior deferred tax and interest, and acquire a new basis 
and holding period in his or her PFIC investment (sec. 
1291(d)(2)). Thereafter, the shareholder is subject to the 
rules applicable to qualified electing funds.
    An alternative election is available to shareholders in a 
PFIC that is a CFC. Under this alternative, instead of 
recognizing the entire gain in the value of his or her stock, a 
U.S. person that holds stock (directly or indirectly under the 
attribution rules) in a PFIC that is a CFC and that becomes a 
qualified electing fund can elect to include in gross income as 
a dividend his or her share of the corporation's earnings and 
profits accumulated after 1986 and since the corporation was a 
PFIC. Upon this election, the U.S. person's stock basis is 
increased by the amount included in income and the shareholder 
is treated as having a new holding period in his or her stock. 
Thereafter, the shareholder is subject to the rules applicable 
to qualified electing funds. The total amount treated as a 
dividend under the above election is an excess distribution and 
is to be assigned, for purposes of computing the deferred tax 
and interest charge, to the shareholder's stock interest on the 
basis of post-December 31, 1986 ownership.

Overlap between subpart F and the PFIC provisions

    A foreign corporation that is a CFC is also a PFIC if it 
meets the passive income test or the passive asset test 
described above. In such a case, the 10-percent U.S. 
shareholders are subject both to the subpart F provisions 
(which require current inclusion of certain earnings of the 
corporation) and to the PFIC provisions (which impose an 
interest charge on amounts distributed from the corporation and 
gains recognized upon the disposition of the corporation's 
stock, unless an election is made to include currently all of 
the corporation's earnings).
    If an item of income of a foreign corporation would be 
includable in the gross income of a U.S. shareholder both under 
the CFC rules and under the rules relating to the current 
taxation of income from passive foreign investment companies 
that are qualified electing funds, that item of income is 
included only under the CFC rules (sec. 951(f)). Special relief 
rules apply in the case of a second- (or lower-) tier PFIC that 
is a qualified electing fund and that is also a CFC.
    In the case of a PFIC that is not a qualified electing 
fund, adjustments to excess distributions are provided for 
amounts that are taxed currently under the subpart F rules. 
Thus, excess distributions from a PFIC do not include any 
amounts that are treated as previously taxed income when 
distributed by a CFC which is also a PFIC that is not a 
qualified electing fund.

                           Reasons for Change

    The anti-deferral rules for U.S. persons owning stock in 
foreign corporations are very complex. Moreover, the 
interactions between the anti-deferral regimes cause additional 
complexity. The overlap between the subpart F rules and the 
PFIC provisions is of particular concern to the committee. The 
PFIC provisions, which do not require a threshold level of 
ownership by U.S. persons, apply where the U.S.-ownership 
requirements of subpart F are not satisfied. However, the PFIC 
provisions also apply to a U.S. shareholder that is subject to 
the current inclusion rules of subpart F with respect to the 
same corporation. The committee believes that the additional 
complexity caused by this overlap is unnecessary.
    The committee also understands that the interest-charge 
method for income inclusion provided in the PFIC rules is a 
substantial source of complexity for shareholders of PFICs. 
Even without eliminating the interest-charge method, 
significant simplification can be achieved by providing an 
alternative income inclusion method for shareholders of PFICs. 
Further, some taxpayers have argued that they would have 
preferred choosing the current-inclusion method afforded by the 
qualified fund election, but were unable to do so because they 
could not obtain the necessary information from the PFIC. 
Accordingly, the committee believes that a mark-to-market 
election would provide PFIC shareholders with a fair 
alternative method for including income with respect to the 
PFIC.

                        Explanation of Provision

Elimination of overlap between subpart F and the PFIC provisions

    In the case of a PFIC that is also a CFC, the bill 
generally treats the corporation as not a PFIC with respect to 
certain 10-percent shareholders. This rule applies if the 
corporation is a CFC (within the meaning of section 957(a)) and 
the shareholder is a U.S. shareholder (within the meaning of 
section 951(b)) of such corporation (i.e., if the shareholder 
is subject to the current inclusion rules of subpart F with 
respect to such corporation). Moreover, the rule applies for 
that portion of the shareholder's holding period with respect 
to the corporation's stock which is after December 31, 1995 and 
during which the corporation is a CFC and the shareholder is a 
U.S. shareholder. Accordingly, a shareholder that is subject to 
current inclusion under the subpart F rules with respect to 
stock of a PFIC that is also a CFC generally is not also 
subject to the PFIC provisions with respect to the same stock. 
As under present law, the PFIC provisions continue to apply in 
the case of a PFIC that is also a CFC to shareholders that are 
not subject to subpart F (i.e., to shareholders that are U.S. 
persons and that own (directly, indirectly, or constructively) 
less than 10 percent of the corporation's stock by vote).
    If a shareholder of a PFIC is subject to the rules 
applicable to nonqualified funds before becoming eligible for 
the special rules provided under the bill for shareholders that 
are subject to subpart F, the stock held by such shareholder 
continues to be treated as PFIC stock unless the shareholder 
makes an election to pay tax and an interest charge with 
respect to the unrealized appreciation in the stock or the 
accumulated earnings of the corporation. This rule, which 
applies under current law to PFICs that had been nonqualified 
funds and that cease to satisfy the tests for PFIC status, 
prevents the shareholder from avoiding the interest charge 
imposed by the PFIC rules with respect to amounts accumulated 
by the PFIC while the shareholder held stock of the corporation 
but before the shareholder was subject to subpart F.
    If a shareholder is not subject to the PFIC provisions 
because the shareholder is subject to subpart F and the 
shareholder subsequently ceases to be subject to subpart F with 
respect to the corporation, for purposes of the PFIC 
provisions, the shareholder's holding period for such stock is 
treated as beginning immediately after such cessation. 
Accordingly, in applying the rules applicable to PFICs that are 
not qualified electing funds, the earnings of the corporation 
are not attributed to the period during which the shareholder 
was subject to subpart F with respect to the corporation and 
was not subject to the PFIC provisions.

Mark-to-market election

    The bill allows a shareholder of a PFIC to make a mark-to-
market election with respect to the stock of the PFIC, provided 
that such stock is marketable (as defined below). Under such an 
election, the shareholder includes in income each year an 
amount equal to the excess, if any, of the fair market value of 
the PFIC stock as of the close of the taxable year over the 
shareholder's adjusted basis in such stock. The shareholder is 
allowed a deduction for the excess, if any, of the adjusted 
basis of the PFIC stock over its fair market value as of the 
close of the taxable year. However, deductions are allowable 
under this rule only to the extent of the excess, if any, of 
the total amount of mark-to-market gains with respect to the 
stock included by the shareholder for prior taxable years over 
the amount of mark-to-market losses with respect to such stock 
that were allowed as deductions for prior taxable years.
    The election provided in the bill is available only for 
PFIC stock that is ``marketable.'' For this purpose, PFIC stock 
is considered marketable if it is regularly traded on a 
national securities exchange that is registered with the 
Securities and Exchange Commission or on the national market 
system established pursuant to section 11A of the Securities 
and Exchange Act of 1934. In addition, PFIC stock is considered 
marketable if it is regularly traded on any exchange or market 
that the Secretary of the Treasury determines has rules 
sufficient to ensure that the market price represents a 
legitimate and sound fair market value. In identifying foreign 
exchanges that qualify for these purposes, the committee 
intends that the Secretary not be required to include exchanges 
that satisfy standards established under Federal securities law 
and regulations. Any option on stock that is considered 
marketable under the foregoing rules is treated as marketable, 
to the extent provided in regulations. The committee intends 
that the Secretary may adopt a definition of the term 
``regularly traded'' that differs from definitions provided for 
other purposes under the code. Further, the committee intends 
that the Secretary not be bound by definitions applied for 
purposes of enforcing other laws, including securities laws. 
PFIC stock also is treated as marketable, to the extent 
provided in regulations, if the PFIC offers for sale (or has 
outstanding) stock of which it is the issuer and which is 
redeemable at its net asset value in a manner comparable to a 
U.S. regulated investment company [RIC].
    In addition, the bill treats as marketable any PFIC stock 
owned by a RIC that offers for sale (or has outstanding) any 
stock of which it is the issuer and which is redeemable at its 
net asset value. The committee believes that the RIC's 
determination of PFIC stock value for this nontax purpose would 
ensure a sufficiently accurate determination of the fair market 
value of the PFIC stock owned by the RIC. The bill also treats 
as marketable any PFIC stock held by any other RIC that 
otherwise publishes net asset valuations at least annually, 
except to the extent provided in regulations. The committee 
believes that even for RIC's that do not make a market in their 
own stock, but that do regularly report their net asset values 
in compliance with the securities laws, inaccurate valuation 
may bring exposure to legal liabilities, and this exposure may 
ensure the reliability of the values such RIC's assign to the 
PFIC stock they hold. However, the committee intends that 
Treasury regulations will disallow marketable treatment for 
nonmarketable PFIC stock held by a RIC that is not required to 
perform such net asset valuation at the close of each taxable 
year, that does not publish such valuation, or that otherwise 
does not provide what the Secretary regards as sufficient 
indicia of the reliability of its valuations.
    The shareholder's adjusted basis in the PFIC stock is 
adjusted to reflect the amounts included or deducted under this 
election. In the case of stock owned indirectly by a U.S. 
person through a foreign entity (as discussed below), the basis 
adjustments for mark-to- market gains and losses apply to the 
basis of the PFIC in the hands of the intermediary owner, but 
only for purposes of the subsequent application of the PFIC 
rules to the tax treatment of the indirect U.S. owner. In 
addition, similar basis adjustments are made to the adjusted 
basis of the property actually held by the U.S. person by 
reason of which the U.S. person is treated as owning PFIC 
stock.
    Amounts included in income pursuant to a mark-to-market 
election, as well as gain on the actual sale or other 
disposition of the PFIC stock, are treated as ordinary 
income.114 Ordinary loss treatment also applies to the 
deductible portion of any mark-to-market loss on PFIC stock, as 
well as to any loss realized on the actual sale or other 
disposition of PFIC stock to the extent that the amount of such 
loss does not exceed the net mark-to-market gains previously 
included with respect to such stock. The source of amounts with 
respect to a mark-to-market election generally is determined in 
the same manner as if such amounts were gain or loss from the 
sale of stock in the PFIC.
    \114\ For purposes of the rules under section 851(b) regarding 
eligibility as a RIC, income includible pursuant to the election is 
treated as a dividend.
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    An election to mark to market applies to the taxable year 
for which made and all subsequent taxable years, unless the 
PFIC stock ceases to be marketable or the Secretary of the 
Treasury consents to the revocation of such election.
    Under constructive ownership rules, U.S. persons that own 
PFIC stock through certain foreign entities may make this 
election with respect to the PFIC. These constructive ownership 
rules apply to treat PFIC stock owned directly or indirectly by 
or for a foreign partnership, trust, or estate as owned 
proportionately by the partners or beneficiaries, except as 
provided in regulations.115 Stock in a PFIC that is thus 
treated as owned by a person is treated as actually owned by 
that person for purposes of again applying the constructive 
ownership rules. In the case of a U.S. person that is treated 
as owning PFIC stock by application of this constructive 
ownership rule, any disposition by the U.S. person or by any 
other person that results in the U.S. person being treated as 
no longer owning the PFIC stock, as well as any disposition by 
the person actually owning the PFIC stock, is treated as a 
disposition by the U.S. person of the PFIC stock.
    \115\ For this purpose, it is intended that proportionate ownership 
will be determined by taking into account any special or discretionary 
allocations of the distributions or gains with respect to the PFIC 
stock.
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    In addition, a CFC that owns stock in a PFIC is treated as 
a U.S. person that may make the election with respect to such 
PFIC stock. Any amount includible (or deductible) in the CFC's 
gross income pursuant to this mark-to-market election is 
treated as foreign personal holding company income (or a 
deduction allocable to foreign personal holding company 
income). The source of such amounts, however, is determined by 
reference to the actual residence of the CFC.
    In the case of a taxpayer that makes the mark-to-market 
election with respect to stock in a PFIC that is a nonqualified 
fund after the beginning of the taxpayer's holding period with 
respect to such stock, a coordination rule applies to ensure 
that the taxpayer does not avoid the interest charge with 
respect to amounts attributable to periods before such 
election. A similar rule applies to RIC's that make the mark-
to-market election under this bill after the beginning of their 
holding period with respect to PFIC stock (to the extent that 
the regulated investment company had not previously marked to 
market the stock of the PFIC).
    Except as provided in the coordination rules described 
above, the rules of section 1291 (with respect to nonqualified 
funds) do not apply to a shareholder of a PFIC if a mark-to-
market election is in effect for the shareholder's taxable 
year. Moreover, in applying section 1291 in a case where a 
mark-to-market election was in effect for any prior taxable 
year, the shareholder's holding period for the PFIC stock is 
treated as beginning immediately after the last taxable year 
for which such election applied.
    A special rule applicable in the case of a PFIC shareholder 
that becomes a U.S. person treats the adjusted basis of any 
PFIC stock held by such person on the first day of the year in 
which such shareholder becomes a U.S. person as equal to the 
greater of its fair market value on such date or its adjusted 
basis on such date. Such rule applies only for purposes of the 
mark-to-market election. This rule ensures that the 
appreciation in the stock's value prior to the time that the 
shareholder becomes subject to the U.S. tax jurisdiction is not 
subject to U.S. tax under the mark-to-market election.

Clarifications of definition of passive income

    The bill clarifies the definition of passive income for 
purposes of the PFIC provisions in two respects. First, the 
bill clarifies that the same-country exceptions from the 
definition of foreign personal holding company income in 
section 954(c) do not apply in determining passive income for 
purposes of the PFIC definition.116 Second, the bill 
clarifies that foreign trade income of a foreign sales 
corporation does not constitute passive income for purposes of 
the PFIC definition.
    \116\ H. Rept. No. 100-795, 100th Cong., 2d Sess. 272 (1988); S. 
Rept. No. 100-445, 100th Cong., 2d Sess. 285 (1988).
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                             Effective Date

    The provisions are effective for taxable years of U.S. 
persons beginning after December 31, 1995, and taxable years of 
foreign corporations ending with or within such taxable years 
of U.S. persons.

            B. Treatment of Controlled Foreign Corporations

1. General provisions affecting treatment of controlled foreign 
        corporations (secs. 14411-14413 of the bill and secs. 902, 904, 
        951, 952, 959, 960, 961, 964, and 1248 of the code)

                              Present Law

Treatment of controlled foreign corporation earnings

            In general
    A U.S. shareholder generally treats dividends from a 
controlled foreign corporation (CFC) as ordinary income from 
foreign sources that carries both direct and indirect foreign 
tax credits. Under look-through rules, the income and credits 
are subject to those foreign tax credit separate limitations 
which are consistent with the character of the income of the 
foreign corporation.
    Several code provisions result in similar tax treatment of 
a U.S. shareholder if it either disposes of the CFC stock, or 
the CFC realizes certain types of income (including income with 
respect to lower-tier CFC's). First, under section 1248, gain 
resulting from the disposition by a U.S. person of stock in a 
foreign corporation that was a CFC with respect to which the 
U.S. person was a U.S. shareholder in the previous 5 years is 
treated as a dividend to the extent of allocable earnings.
    Second, a CFC has subpart F income when it realizes gain on 
disposition of stock and, ordinarily, when it receives a 
dividend. Under sections 951 and 960, such subpart F income may 
result in taxation to the U.S. shareholder similar to that on a 
dividend from the CFC. In addition to provisions for 
characterizing income and credits in these situations, the code 
also provides certain rules that adjust basis, or otherwise 
result in modifying the tax consequences of subsequent income, 
to account for these and other subpart F income inclusions.
    Third, when in exchange for property any corporation 
(including a CFC) acquires stock in another corporation 
(including a CFC) controlled by the same persons that control 
the acquiring corporation, earnings of the acquiring 
corporation (and possibly the acquired corporation) may be 
treated under section 304 as having been distributed as a 
dividend to the seller.
    For foreign tax credit separate limitation purposes, a CFC 
is not treated as a noncontrolled section 902 corporation with 
respect to any distribution out of its earnings and profits for 
periods during which it was a CFC and except as provided in 
regulations, the recipient of the distribution was a U.S. 
shareholder in such corporation.117 The consequence of not 
being treated as a noncontrolled section 902 corporation is 
application of the so-called look-through rule. That is, 
dividends paid by such CFC to its U.S. shareholder are 
characterized for separate limitation purposes by reference to 
the character of the underlying earnings of the CFC.
    \117\ Under proposed regulations, if a CFC distributes a dividend 
to an upper-tier CFC or to a U.S. shareholder that owns indirectly more 
than 90 percent of the total combined voting power of the CFC at the 
time of the distribution, and the dividend is attributable to earnings 
and profits accumulated during a period in which the distributing 
corporation was a CFC but the 90 percent or more U.S. shareholder was 
not a U.S. shareholder of the corporation, the dividend generally would 
be treated as a dividend from a noncontrolled section 902 corporation. 
(Prop. Treas. Reg. sec. 1.904-4(g)(3)(ii)).
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Lower-tier controlled foreign corporations

    For purposes of applying the separate foreign tax credit 
limitations, receipt of a dividend from a lower-tier CFC by an 
upper-tier CFC may result in a subpart F income inclusion for 
the U.S. shareholder that is treated as income in the same 
foreign tax credit limitation category as the income of the 
lower-tier CFC. The income inclusion of the U.S. shareholder 
may carry deemed-paid credits for foreign taxes paid by the 
lower-tier CFC, and the basis of the U.S. shareholder in the 
stock of the first-tier CFC is increased by the amount of the 
inclusion. If, on the other hand, the upper-tier CFC sells 
stock of a lower-tier CFC, then the gain generally also is 
included in the income of the U.S. shareholder as subpart F 
income and the U.S. shareholder's basis in the stock of the 
first-tier CFC is increased to account for the inclusion, but 
the inclusion is not treated for foreign tax credit limitation 
purposes by reference to the nature of the income of the lower-
tier CFC. Instead it generally is treated as passive income.
    If subpart F income of a lower-tier CFC is included in the 
gross income of a U.S. shareholder, no provision of present law 
allows adjustment of the basis of the upper-tier CFC's stock in 
the lower-tier CFC.

Subpart F inclusions in year of acquisition

    The subpart F income earned by a foreign corporation during 
its taxable year is taxed to the persons who are U.S. 
shareholders of the corporation on the last day, in that year, 
on which the corporation is a CFC. In the case of a U.S. 
shareholder who acquired stock in a CFC during the year, such 
inclusions are reduced by all or a portion of the amount of 
dividends paid in that year by the foreign corporation to any 
person other than the acquirer with respect to that stock. The 
reduction is the lesser of the amount of dividends with respect 
to such stock received by other persons during the year or the 
amount determined by multiplying the subpart F income for the 
year by the proportion of the year during which the acquiring 
shareholder did not own the stock.

Distributions of previously taxed income

    If in a year after the year of income inclusion under the 
subpart F provisions of the code, a U.S. shareholder in the CFC 
receives a distribution from the corporation, the distribution 
may be deemed to come first out of the corporation's previously 
taxed income and, therefore, may be excluded from the U.S. 
shareholder's income. However, a distribution by a foreign 
corporation to a domestic corporation of earnings and profits 
previously taxed under subpart F is treated as an actual 
dividend, solely for purposes of determining the indirect 
foreign tax credit available to the domestic corporation (sec. 
960(a)(3)).

Treatment of U.S. source income earned by a controlled foreign 
        corporation

    As a general rule, subpart F income does not include income 
earned from sources within the United States if the income is 
effectively connected with the conduct of a U.S. trade or 
business by the CFC. This general rule does not apply, however, 
if the income is exempt from, or subject to a reduced rate of, 
U.S. tax pursuant to a provision of a U.S. treaty.

Indirect foreign tax credits

    A U.S. corporation that owns at least 10 percent of the 
voting stock of a foreign corporation is treated as if it had 
paid a share of the foreign income taxes paid by the foreign 
corporation in the year in which the foreign corporation's 
earnings and profits become subject to U.S. tax as dividend 
income of the U.S. shareholder (sec. 902(a)). A U.S. 
corporation also may be deemed to have paid taxes paid by a 
second- or third-tier foreign corporation. That is, where a 
first-tier foreign corporation pays a dividend to a 10-percent-
or-more U.S. corporate shareholder, then for purposes of 
deeming the U.S. corporation to have paid foreign tax, the 
first-tier foreign corporation may be deemed to have paid a 
share of the foreign taxes paid by a second-tier foreign 
corporation of which the first-tier foreign corporation owns at 
least 10 percent of the voting stock, and from which the first-
tier foreign corporation received dividends. The same principle 
applies to dividends from a second-tier or third-tier foreign 
corporation. No taxes paid by a second- or third-tier foreign 
corporation are deemed paid by the first- or second-tier 
foreign corporation, respectively, unless the product of the 
percentage ownership of voting stock at each level from the 
U.S. corporation down equals at least 5 percent (sec. 902(b)). 
Under present law, foreign taxes paid below the third tier of 
foreign corporations are not eligible for the indirect foreign 
tax credit.
    An indirect foreign tax credit generally is also available 
to a U.S. corporate shareholder meeting the requisite ownership 
threshold with respect to inclusions of subpart F income from 
CFC's (sec. 960(a)).118 Moreover, an indirect foreign tax 
credit may also be available to U.S. corporate shareholders 
with respect to inclusions of income from passive foreign 
investment companies.
    \118\ Unlike the indirect foreign tax credit for actual dividend 
distributions, the indirect credit for subpart F income inclusions can 
be available to individual shareholders in certain circumstances if an 
election is made (sec. 962).
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                           Reasons for Change

    The committee believes that complexities are caused by 
uncertainties and gaps in the present statutory schemes for 
taxing gains on dispositions of stock in CFC's as dividend 
income or subpart F income. These uncertainties and gaps may 
prompt taxpayers to refrain from behavior that would otherwise 
be the result of rational business decisions, for fear of 
excessive tax--for example, double corporate-level taxation of 
income. In many cases, concerns about excessive taxation can be 
allayed, but only at the cost of avoiding the simpler and more 
rational economic behavior in favor of tax-motivated planning.
    The committee understands that, as a general matter, other 
aspects of the tax system may interfere with rational economic 
decision making by prompting taxpayers to engage in tax-
motivated planning in order to eliminate taxation in cases 
where income is in fact earned. Some such characteristics of 
the tax system have in the past been altered by Congress in 
order to reduce excessive interference by the tax system in 
labor, investment, and consumption decisions of 
taxpayers.119 The committee believes that in the context 
of tax simplification, it generally is appropriate to reduce 
complexities caused by aspects of the rules governing CFC's 
that provide for nonuniform tax results from dividends, on the 
one hand, and stock disposition proceeds to the extent that 
earnings and profits underlie those proceeds, on the other.
    \119\ See, e.g., Staff of the Joint Committee on Taxation, 100th 
Cong., 1st Sess. ``General Explanation of the Tax Reform Act of 1986,'' 
at 6 et seq. (1987).
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    In light of the bill's provisions extending section 1248 
treatment to dispositions of stock in lower-tier companies, the 
committee believes it is appropriate to repeal the limitation 
on look-through treatment (for foreign tax credit separate 
limitation purposes) of dividends from CFC's to U.S. 
shareholders out of earnings from periods in which the payor 
was a CFC but the dividend recipient was not a U.S. shareholder 
of that corporation. By extending section 1248 treatment to 
dispositions of stock in lower-tier CFC's, the committee 
believes that earnings and profits (and related foreign tax 
credits) of such lower-tier companies cannot readily be 
transferred from the control of one U.S. taxpayer to another. 
Moreover, the committee believes that repeal of this limitation 
on look-through treatment will avoid significant complexity 
that would otherwise be engendered by practical application of 
the limitation.
    The committee also understands that certain arbitrary 
limitations placed on the operation of the indirect foreign tax 
credit may have resulted in taxpayers undergoing burdensome and 
sometimes costly corporate restructuring. In other cases, there 
is concern that these limitations may have contributed to 
decisions by U.S. companies against acquiring foreign 
subsidiaries. The committee deems it appropriate to ease 
certain of these restrictions in cases where the administration 
of the foreign tax credit rules by taxpayers and the IRS will 
not be significantly impaired.

                       Explanation of Provisions

In general

    The bill makes a number of modifications in the treatment 
of income derived from the disposition of stock in a CFC. The 
bill provides deemed dividend treatment for gains on 
dispositions of lower-tier CFC's. Where earnings of the lower-
tier CFC have been previously taxed under the subpart F 
provisions of the code, the bill permits the amount of gain 
taxed to the U.S. shareholder to be adjusted for previous 
income inclusions. Where proceeds from the sale of stock to a 
CFC that has earnings previously taxed under subpart F would be 
treated as a dividend under the principles of section 304, the 
bill expressly permits exclusion of the deemed section 304 
dividend from taxation to the extent of the previously taxed 
earnings and profits of the CFC from which the property was 
deemed to have been distributed. (Appropriate basis adjustments 
also are permitted to be made.) Where a CFC (whether or not it 
is a lower-tier CFC) earns subpart F income in a year in which 
a U.S. shareholder sells its stock, in a transaction that does 
not result in the foreign corporation ceasing to be a CFC, the 
bill contains statutory language providing for a proportional 
reduction in the taxation of the subpart F income in that year 
to the acquiring U.S. shareholder.
    The bill contains three additional provisions related to 
CFC's. First, the bill repeals the limitation on look-through 
treatment (for foreign tax credit separate limitation purposes) 
of dividends from CFC's to U.S. shareholders out of earnings 
from periods in which the payor was a CFC, but the dividend 
recipient was not a U.S. shareholder of the CFC. Second, the 
bill clarifies the effect of a treaty exemption or reduction of 
the branch profits tax on the determination of subpart F 
income. Third, the bill extends application of the indirect 
foreign tax credit to fourth-, fifth-, and sixth-tier CFC's 
where the necessary ownership thresholds (as extended under the 
bill to these tiers) are satisfied.

Lower-tier controlled foreign corporations

            Characterization of gain on stock disposition
    The bill provides that if a CFC is treated as having gain 
from the sale or exchange of stock in a foreign corporation, 
the gain is treated as a dividend to the same extent that it 
would have been so treated under section 1248 if the CFC were a 
U.S. person. This provision, however, does not affect the 
determination of whether the corporation whose stock is sold or 
exchanged is a CFC.
    Thus, for example, if a U.S. corporation owns 100 percent 
of the stock a foreign corporation, which owns 100 percent of 
the stock of a second foreign corporation, then under the bill, 
any gain of the first corporation upon a sale or exchange of 
stock of the second corporation is treated as a dividend for 
purposes of subpart F income inclusions to the U.S. 
shareholder, to the extent of earnings and profits of the 
second corporation attributable to periods in which the first 
foreign corporation owned the stock of the second foreign 
corporation while the latter was a CFC with respect to the U.S. 
shareholder.
    As another example, assume that the U.S. corporation has 
always owned 40 percent of the voting stock and 60 percent of 
the value of all of the stock of a foreign corporation, which 
has always owned 40 percent of the voting stock and 60 percent 
of the value of all of the stock of a second foreign 
corporation. All the other stock of the foreign corporations 
has always been owned by foreign individuals unrelated to the 
U.S. corporation. In this case, the second foreign corporation 
has never been a CFC. Therefore, none of the gain of the first 
corporation upon a sale of stock of the second corporation is 
treated as a dividend.
    Gain on disposition of stock in a related corporation 
created or organized under the laws of, and having a 
substantial part of its assets in a trade or business in, the 
same foreign country as the gain recipient, even if 
recharacterized as a dividend under the bill, is not excluded 
from foreign personal holding company income under the same-
country exception that applies to actual dividends.
    The bill provides that for purposes of this provision, a 
CFC is treated as having sold or exchanged stock if, under any 
provision of subtitle A of the code, the CFC is treated as 
having gain from the sale or exchange of such stock. Thus, for 
example, if a CFC distributes to its shareholder stock in a 
foreign corporation, and the distribution results in gain being 
recognized by the CFC under code section 311(b) as if the stock 
were sold to the shareholder for fair market value, the bill 
makes clear that for purposes of this provision, the CFC is 
treated as having sold or exchanged the stock.
    The bill also repeals a provision added to the code by the 
Technical and Miscellaneous Revenue Act of 1988 120 (the 
``1988 Act'') that, except as provided by regulations, requires 
a recipient of a distribution from a CFC to have been a U.S. 
shareholder of that CFC for the period during which the 
earnings and profits which gave rise to the distribution were 
generated in order to avoid treating the distribution as one 
coming from a noncontrolled section 902 corporation. Thus, 
under the bill, a CFC is not treated as a noncontrolled section 
902 corporation with respect to any distribution out of its 
earnings and profits for periods during which it was a CFC, 
whether or not the recipient of the distribution was a U.S. 
shareholder of the corporation when the earnings and profits 
giving rise to the distribution were generated.
    \120\ Public Law 100-647, section 1012(a)(10).
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            Adjustments to basis of stock
    The bill also provides that when a lower-tier CFC earns 
subpart F income, and stock in that corporation is later 
disposed of by an upper-tier CFC, the resulting income 
inclusion of the U.S. shareholders are, under regulations, 
adjusted to account for previous inclusions, in a manner 
similar to the adjustments currently provided to the basis of 
stock in a first-tier CFC. Thus, just as the basis of a U.S. 
shareholder in a first-tier CFC rises when subpart F income is 
earned and falls when previously taxed income is distributed, 
so as to avoid double taxation of the income on a later 
disposition of the stock of that company, the committee intends 
that by regulation the subpart F income from gain on the 
disposition of a lower-tier CFC generally would be reduced by 
income inclusions of earnings that were not subsequently 
distributed by the lower-tier CFC. The committee intends that 
the Secretary will have sufficient flexibility in promulgating 
regulations under this provision to permit adjustments only in 
those cases where, by virtue of the historical ownership 
structure of the corporations involved, the Secretary is 
satisfied that the inclusions for which adjustments are to be 
made can be clearly identified.
    For example, assume that a U.S. person is the owner of all 
of the stock of a first-tier CFC which, in turn, is the sole 
shareholder of a second-tier CFC. In year 1, the second-tier 
CFC earns $100 of subpart F income which is included in the 
U.S. person's gross income for that year. In year 2, the first-
tier CFC disposes of the second-tier CFC's stock and recognizes 
$300 of income with respect to the disposition. All of that 
income would constitute subpart F foreign personal holding 
company income. Under the bill, the Secretary is granted 
regulatory authority to reduce the U.S. person's year 2 subpart 
F inclusion by $100--the amount of year 1 subpart F income of 
the second-tier CFC that was included, in that year, in the 
U.S. person's gross income. Such an adjustment would, in 
effect, allow for a step-up in the basis of the stock of the 
second-tier CFC to the extent of its subpart F income 
previously included in the U.S. person's gross income.
    As another example, assume the same facts as in the 
preceding paragraph except that in year 2, the first-tier CFC 
distributes the stock of the second-tier CFC to the U.S. 
person. Assume that as a result of the distribution, the first-
tier CFC recognizes taxable income of $300 under section 
311(b). This income represents subpart F income, $100 of which 
is due to no adjustment having been made to the basis of the 
second-tier CFC's stock for its year 1 subpart F income. The 
bill contemplates that in such a situation, the $300 of subpart 
F income would be reduced under regulations to $200 to account 
for the year 1 subpart F income inclusion.

Subpart F inclusions in year of acquisition

    If a U.S. shareholder acquires the stock of a CFC from 
another U.S. shareholder during a taxable year of the CFC in 
which it earns subpart F income, the bill reduces the 
acquirer's subpart F income inclusion for that year by a 
portion of the amount of the dividend deemed (under sec. 1248) 
to be received by the transferor. The portion by which the 
inclusion is reduced (as is currently the case if a dividend 
was paid to the previous owner of the stock) would not exceed 
the lesser of the amount of dividends with respect to such 
stock deemed received (under sec. 1248) by other persons during 
the year or the amount determined by multiplying the subpart F 
income for the year by the proportion of the year during which 
the acquiring shareholder did not own the stock.

Distributions of previously taxed income

    The bill clarifies the appropriate scope of regulatory 
authority with respect to the treatment of cross-chain section 
304 dividends out of the earnings of CFC's that were previously 
included in the income of a U.S. shareholder under subpart F. 
The committee contemplates that in such a case, the Secretary 
in his discretion may by regulation treat such dividends as 
distributions of previously taxed income, with appropriate 
basis adjustments. It is also anticipated that other occasions 
may arise where the exercise of similar regulatory authority 
may be appropriate to avoid double income inclusions, or an 
inclusion or exclusion of income without a corresponding basis 
adjustment. Therefore, the bill provides that, in addition to 
cases involving section 304, the Secretary may by regulation 
modify the application of subpart F in any other case where 
there would otherwise be a multiple inclusion of any item of 
income (or an inclusion or exclusion without an appropriate 
basis adjustment) by reason of the structure of a U.S. 
shareholder's holdings in CFC's or by reason of other 
circumstances. The bill is not intended to create any inference 
as to the application of present law in these cases.

Treatment of U.S. income earned by a controlled foreign corporation

    The bill provides that an exemption or reduction by treaty 
of the branch profits tax that would be imposed under section 
884 on a CFC does not affect the general statutory exemption 
from subpart F income that is granted for U.S. source 
effectively connected income. For example, assume a CFC earns 
income of a type that generally would be subpart F income, and 
that income is earned from sources within the United States in 
connection with business operations therein. Further assume 
that repatriation of that income is exempted from the U.S. 
branch profits tax under a provision of an applicable U.S. 
income tax treaty. The bill provides that, notwithstanding the 
treaty's effect on the branch tax, the income is not treated as 
subpart F income as long as it is not exempt from U.S. taxation 
(or subject to a reduced rate of tax) under any other treaty 
provision.

Extension of indirect foreign tax credit

    The bill extends the application of the indirect foreign 
tax credit (secs. 902 and 960) to certain taxes paid or accrued 
by certain fourth-, fifth-, and sixth-tier foreign 
corporations. In general, three requirements must be satisfied 
by a foreign company at any of these tiers to qualify for the 
credit. First, the company must be a CFC. Second, the domestic 
corporation referred to in section 902(a) must be a U.S. 
shareholder (as defined in sec. 951(b)) with respect to the 
foreign company. Third, the product of the percentage ownership 
of voting stock at each level from the U.S. corporation down 
must equal at least 5 percent. The bill limits the application 
of the indirect foreign tax credit below the third tier to 
taxes paid or incurred in taxable years during which the payor 
is a CFC. No inference is intended as to the availability of 
indirect foreign tax credits, under present law, for taxes paid 
by foreign corporations in the first three tiers, for periods 
prior to the time when the present-law ownership requirements 
were met as to those corporations. All foreign taxes paid below 
the sixth tier of foreign corporations remain ineligible for 
the indirect foreign tax credit.

                            Effective Dates

Lower-tier controlled foreign corporations

    The provision of the bill that treats gains on dispositions 
of stock in lower-tier CFC's as dividends under section 1248 
principles applies to gains recognized on transactions 
occurring after the date of enactment of the bill.
    The provision that expands look-through treatment, for 
foreign tax credit limitation purposes, of dividends from 
CFC's, is effective for distributions after the date of 
enactment.
    The provision that provides for regulatory adjustments to 
U.S. shareholder inclusions, with respect to gains of CFC's 
from dispositions of stock in lower-tier CFC's the earnings of 
which have been previously taxed under the subpart F provisions 
of the code, is effective for determining inclusions for 
taxable years of U.S. shareholders beginning after December 31, 
1995. Thus, the bill permits regulatory adjustments to an 
inclusion occurring after the effective date to account for 
income previously taxed under the subpart F provisions 
occurring both prior to and subsequent to the effective date of 
the provision.

Subpart F inclusions in year of acquisition

    The provision that permits dispositions of stock to be 
taken into consideration in determining a U.S. shareholder's 
subpart F inclusion for a taxable year is effective with 
respect to dispositions occurring after the date of enactment.

Distributions of previously taxed income

    The provision that allows the Secretary to make regulatory 
adjustments to avoid double inclusions in cases such as those 
to which section 304 applies takes effect on the date of 
enactment.

Treatment of U.S. source income earned by a controlled foreign 
        corporation

    The provision concerning the effect of treaty exemptions 
from, or reductions of, the branch profits tax on the 
determination of subpart F income is effective for taxable 
years beginning after December 31, 1986.

Extension of indirect foreign tax credit

    The provision that extends application of the indirect 
foreign tax credit to certain CFC's below the third tier is 
effective for foreign taxes paid or incurred by CFC's for 
taxable years of such corporations beginning after the date of 
enactment.
    In the case of any chain of foreign corporations the taxes 
of which would be eligible for the indirect foreign tax credit, 
under present law or under the bill, but for the denial of 
indirect credits below the third or sixth tier, as the case may 
be, no liquidation, reorganization, or similar transaction in a 
taxable year beginning after the date of enactment shall have 
the effect of permitting taxes to be taken into account under 
the indirect foreign tax credit provisions of the code which 
could not have been taken into account under those provisions 
but for such transaction. As one example, no such transaction 
shall have the effect of permitting credits for taxes which, 
but for such transaction, would have been noncreditable (given 
the effective date provisions of the bill) because they are 
taxes of a fourth-, fifth-, or sixth-tier corporation for a 
year beginning before the date that the bill is enacted. No 
inference is intended regarding the creditability or 
noncreditability of such taxes under present law.

2. Repeal of excess passive assets provision (sec. 14414 of the bill 
        and sec. 956A of the code)

                              Present Law

    The United States taxes U.S. citizens and resident 
individuals and U.S. corporations (collectively, U.S. persons) 
on their worldwide income, subject to the allowance of a credit 
for foreign income taxes paid with respect to foreign source 
income. In contrast, the United States taxes nonresident aliens 
and foreign corporations only on income that is effectively 
connected with a U.S. business and on certain passive income 
(e.g., dividends and interest) from U.S. sources.
    Absent an applicable anti-deferral rule, a U.S. person that 
conducts foreign operations through a foreign corporation would 
not be subject to U.S. tax on the income from such operations 
until the income is repatriated to the United States through a 
dividend distribution from the foreign corporation, subject to 
a foreign tax credit. However, the U.S. tax law contains anti-
deferral regimes that apply in certain cases to require current 
U.S. taxation of income earned through foreign corporations.
    Under the rules of subpart F (secs. 951-964), the U.S. 
shareholders (as defined in sec. 951(b)) of a CFC are required 
to include in income currently for U.S. tax purposes certain 
earnings of the CFC, whether or not such earnings are actually 
distributed currently to the shareholders.121 The U.S. 
shareholders of a CFC are subject to current U.S. tax on their 
shares of certain income earned by the CFC (referred to as 
``subpart F income''). Subpart F income generally represents 
passive income and other income that is considered relatively 
moveable from one taxing jurisdiction to another (secs. 952-
954).122 The U.S. shareholders of the CFC are also subject 
to current U.S. tax on their shares of the CFC's earnings to 
the extent such earnings are invested by the CFC in certain 
U.S. property (e.g., a loan to the CFC's U.S. parent or an 
investment in U.S. real estate).
    \121\ For purposes of the subpart F rules, a U.S. shareholder is a 
U.S. person that owns 10 percent or more of the CFC's stock (measured 
by vote only). A CFC is a foreign corporation in which such U.S. 
shareholders own more than 50 percent of the stock (measured by vote or 
by value).
    \122\ Subpart F income generally includes insurance income; 
investment-type income such as dividends, interest, rents, royalties, 
and gains on the sale of investment property (referred to as foreign 
personal holding company income); income from certain related-party 
sales; income from certain services for a related party; foreign 
shipping income; and certain foreign oil-related income.
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    In addition to these current inclusions rules, the Omnibus 
Budget Reconciliation Act of 1993 (1993 Act) enacted section 
956A, which applies another current inclusion rule to U.S. 
shareholders of a CFC. Under section 956A, the U.S. 
shareholders of a CFC are required to include in income 
currently their shares of the CFC's earnings to the extent 
invested in excess passive assets. A CFC has excess passive 
assets for a taxable year generally if the average of the 
amounts of its passive assets exceeds 25 percent of the average 
of the amounts of its total assets; this calculation requires a 
quarterly determination of the CFC's passive assets and total 
assets. Special rules apply in defining passive assets, in 
measuring the CFC's assets, and in aggregating related CFC's 
for purposes of making the excess passive assets determination. 
Section 956A applies to earnings of a CFC accumulated in 
taxable years beginning after September 30, 1993.

                           Reasons for Change

    With the enactment of section 956A, the 1993 Act added an 
additional layer of complexity to the subpart F rules. In 
addition to determining the current inclusions with respect to 
a CFC's subpart F income and earnings invested in U.S. 
property, the U.S. shareholders must now also determine the 
current inclusion with respect to the CFC's earnings invested 
in excess passive assets. Application of section 956A requires 
determination and measurement of the CFC's passive assets and 
total assets on a quarterly basis. The committee understands 
that compliance with section 956A imposes substantial 
administrative burdens on both taxpayers and the IRS.
    The committee also understands that section 956A was 
enacted in order to restrict the benefits of tax deferral for 
CFC's that accumulate passive assets abroad. However, the 
committee further understands that the rules of section 956A 
operate to provide incentives for CFC's to make investments, 
enter into transactions, and engage in reorganizations for the 
purpose of avoiding the application of such section. The 
committee has been informed that CFC's acquire foreign assets 
that would not otherwise be attractive investments if such 
acquisitions reduce the CFC's percentage of passive assets 
below the threshold for application of section 956A. The 
committee has been further informed that some U.S. shareholders 
of CFC's view section 956A as having the effect of an 
investment tax credit for foreign investments by CFC's. The 
committee is concerned that section 956A provides taxpayers 
with incentives to engage in costly, noneconomic transactions. 
The committee is further concerned that section 956A provides 
incentives for taxpayers to make investments outside the United 
States that might otherwise be made in the United States. The 
committee believes that the administrative burdens of 
compliance coupled with the costs associated with transactions 
undertaken to avoid its application call into question the 
appropriateness of section 956A.

                        Explanation of Provision

    The bill repeals section 956A.

                             Effective Date

    The provision is effective for taxable years of U.S. 
shareholders beginning after September 30, 1995, and taxable 
years of foreign corporations ending with or within such 
taxable years of U.S. shareholders.

                      C. Other Foreign Provisions

1. Exchange rate used in translating foreign taxes (sec. 14421 of the 
        bill and secs. 905(c) and 986(a) of the code)

                              Present Law

Translation of foreign taxes

    Foreign income taxes paid in foreign currencies are 
required to be translated into U.S. dollar amounts using the 
exchange rate as of the time such taxes are paid to the foreign 
country or U.S. possession (sec. 986(a)(1)). This rule applies 
equally to foreign taxes paid directly by U.S. taxpayers, which 
taxes are creditable only in the year paid or accrued (or 
during a carryover period), and to foreign taxes paid by 
foreign corporations that are deemed paid by a U.S. 
corporation, and hence creditable, in the year that the U.S. 
corporation receives a dividend or has an income inclusion.

Redetermination of foreign taxes

    For taxpayers who utilize the accrual basis of accounting 
for determining creditable foreign taxes, accrued and unpaid 
foreign tax liabilities denominated in foreign currencies are 
translated into U.S. dollar amounts at the exchange rate as of 
the last day of the taxable year of accrual.123 In certain 
cases where a difference exists between the dollar value of 
accrued foreign taxes and the dollar value of those taxes when 
paid, a redetermination (or adjustment) of foreign taxes is 
required.124 Generally, such an adjustment may be 
attributable to one of three causes. One cause would be a 
refund of foreign taxes. Second, a foreign tax redetermination 
may be required because the amount of foreign currency units 
actually paid differs from the amount of foreign currency units 
accrued. These first two cases generally give rise to a so-
called section 905(c) regular adjustment. Third, a 
redetermination may arise due to fluctuations in the value of 
the foreign currency relative to the dollar between the date of 
accrual and the date of payment. This third case gives rise to 
a so-called section 905(c) translation adjustment.
    \123\ Temp. Treas. Reg. sec. 1.905-3T(b)(1).
    \124\ Temp. Treas. Reg. sec. 1.905-3T(c).
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    As a general matter, a redetermination of foreign tax paid 
or accrued directly by a U.S. person requires notification of 
the Internal Revenue Service and a redetermination of U.S. tax 
liability for the taxable year for which the foreign tax was 
claimed as a credit. Exceptions to this rule apply for de 
minimis amounts of foreign tax redetermination.125 In the 
case of a redetermination of foreign taxes that qualify for the 
indirect (or ``deemed-paid'') foreign tax credit under sections 
902 and 960, taxpayers generally are required to make 
appropriate adjustments to the relevant pools of earnings and 
profits and foreign taxes.126
    \125\ Temp. Treas. Reg. sec. 1.905-3T(d)(1).
    \126\ Temp. Treas. Reg. sec. 1.905-3T(d)(2); Notice 90-26, 1990-1 
C.B. 336.
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                           Reasons for Change

    If each foreign income tax payment is required to be 
translated at a separate daily exchange rate for the day of the 
payment, the number of currency exchange rates that are 
relevant to foreign tax credit calculations varies directly 
with the frequency of foreign income tax payments. Where U.S. 
corporations are deemed to pay a portion of the ``pool'' of 
foreign taxes paid by foreign corporations, the correct amount 
of tax in the pool is the product of each tax payment times the 
relevant translation rate. The longer the period between the 
time the income is earned and the time it is repatriated to the 
U.S. corporation (or otherwise included in the U.S. 
corporation's income), the greater the period over which the 
amounts of tax payments and translation rates are relevant to 
the determination of net U.S. tax liability.
    The committee believes that the recordkeeping, 
verification, and examination burdens--both on the IRS and on 
taxpayers--associated with the advantages of deferral and the 
foreign tax credit (including the indirect credit) are not 
insignificant. For example, if events that happened in 1 year 
affected only the tax return filed for that year, and each 
return was affected only by events that happened in the year 
for which that return was filed, then presumably tax-related 
records would need to be maintained only between the time the 
taxable year began and the time that the assessment period for 
that taxable year expired. On the other hand, for example, if 
income earned in years 1 through 5 is taxed in year 6, then the 
amount of documentation relevant to the year-6 tax return 
potentially is increased five-fold, and the period over which 
that information must be maintained is at least 5 years longer.
    U.S. persons who pay foreign income taxes directly and 
elect the benefits of the foreign tax credit have always been 
required to maintain detailed foreign tax payment 
documentation, including exchange rate data for the dates on 
which they paid foreign income taxes, and U.S. corporations 
that operate through foreign corporations have been required to 
maintain documentation regarding the earnings and foreign tax 
payments of the foreign corporations. Some have argued, 
however, that relief is warranted for taxpayers that would 
otherwise bear the currency translation responsibilities 
applicable to direct foreign taxpayers combined with the 
extended recordkeeping responsibilities applicable to taxpayers 
that receive the benefits of deferral.
    The committee believes that an appropriate response to this 
combination of burdens is to permit regulatory modification of 
the ``time of payment'' concept in such a way that preserves 
the uniformity of treatment of branches and foreign 
subsidiaries of U.S. taxpayers, but permits recourse to 
reasonably accurate average translation rates for the period in 
which the tax payments are made. Simplification may be provided 
in this way by reducing, sometimes substantially, the number of 
translation calculations that are required to be made. There 
may be situations in which the use of an average exchange rate 
over a specified time period, to be applied to all tax payments 
made in that currency during that period, would provide results 
not substantially different than those that would be derived 
under present law. This could result, for example, where the 
value of a foreign currency as it relates to the U.S. dollar 
does not fluctuate significantly over the specified period.
    In addition, the committee believes that in certain cases, 
taxpayers that are on the accrual basis of accounting for 
purposes of determining creditable foreign taxes should be 
permitted to translate those taxes into U.S. dollar amounts in 
the year to which those taxes relate, and should not be 
required to make adjustments or redetermination to those 
translated amounts, if actual tax payments are made within a 
reasonably short period of time after the close of such year. 
Moreover, the committee believes that it is appropriate to 
mandate the use of an average exchange rate for the taxable 
year with respect to which such foreign taxes relate for 
purposes of translating those taxes. On the other hand, the 
committee believes that a foreign tax not paid within a 
reasonably short period after the close of the year to which 
the taxes relate should not be treated as a foreign tax for 
such year; in such a case permitting the foreign tax credit for 
that year is less a mechanism for preventing double taxation, 
and more one resulting in the avoidance of all tax. By drawing 
a bright line between those foreign tax payment delays that do 
and do not require a redetermination, the committee believes 
that a reasonable degree of certainty and clarity will be added 
to the law in this area. The committee anticipates that in most 
cases, the combination of translating accrued taxes in this 
manner and exempting certain translation differences from 
redetermination should significantly alleviate present-law 
complexities, but should not provide results that are 
materially different from those that would appropriately be 
reached under present law.
    One of the fundamental premises behind the amendments 
enacted in 1986 with respect to the translation of foreign 
taxes was that foreign taxes paid by foreign corporations 
should be translated in the same manner as foreign taxes paid 
by foreign branches of U.S. persons. In keeping with that 
premise, the committee believes that any provision to allow the 
use of average exchange rates for this purpose or to allow for 
translation in years to which accrued taxes relate should be 
made equally applicable to foreign branches and subsidiaries.

                        Explanation of Provision

In general

    The bill sets forth two sets of operating rules for the 
translation of foreign taxes. The first set establishes new 
rules for the translation of certain accrued foreign taxes. The 
other set modifies the rules of present law for translating all 
other foreign taxes.

Translation of foreign taxes

            Translation of certain accrued foreign taxes
    With respect to taxpayers who take foreign income taxes 
into account when accrued for purposes of determining the 
foreign tax credit, the bill generally permits foreign taxes to 
be translated at the average exchange rate for the taxable year 
to which such taxes relate. If tax in excess of the accrued 
amount is actually paid after the date that is 2 years after 
the close of the years to which such taxes relate, such excess 
amount would be translated using the exchange rate in effect as 
of the time of payment.
    This set of rules does not apply first, to taxpayers that 
are not on the accrual basis for determining creditable foreign 
taxes, second, with respect to taxes of an accrual-basis 
taxpayer that are actually paid in a taxable year prior to the 
year to which they relate, or third, to tax payments that are 
denominated in a hyperinflationary currency (as defined in 
Treas. Reg. Sec. 1.985-1(b)(2)(D)(ii)). In addition, as 
discussed in detail below, this set of rules does not apply to, 
and thus a redetermination of foreign tax is required for, any 
foreign income tax paid after the date 2 years after the close 
of the taxable year to which such taxes relate.
    For example, assume that in year 1 a taxpayer accrues 1,000 
units of foreign tax that relate to year 1. Further assume that 
as of the end of year 1 the tax is unpaid and the currency 
involved is not hyperinflationary. In this case, the bill 
provides that the taxpayer would translate 1,000 units of 
accrued foreign tax into U.S. dollars at the average exchange 
rate for year 1.127 If the 1,000 units of tax were paid by 
the taxpayer in either year 2 or year 3, no redetermination of 
foreign tax would be required. If, any portion of the tax so 
accrued remained unpaid as of the end of year 3, however, the 
taxpayer would be required to redetermine its foreign tax 
accrued in year 1 to account for the accrued but unpaid tax.
    \127\ The same result would occur if the 1,000 units of tax were 
both accrued and paid in year 1.
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    As another example, assume a taxpayer accrues 1,000 units 
of foreign tax in year 2, but pays the tax in year 1. Also 
assume that the tax relates to year 2. In this case, the 
taxpayer would translate the tax using the exchange rate as of 
the time the tax is paid (i.e., using the applicable year 1 
exchange rate) since the tax is paid in a year prior to the 
year to which it relates.
    As an illustration of what is meant by the taxable year to 
which taxes relate, assume that a foreign corporation is 
charged by a foreign government with an income tax of 100 units 
for 1996. Assume that the currency involved is not 
hyperinflationary. Due to a contest between the foreign 
government and the corporation that ends in 1996, the 100 units 
of tax are not paid until 1997. Assume that under the U.S. 
rules governing accrual, the foreign tax accrues for 1996 but 
does not do so until 1997.128 Under the bill, the taxes 
would be translated at the rate in effect for 1996, because the 
taxes relate to 1996, even though they did not accrue until 
1997. If instead the contest was over in 1999 and the taxes 
were accrued and paid at that time, the translation rate used 
would be that of 1999, rather than 1996, because 1999 is more 
than 2 years after the end of 1996. Now assume that the contest 
was over in 2001, but the taxes were deposited in 1997 and not 
accrued until 2001. These taxes are paid before the beginning 
of the year in which the taxes were accrued (2001), but after 
the year to which the taxes relate (1996). In this case, under 
the bill, the taxes would be translated at the rate for the 
year (1996) to which the taxes relate. If the taxes are instead 
paid in 1999, they would be translated at the relevant rate for 
1999 because 1999 is more than 2 years after the end of 1996.
    \128\ See, e.g., Rev. Rul. 84-125, 1984-2 C.B. 125.
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    As an additional illustration of what is meant under the 
bill as the taxable year to which taxes relate, assume that a 
foreign corporation accrues a foreign income tax of 100 units 
of nonhyperinflationary currency for 1996. Further assume that 
the actual amount of foreign tax liability of the foreign 
corporation for 1996 is 110 units, all of which is paid in 
1997. Under the bill, the 110 units of foreign tax are 
translated at the rate in effect for 1996 because the taxes 
relate to 1996, even though the total tax liability for that 
year was not actually accrued by the taxpayer in 1996.
    Finally, assume that under foreign law, a foreign income 
tax liability accrues in 2001 under a long-term contract method 
of accounting, but advance deposits of that liability accruing 
in 2001 are made in each of the years 1997 through 2000. Under 
the bill, it is intended that if the payments in 1997 through 
2000 are treated as relating to 2001, these payments are 
nevertheless to be translated at the relevant rates for 1997 
through 2000. Although the bill provides a rule for translation 
of the taxes in this case, no change is intended as to the 
application of present law accounting rules for determining the 
year for which the taxes are eligible for credit or deduction 
for U.S. income tax purposes.
            Translation of all other foreign taxes
    Foreign taxes not eligible for application of the preceding 
rules generally are translated into U.S. dollars using the 
exchange rates as of the time such taxes are paid. The bill 
grants the Secretary of the Treasury authority to issue 
regulations that would allow foreign tax payments made by a 
foreign corporation or by a foreign branch of a U.S. person to 
be translated into U.S. dollar amounts using an average U.S. 
dollar exchange rate for a specified period. The committee 
anticipates that the applicable average exchange rate would be 
the rate as published by a qualified source of exchange rate 
information for the period during which the tax payments were 
made.

Redetermination of foreign taxes

    As revised by the bill, section 905(c) of the code defines 
a foreign tax redetermination to include: First, if accrued 
taxes when paid differ from the amounts claimed as credits by 
the taxpayer, second, if accrued taxes are not paid before the 
date 2 years after the close of the taxable year to which such 
taxes relate, and third, if any tax paid is refunded in whole 
or in part. Thus, for example, the bill provides that if at the 
close of the second taxable year after the close of the taxable 
year to which an accrued tax relates, any portion of the tax so 
accrued has not yet been paid, a foreign tax redetermination 
under section 905(c) is required for the amount representing 
the unpaid portion of that accrued tax. That is, the accrual of 
any tax that is unpaid as of that date would be retroactively 
denied. In cases where a redetermination is required, as under 
present law, the bill specifies that the taxpayer must notify 
the Secretary, who shall redetermine the amount of the tax for 
the year or years affected.
    The bill provides that in the case of accrued taxes not 
paid within the date 2 years after the close of the taxable 
year to which such taxes relate, whether or not such taxes were 
previously accrued, any such taxes if subsequently paid are 
taken into account for the taxable year in which paid, and no 
redetermination with respect to the original year of accrual is 
required on account of such payment. In such a case, those 
taxes would be translated into U.S. dollar amounts using the 
exchange rates in effect for the period during which such taxes 
are paid. Nothing in the bill is intended to change present law 
as to the length of time after the year to which the 
redetermination relates within which redetermination may be 
made or required.129
    \129\ See section 6501(c)(5). See also, e.g., Pacific Metals Corp. 
v. Commissioner, 1 T.C. 1028 (1943); Texas Co. (Caribbean) Ltd. v. 
Commissioner, 12 T.C. 925 (1949).
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                             Effective Date

    The provision is effective for taxes paid (in the case of 
taxpayers using the cash basis for determining the foreign tax 
credit) or accrued (in the case of taxpayers using the accrual 
basis for determining the foreign tax credit) in taxable years 
beginning after December 31, 1995.
    With respect to taxes of an accrual-basis taxpayer that 
relate to a taxable year beginning before January 1, 1996, the 
return for which (if one were due) would not yet be due on date 
of enactment of the bill (taking into account extensions of 
time to file), it is contemplated that the Secretary would, in 
appropriate circumstances, provide taxpayers with a reasonable 
average-rate method for translating such taxes that are not 
paid until after the effective date of the bill.
    The bill's changes to the foreign tax redetermination rules 
apply to taxes which relate to taxable years beginning after 
December 31, 1995. Thus, for example, the redetermination rules 
under the bill do not apply to a foreign tax that relates to a 
taxable year beginning in or before 1995, even though the tax 
does not properly accrue until a taxable year beginning after 
December 31, 1995.

2. Election to use simplified foreign tax credit limitation under the 
        alternative minimum tax (sec. 14422 of the bill and sec. 59(a) 
        of the code)

                              Present Law

    Computing foreign tax credit limitations requires the 
allocation and apportionment of deductions between items of 
foreign source income and items of U.S. source income. Foreign 
tax credit limitations must be computed both for regular tax 
purposes and for purposes of the alternative minimum tax (AMT). 
Consequently, after allocating and apportioning deductions for 
regular tax foreign tax credit limitation purposes, additional 
allocations and apportionments generally must be performed in 
order to compute the AMT foreign tax credit limitation.

                           Reasons for Change

    The process of allocating and apportioning deductions for 
purposes of calculating the regular and AMT foreign tax credit 
limitations can be complex. Taxpayers that have allocated and 
apportioned deductions for regular tax purposes generally must 
reallocate and reapportion the same deductions for AMT foreign 
tax credit purposes, based on assets and income that reflect 
AMT adjustments (including depreciation). However, the 
differences between regular taxable income and alternative 
minimum taxable income are often relevant primarily to U.S. 
source income. The committee believes that foreign source 
alternative minimum taxable income generally will not differ 
significantly from foreign source regular taxable income as a 
result of the combined effect of these differences. By 
permitting taxpayers to use foreign source regular taxable 
income in computing their AMT foreign tax credit limitation, 
the bill eliminates the need to reallocate and reapportion 
every deduction.

                        Explanation of Provision

    The bill permits taxpayers to elect to use as their AMT 
foreign tax credit limitation fraction the ratio of foreign 
source regular taxable income to entire alternative minimum 
taxable income, rather than the ratio of foreign source 
alternative minimum taxable income to entire alternative 
minimum taxable income. Under this election, foreign source 
regular taxable income is used, however, only to the extent it 
does not exceed entire alternative minimum taxable income. In 
the event that foreign source regular taxable income does 
exceed entire alternative minimum taxable income, and the 
taxpayer has income in more than one foreign tax credit 
limitation category, it is intended that the foreign source 
taxable income in each such category generally be reduced by a 
pro rata portion of that excess.
    The election is available only in the first taxable year 
beginning after December 31, 1995, for which the taxpayer 
claims an AMT foreign tax credit. It is intended that a 
taxpayer be treated, for this purpose, as claiming an AMT 
foreign tax credit for any taxable year for which the taxpayer 
chooses to have the benefits of the foreign tax credit and in 
which the taxpayer is subject to the alternative minimum tax or 
would be subject to the alternative minimum tax but for the 
availability of the AMT foreign tax credit. The election, once 
made, applies to all subsequent taxable years, and may be 
revoked only with the consent of the Secretary of the Treasury.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

3. Treatment of inbound and outbound transfers (secs. 14423 and 14424 
        of the bill and secs. 367, 1057, and 1491-1494 of the code)

                              Present Law

Outbound transfers

            Corporate nonrecognition provisions
    Certain types of exchanges relating to the organization, 
reorganization, and liquidation of a corporation can be made 
without recognition of gain to the corporation involved or to 
its shareholders. In 1932, Congress enacted an exception to the 
nonrecognition rules, which became section 367 of the 1954 
code, for the case where such an exchange involves a foreign 
corporation. The legislative history indicates that the 
exception was enacted in order to prevent tax avoidance that 
might have otherwise occurred upon the transfer of appreciated 
property outside U.S. tax jurisdiction.130 Under that 
provision, in determining the extent to which gain (but not 
loss) was recognized in these exchanges, a foreign corporation 
was not considered a corporation unless it was established to 
the satisfaction of the IRS that the exchange was not in 
pursuance of a plan having as one of its principal purposes the 
avoidance of Federal income taxes.
    \130\ H.R. Rep. No. 708, 72d Cong., 1st Sess. 20 (1932).
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    The code now provides that if a U.S. person transfers 
property to a foreign corporation in connection with certain 
corporate organizations, reorganizations, or liquidations, the 
foreign corporation will not, for purposes of determining the 
extent to which gain is recognized on such transfer, be 
considered to be a corporation (sec. 367(a)(1)). Various 
exceptions to the operation of this rule are provided, 
including a broad grant of authority to provide exceptions by 
regulation. The statutory language has changed substantially 
since 1932, but it has retained in large part its primary 
operational mechanism--that of treating a foreign corporation 
as not a corporation. Because corporate status is essential to 
qualify for the tax-free organization, reorganization, and 
liquidation provisions, failure to satisfy the requirements of 
section 367 could result in the recognition of gain to the 
participant corporations and shareholders.
            Excise tax on transfers to a foreign entity
    At the same time that Congress enacted the original 
predecessor of current section 367, Congress also enacted an 
excise tax on outbound transfers that might not constitute 
income tax recognition events even after imposition of the 
anti-avoidance income tax rule adopted for corporate 
transactions. As in the case of the corporate nonrecognition 
override provision, the purpose of the excise tax was to check 
transfers of appreciated property to foreign entities for the 
purpose of avoidance of taxes on capital gains.131 
Therefore, as in the case of the corporate provision, the 
excise tax generally has been imposed only in certain cases 
where it has been believed necessary or appropriate to preserve 
U.S. tax on appreciated assets.
    \131\ Id. at 52.
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    Under present law, the excise tax generally applies on 
transfers of property by a U.S. person to a foreign 
corporation--as paid-in surplus or as a contribution to 
capital--or to a foreign estate, trust, or partnership.132 
The tax is 35 percent of the amount of gain inherent in the 
property transferred, but not recognized for income tax 
purposes at the time of the transfer (sec. 1491). For income 
tax purposes, the basis of the appreciated property whose 
transfer triggers the tax is not increased to account for 
imposition of the tax.
    \132\ The Internal Revenue Service has in the past wavered on the 
question whether this tax applies to a transfer to a foreign trust with 
respect to which the transferor is treated as the owner under the 
grantor trust rules. Compare Rev. Rul. 69-450, 1969-2 C.B. 168 (holding 
that such a transfer is subject to tax under section 1491); with Rev. 
Rul. 87-61, 1987-2 C.B. 219 (revolving Rev. Rul. 69-450, and holding 
that such a transfer is not subject to tax under section 1491).
---------------------------------------------------------------------------
    The excise tax does not apply in certain cases where the 
transferee is exempt from U.S. tax under code sections 501-505 
(sec. 1492(1)). In addition, the excise tax does not apply in 
some cases where income tax rules governing outbound transfers 
apply, either by their terms or by the election of the 
taxpayer. Thus, the excise tax does not apply to a transfer 
described in section 367, or to a transfer not described in 
section 367 but with respect to which the taxpayer elects 
(before the transfer) the application of principles similar to 
the principles of section 367 (sec. 1492(2)).
    In addition, a taxpayer may elect (under regulations 
prescribed by the Secretary) to treat a transfer described in 
section 1491 as a sale or exchange of the property transferred 
and to recognize as gain (but not loss) in the year of the 
transfer the excess of the fair market value of the property 
transferred over the adjusted basis (for determining gain) of 
the property in the hands of the transferor (sec. 1057). To the 
extent that gain is recognized pursuant to the election in the 
year of the transfer, the transfer is not subject to the excise 
tax, and the basis of the property in the hands of the 
transferee will be increased by the amount of gain recognized 
(sec. 1492(3)). The legislative history of the elective income 
recognition provision indicates that the making of an election 
which has as one of its principle purposes the avoidance of 
Federal income taxes is not permitted.133
    \133\ Staff of the Joint Committee on Taxation, 94th Cong., 2d 
Sess., ``General Explanation of the Tax Reform Act of 1976,'' at 226 
(1976).
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    The excise tax is due at the time of the transfer (sec. 
1494(a)). Under regulations, the excise tax may be abated, 
remitted, or refunded if the taxpayer, after the transfer, 
elects the application of principles similar to the principles 
of section 367 (sec. 1494(b)).

Inbound corporate transfers

    Although the legislative history of the 1932 Act indicated 
a concern with outbound transfers, the statutory standard for 
determining that a transaction did not have as one of its 
principal purposes tax avoidance evolved through administrative 
interpretation into a requirement that, in the case of 
transfers into the United States by a foreign corporation, tax-
free treatment generally would be permitted only if the U.S. 
tax on accumulated earnings and profits was paid. For example, 
in 1968, the IRS issued guidelines (Rev. Proc. 68-23, 1968-1 
C.B. 821) as to when favorable rulings ``ordinarily'' would be 
issued. As a condition of obtaining a favorable ruling with 
respect to certain transactions, the section 367 guidelines 
required the taxpayer to agree to include certain items in 
income (the amount to be included was called the section 367 
toll charge). For example, if the transaction involved the 
liquidation of a foreign corporation into a domestic parent 
corporation, a favorable ruling was issued if the domestic 
parent agreed to include in its income as a dividend for the 
taxable year in which the liquidation occurred the portion of 
the accumulated earnings and profits of the foreign corporation 
which was properly attributable to the domestic corporation's 
stock interest in the foreign corporation (Rev. Proc. 68-23, 
sec. 3.01(1); see also sec. 3.03(1)(b)).
    Absence of a toll charge on accumulated earnings of a 
foreign corporation upon liquidation or asset reorganization 
into a U.S. corporation clearly would permit avoidance of tax. 
For example, if a U.S. corporation owns 100 percent of the 
stock of a U.S. subsidiary, no tax is imposed either on a 
dividend from the subsidiary to the parent (sec. 243) or the 
liquidation of the subsidiary into the parent (secs. 332 and 
337). In each case, the earnings of the subsidiary already have 
been subject to U.S. tax jurisdiction, and the liquidation 
provisions allow nonrecognition of gain inherent in appreciated 
property of the subsidiary. On the other hand, if a U.S. 
corporation owns 100 percent of the stock of a foreign 
subsidiary, earnings of the subsidiary generally are not 
subject to current U.S. tax. Instead, tax generally is imposed 
on a dividend from the subsidiary to the parent, net of 
creditable foreign taxes. If a liquidation of the subsidiary 
could be accomplished tax-free under the code, U.S. tax on its 
earnings would be avoided; more generally, the parent would be 
able to succeed to the basis and other tax attributes of the 
foreign corporation without having subjected to U.S. tax 
jurisdiction the earnings that gave rise to those tax 
attributes.
    For purposes of the transactions described above, section 
367 (and its predecessors) remained largely unchanged between 
1932 and 1976. In 1976, however, a number of problems caused 
Congress to revise section 367. One result of the 1976 revision 
was to separate the provision into two sets of rules: one set 
dealing with outbound transfers, where the statutory aim is to 
prevent the removal of appreciated assets or inventory from 
U.S. tax jurisdiction prior to their sale (sec. 367(a)), and 
the other set dealing with both transfers into the United 
States and those which are exclusively foreign (sec. 367(b)).
    Section 367(b) now provides, in part, that in the case of 
certain exchanges in connection with which there is no transfer 
of property described in section 367(a)(1), a foreign 
corporation will be considered to be a corporation except to 
the extent provided in regulations which are necessary or 
appropriate to prevent the avoidance of Federal income taxes.
    Although it is clear that absence of a toll charge on 
accumulated earnings of a foreign corporation upon liquidation 
or reorganization into a U.S. corporation leads to avoidance of 
tax, and Congress in 1976 noted without disapproval the 
adoption of IRS positions that would prevent the avoidance of 
tax in these cases,134 neither section 367(b) as revised 
in 1976, nor its predecessors, were drafted in such a way that 
directly causes tax to be imposed on foreign earnings.
    \134\ E.g., Staff of the Joint Committee on Taxation, 94th Cong., 
2d Sess., ``General Explanation of the Tax Reform Act of 1976,'' at 264 
(1976).
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    For example, assume that a U.S. corporation owns 100 
percent of the stock of a liquidating foreign corporation, and, 
pursuant to regulations under section 367(b), the foreign 
corporation is not treated as a corporation for purposes of 
section 332. In that case, the U.S. corporation would be 
required under the code to recognize the difference between the 
basis and the value of its stock in the foreign corporation. 
That gain, however, may be more or less than the accumulated 
earnings of the foreign corporation attributable to the period 
when the U.S. corporation owned the stock of the foreign 
corporation.
    Perhaps as a result, neither the present temporary 
regulations nor the proposed regulations under section 367(b) 
mandate a tax based on the accumulated earnings of a foreign 
corporation that liquidates or reorganizes into a U.S. 
corporation. The temporary regulations allow the taxpayer to 
elect treatment of the foreign corporation as a corporation if 
the tax on earnings is paid. If the taxpayer chooses not to 
make the election, the foreign corporation is not treated as a 
corporation under the relevant nonrecognition provision (e.g., 
sec. 332, 354), but is treated as a corporation for other 
purposes, such as for purposes of the basis rules (secs. 334, 
358, 362), and carryover provisions (sec. 381) (Temp. Treas. 
Reg. secs. 7.367(b)-5(b) and 7.367(b)-7(c)(2)). The proposed 
regulations generally require that the foreign corporation be 
treated as a corporation, and permit the taxpayer to elect 
either to pay the tax on earnings, or to pay tax on the gain; 
but if the latter option is chosen, adjustments must be made to 
either net operating loss carryovers, capital loss carryovers, 
or asset bases (Proposed Treas. Reg. sec. 1.367(b)-3(b)(2)).

                           Reasons for Change

Outbound transfers

    The excise tax was intended to prevent U.S. taxpayers from 
transferring appreciated property to foreign entities in 
attempts to avoid the payment of a capital gains tax. During 
the 60 years since its enactment, the excise tax potentially 
due on a transfer has only roughly approximated the income tax 
consequences that would have flowed from gain recognition. In 
some cases the excise tax has been much harsher than that 
income tax.135 Nevertheless, it is and has been the case 
that any taxpayer could properly avoid the excise tax by 
subjecting itself to the income tax. The committee understands 
that in some cases taxpayers are subject to the excise tax only 
because of inadvertent failure to elect to be subject to income 
tax. The committee understands that in order to defeat the tax 
avoidance possibilities of outbound transfers, in appropriate 
cases taxpayers should be subject to income tax on transfers of 
appreciated property to foreign entities, but not an excise 
tax.
    \135\ When the excise tax was enacted, the income tax on capital 
gains of individuals was 12.5 percent; the excise tax was 25 percent 
(Revenue Act of 1932, secs. 101 and 901).
---------------------------------------------------------------------------
    Some have argued that partnership and trust provisions 
added to the code since 1932 generally obviate any need for 
either the excise tax or any new alternative provision. The 
committee does not agree. Implementation of many of those 
provisions requires regulations that may or may not exist, and 
may or may not adequately prevent the tax avoidance that 
prompted enactment of the excise tax. The committee believes 
that other statutes, while representing an improvement over 
pre-1932 law from the standpoint of preventing abuses, do not 
in all cases represent an adequate backstop where there is a 
failure to elect gain recognition or application of section 367 
principles.

Inbound transfers

    The committee believes that the uncertainty surrounding the 
IRS authority to impose conditions on the treatment of a 
foreign corporation as a corporation, in cases other than 
outbound transfers, is not suited to prevent the avoidance of 
tax through the use of foreign corporations in the most 
straightforward fashion.
    For example, assume that a U.S. corporation establishes a 
100 percent-owned foreign corporation with capital of $100 
cash. Assume that the foreign corporation spends $50 on 
operating assets and $50 on investment assets, and that the 
operating assets generate $100 of earnings and profits. Assume 
that the value and tax basis of operating assets maintained by 
the company remains at $50, while the value of the investment 
assets declines to $25, so that the stock in the foreign 
corporation is worth $175. Upon liquidation of the foreign 
corporation, assume that the taxpayer could avail itself of a 
gain limitation. Potentially, the taxpayer might achieve a 
double deduction of the $25 loss on the investment; once by 
sheltering $25 of earnings from taxation on repatriation, and 
again when the loss on the investment asset is realized upon 
disposition of that asset.136
    \136\ Cf. Tech. Advice Memo. 9003005 (Sept. 28, 1989).
---------------------------------------------------------------------------
    The committee understands that the ambiguity of the statute 
in this case may foster complexity. For example, in the absence 
of regulations, the statute authorizes treatment of the foreign 
corporation as a corporation, and nontaxation of any earnings 
of the foreign corporation. To prevent this clear avoidance of 
tax, the IRS is authorized to provide for a different treatment 
of the foreign corporation by regulations. On one hand, it 
could be argued that the most the IRS can do in this case is to 
treat the transaction as if section 332 did not exist 
(resulting in gain recognition to the parent of $75). On the 
other hand, it could be argued that the Secretary is authorized 
to mandate the treatment of the foreign corporation as a 
corporation, subject to whatever regulations are necessary or 
appropriate to prevent the avoidance of tax on the repatriated 
earnings. One result of the ambiguity is a recently proposed 
regulation under which $75 of the earnings are taxed upon the 
liquidation, with the remaining $25 of earnings subject to 
future tax through a mandatory reduction of certain tax 
attributes, such as bases in the operating assets. The 
committee believes that requiring full taxation of the 
repatriated earnings is reasonable as a matter of the historic 
function of section 367 to prevent tax avoidance in inbound 
cases, and that such tax-avoidance can be prevented more 
directly and simply by explicitly authorizing the IRS to 
dispense with the gain limitation in appropriate cases.

                        Explanation of Provision

Outbound transfers

    The bill repeals the excise tax on outbound transfers. In 
its place, the bill requires the full recognition of gain on a 
transfer of property by a U.S. person to a foreign corporation 
as either paid-in surplus or a contribution to capital, or to a 
foreign estate, trust, or partnership. Under the bill, the 
Secretary of the Treasury may, however, provide regulations 
under which principles similar to the principles of section 367 
would apply to any such transfer in lieu of the application of 
the full recognition rule. Moreover, the Secretary may provide 
rules under which recognition of gain would not be triggered by 
section 1491 in cases where the Secretary is satisfied that 
application of other code rules (such as those relating to 
partnerships or trusts) would prevent the avoidance of tax 
consistent with the purposes of the bill. Full recognition of 
gain is also avoided in the case of a transfer described in 
section 367. It is anticipated that, prior to the promulgation 
of regulations, the Secretary generally will continue to permit 
taxpayers to elect the application of principles similar to the 
principles of section 367, provided the election is made by the 
time for filing the income tax return for the taxable year of 
the transfer.

Inbound transfers

    The bill provides that in the case of certain corporate 
organizations, reorganizations, and liquidations described in 
section 332, 351, 354, 355, 356, or 361 in which the status of 
a foreign corporation as a corporation is a condition for 
nonrecognition by a party to the transaction, income is 
recognized to the extent provided in regulations prescribed by 
the Secretary which are necessary or appropriate to prevent the 
avoidance of Federal income taxes. This provision is limited in 
its application, under the bill, so as not to apply to a 
transaction in which the foreign corporation is not treated as 
a corporation under section 367(a)(1). Thus, the bill permits 
the Secretary to provide by regulations for recognition of 
income, without regard to the amount of gain that would be 
recognized in the absence of the relevant nonrecognition 
provision listed above. As under current law, such regulations 
will be subject to normal court review as to whether they are 
necessary or appropriate for the prevention of avoidance of 
Federal income taxes.
    In addition, the bill clarifies that rules for income 
recognition under section 367(b) may also be applied in a case 
involving a transfer literally described in section 367(a)(1), 
where necessary or appropriate to prevent the avoidance of 
Federal income taxes.

                             Effective Date

    The provision applies to transfers after December 31, 1995.

4. Modification of reporting threshold for stock ownership of a foreign 
        corporation (sec. 14425 of the bill and sec. 6046 of the code)

                              Present Law

     Several provisions of the code require U.S. persons to 
report information with respect to a foreign corporation in 
which they are shareholders or act as officers or directors. 
Sections 6038 and 6035 generally require every U.S. citizen or 
resident who is an officer, director or who owns at least 10 
percent of the stock of a foreign corporation that is a 
controlled foreign corporation (as defined in sec. 957(a)) or a 
foreign personal holding company (as defined in sec. 552(a)), 
respectively, to file form 5471 annually. These provisions 
require the U.S. filer to furnish certain ownership data as 
well as financial information of the foreign corporation.
    Section 6046 mandates the filing of information returns on 
behalf of a foreign corporation by certain U.S. persons upon 
the occurrence of certain events. U.S. persons required to file 
these information returns are those who own or acquire 5 
percent or more of the value of the stock of a foreign 
corporation, others who become U.S. persons while owning that 
percentage of the stock of a foreign corporation, and U.S. 
citizens and residents who are officers or directors of foreign 
corporations with such U.S. ownership. Information that is 
required to be furnished includes the items pertaining to the 
organization, acquisition or reorganization of the foreign 
corporation. When the predecessor of Section 6046 was enacted, 
Congress required information to be reported by several sources 
because of concerns that imposing a reporting requirement on 
only one party might not be sufficient to allow enforcement of 
the tax laws.
    A failure to file the required information return could 
result in monetary penalties or reduction of foreign tax credit 
benefits under section 6038. Such a failure could result in 
monetary penalties under sections 6035 or 6046.

                           Reasons for Change

    The committee believes that because the annual reporting 
requirements applicable to controlled foreign corporations and 
foreign personal holding companies under sections 6035 and 6038 
continue to apply, a liberalization of the filing requirements 
under section 6046 will not significantly impair the ability of 
the IRS to determine the U.S. tax liabilities associated with 
the activities of the relevant foreign corporations. The 
committee believes that it is appropriate to make the threshold 
at which reporting is required under section 6046 generally 
parallel to the thresholds that apply under sections 6035 and 
6038. Doing so will reduce the compliance burdens on taxpayers.

                        Explanation of Provision

    The bill increases the reporting threshold for stock 
ownership of a foreign corporation under section 6046 from 5 
percent (based on value) to 10 percent (based on vote or 
value).

                             Effective Date

    The provision is effective for reportable transactions 
occurring after December 31, 1995.

5. Application of uniform capitalization rules to foreign persons (sec. 
        14426 of the bill and sec. 263A(c) of the code)

                              Present Law

In general

    For purposes of computing a taxpayer's taxable income and 
earnings and profits, certain costs reduce net income as they 
are incurred (e.g., ordinary and necessary business expenses); 
other costs reduce net income only to the extent that the 
income-producing assets with which those costs are associated 
generate income. Pursuant to the code, Treasury Regulations 
prescribe a comprehensive set of rules for this purpose (the 
``uniform capitalization rules'') which require certain costs--
including both direct and indirect costs allocable to 
property--to be capitalized or included in inventory. The 
uniform capitalization rules generally apply to property 
produced by a taxpayer or acquired by a taxpayer for resale.
    In the case of interest expense, the uniform capitalization 
rules apply to interest paid or incurred during the property's 
production period that is allocable to property produced by the 
taxpayer or acquired for resale which first, is either real 
property or property with a class life of at least 20 years, 
second, has an estimated production period exceeding 2 years, 
or third, has an estimated production period exceeding 1 year 
and a cost exceeding $1,000,000 (sec. 263A(f)).

Application to foreign persons

    The uniform capitalization rules apply to foreign persons, 
whether or not engaged in business in the United States. In the 
case of a foreign corporation carrying on a U.S. trade or 
business, for example, the uniform capitalization rules apply 
for purposes of computing the corporation's U.S. effectively 
connected taxable income, as well as its effectively connected 
earnings and profits for purposes of the branch profits tax.
    If a foreign corporation is not engaged in business in the 
United States, its taxable income and earnings and profits may 
nonetheless be relevant under the code. For example, the pro-
rata share of the subpart F income of a controlled foreign 
corporation is currently includible as income by its U.S. 
shareholders under section 951(a)(1)(A). And whether or not a 
foreign corporation is U.S.-controlled, its accumulated 
earnings and profits must be computed in order to determine the 
indirect foreign tax credit carried by distributions from the 
foreign corporation to any domestic corporation that owns at 
least 10 percent of its voting stock.
    The code provides that the earnings and profits or deficit 
in earnings and profits of any foreign corporation, for any 
taxable year, shall be determined according to rules 
substantially similar to those applicable to domestic 
corporations, under regulations prescribed by the Secretary of 
the Treasury (sec. 964(a)). Thus, foreign persons generally are 
required to capitalize costs in accordance with the uniform 
capitalization rules.
    Eligible foreign persons may elect to use an alternative 
approach (the ``U.S. ratio method'') to apply the uniform 
capitalization rules to expenses other than interest (see 
Notice 88-104 137). To apply the U.S. ratio method, there 
must be a similar U.S. trade or business carried on by the 
foreign person, or by a related party. All expenses that the 
foreign person otherwise treats as deductible are decreased 
ratably, to reflect the amount of the increase in costs 
capitalized under the U.S. ratio method for the taxable year. 
The appropriate ratio is applied to the costs of property 
produced or property acquired for resale incurred by the 
foreign person for each taxable year. A separate ratio is 
required to be computed for each taxable year for properties 
related to each separate trade or business.
    \137\ 1988-2 C.B. 443.
---------------------------------------------------------------------------

Reasons for Change

    The committee believes that the requirement to maintain 
separate records to compute inventory accounts solely for U.S. 
tax purposes is unduly burdensome for foreign corporations 
whose activities do not give rise to current U.S. income 
taxation. Therefore, the committee believes that it is 
appropriate to ease the compliance burdens of foreign taxpayers 
that are not engaging in a U.S. trade or business and that do 
not engage in activities that give rise to current taxation to 
their U.S. shareholders under the subpart F provisions.

                        Explanation of Provision

    The bill reduces the number of foreign corporations that 
are required to apply the uniform capitalization rules under 
section 263A of the code. Under the bill, a foreign corporation 
is subject to the uniform capitalization rules only with 
respect to the determination of first, its tax liability with 
respect to its U.S. trade or business and second, the tax 
liability of its U.S. shareholders under the subpart F 
provisions of the code. However, the committee intends that a 
foreign corporation that is not required to apply the uniform 
capitalization rules under the bill may nevertheless continue 
to apply such rules. Exemption from uniform capitalization 
rules under the bill constitutes a change of the accounting 
method of the foreign corporation adopted with the consent of 
the Secretary of Treasury. No section 481(a) adjustment will 
arise in connection with such change; instead, the ``cut-off 
method'' is applicable. Under the cut-off method, the value of 
the beginning inventory of an affected taxpayer includes 
amounts properly capitalized in a previous year under the 
uniform capitalization rules and the taxpayer would not apply 
the uniform capitalization rules with respect to inventory 
acquired or produced during the year for which the election is 
in effect.

                             Effective Date

    The provision is effective for taxable years of the foreign 
corporation beginning after December 31, 1995.

6. Prizes and awards received by a nonresident alien relating to 
        amateur sports competitions held in the United States (sec. 
        14427 of the bill and sec. 863(f) of the code)

                              Present Law

    Amounts received as prizes or awards are generally included 
in gross income under section 74 of the code. The code and 
Treasury regulations, however, contain no specific rules 
addressing the source and character of income from prizes and 
awards received by a nonresident alien. Prizes and awards 
associated with athletic competitions held in the United States 
are generally treated as services income. Services income 
earned by a nonresident alien from sources within the United 
States is generally subject to U.S. income tax. The source of 
income generally follows the location where the services are 
performed. A limited exception is available for U.S. source 
compensation income not exceeding $3,000 if certain criteria 
are satisfied (sec. 861(a)(3)).
    Income tax treaties generally contain more generous 
provisions to exempt personal services income from U.S. 
taxation. Under many U.S. income tax treaties, an unlimited 
amount of dependent or independent services income may be 
exempt from U.S. income tax if the person performing the 
services is present in the United States for a period of 183 
days or less provided certain conditions are met. However, a 
number of U.S. income tax treaties also contain a special 
``Artistes and Athletes'' provision that limits this exemption. 
For example, under Article XVI of the U.S.-Canada income tax 
treaty, a Canadian athlete is subject to U.S. tax on the income 
derived from athletic activities conducted within the United 
States unless the amount of such income, including expenses 
reimbursed and expenses borne on behalf of the athlete, does 
not exceed $15,000 for the tax year in question.

                           Reasons for Change

    The committee believes that it is useful to provide 
specific statutory guidance with respect to the source of 
income from prizes and awards received by nonresident aliens 
that result from amateur sports competitions in the United 
States. The committee also believes that it is inappropriate to 
impose U.S. tax on prizes and awards received with respect to 
amateur sports competitions held in the United States, provided 
that the nonresident athlete does not perform any services in 
the United States for such prize or award.

                        Explanation of Provision

    The bill treats prizes and awards received by a nonresident 
alien with respect to his or her participation in an amateur 
sports competition held within the United States as foreign 
source income if the recipient does not perform any services 
for the payor for the prize or award. Thus, the value of the 
prize or award would be exempt from U.S. income tax. For this 
purpose, amateur sports competition means any competition in 
which the only prizes awarded by the sponsors are of nominal 
value. The committee intends that medals that are awarded in 
athletic competitions and that contain small amounts of 
precious or semi-precious metals, such as Olympic medals, be 
considered to be of nominal value for purposes of this 
provision. The operation of this provision is illustrated by 
the examples below.
    Example 1. Assume that a nonresident alien athlete, A, is a 
resident of a country that does not have an income tax treaty 
with the United States, X. A is the first place finisher in an 
amateur athletic competition held in the United States. The 
only award that A receives from the sponsor of the competition 
is a blue ribbon. As a result of her accomplishment in such 
competition, a civic association of Country X names A its 
``Outstanding Athlete of 1995'' and presents her with a new 
sports car. The civic association did not announce in advance 
that it would provide any prize to the winner of the event in 
which A competed. Thus, A does not have any contractual right 
to the car. In addition, due to her outstanding performance in 
the competition, the government of Country X believes that A 
has brought special honor to the country and grants a special 
award to A of $500. Country X does not have any continuous 
program in place to grant awards to athletes who win in sports 
competitions held abroad. As under present law, the value of 
the sports car and the $500 special prize do not constitute 
U.S. source income to A.
    Example 2. Assume the same facts as Example 1, but instead 
of the $500 special award, the government of Country X has a 
long-standing program to award every first-place finisher from 
that country the equivalent of $10,000 in local currency as an 
incentive to all athletes from that country. The cash award 
does not qualify for the exception provided by the bill, and 
thus is treated as U.S. source income to A.
    Example 3. Assume the same facts as Example 1, but in 
addition an athletic equipment manufacturer donates all of the 
equipment to the athletes of Country X for use in connection 
with the competition held in the United States. A uses this 
equipment during the competition but does not receive any other 
prize or award from the manufacturer. The value of the 
equipment does not constitute U.S. source income.
    Example 4. Assume the same facts as Example 1, but in 
addition A has an endorsement contract with an athletic 
clothing manufacturer. The contract requires A to wear the 
manufacturer's clothing during all competitions and provides 
that the athlete will receive a $15,000 bonus for every blue 
ribbon received in the competition. The $15,000 paid under the 
contract does not qualify for the exception provided by the 
bill, and thus is treated as U.S. source income to A.
    Example 5. Assume the same facts as Example 1, but in 
addition an athletic shoe manufacturer enters into an 
arrangement with the athlete's national sports federation under 
which the manufacturer provides the sports federation with all 
of the footwear required by its athletes. The athletes wear 
this footwear during the competition. The manufacturer also 
donates $100,000 to the sports federation, with the condition 
that this amount be divided among all of the country's 
recipients of blue ribbons who actually wear the footwear 
during the competition. A's share of the $100,000 award does 
not qualify for the exception provided by the bill, and thus is 
treated as U.S. source income.
    Example 6. Assume the same facts as Example 2, but in 
addition the sponsor of the athletic competition has 
established a related foundation, the Blue Ribbon Foundation. 
Winners of each competition are named Blue Ribbon Athletes and 
are awarded $20,000 each by the Foundation. The contest is not 
an amateur competition as defined by the bill. The $20,000 
award from the Foundation constitutes U.S. source income to the 
athlete.

                             Effective Date

    The provision is effective for prizes and awards received 
on or after the date of enactment.

7. Treatment for estate tax purposes of short-term obligations held by 
        nonresident aliens (sec. 14428 of the bill and sec. 2105 of the 
        code)

                              Present Law

    The United States generally taxes nonresident aliens and 
foreign corporations on their U.S. source income or income 
which is effectively connected with a business conducted by 
them in the United States. Where a nonresident alien or foreign 
corporation receives interest, dividends, or other fixed or 
determinable annual or periodic gains, profits, and income and 
that income is not effectively connected with the conduct of a 
trade or business by the taxpayer within the United States, the 
United States generally imposes a 30-percent tax on the gross 
amount paid (code secs. 871(a) and 881).
    Certain statutory exemptions from the 30-percent tax are 
applicable. In the case of interest, amounts that are derived 
from bank deposits, portfolio debt instruments and certain 
short-term original issue discount [OID] obligations are exempt 
from U.S. income taxation. A reason for such exemption is to 
enhance the ability of U.S. borrowers to raise capital from 
foreign persons. For example, in enacting the portfolio 
interest exemption, the Congress acknowledged that 
international bond issues are often exempt from withholding 
taxes and estate taxes imposed by foreign governments.138 
Section 2105(b) contains similar rules to exempt certain debt 
obligations from the U.S. estate tax imposed on nonresident 
aliens. Under present law, however, the income and estate tax 
exemptions for interest income received and debt instruments 
held by nonresident aliens are not in complete conformity.
    \138\ See, e.g., Staff of the Joint Committee on Taxation, 98th 
Cong., 1st Sess. General Explanation of the Revenue Provisions of the 
Deficit Reduction Act of 1984, at 391 et seq.
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    The United States imposes estate tax on assets of 
noncitizen nonresidents that are situated in the United States 
at the time of the individual's death. Debt obligations of a 
U.S. person, the United States, a political subdivision of a 
State, or the District of Columbia are considered property 
located within the United States if held by a nonresident not a 
citizen of the United States (sec. 2014(c)).
    Special rules apply to treat certain bank deposits and debt 
instruments the income from which qualifies for the bank 
deposit interest exemption or the portfolio interest exemption 
as property from without the United States despite the fact 
that such items are obligations of a U.S. person, the United 
States, a political subdivision of a State, or the District of 
Columbia (sec. 2105(b)). Income from such items is exempt from 
U.S. income tax in the hands of the nonresident recipient 
(secs. 871(h) and 871(i)(2)(A)). The effect of the special 
rules is to exclude these items from the U.S. gross estate of a 
nonresident not a citizen of the United States. However, no 
equivalent exemption is available from the U.S. estate tax for 
obligations held by a noncitizen nonresident that generate 
short-term OID income despite the fact that such income also is 
exempt from U.S. income tax in the hands of the nonresident 
recipient (sec. 871(g)(1)(B)(i)).

                           Reasons for Change

    The committee believes that it is appropriate to conform 
the income and estate tax treatments of short-term OID 
obligations held by nonresident aliens. A purpose of exempting 
short-term OID income derived by nonresident aliens from U.S. 
income tax is to enhance the ability of U.S. borrowers to raise 
funds from foreign lenders, and such purpose is hindered by the 
lack of a corresponding exemption for U.S. estate tax. 
Moreover, to the extent the interest from such an obligation is 
exempt from U.S. income tax, the inclusion of the instrument in 
the nonresident noncitizen's U.S. estate is a trap for the 
unwary.

                        Explanation of Provision

    The bill treats any debt obligation the income from which 
would be eligible for the exemption for short-term OID under 
section 871(g)(1)(B)(i) held by a decedent on the date of his 
death as property situated outside of the United States in 
determining the U.S. estate tax liability of a nonresident not 
a U.S. citizen. However, a short-term OID obligation the income 
from which is effectively connected with a U.S. trade or 
business conducted by the decedent is not subject to this rule.

                             Effective Date

    The provision is effective for estates of decedents dying 
after the date of enactment.

         Subtitle E. Other Income Tax Simplification Provisions

                A. Provisions Relating to S Corporations

1. S corporations permitted to have 75 shareholders (sec. 14501 of the 
        bill and sec. 1361 of the code)

                              Present Law

    The taxable income or loss of an S corporation is taken 
into account by the corporation's shareholders, rather than by 
the entity, whether or not such income is distributed. A small 
business corporation may elect to be treated as an S 
corporation. A ``small business corporation'' is defined as a 
domestic corporation which is not an ineligible corporation and 
which does not have first, more than 35 shareholders, second, 
as a shareholder, a person (other than certain trusts or 
estates) who is not an individual, third, a nonresident alien 
as a shareholder, and fourth, more than one class of stock. For 
purposes of the 35-shareholder limitation, a husband and wife 
are treated as one shareholder.

                           Reasons for Change

    The committee believes that increasing the number of 
eligible shareholders of an S corporation will facilitate 
corporate ownership by additional family members, employees and 
capital investors without damaging the intended simplified 
nature of subchapter S.

                        Explanation of Provision

    The provision increases maximum number of eligible 
shareholders from 35 to 75.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

2. Electing small business trusts (sec. 14502 of the bill and sec. 1361 
        of the code)

                              Present Law

    Under present law, trusts other than grantor trusts, voting 
trusts, certain testamentary trusts and ``qualified subchapter 
S trusts'' may not be shareholders in a S corporation. A 
``qualified subchapter S trust'' is a trust which, under its 
terms, first, is required to have only one current income 
beneficiary (for life), second, any corpus distributed during 
the life of the beneficiary must be distributed to the 
beneficiary, third, the beneficiary's income interest must 
terminate at the earlier of the beneficiary's death or the 
termination of the trust, and fourth, if the trust terminates 
during the beneficiary's life, the trust assets must be 
distributed to the beneficiary. All the income (as defined for 
local law purposes) must be currently distributed to that 
beneficiary. The beneficiary is treated as the owner of the 
portion of the trust consisting of the stock in the S 
corporation.

                           Reasons for Change

    The committee believes that a trust that provides for 
income to be distributed to (or accumulated for) a class of 
individuals should be allowed to hold S corporation stock. This 
would allow an individual to establish a trust to hold S 
corporation stock and ``spray'' income among family members (or 
others) who are beneficiaries of the trust. The committee 
believes allowing such an arrangement will facilitate family 
financial planning.

                        Explanation of Provision

In general

    The provision allows stock in an S corporation to be held 
by certain trusts (``electing small business trusts''). In 
order to qualify for this treatment, all beneficiaries of the 
trust must be individuals or estates eligible to be S 
corporation shareholders, except that charitable organizations 
may hold contingent remainder interests. No interest in the 
trust may be acquired by purchase. For this purpose, 
``purchase'' means any acquisition of property with a cost 
basis (determined under sec. 1012). Thus, interests in the 
trust must be acquired by reason of gift, bequest, etc.
    A trust must elect to be treated as an electing small 
business trust. An election applies to the taxable year for 
which made and could be revoked only with the consent of the 
Secretary of the Treasury or his delegate.
    Each potential current beneficiary of the trust is counted 
as a shareholder for purposes of the proposed 75 shareholder 
limitation (or if there were no potential current 
beneficiaries, the trust would be treated as the shareholder). 
A potential current income beneficiary means any person, with 
respect to the applicable period, who is entitled to, or at the 
discretion of any person may receive, a distribution from the 
principal or income of the trust. Where the trust disposes of 
all the stock in an S corporation, any person who first became 
so eligible during the 60 days before the disposition is not 
treated as a potential current beneficiary.
    A qualified subchapter S trust with respect to which an 
election is in effect or an exempt trust is not eligible to 
qualify as an electing small business trust.

Treatment of items relating to S corporation stock

    The portion of the trust which consists of stock in one or 
more S corporations is treated as a separate trust for purposes 
of computing the income tax attributable to the S corporation 
stock held by the trust. The trust is taxed at the highest 
individual rate (currently, 39.6 percent on ordinary income and 
28 percent on net capital gain) on this portion of the trust's 
income. The taxable income attributable to this portion 
includes first, the items of income, loss, or deduction 
allocated to it as an S corporation shareholder under the rules 
of subchapter S, second, gain or loss from the sale of the S 
corporation stock, and third, to the extent provided in 
regulations, any state or local income taxes and administrative 
expenses of the trust properly allocable to the S corporation 
stock. Otherwise allowable capital losses are allowed only to 
the extent of capital gains.
    In computing the trust's income tax on this portion of the 
trust, no deduction is allowed for amounts distributed to 
beneficiaries, and no deduction or credit is allowed for any 
item other than the items described above. This income is not 
included in the distributable net income of the trust, and thus 
is not included in the beneficiaries' income. No item relating 
to the S corporation stock could be apportioned to any 
beneficiary.
    On the termination of all or any portion of an electing 
small business trust the loss carryovers or excess deductions 
referred to in section 642(h) is taken into account by the 
entire trust, subject to the usual rules on termination of the 
entire trust.

Treatment of remainder of items held by trust

    In determining the tax liability with regard to the 
remaining portion of the trust, the items taken into account by 
the subchapter S portion of the trust are disregarded. Although 
distributions from the trust are deductible in computing the 
taxable income on this portion of the trust, under the usual 
rules of subchapter J, the trust's distributable net income 
does not include any income attributable to the S corporation 
stock.

Termination of trust and conforming amendment applicable to all trusts

    Where the trust terminates before the end of the S 
corporation's taxable year, the trust takes into account its 
pro rata share of S corporation items for its final year. The 
bill makes a conforming amendment applicable to all trusts and 
estates clarifying that this is the present-law treatment of 
trusts and estates that terminate before the end of the S 
corporation's taxable year.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

3. Expansion of post-death qualification for certain trusts (sec. 14503 
        of the bill and sec. 1361 of the code)

                              Present Law

    Under present law, trusts other than grantor trusts, voting 
trusts, certain testamentary trusts and ``qualified subchapter 
S trusts'' may not be shareholders in an S corporation. A 
grantor trust may remain an S corporation shareholder for 60 
days after the death of the grantor. The 60-day period is 
extended to 2 years if the entire corpus of the trust is 
includible in the gross estate of the deemed owner. In 
addition, a trust may be an S corporation shareholder for 60 
days after the transfer of S corporation pursuant to a will.

                           Reasons for Change

    The committee believes that the 60-day holding period 
applicable to certain testamentary trusts should be expanded to 
facilitate estate administration.

                        Explanation of Provision

    The provision expands the post-death holding period to 2 
years for all testamentary trusts.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

4. Financial institutions permitted to hold safe harbor debt (sec. 
        14504 of the bill and sec. 1361 of the code)

                              Present Law

    A small business corporation eligible to be an S 
corporation may not have more than one class of stock. Certain 
debt (``straight debt'') is not treated as a second class of 
stock so long as such debt is an unconditional promise to pay 
on demand or on a specified date a sum certain in money if: 
First, the interest rate (and interest payment dates) are not 
contingent on profits, the borrower's discretion, or similar 
factors; second, there is no convertibility (directly or 
indirectly) into stock, and third, the creditor is an 
individual (other than a nonresident alien), an estate, or 
certain qualified trusts.

                           Reasons for Change

    The committee can think of no reason why bona fide debt 
should not be treated as within the safe harbor simply because 
the debt is held by a financial institution.

                        Explanation of Provision

    The definition of ``straight debt'' is expanded to include 
debt held by creditors, other than individuals, that are 
actively and regularly engaged in the business of lending 
money.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

5. Rules relating to inadvertent terminations and invalid elections 
        (sec. 14505 of the bill and sec. 1362 of the code)

                              Present Law

    Under present law, if the Internal Revenue Service 
(``IRS'') determines that a corporation's Subchapter S election 
is inadvertently terminated, the IRS can waive the effect of 
the terminating event for any period if the corporation timely 
corrects the event and if the corporation and shareholders 
agree to be treated as if the election had been in effect for 
that period. Such waivers generally are obtained through the 
issuance of a private letter ruling. Present law does not grant 
the IRS the ability to waive the effect of an inadvertent 
invalid Subchapter S election.
    In addition, under present law, a small business 
corporation must elect to be an S corporation no later than the 
15th day of the third month of the taxable year for which the 
election is effective. The IRS may not validate a late 
election.

                           Reasons for Change

    The committee believes that the Secretary of the Treasury 
should have the same authority to validate inadvertently 
defective subchapter S elections as it has for inadvertent 
subchapter S terminations.

                        Explanation of Provision

    Under the provision, the authority of the IRS to waive the 
effect of an inadvertent termination is extended to allow the 
Service to waive the effect of an invalid election caused by an 
inadvertent failure to qualify as a small business corporation 
or to obtain the required shareholder consents (including 
elections regarding qualified subchapter S trusts), or both. 
The provision also allows the IRS to treat a late Subchapter S 
election as timely where the Service determines that there was 
reasonable cause for the failure to make the election timely. 
It is intended that the IRS be reasonable in exercising this 
authority and apply standards that are similar to those applied 
under present law to inadvertent subchapter S terminations and 
other late or invalid elections.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1982.139
    \139\ This is the effective date of the present-law provision 
regarding inadvertent terminations.
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6. Agreement to terminate year (sec. 14506 of the bill and sec. 1377 of 
        the code)

                              Present Law

    In general, each item of S corporation income, deduction 
and loss is allocated to shareholders on a per-share, per-day 
basis. However, if any shareholder terminates his or her 
interest in an S corporation during a taxable year, the S 
corporation, with the consent of all its shareholders, may 
elect to allocate S corporation items by closing its books as 
of the date of such termination rather than apply the per-
share, per-day rule.

                           Reasons for Change

    The committee believes that the election to close the books 
of an S corporation does not need the consent of shareholders 
whose tax liability is unaffected by the election.

                        Explanation of Provision

    The provision provides that, under regulations to be 
prescribed by the Secretary of the Treasury, the election to 
close the books of the S corporation upon the termination of a 
shareholder's interest is made by all affected shareholders and 
the corporation, rather than by all shareholders. The closing 
of the books applies only to the affected shareholders. For 
this purpose, ``affected shareholders'' means any shareholder 
whose interest is terminated and all shareholders to whom such 
shareholder has transferred shares during the year. If a 
shareholder transferred shares to the corporation, ``affected 
shareholders'' includes all persons who were shareholders 
during the year.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

7. Expansion of post-termination transition period (sec. 14507 of the 
        bill and secs. 1377 and 6037 of the code)

                              Present Law

    Distributions made by a former S corporation during its 
post-termination period are treated in the same manner as if 
the distributions were made by an S corporation (e.g., treated 
by shareholders as nontaxable distributions to the extent of 
the accumulated adjustment account). Distributions made after 
the post-termination period are generally treated as made by a 
C corporation (i.e., treated by shareholders as taxable 
dividends to the extent of earnings and profits).
    The ``post-termination period'' is the period beginning on 
the day after the last day of the last taxable year of the S 
corporation and ending on the later of: First, a date that is 1 
year later, or second, the due date for filing the return for 
the last taxable year and the 120-day period beginning on the 
date of a determination that the corporation's S corporation 
election had terminated for a previous taxable year.
    In addition, the audit procedures adopted by the Tax Equity 
and Fiscal Responsibility Act of 1982 [TEFRA] with respect to 
partnerships also apply to S corporations. Thus, the tax 
treatment of items is determined at the corporate, rather than 
individual level.

                           Reasons for Change

    The committee believes that the current scope of the 
``post-termination period'' is insufficient under present law. 
In addition, the committee believes that the TEFRA audit 
procedures should be inapplicable to entities with a limited 
number of owners.

                        Explanation of Provision

    The present-law definition of post-termination period is 
expanded to include the 120-day period beginning on the date of 
any determination pursuant to an audit of the taxpayer that 
follows the termination of the S corporation's election and 
that adjusts a subchapter S item of income, loss or deduction 
of the S corporation during the S period. In addition, the 
definition of ``determination'' is expanded to include a final 
disposition of the Secretary of the Treasury of a claim for 
refund and, under regulations, certain agreements between the 
Secretary and any person, relating to the tax liability of the 
person.
    In addition, the provision repeals the TEFRA audit 
provisions applicable to S corporations and would provide other 
rules to require consistency between the returns of the S 
corporation and its shareholders.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

8. S corporations permitted to hold subsidiaries (sec. 14508 of the 
        bill and secs. 1361 and 1362 of the code)

                              Present Law

    A small business corporation may not be a member of an 
affiliated group of corporations (other than by reason of 
ownership in certain inactive corporations). Thus, an S 
corporation may not own 80 percent or more of the stock of 
another corporation (whether an S corporation or a C 
corporation).
    In addition, a small business corporation may not have as a 
shareholder another corporation (whether an S corporation or a 
C corporation).

                           Reasons for Change

    The committee understands that there are situations where 
taxpayers may wish to separate different trades or businesses 
in different corporate entities. The committee believes that, 
in such situations, shareholders should be allowed to arrange 
these separate corporate entities under parent-subsidiary 
arrangements as well as brother-sister arrangements.

                        Explanation of Provision

C corporation subsidiaries

    An S corporation is allowed to own 80 percent or more of 
the stock of a C corporation. The C corporation subsidiary 
could elect to join in the filing of a consolidated return with 
its affiliated C corporations. An S corporation is not allowed 
to join in such election. Dividends received by an S 
corporation from a C corporation in which the S corporation has 
an 80 percent or greater ownership stake is not treated as 
passive investment income for purposes of sections 1362 and 
1375 to the extent the dividends are attributable to the 
earnings and profits of the C corporation derived from the 
active conduct of a trade or business.

S corporation subsidiaries

    In addition, an S corporation is allowed to own a qualified 
subchapter S subsidiary. The term ``ualified subchapter S 
subsidiary'' means a domestic corporation that is not an 
ineligible corporation (i.e., a corporation that would be 
eligible to be an S corporation if the stock of the corporation 
were held directly by the shareholders of its parent S 
corporation) if first, 100 percent of the stock of the 
subsidiary were held by its S corporation parent and second, 
for which the parent elects to treat as a qualified subchapter 
S subsidiary. If a subsidiary ceases to be a qualified S 
corporation subsidiary (either because the subsidiary fails to 
qualify or the parent revokes the election) another such 
election may not be made for the subsidiary by the parent for 5 
years without the consent of the Secretary of the Treasury.
    Under the election, the qualified subchapter S subsidiary 
is not treated as a separate corporation and all the assets, 
liabilities, and items of income, deduction, and credit of the 
subsidiary are treated as the assets, liabilities, and items of 
income, deduction, and credit of the parent S corporation. 
Thus, transactions between the S corporation parent and 
qualified S corporation subsidiary are not taken into account 
and items of the subsidiary (including accumulated earnings and 
profits, passive investment income, built-in gains, etc.) are 
considered to be items of the parent. In addition, if a 
subsidiary ceases to be a qualified subchapter S subsidiary 
(e.g., fails to meet the wholly-owned requirement), the 
subsidiary will be treated as a new corporation acquiring all 
of its assets (and assuming all of its liabilities) immediately 
before such cessation from the parent S corporation in exchange 
for its stock.140
    \140\ Similar rules apply with respect to wholly owned subsidiaries 
of real estate investment trusts [REIT's] under section 856(i) of 
present law.
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    Under the provision, if an election is made to treat an 
existing corporation (whether or not its stock was acquired 
from another person or previously held by the S corporation) as 
a qualified subchapter S subsidiary, the subsidiary will be 
deemed to have liquidated under sections 332 and 337 
immediately before the election is effective. The built-in 
gains tax under section 1374 and the LIFO recapture tax under 
section 1363(d) may apply where the subsidiary was previously a 
C corporation. Where the stock of the subsidiary was acquired 
by the S corporation in a qualified stock purchase, an election 
under section 338 with respect to the subsidiary may be made.
    Because the parent and each subsidiary corporation that is 
a qualified subchapter S subsidiary are treated for Federal 
income tax purposes as a single corporation, debt issued by a 
subsidiary to a shareholder of the parent corporation will be 
treated as debt of the parent for purposes of determining the 
amount of losses that may flow through to shareholders of the 
parent corporation under section 1366(d)(1)(B). The Secretary 
of the Treasury may prescribe rules as to the order that losses 
pass through where debt of both the parent and subsidiary 
corporations are held by shareholders of the parent. To the 
extent a shareholder of the parent S corporation is not at-risk 
with respect to losses of a subsidiary, the at-risk rules of 
section 465 may cause losses of the subsidiary to be suspended.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

9. Treatment of distributions during loss years (sec. 14509 of the bill 
        and secs. 1366 and 1368 of the code)

                              Present Law

    Under present law, the amount of loss an S corporation 
shareholder may take into account for a taxable year cannot 
exceed the sum of the shareholder's adjusted basis in his or 
her stock of the corporation and the adjusted basis in any 
indebtedness of the corporation to the shareholder. Any excess 
loss is carried forward.
    Any distribution to a shareholder by an S corporation 
generally is tax-free to the shareholder to the extent of the 
shareholder's adjusted basis of his or her stock. The 
shareholder's adjusted basis is reduced by the tax-free amount 
of the distribution. Any distribution in excess of the 
shareholder's adjusted basis is treated as gain from the sale 
or exchange of property.
    Under present law, income (whether or not taxable) and 
expenses (whether or not deductible) serve, respectively, to 
increase and decrease an S corporation shareholder's basis in 
the stock of the corporation. These rules require that the 
adjustments to basis for items of both income and loss for any 
taxable year apply before the adjustment for distributions 
applies.141
    \141\ See section 1368(d)(1); H. Rept. 97-826, p. 17; S. Rept. 97-
640, p. 18; Treas. reg. sec. 1.1367-1(e).
---------------------------------------------------------------------------
    These rules limiting losses and allowing tax-free 
distributions up to the amount of the shareholder's adjusted 
basis are similar in certain respects to the rules governing 
the treatment of losses and cash distributions by partnerships. 
Under the partnership rules (unlike the S corporation rules), 
for any taxable year, a partner's basis is first increased by 
items of income, then decreased by distributions, and finally 
is decreased by losses for that year.142
    \142\ Treas. reg. sec. 1.704-1(d)(2); Rev. Rul. 66-94, 1966-1 C.B. 
166.
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    In addition, if the S corporation has accumulated earnings 
and profits,143 any distribution in excess of the amount 
in an ``accumulated adjustments account'' will be treated as a 
dividend (to the extent of the accumulated earnings and 
profits). A dividend distribution does not reduce the adjusted 
basis of the shareholder's stock. The ``accumulated adjustments 
account'' generally is the amount of the accumulated 
undistributed post-1982 gross income less deductions.
    \143\ An S corporation may have earnings and profits from years 
prior to its subchapter S election or from pre-1983 subchapter S years.
---------------------------------------------------------------------------

                           Reasons for Change

    The committee believes that the rules regarding the 
treatment of distributions by S corporations during loss years 
should be the same as the rules applicable to partnerships.

                        Explanation of Provision

    The provision provides that the adjustments for 
distributions made by an S corporation during a taxable year 
are taken into account before applying the loss limitation for 
the year. Thus, distributions during a year reduce the adjusted 
basis for purposes of determining the allowable loss for the 
year, but the loss for a year does not reduce the adjusted 
basis for purposes of determining the tax status of the 
distributions made during that year.
    The provision also provides that in determining the amount 
in the accumulated adjustment account for purposes of 
determining the tax treatment of distributions made during a 
taxable year by an S corporation having accumulated earnings 
and profits, net negative adjustments (i.e., the excess of 
losses and deductions over income) for that taxable year are 
disregarded.
    The following examples illustrate the application of these 
provisions:
    Example 1.--X is the sole shareholder of corporation A, a 
calendar year S corporation with no accumulated earnings and 
profits. X's adjusted basis in the stock of A on January 1, 
1996, is $1,000 and X holds no debt of A. During 1996, A makes 
a distribution to X of $600, recognizes a capital gain of $200 
and sustains an operating loss of $900. Under the bill, X's 
adjusted basis in the A stock is increased to $1,200 ($1,000 
plus $200 capital gain recognized) pursuant to section 1368(d) 
to determine the effect of the distribution. X's adjusted basis 
is then reduced by the amount of the distribution to $600 
($1,200 less $600) to determine the application of the loss 
limitation of section 1366(d)(1). X is allowed to take into 
account $600 of A's operating loss, which reduces X's adjusted 
basis to zero. The remaining $300 loss is carried forward 
pursuant to section 1366(d)(2).
    Example 2.--The facts are the same as in Example 1, except 
that on January 1, 1996, A has accumulated earnings and profits 
of $500 and an accumulated adjustments account of $200. Under 
the bill, because there is a net negative adjustment for the 
year, no adjustment is made to the accumulated adjustments 
account before determining the effect of the distribution under 
section 1368(c).
    As to A, $200 of the $600 distribution is a distribution of 
A's accumulated adjustments account, reducing the accumulated 
adjustments account to zero. The remaining $400 of the 
distribution is a distribution of accumulated earnings and 
profits [E&P] and reduces A's E&P to $100. A's accumulated 
adjustments account is then increased by $200 to reflect the 
recognized capital gain and reduced by $900 to reflect the 
operating loss, leaving a negative balance in the accumulated 
adjustment account on January 1, 1997, of $700 (zero plus $200 
less $900).
    As to X, $200 of the distribution is applied against X's 
adjusted basis of $1,200 ($1,000 plus $200 capital gain 
recognized), reducing X's adjusted basis to $1,000. The 
remaining $400 of the distribution is taxable as a dividend and 
does not reduce X's adjusted basis. Because X's adjusted basis 
is $1,000, the loss limitation does not apply to X, who may 
deduct the entire $900 operating loss. X's adjusted basis is 
then decreased to reflect the $900 operating loss. Accordingly, 
X's adjusted basis on January 1, 1997, is $100 ($1,000 plus 
$200 less $200 less $900).

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

10. Treatment of S corporations under subchapter C (sec. 14510 of the 
        bill and sec. 1371 of the code)

                              Present Law

    Present law contains several provisions relating to the 
treatment of S corporations as corporations generally for 
purposes of the Internal Revenue Code.
    First, under present law, the taxable income of an S 
corporation is computed in the same manner as in the case of an 
individual (sec. 1363(b)). Under this rule, the provisions of 
the code governing the computation of taxable income which are 
applicable only to corporations, such as the dividends received 
deduction, do not apply to S corporations.
    Second, except as otherwise provided by the Internal 
Revenue Code and except to the extent inconsistent with 
subchapter S, subchapter C (i.e., the rules relating to 
corporate distributions and adjustments) applies to an S 
corporation and its shareholders (sec. 1371(a)(1)). Under this 
second rule, provisions such as the corporate reorganization 
provisions apply to S corporations. Thus, a C corporation may 
merge into an S corporation tax-free.
    Finally, an S corporation in its capacity as a shareholder 
of another corporation is treated as an individual for purposes 
of subchapter C (sec. 1371(a)(2)). In 1988, the Internal 
Revenue Service took the position that this rule prevents the 
tax-free liquidation of a C corporation into an S corporation 
because a C corporation cannot liquidate tax-free when owned by 
an individual shareholder.144 In 1992, the Internal 
Revenue Service reversed its position, stating that the prior 
ruling was incorrect.145
    \144\ PLR 8818049, (Feb. 10, 1988).
    \145\ PLR 9245004, (July 28, 1992).
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                           Reasons for Change

    The committee wishes to provide that the position taken by 
the Internal Revenue Service in 1992 that allows the tax-free 
liquidation of a C corporation into an S corporation represents 
the proper policy.

                        Explanation of Provision

    The provision repeals the rule that treats an S corporation 
in its capacity as a shareholder of another corporation as an 
individual. Thus, the provision clarifies that the liquidation 
of a C corporation into an S corporation will be governed by 
the generally applicable subchapter C rules, including the 
provisions of sections 332 and 337 allowing the tax-free 
liquidation of a corporation into its parent corporation. 
Following a tax-free liquidation, the built-in gains of the 
liquidating corporation may later be subject to tax under 
section 1374 upon a subsequent disposition. An S corporation 
also will be eligible to make a section 338 election (assuming 
all the requirements are otherwise met), resulting in immediate 
recognition of all the acquired C corporation's gains and 
losses (and the resulting imposition of a tax).
    The repeal of this rule does not change the general rule 
governing the computation of income of an S corporation. For 
example, it does not allow an S corporation, or its 
shareholders, to claim a dividends received deduction with 
respect to dividends received by the S corporation, or to treat 
any item of income or deduction in a manner inconsistent with 
the treatment accorded to individual taxpayers.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

11. Elimination of certain earnings and profits (sec. 14511 of the bill 
        and secs. 1362 and 1375 of the code)

                              Present Law

    Under present law, the accumulated earnings and profits of 
a corporation are not increased for any year in which an 
election to be treated as an S corporation is in effect. 
However, under the subchapter S rules in effect before revision 
in 1982, a corporation electing subchapter S for a taxable year 
increased its accumulated earnings and profits if its earnings 
and profits for the year exceeded both its taxable income for 
the year and its distributions out of that year's earnings and 
profits. As a result of this rule, a shareholder may later be 
required to include in his or her income the accumulated 
earnings and profits when it is distributed by the corporation. 
The 1982 revision to subchapter S repealed this rule for 
earnings attributable to taxable years beginning after 1982 but 
did not do so for previously accumulated S corporation earnings 
and profits.

                           Reasons for Change

    The committee believes that the existence of pre-1983 
earnings and profits of an S corporation unnecessarily 
complicates corporate recordkeeping and constitutes a potential 
trap for the unwary.

                        Explanation of Provision

    The provision provides that if a corporation is an S 
corporation for its first taxable year beginning after December 
31, 1995, the accumulated earnings and profits of the 
corporation as of the beginning of that year is reduced by the 
accumulated earnings and profits (if any) accumulated in any 
taxable year beginning before January 1, 1983, for which the 
corporation was an electing small business corporation under 
subchapter S. Thus, such a corporation's accumulated earnings 
and profits are solely attributable to taxable years for which 
an S election was not in effect. This rule is generally 
consistent with the change adopted in 1982 limiting the S 
shareholder's taxable income attributable to S corporation 
earnings to his or her share of the taxable income of the S 
corporation.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

12. Carryover of disallowed losses and deductions under at-risk rules 
        allowed (sec. 14512 of the bill and sec. 1366 of the code)

                              Present Law

    Under section 1366, the amount of loss an S corporation 
shareholder may take into account cannot exceed the sum of the 
shareholder's adjusted basis in his or her stock of the 
corporation and the unadjusted basis in any indebtedness of the 
corporation to the shareholder. Any disallowed loss is carried 
forward to the next taxable year. Any loss that is disallowed 
for the last taxable year of the S corporation may be carried 
forward to the post-termination period. The ``post-termination 
period'' is the period beginning on the day after the last day 
of the last taxable year of the S corporation and ending on the 
later of: First, a date that is 1 year later, or second, the 
due date for filing the return for the last taxable year and 
the 120-day period beginning on the date of a determination 
that the corporation's S corporation election had terminated 
for a previous taxable year.

    In addition, under section 465, a shareholder of an S 
corporation may not deduct losses that are flowed through from 
the corporation to the extent the shareholder is not ``at-
risk'' with respect to the loss. Any loss not deductible in one 
taxable year because of the at-risk rules is carried forward to 
the next taxable year.

                           Reasons for Change

    The committee believes that losses suspended by the at-risk 
rules should be conformed to the treatment of losses suspended 
by the subchapter S basis rules.

                        Explanation of Provision

    Losses of an S corporation that are suspended under the at-
risk rules of section 465 are carried forward to the S 
corporation's post-termination period.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

13. Adjustments to basis of inherited S stock to reflect certain items 
        of income (sec. 14513 of the bill and sec. 1367 of the code)

                              Present Law

    Income in respect to a decedent [IRD] generally consists of 
items of gross income that accrued during the decedent's 
lifetime but were not includible in the decedent's income 
before his or her death under his or her method of accounting. 
IRD is includible in the income of the person acquiring the 
right to receive such item. A deduction for the estate tax 
attributable to an item of IRD is allowed to such person (sec. 
691(c)). The cost or basis of property acquired from a decedent 
is its fair market value at the date of death (or alternate 
valuation date if that date is elected for estate tax 
purposes). This basis is often referred to as a ``stepped-up 
basis.'' Property that constitutes a right to receive IRD does 
not receive a stepped-up basis.
    The basis of a partnership interest or corporate stock 
acquired from a decedent generally is stepped-up at death. 
Under Treasury regulations, the basis of a partnership interest 
acquired from a decedent is reduced to the extent that its 
value is attributable to items constituting IRD (Treas. reg. 
sec. 1.742-1). This rule insures that the items of IRD held by 
a partnership are not later offset by a loss arising from a 
stepped-up basis. Although S corporation income is taxed to its 
shareholders in a manner similar to the taxation of a 
partnership and its partners, no comparable regulation requires 
a reduction in the basis of stock in an S corporation acquired 
from a decedent where the S corporation holds items of IRD.

                           Reasons for Change

    The committee believes that the present-law treatment of 
IRD items of an S corporation is unclear and that the treatment 
of such items should be similar to the treatment of identical 
items held by a partnership.

                        Explanation of Provision

    The provision provides that a person acquiring stock in an 
S corporation from a decedent would treat as IRD his or her pro 
rata share of any item of income of the corporation that would 
have been IRD if that item had been acquired directly from the 
decedent. Where an item is treated as IRD, a deduction for the 
estate tax attributable to the item generally will be allowed 
under the provisions of section 691(c). The stepped-up basis in 
the stock in an S corporation acquired from a decedent is 
reduced by the extent to which the value of the stock is 
attributable to items consisting of IRD. This basis rule is 
comparable to the present-law partnership rule.

                             Effective Date

    The provision applies with respect to decedents dying after 
the date of enactment.

14. S corporations eligible for rules applicable to real property 
        subdivided for sale by noncorporate taxpayers (sec. 14514 of 
        the bill and sec. 1237 of the code)

                              Present Law

    Under present-law section 1237, a lot or parcel of land 
held by a taxpayer other than a corporation generally is not 
treated as ordinary income property solely by reason of the 
land being subdivided if first, such parcel had not previously 
been held as ordinary income property and if in the year of 
sale, the taxpayer did not hold other real property; second, no 
substantial improvement has been made on the land by the 
taxpayer, a related party, a lessee, or a government; and 
third, the land has been held by the taxpayer for 5 years.

                           Reasons for Change

    The committee believes that rules generally applicable to 
individuals should be applicable to S corporations.

                        Explanation of Provision

    The provision allows the present-law capital gains 
presumption in the case of land held by an S corporation. It is 
expected that rules similar to the attribution rules for 
partnerships will apply to S corporation (Treas. reg. sec. 
1.1237-1(b)(3)).

                             Effective Date

    The provision is effective for sales in taxable years 
beginning after December 31, 1995.

15. Effective date (sec. 14515 of the bill and sec. 1362 of the code)

                              Present Law

    A small business corporation that terminates its subchapter 
S election (whether by revocation or otherwise) may not make 
another election to be an S corporation for 5 taxable years 
unless the Secretary of the Treasury consents to such election.

                           Reasons for Change

    The committee believes that, given the changes made by the 
committee to subchapter S, it is appropriate to allow 
corporations that terminated their elections under subchapter S 
within the last 5 years to reelect subchapter S status without 
the consent of the Secretary.

                        Explanation of Provision

    For purposes of the 5-year rule, any termination of 
subchapter S status in effect immediately before the date of 
enactment of the proposal is not be taken into account. Thus, 
any small business corporation that had terminated its S 
corporation election within the 5-year period before the date 
of enactment may re-elect subchapter S status upon enactment of 
the bill without the consent of the Secretary of the Treasury.

                             Effective Date

    The provision is effective upon the date of enactment.

 B. Provisions Relating to Regulated Investment Companies [RIC's] and 
                 Real Estate Investment Trusts [REIT's]

1. Repeal the short-short test for regulated investment companies (sec. 
        14521 of the bill and sec. 851(b)(3) of the code)

                              Present Law

     A regulated investment company (``RIC'') generally is 
treated as a conduit for Federal income tax purposes. The code 
provides conduit treatment by permitting a RIC to deduct 
dividends paid to its shareholders in computing its taxable 
income. In order to qualify for conduit treatment, the RIC must 
be a domestic corporation that, at all times during the taxable 
year, is registered under the Investment Company Act of 1940 as 
a management company or as a unit investment trust, or has 
elected to be treated as a business development company under 
that Act (sec. 851(a)). In addition, a corporation must elect 
such status and must satisfy certain tests (sec. 851(b)). In 
particular, a corporation must derive less than 30 percent of 
its gross income from the sale or disposition of certain 
investments (including stock, securities, options, futures, and 
forward contracts) held less than 3 months (the ``short-short 
test'') (sec. 851(b)(3)).

                           Reasons for Change

    The short-short test restricts the investment flexibility 
of RIC's. The test can, for example, limit a RIC's ability to 
``hedge'' its investment (e.g., to use options to protect 
against adverse market moves).
    The test also burdens a RIC with significant recordkeeping, 
compliance, and administration costs. The RIC must keep track 
of the holding periods of assets and the relative percentages 
of short-term and long-term gain that it realizes throughout 
the year.

                        Explanation of Provision

    The bill repeals the short-short test.

                             Effective Date

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

2. Modifications of rules for real estate investment trusts (sec. 
        14531-14543 of the bill and secs. 856 and 857 of the code)

                              Present Law

Overview

    In general, a real estate investment trust (``REIT'') is an 
entity that receives most of its income from passive real 
estate related investments and that receives conduit treatment 
for income that is distributed to shareholders. If an entity 
meets the qualifications for REIT status, the portion of its 
income that is distributed to the investors each year generally 
is taxed to the investors without being subjected to a tax at 
the REIT level; the REIT generally is subject to a corporate 
tax only on the income that it retains and on certain income 
from property that qualifies as foreclosure property.

Election to be treated as a REIT

    In order to qualify as a REIT, and thereby receive conduit 
treatment, an entity must elect REIT status. A newly-electing 
entity generally cannot have earnings and profits accumulated 
from any year in which the entity was in existence and not 
treated as a REIT (sec. 857(a)(3)). To satisfy this 
requirement, the entity must distribute, during its first REIT 
taxable year, any earnings and profits that were accumulated in 
non-REIT years. For this purpose, distributions by the entity 
generally are treated as being made from the most recently 
accumulated earnings and profits.

Taxation of REIT's

            Overview
    In general, if an entity qualifies as a REIT by satisfying 
the various requirements described below, the entity is taxable 
as a corporation on its ``real estate investment trust taxable 
income'' (``REITTI''), and also is taxable on certain other 
amounts (sec. 857). REITTI is the taxable income of the REIT 
with certain adjustments (sec. 857(b)(2)). The most significant 
adjustment is a deduction for dividends paid. The allowance of 
this deduction is the mechanism by which the REIT becomes a 
conduit for income tax purposes.
            Capital gains
    A REIT that has a net capital gain for a taxable year 
generally is subject to tax on such capital gain under the 
capital gains tax regime generally applicable to corporations 
(sec. 857(b)(3)). However, a REIT may diminish or eliminate its 
tax liability attributable to such capital gain by paying a 
``capital gain dividend'' to its shareholders (sec. 
857(b)(3)(C)). A capital gain dividend is any dividend or part 
of a dividend that is designated by the payor REIT as a capital 
gain dividend in a written notice mailed to shareholders. 
Shareholders who receive capital gain dividends treat the 
amount of such dividends as long-term capital gain regardless 
of their holding period of the stock (sec. 857(b)(3)(C)).
    A regulated investment company (``RIC''), but not a REIT, 
may elect to retain and pay income tax on net long-term capital 
gains it received during the tax year. If a RIC makes this 
election, the RIC shareholders must include in their income as 
long-term capital gains their proportionate share of these 
undistributed long-term capital gains as designated by the RIC. 
The shareholder is deemed to have paid the shareholder's share 
of the tax, which can be credited or refunded to the 
shareholder. Also, the basis of the shareholder's shares is 
increased by the amount of the undistributed long-term capital 
gains (less the amount of capital gains tax paid by the RIC) 
included in the shareholder's long-term capital gains.

Income from foreclosure property

    In addition to tax on its REITTI, a REIT is subject to tax 
at the highest rate of tax paid by corporations on its net 
income from foreclosure property (sec. 857(b)(4)). Net income 
from foreclosure property is the excess of the sum of gains 
from foreclosure property that is held for sale to customers in 
the ordinary course of a trade or business and gross income 
from foreclosure property (other than income that otherwise 
would qualify under the 75-percent income test described below) 
over all allowable deductions directly connected with the 
production of such income.
    Foreclosure property is any real property or personal 
property incident to such real property that is acquired by a 
REIT as a result of default or imminent default on a lease of 
such property or indebtedness secured by such property, 
provided that (unless acquired as foreclosure property), such 
property was not held by the REIT for sale to customers (sec. 
856(e)). A property generally may be treated as foreclosure 
property for a period of 2 years after the date the property is 
acquired by the REIT. The IRS may grant extensions of the 
period for treating the property as foreclosure property if the 
REIT establishes that an extension of the grace period is 
necessary for the orderly liquidation of the REIT's interest in 
the property. The grace period cannot be extended beyond 6 
years from the date the property is acquired by the REIT.
    Property will cease to be treated as foreclosure property 
if, after 90 days after the date of acquisition, the REIT 
operates the foreclosure property in a trade or business other 
than through an independent contractor from whom the REIT does 
not derive or receive any income (sec. 856(e)(4)(C)).

Income or loss from prohibited transactions

    In general, a REIT must derive its income from passive 
sources and not engage in any active trade or business. 
Accordingly, in addition to the tax on its REITTI and on its 
net income from foreclosure property, a 100 percent tax is 
imposed on the net income of a REIT from ``prohibited 
transactions'' (sec. 857(b)(6)). A prohibited transaction is 
the sale or other disposition of property described in section 
1221(1) of the code (property held for sale in the ordinary 
course of a trade or business) other than foreclosure property. 
Thus, the 100 percent tax on prohibited transactions helps to 
ensure that the REIT is a passive entity and may not engage in 
ordinary retailing activities such as sales to customers of 
condominium units or subdivided lots in a development project. 
A safe harbor is provided for certain sales that otherwise 
might be considered prohibited transactions (sec. 
857(b)(6)(C)). The safe harbor is limited to seven or fewer 
sales a year or, alternatively, any number of sales provided 
that the aggregate adjusted basis of the property sold does not 
exceed 10 percent of the aggregate basis of all the REIT's 
assets at the beginning of the REIT's taxable year.

Requirements for REIT Status

    A REIT must satisfy four tests on a year-by-year basis: 
organizational structure, source of income, nature of assets, 
and distribution of income. These tests are intended to allow 
conduit treatment in circumstances in which a corporate tax 
otherwise would be imposed, only if there really is a pooling 
of investment arrangement that is evidenced by its 
organizational structure, if its investments are basically in 
real estate assets, and if its income is passive income from 
real estate investment, as contrasted with income from the 
operation of business involving real estate. In addition, 
substantially all of the entity's income must be passed through 
to its shareholders on a current basis.

Organizational structure requirements

    To qualify as a REIT, an entity must be for its entire 
taxable year a corporation or an unincorporated trust or 
association that would be taxable as a domestic corporation but 
for the REIT provisions, and must be managed by one or more 
trustees (sec. 856(a)). The beneficial ownership of the entity 
must be evidenced by transferable shares or certificates of 
ownership. Except for the first taxable year for which an 
entity elects to be a REIT, the beneficial ownership of the 
entity must be held by 100 or more persons, and the entity may 
not be so closely held by individuals that it would be treated 
as a personal holding company if all its adjusted gross income 
constituted personal holding company income. A REIT is 
disqualified for any year in which it does not comply with 
regulations to ascertain the actual ownership of the REIT's 
outstanding shares.

Income requirements

            Overview
    In order for an entity to qualify as a REIT, at least 95 
percent of its gross income generally must be derived from 
certain passive sources (the ``95-percent test''). In addition, 
at least 75 percent of its income generally must be from 
certain real estate sources (the ``75-percent test''), 
including rents from real property.
    In addition, less than 30 percent of the entity's gross 
income may be derived from gain from the sale or other 
disposition of stock or securities held for less than 1 year, 
real property held less than 4 years (other than foreclosure 
property, or property subject to an involuntary conversion 
within the meaning of sec. 1033), and property that is sold or 
disposed of in a prohibited transaction (sec. 856(c)(4)).
            Definition of rents
    For purposes of the income requirements, rents from real 
property generally include rents from interests in real 
property, charges for services customarily rendered or 
furnished in connection with the rental of real property, 
whether or not such charges are separately stated, and rent 
attributable to personal property that is leased under or in 
connection with a lease of real property, but only if the rent 
attributable to such personal property does not exceed 15 
percent of the total rent for the year under the lease (sec. 
856(d)(1)).
    Services provided to tenants are regarded as customary if, 
in the geographic market within which the building is located, 
tenants in buildings that are of a similar class (for example, 
luxury apartment buildings) are customarily provided with the 
service. The furnishing of water, heat, light, and air 
conditioning, the cleaning of windows, public entrances, exits, 
and lobbies, the performance of general maintenance, and of 
janitorial and cleaning services, the collection of trash, the 
furnishing of elevator services, telephone answering services, 
incidental storage space, laundry equipment, watchman or guard 
service, parking facilities and swimming pool facilities are 
examples of services that are customarily furnished to tenants 
of a particular class of buildings in many geographical 
marketing areas (Treas. Reg. sec. 1.856-4(b)).
    In addition, amounts are not treated as qualifying rent if 
received from certain parties in which the REIT has an 
ownership interest of 10 percent or more (sec. 856(d)(2)(B)). 
For purposes of determining the REIT's ownership interest in a 
tenant, the attribution rules of section 318 apply, except that 
10 percent is substituted for 50 percent where it appears in 
subparagraph (C) of section 318(a)(2) and 318(a)(3) (sec. 
856(d)(5)).
    Finally, where a REIT furnishes or renders services to the 
tenants of rented property, amounts received or accrued with 
respect to such property generally are not treated as 
qualifying rents unless the services are furnished through an 
independent contractor (sec. 856(d)(2)(C)). A REIT may furnish 
or render a service directly, however, if the service would not 
generate unrelated business taxable income under section 
512(b)(3) if provided by an organization described in section 
511(a)(2). In general, an independent contractor is a person 
who does not own more than a 35 percent interest in the REIT, 
and in which no more than a 35 percent interest is held by 
persons with a 35 percent or greater interest in the REIT (sec. 
856(d)(3)).
            Hedging instruments
    Interest rate swaps or cap agreements that protect a REIT 
from interest rate fluctuations on variable rate debt incurred 
to acquire or carry real property are treated as securities 
under the 30-percent test and payments under these agreements 
are treated as qualifying under the 95-percent test (sec. 
856(c)(6)(G)).
            Treatment of shared appreciation mortgages
    For purposes of the income requirements for qualification 
as a REIT, and for purposes of the prohibited transaction 
provisions, any income derived from a ``shared appreciation 
provision'' is treated as gain recognized on the sale of the 
``secured property.'' For these purposes, a shared appreciation 
provision is any provision that is in connection with an 
obligation that is held by the REIT and secured by an interest 
in real property, which provision entitles the REIT to receive 
a specified portion of any gain realized on the sale or 
exchange of such real property (or of any gain that would be 
realized if the property were sold on a specified date). 
Secured property for these purposes means the real property 
that secures the obligation that has the shared appreciation 
provision.
    In addition, for purposes of the income requirements for 
qualification as a REIT, and for purposes of the prohibited 
transactions provisions, the REIT is treated as holding the 
secured property for the period during which it held the shared 
appreciation provision (or, if shorter, the period during which 
the secured property was held by the person holding such 
property), and the secured property is treated as property 
described in section 1221(1) if it is such property in the 
hands of the obligor on the obligation to which the shared 
appreciation provision relates (or if it would be such property 
if held by the REIT). For purposes of the prohibited 
transaction safe harbor, the REIT is treated as having sold the 
secured property at the time that it recognizes income on 
account of the shared appreciation provision, and any 
expenditures made by the holder of the secured property are 
treated as made by the REIT.

Asset requirements

    To satisfy the asset requirements to qualify for treatment 
as a REIT, at the close of each quarter of its taxable year, an 
entity must have at least 75 percent of the value of its assets 
invested in real estate assets, cash and cash items, and 
government securities (sec. 856(c)(5)(A)). Moreover, not more 
than 25 percent of the value of the entity's assets can be 
invested in securities of any one issuer (other than government 
securities and other securities described in the preceding 
sentence). Further, these securities may not comprise more than 
5 percent of the entity's assets or more than 10 percent of the 
outstanding voting securities of such issuer (sec. 
856(c)(5)(B)). The term real estate assets is defined to mean 
real property (including interests in real property and 
mortgages on real property) and interests in REIT's (sec. 
856(c)(6)(B)).

REIT subsidiaries

    Under present law, all the assets, liabilities, and items 
of income, deduction, and credit of a ``qualified REIT 
subsidiary'' are treated as the assets, liabilities, and 
respective items of the REIT that owns the stock of the 
qualified REIT subsidiary. A subsidiary of a REIT is a 
qualified REIT subsidiary if and only if 100 percent of the 
subsidiary's stock is owned by the REIT at all times that the 
subsidiary is in existence. If at any time the REIT ceases to 
own 100 percent of the stock of the subsidiary, or if the REIT 
ceases to qualify for (or revokes an election of) REIT status, 
such subsidiary is treated as a new corporation that acquired 
all of its assets in exchange for its stock (and assumption of 
liabilities) immediately before the time that the REIT ceased 
to own 100 percent of the subsidiary's stock, or ceased to be a 
REIT as the case may be.

Distribution requirements

    To satisfy the distribution requirement, a REIT must 
distribute as dividends to its shareholders during the taxable 
year an amount equal to or exceeding (i) the sum of 95 percent 
of its REITTI other than net capital gain income and 95 percent 
of the excess of its net income from foreclosure property over 
the tax imposed on that income minus (ii) certain excess 
noncash income (described below).
    Excess noncash items include (a) the excess of the amounts 
that the REIT is required to include in income under section 
467 with respect to certain rental agreements involving 
deferred rents, over the amounts that the REIT otherwise would 
recognize under its regular method of accounting, second, in 
the case of a REIT using the cash method of accounting, the 
excess of the amount of original issue discount and coupon 
interest that the REIT is required to take into account with 
respect to a loan to which section 1274 applies, over the 
amount of money and fair market value of other property 
received with respect to the loan, and third, income arising 
from the disposition of a real estate asset in certain 
transactions that failed to qualify as like-kind exchanges 
under section 1031.

                           Reasons for Change

    The REIT serves as a means whereby numerous small investors 
can have a practical opportunity to invest in a diversified 
portfolio of real estate assets and have the benefit of 
professional management. The committee believes that the asset 
requirements of present law ensure that a REIT acts as a pass-
through entity for taxpayers wishing to invest in real estate. 
Therefore, the committee finds the 30-percent gross income test 
unnecessary and administratively burdensome. The committee 
further finds that financial markets have changed over the past 
decade such that interest risk can be managed by many 
strategies other than swaps and caps. Recognizing these 
developments in the financial markets, the committee believes 
it necessary to modify the classification of income from 
certain hedging instruments to provide flexibility to REIT's in 
managing risk for their shareholders. The committee also 
believes that, as a pass-through entity, REIT's should be 
permitted to retain the proceeds of realized capital gains in a 
manner comparable to that accorded to RIC's.

                        Explanation of Provision

Overview

    The bill modifies many of the provisions relating to the 
requirements for qualification as, and the taxation of, a REIT. 
In particular, the modifications relate to the general 
requirements for qualification as a REIT, the taxation of a 
REIT, the income requirements for qualification as a REIT, and 
certain other provisions.

Election to be treated as a REIT

    The bill changes the ordering rule for purposes of the 
requirement that newly-electing REIT's distribute earnings and 
profits that were accumulated in non-REIT years. Under the 
provision, distributions of accumulated earnings and profits 
generally would be treated as made from the entity's earliest 
accumulated earnings and profits, rather than the most recently 
accumulated earnings and profits. These distributions would not 
be treated as distributions for purposes of calculating the 
dividends paid deduction.

Taxation of REIT's

            Capital gains
    The bill permits a REIT to elect to retain and pay income 
tax on net long-term capital gains it received during the tax 
year, just as a RIC is permitted under present law. Thus, if a 
REIT made this election, the REIT shareholders would include in 
their income as long-term capital gains their proportionate 
share of the undistributed long-term capital gains as 
designated by the REIT. The shareholder would be deemed to have 
paid the shareholder's share of the tax, which could be 
credited or refunded to the shareholder. Also, the basis of the 
shareholder's shares would be increased by the amount of the 
undistributed long-term capital gains (less the amount of 
capital gains tax paid by the REIT) included in the 
shareholder's long-term capital gains.
            Income from foreclosure property
    The bill lengthens the original grace period for 
foreclosure property until the last day of the third full 
taxable year following the election. The grace period also 
could be extended for an additional 3 years by filing a request 
to the IRS. Under the bill, a REIT could revoke an election to 
treat property as foreclosure property for any taxable year by 
filing a revocation on or before its due date for filing its 
tax return.
    In addition, the bill conforms the definition of 
independent contractor for purposes of the foreclosure property 
rule (sec. 856(e)(4)(C)) to the definition of independent 
contractor for purposes of the general rules (sec. 
856(d)(2)(C)).
            Income or loss from prohibited transactions
    The bill also excludes from the prohibited sales rules 
property that was involuntarily converted.

Organizational structure requirements

    The bill replaces the rule that disqualifies a REIT for any 
year in which the REIT failed to comply with regulations to 
ascertain its ownership, with an intermediate penalty for 
failing to do so. The penalty would be $25,000 ($50,000 for 
intentional violations) for any year in which the REIT did not 
comply with the ownership regulations. The REIT also would be 
required, when requested by the IRS, to send curative demand 
letters.
    In addition, a REIT that complied with the regulations for 
ascertaining its ownership, and which did not know, or have 
reason to know, that it was so closely held as to be classified 
as a personal holding company, would not be treated as a 
personal holding company.

Income requirements

            Overview
    The bill repeals the rule that requires less than 30 
percent of a REIT's gross income be derived from gain from the 
sale or other disposition of stock or securities held for less 
than 1 year, certain real property held less than 4 years, and 
property that is sold or disposed of in a prohibited 
transaction.
            Definition of rents
    The bill permits a REIT to render a de minimis amount of 
impermissible services to tenants, or in connection with the 
management of property, and still treat amounts received with 
respect to that property as rent. The value of the 
impermissible services could not exceed 1 percent of the gross 
income from the property. For these purposes, the services 
could not be valued at less than 150 percent of the REIT's 
direct cost of the services.
    In addition, the bill modifies the application of section 
318(a)(3)(A) (attribution to partnerships) for purposes of 
defining rent in section 856(d)(2), so that attribution would 
occur only when a partner owns a 25 percent or greater interest 
in the partnership.
            Hedging instruments
    The bill treats income from all hedges that reduce the 
interest rate risk of REIT liabilities, not just from interest 
rate swaps and caps, as qualifying income under the 95-percent 
test. Thus, payments to a REIT under an interest rate swap, cap 
agreement, option, futures contract, forward rate agreement or 
any similar financial instrument entered into by the REIT to 
hedge its indebtedness incurred or to be incurred (and any gain 
from the sale or other disposition of these instruments) would 
be treated as qualifying income for purposes of the 95-percent 
test.

Asset requirements

            REIT subsidiaries
    The bill permits any wholly-owned corporation of a REIT to 
be treated as a qualified subsidiary, regardless of whether the 
corporation had always been owned by the REIT. The bill treats 
any such subsidiary as being liquidated as of the time of 
acquisition by the REIT and then reincorporated (thus, any of 
the subsidiary's pre-REIT built-in gain would be subject to tax 
under the normal rules of section 337). In addition, any pre-
REIT earnings and profits of the subsidiary must be distributed 
before the end of the REIT's taxable year.

Distribution requirements

    The bill first, expands the class of excess noncash items 
to include income from the cancellation of indebtedness and 
second, extends the treatment of original issue discount and 
coupon interest as excess noncash items to REIT's that use an 
accrual method of taxation.

                             Effective Date

    The provisions are effective for taxable years beginning 
after the date of enactment.

                        C. Accounting Provisions

1. Modifications to the look-back method for long-term contracts (sec. 
        14551 of the bill and sec. 460 of the code)

                              Present Law

    Taxpayers engaged in the production of property under a 
long-term contract generally must compute income from the 
contract under the percentage of completion method. Under the 
percentage of completion method, a taxpayer must include in 
gross income for any taxable year an amount that is based on 
the product of first, the gross contract price and second, the 
percentage of the contract completed as of the end of the year. 
The percentage of the contract completed as of the end of the 
year is determined by comparing costs incurred with respect to 
the contract as of the end of the year with estimated total 
contract costs.
    Because the percentage of completion method relies upon 
estimated, rather than actual, contract price and costs to 
determine gross income for any taxable year, a ``look-back 
method'' is applied in the year a contract is completed in 
order to compensate the taxpayer (or the Internal Revenue 
Service) for the acceleration (or deferral) of taxes paid over 
the contract term. The first step of the look-back method is to 
reapply the percentage of completion method using actual 
contract price and costs rather than estimated contract price 
and costs. The second step generally requires the taxpayer to 
recompute its tax liability for each year of the contract using 
gross income as reallocated under the look-back method. If 
there is any difference between the recomputed tax liability 
and the tax liability as previously determined for a year, such 
difference is treated as a hypothetical underpayment or 
overpayment of tax to which the taxpayer applies a rate of 
interest equal to the overpayment rate, compounded daily.\146\ 
The taxpayer receives (or pays) interest if the net amount of 
interest applicable to hypothetical overpayments exceeds (or is 
less than) the amount of interest applicable to hypothetical 
underpayments.
    \146\ The overpayment rate equals the applicable Federal short-term 
rate plus 2 percentage points. This rate is adjusted quarterly by the 
IRS. Thus, in applying the look-back method for a contract year, a 
taxpayer may be required to use five different interest rates.
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    The look-back method must be reapplied for any item of 
income or cost that is properly taken into account after the 
completion of the contract.
    The look-back method does not apply to any contract that is 
completed within two taxable years of the contract commencement 
date and if the gross contract price does not exceed the lesser 
of first, $1 million or second, 1 percent of the average gross 
receipts of the taxpayer for the preceding 3 taxable years. In 
addition, a simplified look-back method is available to certain 
pass-through entities and, pursuant to Treasury regulations, to 
certain other taxpayers. Under the simplified look-back method, 
the hypothetical underpayment or overpayment of tax for a 
contract year generally is determined by applying the highest 
rate of tax applicable to such taxpayer to the change in gross 
income as recomputed under the look-back method.

                           Reasons for Change

    Present law may require multiple applications of the look-
back method with respect to a single contract or may otherwise 
subject contracts to the look-back method even though amounts 
necessitating the look-back calculations are de minimis 
relative to the aggregate contract income. In addition, the use 
of multiple interest rates complicates the mechanics of the 
look-back calculation. The committee wishes to address these 
concerns.

                        Explanation of Provision

Election not to apply the look-back method for de minimis amounts

    The provision provides that a taxpayer may elect not to 
apply the look-back method with respect to a long-term contract 
if for each prior contract year, the cumulative taxable income 
(or loss) under the contract as determined using estimated 
contract price and costs is within 10 percent of the cumulative 
taxable income (or loss) as determined using actual contract 
price and costs.
    Thus, under the election, upon completion of a long-term 
contract, a taxpayer would be required to apply the first step 
of the look-back method (the reallocation of gross income using 
actual, rather than estimated, contract price and costs), but 
is not required to apply the additional steps of the look-back 
method if the application of the first step resulted in de 
minimis changes to the amount of income previously taken into 
account for each prior contract year.
    The election applies to all long-term contracts completed 
during the taxable year for which the election is made and to 
all long-term contracts completed during subsequent taxable 
years, unless the election is revoked with the consent of the 
Secretary of the Treasury.
    Example 1.--A taxpayer enters into a 3-year contract and 
upon completion of the contract, determines that annual net 
income under the contract using actual contract price and costs 
is $100,000, $150,000, and $250,000, respectively, for years 1, 
2, and 3 under the percentage of completion method. An electing 
taxpayer need not apply the look-back method to the contract if 
it had reported cumulative net taxable income under the 
contract using estimated contract price and costs of between 
$90,000 and $110,000 as of the end of year 1; and between 
$225,000 and $275,000 as of the end of year 2.

Election not to reapply the look-back method

    The provision provides that a taxpayer may elect not to 
reapply the look-back method with respect to a contract if, as 
of the close of any taxable year after the year the contract is 
completed, the cumulative taxable income (or loss) under the 
contract is within 10 percent of the cumulative look-back 
income (or loss) as of the close of the most recent year in 
which the look-back method was applied (or would have applied 
but for the other de minimis exception described above). In 
applying this rule, amounts that are taken into account after 
completion of the contract are not discounted.
    Thus, an electing taxpayer need not apply or reapply the 
look-back method if amounts that are taken into account after 
the completion of the contract are de minimis.
    The election applies to all long-term contracts completed 
during the taxable year for which the election is made and to 
all long-term contracts completed during subsequent taxable 
years, unless the election is revoked with the consent of the 
Secretary of the Treasury.
    Example 2.--A taxpayer enters into a 3-year contract and 
reports taxable income of $12,250, $15,000 and $12,750, 
respectively, for years 1 through 3 with respect to the 
contract. Upon completion of the contract, cumulative look-back 
income with respect to the contract is $40,000, and 10 percent 
of such amount is $4,000. After the completion of the contract, 
the taxpayer incurs additional costs of $2,500 in each of the 
next three succeeding years (years 4, 5, and 6) with respect to 
the contract. Under the provision, an electing taxpayer does 
not reapply the look-back method for year 4 because the 
cumulative amount of contract taxable income ($37,500) is 
within 10 percent of contract look-back income as of the 
completion of the contract ($40,000). However, the look-back 
method must be applied for year 5 because the cumulative amount 
of contract taxable income ($35,000) is not within 10 percent 
of contract look-back income as of the completion of the 
contract ($40,000). Finally, the taxpayer does not reapply the 
look-back method for year 6 because the cumulative amount of 
contract taxable income ($32,500) is within 10 percent of 
contract look-back income as of the last application of the 
look-back method ($35,000).

Interest rates used for purposes of the look-back method

    The provision provides that for purposes of the look-back 
method, only one rate of interest is to apply for each accrual 
period. An accrual period with respect to a taxable year begins 
on the day after the return due date (determined without regard 
to extensions) for the taxable year and ends on such return due 
date for the following taxable year. The applicable rate of 
interest is the overpayment rate in effect for the calendar 
quarter in which the accrual period begins.

                             Effective Date

    The provision applies to contracts completed in taxable 
years ending after the date of enactment.

2. Application of mark to market accounting method to traders in 
        securities (sec. 14552 of the bill and sec. 475 of the code)

                              Present Law

Methods of accounting, in general

    In general, a taxpayer must compute its taxable income 
under a method of accounting on the basis of which the taxpayer 
regularly keeps its books so long as, in the opinion of the 
Secretary of the Treasury, such method clearly reflects the 
taxpayer's income. A taxpayer may change its method of 
accounting with the consent of the Secretary.

Dealers in securities

    A dealer in securities must compute its income pursuant to 
a ``mark-to-market'' method of accounting prescribed by section 
475. Under section 475, any security that is inventory in the 
hands of a dealer must be included in inventory at its fair 
market value and any security that is not inventory in the 
hands of a dealer and that is held at year end shall be treated 
as sold for its fair market value. For this purpose, a ``dealer 
in securities'' is any person who first, regularly purchases 
securities from or sells securities to customers in the 
ordinary course of a trade or business, or second, regularly 
offers to enter into, assume, offset, assign or otherwise 
terminate positions in securities with customers in the 
ordinary course of a trade or business. For this purpose, 
``security'' means any stock in a corporation; any partnership 
or beneficial ownership interest in a widely held or publicly 
traded partnership or trust; any note, bond, debenture, or 
other evidence of indebtedness; any interest rate, currency or 
equity notional principal contract; any evidence of an interest 
in, or a derivative financial instrument of, any security 
described above; and any position identified as a hedge of any 
of the above (other than a section 1256(a) contract). Section 
475 generally does not apply to any security identified as held 
for investment (or a hedge of such security). Any gain or loss 
taken into account under section 475 generally is treated as 
ordinary gain or loss (sec. 475(d)(3)).

Traders in securities

    Traders in securities generally are taxpayers who derive 
their income principally from the active sale or exchange of 
securities on the market (rather than to customers, as in the 
case of a dealer in securities). Section 475 does not 
explicitly apply to traders in securities. In fact, there are 
no specific statutory provisions that mandate the use of an 
overall method of accounting by traders.147 Thus, traders 
generally account for gains and losses on trading securities 
when the securities are sold, rather than marking the 
securities to market, for Federal income tax purposes.
    \147\ However, under section 1256 certain regulated futures 
contracts, foreign currency contracts, and nonequity options of traders 
must be marked to market for Federal income tax purposes.
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                           Reasons for Change

    The committee believes that in certain instances the mark-
to-market method of accounting more accurately reflects the 
income of a trader in securities and that it may be appropriate 
to extend the use of that method in those cases. The committee 
believes, at this time, that the determination of whether the 
mark-to-market method of accounting is appropriate for a 
particular trader in securities should be made on a case-by-
case basis, subject to the discretion of the Secretary of the 
Treasury.

                        Explanation of Provision

    The provision provides that a trader in securities may, 
with the consent of the Secretary of the Treasury, elect to 
change its method of accounting to adopt a mark-to-market 
method for its trading activities. Such method may be based on 
the provisions of present-law section 475, modified to clearly 
reflect the income of the taxpayer. The adoption of a mark-to-
market method of accounting may not change the character of the 
gain or loss with respect to the securities (i.e., sec. 
475(d)(3) could not apply). In determining whether a trader 
should be allowed to adopt a mark-to-market method of 
accounting, the Secretary shall take into account all relevant 
facts and circumstances, including transaction entered into, 
and accounting methods used, by parties related to the trader. 
As under present law, the accounting method change is subject 
to such conditions and procedures as the Secretary of the 
Treasury may prescribe. In addition, the Secretary may 
prescribe conditions and procedures under which a taxpayer may 
adopt a mark-to-market method of accounting without first 
seeking the consent of the Secretary. For this purpose, a 
trader in securities is a taxpayer who is actively engaged in 
trading securities.
    No inference is intended whether the Secretary of the 
Treasury has the authority under present law to allow taxpayers 
that are not dealers in securities to use a mark-to-market 
method of accounting.

                             Effective Date

    The provision is effective for taxable years ending on or 
after December 31, 1995.

3. Modification of ruling amounts for nuclear decommissioning costs 
        (sec. 14553 of the bill and sec. 468A of the code)

                              Present Law

    Under the economic performance rules, a deduction for 
accrual basis taxpayers generally is deferred until there is 
economic performance for the item for which the deduction is 
claimed (sec. 461(h)). Present law contains an exception to the 
economic performance rules under which a taxpayer responsible 
for nuclear power plant decommissioning may elect to deduct 
contributions made to a qualified nuclear decommissioning fund 
(sec. 468A).148 Taxpayers who do not elect this provision 
are subject to the general economic performance rules.
    \148\ As originally enacted in 1984, the fund paid tax on its 
earnings at the top corporate rate and, as a result, there would be no 
present value tax benefit of making deductible contributions to the 
fund. Also, as originally enacted, the funds in the trust could be 
invested only in certain relatively safe investments. Subsequent 
amendments to the provision have reduced the rate of tax on the fund to 
20 percent and removed the restrictions on the types of permitted 
investment that the fund can make.
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    A qualified decommissioning fund is a segregated fund 
established by the taxpayer that is used exclusively for the 
payment of decommissioning costs, taxes on fund income, payment 
of management costs of the fund, and investment in certain 
types of investments. The fund is prohibited from dealing with 
the taxpayer that established the fund.
    Contributions to the fund are deductible in the year made 
to the extent that these amounts were collected as part of the 
cost of service to ratepayers. Withdrawals of funds by the 
taxpayer to pay for decommissioning expenses are included in 
income at that time, but the taxpayer also is entitled to a 
deduction at that time for decommissioning expenses as economic 
performance for those costs occurs.
    In order to prevent accumulations of funds over the 
remaining life of the plant in excess of those required to pay 
future decommissioning costs and to ensure that contributions 
to the funds are not deducted more rapidly than level funding, 
taxpayers are required to obtain a ruling from the IRS to 
establish the maximum contribution that may be made to the 
fund. The IRS is directed to review the ruling amount at least 
once during the plant's life, but may do so more frequently at 
the request of the taxpayer. The existing Treasury regulations 
provide that there is one required request per reactor, even 
where there are sites on which there are multiple reactors. 
Changes in the initial ruling amount may be warranted as a 
result of changes in the estimated cost of decommissioning a 
reactor, changes to the investment return on assets held in the 
fund, or changes brought about by ratemaking orders. Taxpayers 
are required to obtain subsequent rulings to reflect changes in 
the ruling amount in certain instances (Treas. reg. sec. 
1.468A-3(i)).
    If the decommissioning fund fails to comply with the 
qualification requirements, or when the decommissioning is 
substantially completed, the fund's qualification may be 
terminated in which case the amounts in the fund must be 
included in the income of the taxpayer.

                           Reasons for Change

    The committee believes that it is appropriate to require a 
taxpayer to obtain an initial ruling from the IRS in order to 
determine the maximum deduction that can be obtained for 
contributions to a nuclear decommissioning fund. However, the 
committee also believes that it is burdensome for the taxpayer 
to obtain subsequent rulings whenever the underlying facts 
change so that the initial ruling amount is no longer 
appropriate, so long as the new ruling amount can be readily 
determined by the application of a method or formula set out in 
the initial ruling to the new facts.

                        Explanation of Provision

    The provision deletes the requirement that a taxpayer 
obtain certain rulings from the IRS in order to deduct 
contributions to a nuclear decommissioning fund. Under the 
provision, a taxpayer is required to obtain an initial ruling 
to determine its maximum deduction for contributions to a fund, 
but is not required to obtain subsequent rulings if such 
amounts are not substantially modified. The taxpayer is 
required to notify the Secretary of the Treasury if the ruling 
amount is modified. The Secretary of the Treasury is expected 
to issue appropriate guidance as to what constitutes a 
substantial modification under the provision and how the 
taxpayer is to inform the Secretary that the ruling amount has 
been modified.

                             Effective Date

    The provision applies to modifications after the date of 
enactment

4. Election of alternative taxable years by partnerships and S 
        corporations (sec. 14554 of the bill and sec. 444 and new sec. 
        6654A of the code)

                              Present Law

    The taxable income of a partnership or an S corporation (a 
``flow-thru entity'') generally is reported by the 
partnership's partners or the corporation's shareholders (the 
``owners'') in the taxable year within which the taxable year 
of the flow-thru entity ends. As a result, if a flow-thru 
entity uses a taxable year that is the same as the taxable year 
of its owners, the owners will report income earned by the 
entity in the year that the income is earned. If a flow-thru 
entity uses a taxable year that is different than the taxable 
year of its owners, the owners will defer reporting a portion 
of the income earned by the entity until the year following the 
year the income was earned.149 Thus, in order to avoid 
this deferral, under present law, a flow-through entity 
generally must use a taxable year that corresponds to the 
taxable years of its owners (i.e., generally, the calendar year 
in the case of an entity owned by individuals).
    \149\ For example, assume that an individual using a calendar year 
wholly owns the stock of an S corporation using a fiscal year ending 
January 31. If for its fiscal year beginning February 1, 1994, and 
ending January 31, 1995, the corporation earned $1,000 a month, the 
individual would report the $12,000 of aggregate corporate in his 
calendar year ending December 31, 1995, even though $11,000 had been 
earned by the corporation during 1994.
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    However, under certain circumstances, deferral through use 
of a fiscal year is permitted (sec. 444). A flow-thru entity 
may use a fiscal year that it used prior to 1987 or a fiscal 
year that provides up to a 3-month deferral so long as it makes 
a payment equal to the income attributable to the deferral 
period times the highest individual tax rate plus 1 percentage 
point (currently, 40.6 percent). Such payments remain on 
deposit and may be refunded if the income of the entity for the 
deferral period diminishes or the entity abandons its fiscal 
year (sec. 7519). Under Treasury regulations, the 3-month 
deferral rule and the payment rule described above are not 
required for a fiscal year for which the entity establishes a 
business purpose to the satisfaction of the IRS (Treas. Reg. 
sec. 1.444-1T(a)(3)(i)).
    The due date for the tax return of a partnership is the 
15th day of the 4th month following the taxpayer's yearend. The 
due date for the tax return of an S corporation is the 15th day 
of the 3d month following the taxpayer's yearend.

                           Reasons for Change

    The committee believes there are valid business reasons for 
a flow-thru entity to use a fiscal year and, in such instances, 
the entity should be allowed to adopt such a year for Federal 
income tax purposes. On the other hand, the committee 
recognizes that the use of a fiscal year may provide owners of 
a flow-thru entity with an unwarranted deferral of the income 
generated by the entity.
    The committee also believes the present-law provisions that 
allow the use of a fiscal year are limited in scope and, in 
certain circumstances, overly burdensome. As result, under 
present law, many flow-thru entities have adopted calendar 
years. The unextended due dates of the tax returns of calendar-
year flow-thru entities and individuals all fall between March 
15 and April 15 of the year, causing a workload compression for 
tax return preparers.
    In balancing these concerns, the committee provides a new 
set of rules under which a flow-thru entity may adopt a fiscal 
year without providing its owners with the opportunity for 
significant tax deferral.

                        Explanation of Provision

Estimated tax payments by flow-thru entities

    The provision allows any flow-thru entity to use a fiscal 
year so long as the entity makes quarterly estimated tax 
payments at an applicable rate. These estimated tax payments 
are treated as estimated tax payments of the owners of the 
flow-thru entity for the owners' taxable year in which the 
fiscal year ends. Quarterly installments are due on the 15th 
day of the 3d, 5th, 8th, and 12th months of the taxable year. 
An election to make quarterly estimated tax payments must be 
made on or before the 15th day of the 3d month of the first 
taxable year of 12 months under the election. Such election 
generally remains in effect until first, it is revoked by 
owners of more than half of the equity interests of the entity, 
second, there is a termination of the partnership or the 
subchapter S election of the corporation, or third, the entity 
becomes part of a tiered structure of entities with different 
fiscal years. An entity is not allowed to re-elect, without the 
consent of the Secretary of the Treasury, the application of 
the provision until 5 years after the termination of an 
election. Estimated tax payments are not required for a taxable 
year if the amount of aggregate payments otherwise due is 
$5,000 or less.
    In determining its estimated tax payments for a taxable 
year, the flow-thru entity uses an applicable rate of 34 
percent, unless the flow-thru entity is a ``high income average 
entity,'' in which case the applicable rate is 39.6 percent. A 
``high average income entity'' is one where the average 
applicable income of the 2-percent owners for the base year was 
at least $250,000 or, in the case of a partnership, the 
applicable income for the base year was at least $10,000,000. 
For this purpose, a ``2-percent owner'' is first, in the case 
of a partnership, any person who owns (or is considered as 
owning within the meaning of the attribution rules of sec. 318) 
on any day during the base year more than 2 percent of the 
capital interest of the partnership, and second, in the case of 
an S corporation, any shareholder who owns (or is considered as 
owning within the meaning of the attribution rules of sec. 318) 
on any day of the taxable year more than 2 percent of the 
outstanding stock of the corporation or more than 2 percent of 
the outstanding voting stock of the corporation. The base year 
is the most recent prior taxable year containing 12 months.
    In determining its quarterly estimated tax payments, the 
entity may use first, the 100-percent method, second, the 110-
percent method, or third, the annualization method. Under the 
100-percent method, the required quarterly installment is one-
quarter of the product of the entity's applicable income for 
the current year and the applicable rate. Under the 110-percent 
method, the required quarterly installment is one-quarter of 
110 percent of the product of the entity's applicable income 
for the base year and the applicable rate. The 110-percent 
method is not available if the entity's current year applicable 
income exceeds its base year applicable income by more than 
$750,000, or if the entity fails to elect such method before 
the due date of the first quarterly installment. Once elected, 
the 110-percent method must be used for the entire taxable 
year. Under the annualization method, the required quarterly 
installment is one-quarter of the product of the entity's 
annualized applicable income and the applicable rate. The 
amount of the quarterly installment may be increased or 
decreased to the extent prior installments were overpaid or 
underpaid under the annualization method. The entity may elect 
the annualization method for any quarter on or before the due 
date for such quarter and once selected, must be applied for 
the remainder of the taxable year.
    For this purpose, ``applicable income'' is determined by 
taking the entity's items into account under subchapter K or S, 
as the case may be, with the following adjustments: First, 
charitable contributions are deducted, second, foreign taxes 
are deducted rather than credited, third, various limitations 
determined at the partner or shareholder level are disregarded, 
fourth, guaranteed payments to partners are not deductible; and 
fifth, no deduction is allowed for disproportionate deferral 
period applicable payments. For this purpose, 
``disproportionate deferral period applicable payments'' means 
the excess (if any) of: First, the product of the deferral 
ratio and the aggregate applicable payments made to owners 
during the taxable year over second, the aggregate applicable 
payments made to owners during the deferral period. For this 
purpose, first, ``applicable payments'' means amounts paid by 
the entity that are includible in the income of the owner 
(except for gains on the sale of property between the entity 
and the owner or dividends paid by an S corporation), second, 
``deferral period'' means the months in the period beginning 
with the first day of the entity's taxable year and ending on 
December 31, and third, ``deferral ratio'' means the ratio of 
the number of months in the deferral period to the number of 
months in the taxable year.
    If, by reason of the election, the entity has a short 
taxable year (i.e., a taxable year of less than 12 months), the 
entity is required to make an additional estimated tax payment 
on or before the due date of the election. Such additional tax 
payment is determined and treated in a manner similar to the 
determination and treatment of other estimated tax payments 
under the provision. Any net operating loss arising in such 
short year is spread ratably over 3 taxable years, beginning 
with the short year (unless the entity is a new entity).

Underpayments of estimated tax

    If a flow-thru entity has an underpayment of estimated tax 
under the provision, the entity is subject to an addition to 
tax determined by applying the underpayment rate established 
under section 6621 to the amount of the underpayment over the 
period of the underpayment. The period of the underpayment runs 
from the due date of the installment until the earlier of the 
date the entity pays the underpayment or the first April 15 
more than 3 months after the close of the entity's taxable 
year. In addition, if, on the first April 15 more than 3 months 
after the close of the entity's taxable year, the entity has an 
underpayment of estimated tax, and the aggregate deposits made 
by the entity are less than the aggregate amount of allocable 
shares of estimated tax shown on the entity's return for the 
year, such shortfall is treated as a tax on the entity due on 
such April 15 (unless the owners had paid such shortfall). If 
the entity has an excess of deposits, such excess is treated as 
an overpayment of tax by the entity.

Credit to owners for estimated tax

    The estimated tax payments paid by a flow-thru entity are 
treated as estimated tax payments of the owners of the entity 
for the owners' taxable years in which the fiscal year ends. An 
owner's allocable share of estimated tax paid by a flow-thru 
entity is determined by applying first, the ratio of (a) the 
owner's applicable income for the year to (b) the aggregate 
applicable income for all owners for the year to second, the 
aggregate estimated tax payments made by the entity during the 
taxable year. In the case of an entity that uses the 
annualization method, this determination is made on a quarterly 
basis.
    An owner generally treats the estimated tax credit as being 
incurred ratably throughout the owner's taxable year. However, 
if the flow-thru entity uses the annualization method for any 
quarter, the estimated tax credit is deemed to flow through to 
the owner in the same pattern as such payments were made by the 
flow-thru entity. The estimated tax payments of the flow-thru 
entity that are allocable to an owner of the entity will be 
treated as distributions to the owner at the times the entity 
makes the estimated tax payments.

Treatment of current elections

    A flow-thru entity is not allowed to make a new election 
under present-law section 444. An entity that currently has a 
section 444 election in effect may first, retain the election 
or second, revoke the election and receive a refund of its 
deposit, or third, make a new section 444 election and treat 
its deposit as a payment of estimated tax under the provision.

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 1996.

5. Special rule for crop insurance proceeds and disaster payments (sec. 
        14555 of the bill and sec. 451 of the code)

                              Present Law

    A taxpayer engaged in a farming business generally may use 
the cash receipts and disbursements method of accounting 
(``cash method'') to report taxable income. A cash method 
taxpayer generally recognizes income in the taxable year in 
which cash is received, regardless of when the economic events 
that give rise to such income occur. Under a special rule (sec. 
451(d) of the Internal Revenue Code), in the case of insurance 
proceeds received as a result of destruction or damage to 
crops, a cash method taxpayer may elect to defer the income 
recognition of the proceeds until the taxable year following 
the year of the destruction or damage, if the taxpayer 
establishes that under his practice, income from such crops 
would have been reported in a following taxable year. For this 
purpose, certain payments received under the Agricultural Act 
of 1949, as amended, or title II of the Disaster Assistance Act 
of 1988, are treated as insurance proceeds received as a result 
of destruction or damage to crops.

                           Reasons for Change

    The committee is aware of situations where calendar-year, 
cash-method farmers have received insurance proceeds or 
disaster assistance payments in one taxable year relating to 
the destruction of crops in a prior taxable year, where the 
income from such crop normally would have been reported in such 
prior year. The receipt of these payments in the subsequent 
year along with the recognition of the income from crops 
harvested or sold in that year will result in a ``bunching'' of 
income. This bunching of income may result in the loss of 
itemized deductions in the year of the disaster, a higher 
marginal income tax rate in the subsequent year, and the loss 
of several AGI-based deductions and exemptions in the 
subsequent year. The committee believes that it is appropriate 
to allow taxpayers to accelerate the recognition of insurance 
and disaster assistance payments in these and similar cases so 
that taxpayers may more closely replicate the tax effects that 
would have occurred had the destroyed crop been sold in the 
normal course of business.

                        Explanation of Provision

    The provision amends the special rule of section 451(d) to 
allow a cash method taxpayer to elect to accelerate (or defer) 
the recognition of certain disaster-related payments if the 
taxpayer establishes that, under the taxpayer's practice, 
income from the crops lost in the disaster would have been 
reported in a prior (or the subsequent) taxable year. The 
provision expands the payments for which these elections are 
available to include disaster assistance received as a result 
of destruction or damage to crops caused by drought, flood, or 
other natural disaster, or the inability to plant crops because 
of such a disaster, under any Federal law (rather than only 
payments received under the Agricultural Act of 1949, as 
amended, or title II of the Disaster Assistance Act of 1988).
    Thus, for example, the provision allows a calendar-year, 
cash-method taxpayer who has received disaster assistance 
payments in 1997 relating to the destruction of crops by a 
flood in 1996 to elect to treat such payments as received in 
1996, so long as the taxpayer establishes that, under the 
taxpayer's practice, income from such crops would have been 
reported in 1996.

                             Effective Date

    The provision is effective for payments received after 
December 31, 1995, as a result of destruction or damage 
occurring after such date.

                     D. Tax-Exempt Bond Provisions

Overview

    Interest on State and local government bonds generally is 
excluded from gross income for purposes of the regular 
individual and corporate income taxes if the proceeds of the 
bonds are used to finance direct activities of these 
governmental units (code sec. 103).
    Unlike the interest on governmental bonds, described above, 
interest on private activity bonds generally is taxable. A 
private activity bond is a bond issued by a State or local 
governmental unit acting as a conduit to provide financing for 
private parties in a manner violating either first, a private 
business use and payment test or second, a private loan 
restriction. However, interest on private activity bonds is not 
taxable if first, the financed activity is specified in the 
code and second, at least 95 percent of the net proceeds of the 
bond issue is used to finance the specified activity.
    Issuers of State and local government bonds must satisfy 
numerous other requirements, including arbitrage restrictions 
(for all such bonds) and annual State volume limitations (for 
most private activity bonds) for the interest on these bonds to 
be excluded from gross income.

1. Repeal of $100,000 limitation on unspent proceeds under 1-year 
        exception from rebate (sec. 14561 of the bill and sec. 148 of 
        code)

                              Present Law

    Subject to limited exceptions, arbitrage profits from 
investing bond proceeds in investments unrelated to the 
governmental purpose of the borrowing must be rebated to the 
Federal Government. No rebate is required if the gross proceeds 
of an issue are spent for the governmental purpose of the 
borrowing within 6 months after issuance.
    This 6-month exception is deemed to be satisfied by issuers 
of governmental bonds (other than tax and revenue anticipation 
notes) and qualified 501(c)(3) bonds if first, all proceeds 
other than an amount not exceeding the lesser of 5 percent or 
$100,000 are so spent within 6 months and second, the remaining 
proceeds are spent within 1 year after the bonds are issued.

                           Reasons for Change

    Exemption of interest paid on State and local bonds from 
Federal income tax provides an implicit subsidy to State and 
local governments for their borrowing costs. The principal 
Federal policy concern underlying the arbitrage rebate 
requirement is to discourage the earlier and larger than 
necessary issuance of tax-exempt bonds to take advantage of the 
opportunity to profit by investing funds borrowed at low-cost 
tax-exempt rates in higher yielding taxable investments. If at 
least 95 percent of the proceeds of an issue is spent within 6 
months, and the remainder is spent within 1 year, opportunities 
for such arbitrage profit are significantly limited.

                        Explanation of Provision

    The $100,000 limit on proceeds that may remain unspent 
after 6 months for certain governmental and qualified 501(c)(3) 
bonds otherwise exempt from the rebate requirement is deleted. 
Thus, if at least 95 percent of the proceeds of these bonds is 
spent within 6 months after their issuance, and the remainder 
is spent within 1 year, the 6-month exception is deemed to be 
satisfied.

                             Effective Date

    The provision applies to bonds issued after the date of 
enactment.

2. Exception from rebate for earnings on bona fide debt service fund 
        under construction bond rules (sec. 14562 of the bill and sec. 
        148 of the code)

                              Present Law

    In general, arbitrage profits from investing bond proceeds 
in investments unrelated to the governmental purpose of the 
borrowing must be rebated to the Federal Government. An 
exception is provided for certain construction bond issues if 
the bonds are governmental bonds, qualified 501(c)(3) bonds, or 
exempt-facility private activity bonds for governmentally-owned 
property.
    This exception is satisfied only if the available 
construction proceeds of the issue are spent at minimum 
specified rates during the 24-month period after the bonds are 
issued. The exception does not apply to bond proceeds invested 
after the 24-month expenditure period as part of a reasonably 
required reserve or replacement fund, a bona fide debt service 
fund, or to certain other investments (e.g., sinking funds). 
Issuers of these construction bonds also may elect to comply 
with a penalty regime in lieu of rebating arbitrage profits if 
they fail to satisfy the exception's spending requirements.

                           Reasons for Change

    Bond proceeds invested in a bona fide debt service fund 
generally must be spent at least annually for current debt 
service. The short-term nature of investments in such funds 
results in only limited potential for generating arbitrage 
profits. If the spending requirements of the 24-month rebate 
exception are satisfied, the administrative complexity of 
calculating rebate on these proceeds outweighs the other 
Federal policy concerns addressed by the rebate requirement.

                        Explanation of Provision

    The bill exempts earnings on bond proceeds invested in bona 
fide debt service funds from the arbitrage rebate requirement 
and the penalty requirement of the 24-month exception if the 
spending requirements of that exception are otherwise 
satisfied.

                             Effective Date

    The provision applies to bonds issued after the date of 
enactment.

3. Repeal of debt service-based limitation on investment in certain 
        nonpurpose investments (sec. 14563 of the bill and sec. 148 of 
        the code)

                              Present Law

    Issuers of all tax-exempt bonds generally are subject to 
two sets of restrictions on investment of their bond proceeds 
to limit arbitrage profits. The first set requires that tax-
exempt bond proceeds be invested at a yield that is not 
materially higher (generally defined as 0.125 percentage 
points) than the bond yield (``yield restrictions''). 
Exceptions are provided to this restriction for investments 
during any of several ``temporary periods'' pending use of the 
proceeds and, throughout the term of the issue, for proceeds 
invested as part of a reasonably required reserve or 
replacement fund or a ``minor'' portion of the issue proceeds.
    Except for temporary periods and amounts held pending use 
to pay current debt service, present law also limits the amount 
of the proceeds of private activity bonds (other than qualified 
501(c)(3) bonds) that may be invested at materially higher 
yields at any time during a bond year to 150 percent of the 
debt service for that bond year. This restriction affects 
primarily investments in reasonably required reserve or 
replacement funds. Present law further restricts the amount of 
proceeds from the sale of bonds that may be invested in these 
reserve funds to 10 percent of such proceeds.
    The second set of restrictions requires generally that all 
arbitrage profits earned on investments unrelated to the 
governmental purpose of the borrowing be rebated to the Federal 
Government (``arbitrage rebate''). Arbitrage profits include 
all earnings (in excess of bond yield) derived from the 
investment of bond proceeds (and subsequent earnings on any 
such earnings).

                           Reasons for Change

    The 150-percent of debt service limit was enacted before 
enactment of the arbitrage rebate requirement and the ten-
percent limit on the size of reasonably required reserve or 
replacement funds. It was intended to eliminate arbitrage-
motivated activities available from investment of such reserve 
funds. Provided that comprehensive yield restriction and 
arbitrage rebate requirements and the present-law overall size 
limit on reserve funds are maintained, the 150-percent of debt 
service yield restriction limit is duplicative.

                        Explanation of Provision

    The bill repeals the 150-percent of debt service yield 
restriction.

                             Effective Date

    The provision applies to bonds issued after the date of 
enactment.

4. Repeal of expired provisions (sec. 14564 of the bill and sec. 148 of 
        the code)

                              Present Law

    Present law includes two special exceptions to the 
arbitrage rebate and pooled financing temporary period rules 
for certain qualified student loan bonds. These exceptions 
applied only to bonds issued before January 1, 1989.

                        Explanation of Provision

    These special exceptions are deleted as ``deadwood.''

                             Effective Date

    The provision applies to bonds issued after the date of 
enactment. It has no effect on bonds issued prior to the date 
of enactment.

                        E. Insurance Provisions

1. Treatment of certain insurance contracts on retired lives (sec. 
        14571 of the bill and sec. 817(d) of the code)

                              Present Law

    Life insurance companies are allowed a deduction for any 
net increase in reserves and are required to include in income 
any net decrease in reserves. The reserve of a life insurance 
company for any contract is the greater of the net surrender 
value of the contract or the reserve determined under Federally 
prescribed rules. In no event, however, may the amount of the 
reserve for tax purposes for any contract at any time exceed 
the amount of the reserve for annual statement purposes.
    Special rules are provided in the case of a variable 
contract. Under these rules, the reserve for a variable 
contract is adjusted by first, subtracting any amount that has 
been added to the reserve by reason of appreciation in the 
value of assets underlying such contract, and second, adding 
any amount that has been subtracted from the reserve by reason 
of depreciation in the value of assets underlying such 
contract. In addition, the basis of each asset underlying a 
variable contract is adjusted for appreciation or depreciation 
to the extent the reserve is adjusted.
    A variable contract generally is defined as any annuity or 
life insurance contract first, that provides for the allocation 
of all or part of the amounts received under the contract to an 
account that is segregated from the general asset accounts of 
the company, and second, under which, in the case of an annuity 
contract, the amounts paid in, or the amounts paid out, reflect 
the investment return and the market value of the segregated 
asset account, or, in the case of a life insurance contract, 
the amount of the death benefit (or the period of coverage) is 
adjusted on the basis of the investment return and the market 
value of the segregated asset account. A pension plan contract 
that is not a life, accident, or health, property, casualty, or 
liability insurance contract is treated as an annuity contract 
for purposes of this definition.

                           Reasons for Change

    The committee believes that certain contracts which provide 
insurance on retired lives should be treated as variable 
contracts in order to simplify the treatment of such contracts 
and to provide a more accurate measure of the income of life 
insurance companies with respect to such contracts.

                        Explanation of Provision

    The bill provides that a variable contract is to include a 
contract that provides for the funding of group term life or 
group accident and health insurance on retired lives if: First, 
the contract provides for the allocation of all or part of the 
amounts received under the contract to an account that is 
segregated from the general asset account of the company; and 
second, the amounts paid in, or the amounts paid out, under the 
contract reflect the investment return and the market value of 
the segregated asset account underlying the contract.
    Thus, the reserve for such a contract is to be adjusted by 
first, subtracting any amount that has been added to the 
reserve by reason of appreciation in the value of assets 
underlying such contract, and second, adding any amount that 
has been subtracted from the reserve by reason of depreciation 
in the value of assets underlying such contract. In addition, 
the basis of each asset underlying the contract is to be 
adjusted for appreciation or depreciation to the extent that 
the reserve is adjusted.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995.

2. Treatment of modified guaranteed contracts (sec. 14572 of the bill 
        and new sec. 817A of the code)

                              Present Law

    Life insurance companies are allowed a deduction for any 
net increase in reserves and are required to include in income 
any net decrease in reserves. The reserve of a life insurance 
company for any contract is the greater of the net surrender 
value of the contract or the reserve determined under Federally 
prescribed rules. The net surrender value of a contract is the 
cash surrender value reduced by any surrender penalty, except 
that any market value adjustment required on surrender is not 
taken into account. In no event, however, may the amount of the 
reserve for tax purposes for any contract at any time exceed 
the amount of the reserve for annual statement purposes.
    In general, assets held for investment are treated as 
capital assets. Any gain or loss from the sale or exchange of a 
capital asset is treated as a capital gain or loss and is taken 
into account for the taxable year in which the asset is sold or 
exchanged.

                           Reasons for Change

    Life insurance companies have recently begun issuing 
annuity contracts, life insurance contracts, and pension plan 
contracts that provide for a guaranteed interest rate for a 
specified period of time and a market value adjustment in the 
event that the owner of the contract surrenders the contract 
for cash prior to the end of the guaranteed interest period. 
These contracts are commonly referred to as modified guaranteed 
contracts.
    If the premium or other consideration received under a 
modified guaranteed contract is allocated to an account that is 
segregated from the general asset accounts of the life 
insurance company, then the reserve for the contract and the 
assets in the segregated account generally are required to be 
taken into account at market value for annual statement 
purposes. For Federal income tax purposes, the reserve for a 
modified guaranteed contract may reflect the market value 
adjustment, while the market fluctuations in the assets 
underlying the contract are not taken into account unless the 
assets are disposed of.
    The committee considers it appropriate to conform the 
Federal income tax treatment of modified guaranteed contracts 
with the annual statement treatment of such contacts in order 
to simplify the accounting for such contracts and to provide a 
more accurate measure of the income of life insurance companies 
with respect to such contracts.

                        Explanation of Provision

    The bill generally applies a mark-to-market regime to 
assets held as part of a segregated account under a modified 
guaranteed contract issued by a life insurance company. Gain or 
loss with respect to such assets held as of the close of any 
taxable year are taken into account for that year (even though 
the assets have not been sold or exchanged),150 and are 
treated as ordinary. If gain or loss is taken into account by 
reason of the mark-to-market requirement, then the amount of 
gain or loss subsequently realized as a result of sale, 
exchange, or other disposition of the asset, or as a result of 
the application of the mark-to-market requirement is 
appropriately adjusted to reflect such gain or loss. In 
addition, the reserve for a modified guaranteed contract is 
determined by taking into account the market value adjustment 
required on surrender of the contract.
    \150\ The wash sale rules of section 1091 of the code are not to 
apply to any loss that is required to be taken into account solely by 
reason of the mark-to-market requirement.
---------------------------------------------------------------------------
    A modified guaranteed contract is defined as any life 
insurance contract, annuity contract or pension plan contract 
151 that is not a variable contract (within the meaning of 
code section 817), and that satisfies the following 
requirements. All or a part of the amounts received under the 
contract must be allocated to an account which, pursuant to 
State law or regulation, is segregated from the general asset 
accounts of the company and is valued from time to time by 
reference to market values. The reserves for the contract must 
be valued at market for annual statement purposes. Further, a 
modified guaranteed contract includes only a contract that 
provides either for a net surrender value or for a 
policyholder's fund (within the meaning of section 807(e)(1)). 
If only a portion of the contract is not described in section 
817, that portion is treated as a separate contract for 
purposes of the provision.
    \151\ The provision applies only to a pension plan contract that is 
not a life, accident or health, property, casualty, or liability 
contract.
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    The Treasury Department is authorized to issue regulations 
that provide for the application of the mark-to-market 
requirement at times other than the close of a taxable year or 
the last business day of a taxable year. The Treasury 
Department is also authorized to issue such regulations as may 
be necessary or appropriate to carry out the purposes of the 
provision and to provide for the treatment of modified 
guaranteed contracts under sections 72, 7702, and 7702A. In 
addition, the Treasury Department is authorized to determine 
the interest rates applicable under sections 807(c)(3), 
807(d)(2)(B) and 812 with respect to modified guaranteed 
contracts annually, calculating such rates as appropriate for 
modified guaranteed contracts. For example, it may be 
appropriate to take into account the yield on the assets 
underlying the contract in determining such rates. The Treasury 
Department is also authorized, to the extent appropriate for 
such a contract, to modify or waive section 811(d).
    The Treasury Department is also authorized to provide rules 
limiting the ordinary treatment provided under the provision to 
gain or loss on those assets properly taken into account in 
calculating the reserve for Federal tax purposes (and necessary 
to support such reserves) for modified guaranteed contracts, 
and to provide rules for limiting such treatment with respect 
to other assets (such as assets representing surplus of the 
company). Particular concern has been expressed about 
characterization of gain or loss as ordinary under the 
provision in transactions that would otherwise either first, 
have to meet the requirements of the hedging exception to the 
straddle rules to receive this treatment, or second, be treated 
as capital transactions under present law. It is intended that 
the mark-to-market treatment apply to all assets held as part 
of a segregated account established under the provision, even 
though ordinary treatment may not apply (pursuant to Treasury 
regulatory authority) to assets held as part of the segregated 
account that are not necessary to support the reserve for 
modified guaranteed contracts.
    The bill authorizes the Treasury Department to prescribe 
regulations that provide for the treatment of assets 
transferred to or from a segregated account. This regulatory 
authority is provided because of concern that taxpayers may 
exercise selective ordinary loss (or income or gain) 
recognition by virtue of the ordinary treatment under the 
provision. One example of selective ordinary loss recognition 
could arise if assets are always marked to market when 
transferred out of the segregated account. For example, if at 
the beginning of the taxable year an asset in the segregated 
account is worth $1,000, but declines to $900 in July, the 
taxpayer might choose to recognize $100 of ordinary loss while 
continuing to own the asset, simply by transferring it out of 
the segregated account in July and replacing $1,000 of cash 
(for example) in the segregated account.
    It is intended that the regulations relating to asset 
transfers will forestall opportunities for selective 
recognition of ordinary items. Prior to the issuance of these 
regulations, the following rules shall apply.
    If an asset is transferred to a segregated account, gain or 
loss attributable to the period during which the asset was not 
in the segregated account is taken into account when the asset 
is actually sold, and retains the character (as ordinary or 
capital) properly attributable to that period. Appropriate 
adjustments are made to the basis of the asset to reflect gain 
or loss attributable to that period.
    If an asset is transferred out of a segregated account, the 
transfer is deemed to occur on the last business day of the 
taxable year and gain or loss with respect to the transferred 
asset is taken into account as of that day. Loss with respect 
to such transferred asset is treated as ordinary to the extent 
of the lesser of first, the loss (if any) that would have been 
recognized if the asset had been sold for its fair market value 
on the last business day of the taxable year (or the date the 
asset was actually sold by the taxpayer, if earlier) or second, 
the loss (if any) that would have been recognized if the asset 
had been sold for its fair market value on the date of the 
transfer. A similar rule applies for gains. Proper adjustment 
is made in the amount of any gain or loss subsequently realized 
to reflect gain or loss under the provision.
    For example, assume that a capital asset in the segregated 
account that is worth $1,000 at the beginning of the year is 
transferred out of the segregated account in July at a value of 
$900, is retained by the company and is worth $950 on the last 
business day of the taxable year. A $50 ordinary loss is taken 
into account with respect to the asset for the taxable year 
(the difference between $1,000 and $950). The asset is not 
marked to market in any subsequent year under the provision, 
provided that it is not transferred back to the segregated 
account.
    As an additional example, assume that a capital asset in 
the segregated account that is worth $1,000 at the beginning of 
the year is transferred out of the segregated accounted in July 
at a value of $900, is retained by the company and continues to 
decline in value to $850 on the last business day of the 
taxable year. A $100 ordinary loss ($1,000 less $900) and a $50 
capital loss ($900 less $850) is taken into account with 
respect to the asset for the taxable year.

                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1995. A taxpayer that is required to first, change 
its calculation of reserves to take into account market value 
adjustments and second, mark to market its segregated assets in 
order to comply with the requirements of the provision is 
treated as having initiated changes in method of accounting and 
as having received the consent of the Treasury Department to 
make such changes.
    The section 481(a) adjustments required by reason of the 
changes in method of accounting are to be combined and taken 
into account as a single net adjustment for the taxpayer's 
first taxable year beginning after December 31, 1995.

3. Minimum tax treatment of certain property and casualty insurance 
        companies (sec. 14573 of the bill and sec. 56(g) of the code)

                              Present Law

    Present law provides that certain property and casualty 
insurance companies may elect to be taxed only on taxable 
investment income for regular tax purposes (sec. 831(b)). 
Eligible property and casualty insurance companies are those 
whose net written premiums (or if greater, direct written 
premiums) for the taxable year exceed $350,000 but do not 
exceed $1,200,000.
    Under present law, all corporations including insurance 
companies are subject to an alternative minimum tax. 
Alternative minimum taxable income is increased by 75 percent 
of the excess of adjusted current earnings over alternative 
minimum taxable income (determined without regard to this 
adjustment and without regard to net operating losses).

                           Reasons for Change

    The committee believes that property and casualty companies 
small enough to be eligible to simplify their regular tax 
computation by electing to be taxed only on taxable investment 
income should be accorded comparable simplicity in the 
calculation of their alternative minimum tax. Under present 
law, the simplicity under the regular tax is nullified because 
electing companies must calculate underwriting income for tax 
purposes under the alternative minimum tax. The provision thus 
simplifies the entire Federal income tax calculation for a 
limited group of small taxpayers whom Congress has previously 
determined merit a simpler tax calculation.

                        Explanation of Provision

    The bill provides that a property and casualty insurance 
company that elects for regular tax purposes to be taxed only 
on taxable investment income determines its adjusted current 
earnings under the alternative minimum tax without regard to 
any amount not taken into account in determining its gross 
investment income under section 834(b). Thus, adjusted current 
earnings of an electing company is determined without regard to 
underwriting income (or underwriting expense, as provided in 
sec. 56(g)(4)(B)(i)(II)).

                             Effective Date

    The provision is effective for taxable years beginning 
after December 31, 1995.

                          F. Other Provisions

1. Closing of partnership taxable year with respect to deceased 
        partner, etc. (sec. 14581 of the bill and sec. 706(c) of the 
        code)

                              Present Law

    The partnership taxable year closes with respect to a 
partner whose entire interest is sold, exchanged, or 
liquidated. Such year, however, generally does not close upon 
the death of a partner. Thus, a decedent's entire share of 
items of income, gain, loss, deduction and credit for the 
partnership year in which death occurs is taxed to the estate 
or successor in interest rather than to the decedent on his or 
her final income tax return. See Estate of Hesse v. 
Commissioner, 74 T.C. 1307, 1311 (1980).

                           Reasons for Change

    The rule leaving open the partnership taxable year with 
respect to a deceased partner was adopted in 1954 to prevent 
the bunching of income that could occur with respect to a 
partnership reporting on a fiscal year other than the calendar 
year. Without this rule, as many as 23 months of income might 
have been reported on the partner's final return. Legislative 
changes occurring since 1954 have required most partnerships to 
adopt a calendar year, reducing the possibility of bunching. 
Consequently, income and deductions are better matched if the 
partnership taxable year closes upon a partner's death and 
partnership items are reported on the decedent's last return.
    Present law closes the partnership taxable year with 
respect to a deceased partner only if the partner's entire 
interest is sold or exchanged pursuant to an agreement existing 
at the time of death. By closing the taxable year automatically 
upon death, the provision reduces the need for such agreements.

                        Explanation of Provision

    The bill provides that the taxable year of a partnership 
closes with respect to a partner whose entire interest in the 
partnership terminates, whether by death, liquidation or 
otherwise. The provision is not intended to change present law 
with respect to the effect upon the partnership taxable year of 
a transfer of a partnership interest by a debtor to the 
debtor's estate (under Chapters 7 or 11 of Title 11, relating 
to bankruptcy).

                             Effective Date

    The provision applies to partnership taxable years 
beginning after December 31, 1995.

2. Credit for Social Security taxes paid with respect to employee cash 
        tips (sec. 14582 of the bill and sec. 45B of the code)

                              Present Law

    Under present law, all employee tip income is treated as 
employer-provided wages for purposes of the Federal Insurance 
Contributions Act (``FICA'') (sec. 3121(q)). Employees are 
required to report to the employer the amount of tips received 
(sec. 6053(a)).
    The Omnibus Budget Reconciliation Act of 1993 (``OBRA 
1993'') provided a business tax credit with respect to certain 
employer FICA taxes paid with respect to tips that are treated 
as paid by the employer. In determining the credit, tips are 
taken into account only if they are received from customers in 
connection with the provision of food or beverages for 
consumption on the premises of an establishment with respect to 
which the tipping of employees serving food or beverages by 
customers is customary. In addition, the credit only applies 
with respect to tips that exceed the amount by which the wages 
paid by the employer (excluding tips) are less than the amount 
of the minimum wage.
    OBRA 1993 provides that the FICA tip credit is effective 
for taxes paid after December 31, 1993.
    Temporary Treasury regulations provide that the tax credit 
is available only with respect to tips reported by the 
employee. The temporary regulations also provide that the 
credit is effective for FICA taxes paid by an employer after 
December 31, 1993, with respect to tips received for services 
performed after December 31, 1993.

                           Reasons for Change

    The committee believes it appropriate to clarify the 
effective date and scope of the credit for FICA taxes paid on 
employer cash tips.

                        Explanation of Provision

    The provision clarifies the credit with respect to employer 
FICA taxes paid on tips by providing that the credit is first, 
available whether or not the employee reported the tips on 
which the employer FICA taxes were paid pursuant to section 
6053(a), and second, effective with respect to taxes paid after 
December 31, 1993, regardless of when the services with respect 
to which the tips are received were performed.

                             Effective Date

    The provision is effective as if included in OBRA 1993.

3. Due date for first quarter estimated tax payments by private 
        foundations (sec. 14583 of the bill and sec. 6655(g)(3) of the 
        code)

                              Present Law

    Under section 4940, tax-exempt private foundations 
generally are required to pay an excise tax equal to 2 percent 
of their net investment income for the taxable year. Under 
section 6655(g)(3), private foundations are required to pay 
estimated tax with respect to their excise tax liability under 
section 4940 (as well as any unrelated business income tax 
[UBIT] liability under section 511).152 Section 6655(c) 
provides that this estimated tax is payable in quarterly 
installments and that, for calendar-year foundations, the first 
quarterly installment is due on April 15. Under section 
6655(i), foundations with taxable years other than the calendar 
year must make their quarterly estimated tax payments no later 
than the dates in their fiscal years that correspond to the 
dates applicable to calendar-year foundations.
    \152\ Generally, the amount of the first quarter payment must be at 
least 25 percent of the lesser of first, the preceding year's tax 
liability, as shown on the foundation's form 990-PF, or second, 95 
percent of the foundation's current-year tax liability.
---------------------------------------------------------------------------

                           Reasons for Change

    Because a private foundation's estimated tax payments are 
determined, in part, by reference to the foundation's tax 
liability for the preceding year, the due date for a 
foundation's first-quarter estimated tax payment should be the 
same date for filing the foundation's annual return (form 990-
PF) for the preceding year.

                        Explanation of Provision

    The bill amends section 6655(g)(3) to provide that a 
calendar-year foundation's first-quarter estimated tax payment 
is due on May 15 (which is the same day that its annual return, 
form 990-PF, for the preceding year is due). As a result of the 
operation of present-law section 6655(i), fiscal-year 
foundations will be required to make their first-quarter 
estimated tax payment no later than the 15th day of the 5th 
month of their taxable year.

                             Effective Date

    The provision applies to taxable years beginning after 
1995.

4. Treatment of dues paid to agricultural or horticultural 
        organizations (sec. 14584 of the bill and sec. 512 of the code)

                              Present Law

    Tax-exempt organizations generally are subject to the 
unrelated business income tax [UBIT] on income derived from a 
trade or business regularly carried on that is not 
substantially related to the performance of the organization's 
tax-exempt functions (secs. 511-514). Dues payments made to a 
membership organization generally are not subject to the UBIT. 
However, several courts have held that, with respect to postal 
labor organizations, dues payments were subject to the UBIT 
when received from individuals who were not postal workers but 
who became ``associate'' members for the purpose of obtaining 
health insurance available to members of the organization. See 
National League of Postmasters of the United States v. 
Commissioner, No. 8032-93, T.C. Memo (May 11, 1995); American 
Postal Workers Union, AFL-CIO v. United States, 925 F.2d 480 
(D.C. Cir. 1991); National Association of Postal Supervisors v. 
United States, 944 F.2d 859 (Fed. Cir. 1991).
    In Rev. Proc. 95-21 (issued March 23, 1995), the IRS 
indicated its position regarding when associate member dues 
payments received by an organization described in section 
501(c)(5) will be treated as subject to the UBIT. The IRS 
indicated that dues payments from associate members will not be 
treated as subject to UBIT unless, for the relevant period, 
``the associate member category has been formed or availed of 
for the principal purpose of producing unrelated business 
income.'' Thus, under Rev. Proc. 95-21, the focus of the 
inquiry is upon the organization's purposes in forming the 
associate member category (and whether the purposes of that 
category of membership are substantially related to the 
organization's exempt purposes other than through the 
production of income), rather than upon the motive of the 
individuals who join as associate members.

                           Reasons for Change

    In order to reduce uncertainty and legal disputes involving 
the UBIT treatment of certain associate member dues, the 
committee believes that it is appropriate to provide a special 
rule exempting from the UBIT annual dues not exceeding $100 
paid to a tax-exempt agricultural or horticultural 
organization.

                        Explanation of Provision

    Under the bill, if an agricultural or horticultural 
organization described in section 501(c)(5) requires annual 
dues not exceeding $100 to be paid in order to be a member of 
such organization, then in no event will any portion of such 
dues be subject to the UBIT by reason of any benefits or 
privileges to which members of such organization are entitled. 
For taxable years beginning after 1995, the $100 amount will be 
indexed for inflation. The term ``dues'' is defined as ``any 
payment required to be made in order to be recognized by the 
organization as a member of the organization.''153
    \153\ No inference is intended regarding the UBIT treatment of any 
dues payment not governed by the provision.
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                             Effective Date

    The provision applies to taxable years beginning after 
December 31, 1994.

                 Subtitle F. Estate, Gifts, and Trusts

                        A. Income Tax Provisions

1. Certain revocable trusts treated as part of estate (sec. 14601 of 
        the bill and secs. 646 and 2652(b)(1) of the code)

                              Present Law

    Both estates and revocable intervivos trusts can function 
to wind up the affairs of a decedent and distribute assets to 
heirs. In the case of revocable intervivos trusts, the grantor 
transfers property into a trust which is revocable during his 
or her lifetime. Upon the grantor's death, the power to revoke 
ceases and the trustee then performs the winding up functions 
typically performed by the executor of an estate. While both 
estates and revocable trusts perform essentially the same 
function after the testator or grantor's death, there are a 
number of ways in which an estate and a revocable trust operate 
in different ways. First, there can be only one estate per 
decedent while there can be more than one revocable trust. 
Second, estates are in existence only for a reasonable period 
of administration; revocable trusts can perform the same 
winding up functions as an estate, but may continue in 
existence thereafter as testamentary trusts.
    Numerous differences presently exist between the income tax 
treatment of estates and revocable trusts, including: First, 
estates are allowed a charitable deduction for amounts 
permanently set aside for charitable purposes while post death 
revocable trusts are allowed a charitable deduction only for 
amounts paid to charities; second, the active participation 
requirement the passive loss rules under section 469 is waived 
in the case of estates (but not revocable trusts) for 2 years 
after the owner's death; third, an estate is a qualified 
shareholder of an S corporation, while a revocable trust may 
not be; and fourth, estates can qualify for section 194 
amortization of reforestation expenditures, while trusts do 
not.

                           Reasons for Change

    The use of revocable trusts may offer certain nontax 
advantages for estate planning as compared to a traditional 
estate plan. There are several differences, however, between 
the Federal tax treatment of revocable trusts and an estate. 
These differences may discourage individuals from utilizing 
revocable trusts for estate planning where they might otherwise 
be appropriate or efficient. Accordingly, in an effort to 
minimize these tax differences, the committee believes it is 
appropriate to allow an election to treat a revocable trust as 
part of the decedent's estate during a reasonable period of 
administration.

                        Explanation of Provision

    The bill provides an irrevocable election to treat a 
qualified revocable trust as part of the decedent's estate for 
Federal income tax purposes. This elective treatment is 
effective from the date of the decedent's death until 2 years 
after his or her death (if no estate tax return is required) or 
6 months after the final determination of estate tax liability 
(if an estate tax return is required). The election must be 
made by both the executor of the decedent's estate and the 
trustee of the revocable trust no later than the time required 
for filing the income tax return of the estate for its first 
taxable year, taking into account any extensions. A conforming 
change is made to section 2652(b) for generation-skipping 
transfer tax purposes.
    For this purpose, a qualified revocable trust is any trust 
all of which was treated under section 676 as owned by the 
decedent with respect to whom the election is being made.

                             Effective Date

    The provision applies to decedents dying after the date of 
enactment.

2. Distributions during first 65 days of taxable year of estate (sec. 
        14602 of the bill and sec. 663(b) of the code)

                              Present Law

    In general, trusts and estates are treated as conduits for 
Federal income tax purposes; income received by a trust or 
estate that is distributed to a beneficiary in the trust or 
estate's taxable year ``ending with or within'' the taxable 
year of the beneficiary is taxable to the beneficiary in that 
year; income that is retained by the trust or estate is 
initially taxable to the trust or estate. In the case of 
distributions of previously accumulated income by trusts (but 
not estates), there may be additional tax under the so-called 
throwback rules if the beneficiary to whom the distributions 
were made has marginal rates higher than those of the trust. 
Under the ``65-day rule,'' a trust may elect to treat 
distributions paid within 65 days after the close of its 
taxable year as paid on the last day of its taxable year. The 
65-day rule is not applicable to estates.

                           Reasons for Change

    In order to minimize the tax differences between estates 
and revocable trusts, the committee believes that the 65-day 
rule should be allowed to estates as well as to trusts.

                        Explanation of Provision

    The bill extends application of the 65-day rule to 
distributions by estates. Thus, an executor can elect to treat 
distributions paid within 65 days after the close of the 
estate's taxable year as having been paid on the last day of 
such taxable year.

                             Effective Date

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

3. Separate share rules available to estates (sec. 14603 of the bill 
        and sec. 663(c) of the code)

                              Present Law

    Trusts with more than one beneficiary must use the 
``separate share'' rule in order to provide different tax 
treatment of distributions to different beneficiaries to 
reflect the income earned by different shares of the trust's 
corpus.154 Treasury regulations provide that ``[t]he 
application of the separate share rule * * * will generally 
depend upon whether distributions of the trust are to be made 
in substantially the same manner as if separate trusts had been 
created. * * * Separate share treatment will not be applied to 
a trust or portion of a trust subject to a power to distribute, 
apportion, or accumulate income or distribute corpus to or for 
the use of one or more beneficiaries within a group or class of 
beneficiaries, unless the payment of income, accumulated 
income, or corpus of a share of one beneficiary cannot affect 
the proportionate share of income, accumulated income, or 
corpus of any shares of the other beneficiaries, or unless 
substantially proper adjustment must thereafter be made under 
the governing instrument so that substantially separate and 
independent shares exist.'' (Treas. Reg. sec. 1.663(c)-3). The 
separate share rule presently does not apply to estates.
    \154\ Application of the separate share rule is not elective; it is 
mandatory if there are separate shares in the trust.
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                           Reasons for Change

    The committee understands that estates typically do not 
have separate shares. Nonetheless, where separate shares do 
exist in an estate, the inapplicability of the separate share 
rule to estates may result in one beneficiary or class of 
beneficiaries being taxed on income payable to, or accruing to, 
a separate beneficiary or class of beneficiaries. Accordingly, 
the committee believes that a more equitable taxation of an 
estate and its beneficiaries would be achieved with the 
application of the separate share rule to an estate where, 
under the provisions of the decedent's will or applicable local 
law, there are separate shares in the estate.

                        Explanation of Provision

    The bill extends the application of the separate share rule 
to estates. There are separate shares in an estate when the 
governing instrument of the estate (e.g., the will and 
applicable local law) creates separate economic interests in 
one beneficiary or class of beneficiaries such that the 
economic interests of those beneficiaries (e.g., rights to 
income or gains from specified items of property) are not 
affected by economic interests accruing to another separate 
beneficiary or class of beneficiaries. For example, a separate 
share in an estate would exist where the decedent's will 
provides that all of the shares of a closely-held corporation 
are devised to one beneficiary and that any dividends paid to 
the estate by that corporation should be paid only to that 
beneficiary and any such dividends would not affect any other 
amounts which that beneficiary would receive under the will. As 
in the case of trusts, the application of the separate share 
rule is mandatory where separate shares exist.

                             Effective Date

    The provision applies to decedents dying after the date of 
enactment.

4. Executor of estate and beneficiaries treated as related persons for 
        disallowance of losses, etc. (sec. 14604 of the bill and secs. 
        267(b) and 1239(b) of the code)

                              Present Law

    Section 267 disallows a deduction for any loss on the sale 
of an asset to a person related to the taxpayer. For the 
purposes of section 267, the following parties are related 
persons: First, a trust and the trust's grantor, second, two 
trusts with the same grantor, third, a trust and a beneficiary 
of the trust, fourth, a trust and a beneficiary of another 
trust, if both trusts have the same grantor, and fifth, a trust 
and a corporation the stock of which is more than 50 percent 
owned by the trust or the trust's grantor.
    Section 1239 disallows capital gain treatment on the sale 
of depreciable property to a related person. For purposes of 
section 1239, a trust and any beneficiary of the trust are 
treated as related persons, unless the beneficiary's interest 
is a remote contingent interest.
    Neither section 267 or section 1239 presently treat an 
estate and a beneficiary of the estate as related persons.

                           Reasons for Change

    The committee believes that the disallowance rules under 
sections 267 and 1239 with respect to transactions between 
related parties should apply to an estate and a beneficiary of 
that estate for the same reasons that such rules apply to a 
trust and a beneficiary of that trust.

                        Explanation of Provision

    Under the bill, an estate and a beneficiary of that estate 
are treated as related persons for purposes of sections 267 and 
1239, except in the case of a sale or exchange in satisfaction 
of a pecuniary bequest.

                             Effective Date

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

5. Limitation on taxable year of estates (sec. 14605 of the bill and 
        sec. 645 of the code)

                              Present Law

    The taxability of distributions from a trust or estate is 
based on the amount of income received by the trust or estate 
in the trust or estate's taxable year ``ending with or within'' 
the taxable year of the beneficiary (typically a calendar 
year). Trusts are required to use a calendar year and, 
consequently, income of a trust that is distributed to a 
calendar-year beneficiary in the year earned is taxed to the 
beneficiary in the year earned. Estates, on the other hand, are 
allowed to use any fiscal year. Consequently, in the case of 
estates, the taxation of distributions to a calendar-year 
beneficiary in up to the last 11 months of the calendar year 
can be deferred until the next taxable year depending upon the 
fiscal year selected.

                           Reasons for Change

    The committee believes that allowing an estate to use a 
taxable year significantly different than the calendar year may 
result in an improper deferral of income by the beneficiaries 
of the estate. Thus, the committee believes that the choice of 
taxable years allowable to an estate should be appropriately 
limited.

                        Explanation of Provision

    The bill limits the taxable year of an estate to a year 
ending on October 31, November 30, or December 31.155 
Thus, the maximum deferral allowable to a calendar-year 
beneficiary is with respect to distributions made in the last 2 
months of the calendar year.
    \155\ If an election is made to treat a revocable trust as part of 
the estate under section 14601 of the bill, such trust would switch to 
the taxable year of the estate during the period that the election was 
effective.
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                             Effective Date

    The provision applies to decedents dying after the date of 
enactment.

6. Repeal of certain throwback rules applicable to domestic trusts 
        (sec. 14606 of the bill and secs. 644(e) and 665)

                              Present Law

    A nongrantor trust is treated as a separate taxpayer for 
Federal income tax purposes. Such a trust generally is treated 
as a conduit with respect to amounts distributed currently 
156 and taxed with respect to any income which is 
accumulated in the trust rather than distributed. A separate 
graduated tax rate structure applies to trusts which 
historically has permitted accumulated trust income to be taxed 
at lower rates than the rates applicable to trust 
beneficiaries. This benefit often was compounded through the 
creation of multiple trusts.
    \156\ The conduit treatment is achieved by allowing the trust a 
deduction for amounts distributed to beneficiaries during the taxable 
year to the extent of distributable net income and by including such 
distributions in the beneficiaries' income.
---------------------------------------------------------------------------
    The Internal Revenue Code has several rules intended to 
limit the benefit that would otherwise occur from using the 
lower rates applicable to one or more trusts. Under the so-
called throwback rules, the distribution of previously 
accumulated trust income to a beneficiary will be subject to 
tax (in addition to any tax paid by the trust on that income) 
where the beneficiary's average top marginal rate in the 
previous 5 years is higher than those of the trust.
    Under section 643(f), two or more trusts are treated as one 
trust if first, the trusts have substantially the same grantor 
or grantors and substantially the same primary beneficiary or 
beneficiaries, and second, a principal purpose for the 
existence of the trusts is to avoid Federal income tax. For 
trusts that were irrevocable as of March 1, 1984, section 
643(f) applies only to contributions to corpus after that date.
    Under section 644, if property is sold within 2 years of 
its contribution to a trust, the gain that would have been 
recognized had the contributor sold the property is taxed at 
the contributor's marginal tax rates. In effect, section 644 
treats such gains as if the contributor had realized the gain 
and then transferred the net after-tax proceeds from the sale 
to the trust as corpus.

                           Reasons for Change

    The throwback rules and section 644 are intended to 
eliminate the potential tax reduction arising from taxation at 
the trust level, rather than the beneficiary or contributor 
level. When those provisions were enacted, a taxpayer could 
reduce his or her overall tax liability substantially by 
transferring property to one or more trusts, so that any income 
from the property would be taxed at lower income tax rates. In 
the Tax Reform Act of 1984, Congress curtailed the tax 
avoidance use of multiple trusts. Moreover, in the Tax Reform 
Act of 1986, Congress provided a new rate schedule for estates 
and trusts under which the maximum tax benefit of the graduated 
rate structure applicable to estates or trusts was reduced 
substantially to slightly more than $600 per year for a trust 
or estate. (Because of indexing of the rate brackets, that 
benefit has increased to $845 per year per trust or estate.) 
The committee has determined that the insignificant potential 
tax reduction available through the transfer of property to 
trust no longer warrants the complexity of the throwback rules 
and section 644.

                        Explanation of Provision

    The bill exempts from the throwback rules amounts 
distributed by a domestic trust after December 31, 1995. The 
provision also provides that precontribution gain on property 
sold by a domestic trust no longer is subject to section 644 
(i.e., taxed at the contributor's marginal tax rates).

                             Effective Date

    The provision with respect to the throwback rules is 
effective for distributions made in taxable years beginning 
after December 31, 1995. The modification to section 644 
applies to sales or exchanges after December 31, 1995.

7. Treatment of funeral trusts (sec. 14607 of the bill and sec. 684 of 
        the code)

                              Present Law

    A pre-need funeral trust is an arrangement where an 
individual purchases funeral or burial services or merchandise 
from a funeral home or cemetery in advance of the individual's 
death. The individual enters into a contract with the provider 
of such services or merchandise whereby the individual selects 
the services or merchandise to be provided upon his or her 
death, and agrees to pay for them in advance of his or her 
death. Such amounts (or a portion thereof) are held in trust 
during the individual's lifetime and are paid to the seller 
upon the individual's death.
    Under present law, pre-need funeral trusts generally are 
treated as grantor trusts, and the annual income earned by such 
trusts is taxed to the purchaser/grantor of the trust.157 
Amounts received from the trust by the seller are treated as 
payments for services and merchandise and are includible in the 
gross income of the seller.
    \157\ Rev. Rul. 87-127, 1987-2 C.B. 156.
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                           Reasons for Change

    To the extent that pre-need funeral trusts are treated as 
grantor trusts under present law, numerous individual taxpayers 
are required to account for the earnings of such trusts on 
their tax returns, even though the earnings with respect to any 
one taxpayer may be small. The committee believes that this 
recordkeeping burden on individuals could be eased, and that 
compliance with the tax laws would be improved, if such trusts 
instead were taxed at the entity level, with one simplified 
annual return filed by the trustee reporting the aggregate 
income from all such trusts administered by the trustee.

                        Explanation of Provision

    The bill allows the trustee of a pre-need funeral trust to 
elect to have the trust essentially be treated as a nongrantor 
trust, to the extent the trust would otherwise be treated as a 
grantor trust. For purposes of this provision, if funds of more 
than one purchaser are commingled in, or transferred to, a 
single master trust (or other similar arrangement), each 
purchaser's share of the trust is treated as a separate trust, 
and each of the following requirements is applied separately 
with respect to each purchaser's trust. A qualified funeral 
trust is defined as one which meets the following requirements: 
First, the trust arises as the result of a contract between a 
person engaged in the trade or business of providing funeral or 
burial services or merchandise and one or more individuals 
(i.e., the trust beneficiaries) to have such services or 
property provided upon such individuals' death; second, the 
only beneficiaries of the trust are individuals who have 
entered into contracts to have such services or merchandise 
provided upon their death; third, the only contributions to the 
trust are contributions by or for the benefit of the trust 
beneficiaries; fourth, the trust's only purpose is to hold and 
invest funds that will be used to make payments for funeral or 
burial services or merchandise for the trust beneficiaries; and 
fifth, the trust has not accepted contributions in excess of 
$5,000 by or for the benefit of any individual. For this 
purpose, ``contributions'' include all amounts transferred to 
the trust, regardless of how denominated in the contract. 
Contributions do not, however, include income or gain earned 
with respect to property in the trust. For purposes of applying 
the $5,000 limit, if a purchaser has more than one contract 
with a single trustee (or related trustees), all such trusts 
are treated as one trust. Similarly, if the Secretary of 
Treasury determines that a purchaser has entered into separate 
contracts with unrelated trustees to avoid the $5,000 limit 
described above, the Secretary may require that such trusts be 
treated as one trust. The $5,000 limit is indexed for inflation 
after 1995.
    The trustee's election to have this provision apply to a 
qualified funeral trust is to be made separately with respect 
to each purchaser's trust. It is anticipated that the 
Department of Treasury will issue prompt guidance with respect 
to the simplified reporting requirements so that if the 
election is made, a single annual trust return may be filed by 
the trustee, separately listing the amount of income earned 
with respect to each purchaser. The amount of tax paid with 
respect to each purchaser's trust is determined in accordance 
with the income tax rate schedule generally applicable to 
estates and trusts (code sec. 1(e)), but no deduction is 
allowed under section 642(b). The tax on the annual earnings of 
the trust is payable by the trustee.
    As under present law, amounts received from the trust by 
the seller are treated as payments for services and merchandise 
and are includible in the gross income of the seller. No gain 
or loss is recognized to the beneficiary of the trust for 
payments from the trust to the beneficiary upon cancellation of 
the contract, and the beneficiary takes a carryover basis in 
any assets received from the trust upon cancellation.

                             Effective Date

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

                   B. Estate and Gift Tax Provisions

1. Clarification of waiver of certain rights of recovery (sec. 14611 of 
        the bill and secs. 2207A and 2207B of the code)

                              Present Law

    For estate and gift tax purposes, a marital deduction is 
allowed for qualified terminable interest property (QTIP). Such 
property generally is included in the surviving spouse's gross 
estate upon his or her death. The surviving spouse's estate is 
entitled to recover the portion of the estate tax attributable 
to inclusion of QTIP from the person receiving the property, 
unless the spouse directs otherwise by will (sec. 2207A). For 
this purpose, a will provision specifying that all taxes shall 
be paid by the estate is sufficient to waive the right of 
recovery.
    A decedent's gross estate includes the value of previously 
transferred property in which the decedent retains enjoyment or 
the right to income (sec. 2036). The estate is entitled to 
recover from the person receiving the property a portion of the 
estate tax attributable to the inclusion (sec. 2207B). This 
right may be waived only by a provision in the will (or 
revocable trust) specifically referring to section 2207B.

                           Reasons for Change

    It is understood that persons utilizing standard 
testamentary language often inadvertently waive the right of 
recovery with respect to QTIP. Similarly, persons waiving a 
right to contribution are unlikely to refer to the code section 
granting the right. Accordingly, allowing the right of recovery 
(or right of contribution) to be waived only by specific 
reference should simplify the drafting of wills by better 
conforming with the testator's likely intent.

                        Explanation of Provision

    The bill provides that the right of recovery with respect 
to QTIP is waived only to the extent that language in the 
decedent's will or revocable trust specifically so indicates 
(e.g., by a specific reference to QTIP, the QTIP trust, section 
2044, or section 2207A). Thus, a general provision specifying 
that all taxes be paid by the estate is no longer sufficient to 
waive the right of recovery.
    The bill also provides that the right of contribution for 
property over which the decedent retained enjoyment or the 
right to income is waived by a specific indication in the 
decedent's will or revocable trust, but specific reference to 
section 2207B is no longer required.

                             Effective Date

    The provision applies to decedents dying after the date of 
enactment.

2. Adjustments for gifts within 3 years of decedent's death (sec. 14612 
        of the bill and secs. 2035 and 2038 of the code)

                              Present Law

    The first $10,000 of gifts of present interests to each 
donee during any 1 calendar year are excluded from Federal gift 
tax.
    The value of the gross estate includes the value of any 
previously transferred property if the decedent retained the 
power to revoke the transfer (sec. 2038). The gross estate also 
includes the value of any property with respect to which such 
power is relinquished during the 3 years before death (sec. 
2035). This rule has been interpreted to include in the gross 
estate certain transfers made from a revocable trust within 3 
years of death.158 Such inclusion subjects gifts that 
would otherwise qualify under the annual $10,000 exclusion to 
estate tax.
    \158\ See, e.g., Jalkut Estate v. Commissioner. 96 T.C. 675 (1991) 
(transfers from revocable trust to permissible beneficiaries of the 
trust includible in the grantor's gross estate); LTR 9117003 (same).
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                           Reasons for Change

    The inclusion of certain property transferred during the 3 
years before death is directed at transfers that would 
otherwise reduce the amount subject to estate tax by more than 
the amount subject to gift tax, disregarding appreciation 
between the times of gift and death. Because all amounts 
transferred from a revocable trust are subject to the gift tax, 
the committee believes that inclusion of such amounts is 
unnecessary where the transferor has retained no power over the 
property transferred out of the trust. It is understood that 
repeal of such inclusion eliminates a principal tax 
disadvantage of funded revocable trusts, which are generally 
used for nontax purposes.

                        Explanation of Provision

    The bill provides that a transfer from a revocable trust 
(i.e., a trust described under section 676) is treated as if 
made directly by the grantor. Thus, an annual exclusion gift 
from such trust is not included in the gross estate. The 
provision is not intended to create an inference with respect 
to the treatment of transfers from revocable trusts under 
present law.
    The provision also revises section 2035 to improve its 
clarity.

                             Effective Date

    The provision applies to decedents dying after the date of 
enactment.

3. Clarification of qualified terminable interest rules (sec. 14613 of 
        the bill and secs. 2044, 2056(b)(7), and 2523(f) of the code)

                              Present Law

    A marital deduction is allowed for qualified terminal 
interest property (``QTIP''). Property is QTIP only if the 
surviving spouse has a qualifying income interest for life 
(e.g., the spouse is entitled to all of the income from the 
property payable at least annually). QTIP generally is 
includible in the surviving spouse's gross estate.
    The U.S. Tax Court has held that, in order to satisfy the 
QTIP requirements, the income accumulating between the last 
distribution date and the date of the surviving spouse's death 
(the ``accumulated income'') must be paid to the spouse's 
estate or be subject to a power of appointment held by the 
spouse. See Estate of Howard v. Commissioner, 91 T.C. 329, 338 
(1988), rev'd, 910 F.2d 633 (9th Cir. 1990). In contrast, 
proposed Treasury regulations presently provide that an income 
interest may constitute a qualifying income interest for life 
even if the accumulated income is not required to be 
distributed to the surviving spouse or the surviving spouse's 
estate. See Treas. Reg. secs. 20.2056(b)-7(d)(4), 25.2523(f)-
1(c)(1).

                           Reasons for Change

    The committee believes that an income interest may 
constitute a qualifying income interest for life even if the 
accumulated income is not required to be distributed to the 
surviving spouse or the surviving spouse's estate. The 
provision will alleviate the uncertainty caused by the Tax 
Court opinion in Estate of Howard as to when a trust qualifies 
for the marital deduction. This uncertainty makes planning 
difficult and necessitates closing agreements designed to 
prevent the whipsaw that would occur if a deduction is allowed 
for property that is not subsequently included in the spouse's 
estate.

                        Explanation of Provision

    Under the bill, an income interest does not fail to be a 
qualified income interest for life solely because the 
accumulated income is not required to be distributed to the 
surviving spouse. Such income is includible in the surviving 
spouse's gross estate. The provision is not intended to create 
an inference regarding the definition of a qualified income 
interest for life under present law.

                             Effective Date

    The provision applies to decedents dying, and gifts made, 
after the date of enactment. However, the bill does not include 
in the surviving spouse's gross estate property transferred 
before the date of enactment for which no marital deduction was 
claimed.

4. Transitional rule under section 2056A (sec. 14614 of the bill and 
        sec. 2056A of the code)

                              Present Law

    A ``marital deduction'' generally is allowed for estate and 
gift tax purposes for the value of property passing to a 
spouse. The Technical and Miscellaneous Revenue Act of 1988 
[TAMRA] denied the marital deduction for property passing to an 
alien spouse outside a qualified domestic trust [QDT]. An 
estate tax generally is imposed on corpus distributions from a 
QDT.
    TAMRA defined a QDT as a trust that, among other things, 
required all trustees be U.S. citizens or domestic 
corporations. This provision was modified in the Omnibus Budget 
Reconciliation Acts of 1989 and 1990 to require that at least 
one trustee be a U.S. citizen or domestic corporation and that 
no corpus distribution be made unless such trustee has the 
right to withhold any estate tax imposed on the distribution 
(the ``withholding requirement'').

                           Reasons for Change

    Wills drafted under the TAMRA rules must be revised to 
conform with the withholding requirement, even though both the 
TAMRA rule and its successor ensure that a U.S. trustee is 
personally liable for the estate tax on a QDT. Reinstatement of 
the TAMRA rule for wills drafted in reliance upon it reduces 
the number of will revisions necessary to comply with statutory 
changes, thereby simplifying estate planning.

                        Explanation of Provision

    A trust created before the enactment of the Omnibus Budget 
Reconciliation Act of 1990 is treated as satisfying the 
withholding requirement if its governing instrument requires 
that all trustees be U.S. citizens or domestic corporations.

                             Effective Date

    The provision applies as if included in the Omnibus Budget 
Reconciliation Act of 1990.

5. Opportunity to correct certain failures under section 2032A (sec. 
        14615 of the bill and sec. 2032A of the code)

                              Present Law

    For estate tax purposes, an executor may elect to value 
certain real property used in farming or other closely held 
business operations at its current use value rather than its 
highest and best use (sec. 2032A). A written agreement signed 
by each person with an interest in the property must be filed 
with the election.
    Treasury regulations require that a notice of election and 
certain information be filed with the Federal estate tax return 
(Treas. Reg. sec. 20.2032A-8). The administrative policy of the 
Treasury Department is to disallow current use valuation 
elections unless the required information is supplied.
    Under procedures prescribed by the Treasury Department, an 
executor who makes the election and substantially complies with 
the regulations but fails to provide all required information 
or the signatures of all persons with an interest in the 
property may supply the missing information within a reasonable 
period of time (not exceeding 90 days) after notification by 
the Treasury Department.

                           Reasons for Change

    It is understood that executors commonly fail to include 
with the filed estate tax return a recapture agreement signed 
by all persons with an interest in the property or all 
information required by Treasury regulations. It is believed 
that allowing such signatures or information to be supplied 
later is consistent with the legislative intent of section 
2032A and eases return filing.

                        Explanation of Provision

    The bill extends the procedures allowing subsequent 
submission of information to any executor who makes the 
election and submits the recapture agreement, without regard to 
compliance with the Treasury regulations. Thus, the bill allows 
the current use valuation election if the executor supplies the 
required information within a reasonable period of time (not 
exceeding 90 days) after notification by the IRS. During that 
time period, the bill also allows the addition of signatures to 
a previously filed agreement.

                             Effective Date

    The provision applies to decedents dying after the date of 
enactment.

6. Unified credit of decedent increased by unified credit of spouse 
        used on split gift included in decedent's gross estate (sec. 
        14616 of the bill and sec. 2010 of the code)

                              Present Law

    A gift tax is imposed on transfers by gift during life and 
an estate tax is imposed on transfers at death. The gift and 
estate taxes are a unified transfer tax system in that one 
progressive tax is imposed on the cumulative transfers during 
lifetime and at death. The amount of gift tax payable for any 
taxable period generally is determined by multiplying the 
applicable tax rate (from the unified rate schedule) by the 
cumulative lifetime taxable transfers made by the taxpayer and 
then subtracting any gift taxes payable for prior taxable 
periods. This amount is reduced by any available unified credit 
(and other applicable credits) to determine the gift tax 
liability for the taxable period. Also, the first $10,000 of 
gifts of present interests to each donee during any 1 calendar 
year are excluded from Federal gift tax.
    The amount of estate tax payable generally is determined by 
multiplying the applicable tax rate (from the unified rate 
schedule) by the cumulative post-1976 taxable transfers made by 
the taxpayer and then subtracting any transfer taxes payable 
for prior taxable periods. This amount is reduced by any 
remaining available unified credit (and other applicable 
credits) to determine the estate tax liability. The estate tax 
is imposed on all of the assets held by the decedent at his 
death, including the value of property previously transferred 
by the decedent in which the decedent had certain retained 
powers or interests (e.g., sections 2036 (relating to transfers 
with retained life estate), 2037 (relating to transfers taking 
effect at death), 2038 (relating to revocable trusts), or 2042 
(relating to proceeds of life insurance)). Under section 2035, 
the estate tax also would apply with respect to property in 
which such a retained power or interest is transferred within 3 
years of death.
    Under section 2513, one spouse can elect to treat a gift 
made by the other spouse to a third person as made one-half by 
each spouse (i.e., ``gift-splitting'').

                           Reasons for Change

    The ability to gift-split is intended to equalize the 
treatment of spouses in community property States and 
noncommunity property States. Gift-splitting effectively 
permits the transferor taxpayer to benefit from, among other 
things, any unified credit allowable to the nontransferor 
spouse. The benefit of the nontransferor spouse's unified 
credit is lost, however, in circumstances where the split-gift 
property is subsequently included in the transferor spouse's 
estate under sections 2035, 2036, 2037, or 2038 (e.g., where 
the transferor spouse had retained a life estate such that the 
value of the entire property, including the transferred 
remainder interest, is includible in the transferor's estate 
under section 2036). The committee believes that it is 
inappropriate that the benefit of the nontransferor spouse's 
unified credit be lost in such circumstances.

                        Explanation of Provision

    With respect to any split-gift property that is 
subsequently included in the estate of the transferor spouse 
under sections 2035, 2036, 2037 or 2038, the bill increases the 
unified credit allowable to the transferor spouse's estate by 
the amount of the unified credit previously allowed to the 
nontransferor spouse with respect to the split gift.

                             Effective Date

    The provision applies to gifts made after the date of 
enactment.

7. Reformation of defective bequests, etc. to spouse of decedent (sec. 
        14617 of the bill and secs. 2056(b) and 2523 of the code)

                              Present Law

    A ``marital deduction'' generally is allowed for estate and 
gift tax purposes for the value of property passing to a 
spouse. However, ``terminable interest'' property (i.e., an 
interest in property that will terminate or fail) transferred 
to a spouse generally will only qualify for the marital 
deduction under certain special rules designed to ensure that 
there will be an estate or gift tax to the transferee spouse on 
unspent transferred proceeds. Thus, the effect of a marital 
deduction with the terminable interest rule is to provide only 
a method of deferral of the estate or gift tax, not exemption. 
One of the special terminable interest rules (code sec. 
2056(b)(5)) provides that the marital deduction is allowed 
where the decedent transfers property to a trust that is 
required to pay income to the surviving spouse and the 
surviving spouse has a general power of appointment at that 
spouse's death (under this so-called power of appointment 
trust, the power of appointment both provides the surviving 
spouse with power to control the ultimate disposition of the 
trust assets and assures that the trust assets will be subject 
to estate or gift tax). Another special terminable interest 
rule called the ``qualified terminable interest property'' rule 
[QTIP] generally permits a marital deduction for transfers by 
the decedent to a trust that is required to distribute all of 
the income to the surviving spouse at least annually and an 
election is made to subject the transferee spouse to transfer 
tax on the trust property. To qualify for the marital 
deduction, a power of appointment trust or QTIP trust must meet 
certain specific requirements. If there is a technical defect 
in meeting those requirements, the marital deduction may be 
lost.

                           Reasons for Change

    The IRS generally has required strict compliance with the 
requirements for a qualified power of appointment trust under 
section 2056(b)(5) or for QTIP under section 2056(b)(7). As a 
result, taxpayers have been unable to qualify for the marital 
deduction due to inadvertent or unavoidable failure to meet 
those requirements. Accordingly, the committee believes it is 
appropriate to provide a reformation procedure to allow such 
failures to be cured in order that the marital deduction not be 
lost.

                        Explanation of Provision

    The bill allows the marital deduction with respect to a 
defective power of appointment or QTIP trust if there is a 
``qualified reformation'' of the trust that corrects the 
defect. In order to qualify, the reformation must change the 
governing instrument in a manner that cures the defects to 
qualification of the trust for the marital deduction. In 
addition, where a reformation proceeding is commenced after the 
due date for the estate tax return (including extensions), the 
reformation would qualify only if, prior to reformation, the 
governing instrument provides first, that the surviving spouse 
is entitled to all of the income from the property for life, 
and second, no person other than the surviving spouse is 
entitled to any distributions during the surviving spouse's 
life. With respect to QTIP, an election to qualify must be made 
by the executor on the estate tax return as required by section 
2056(b)(7)(B)(v).
    The determination of whether a marital deduction should be 
allowed (i.e., the reformation has cured the defects to 
qualification and otherwise qualifies under this provision) is 
made either as of the due date for filing the estate or gift 
tax return (including any extensions) or the time that changes 
are completed pursuant to a reformation proceeding. The statute 
of limitations is extended with respect to the estate or gift 
tax attributable to the trust property until 1 year after the 
date the Treasury Department is notified that a qualified 
reformation has been completed or that the reformation 
proceeding has otherwise terminated.

                             Effective Date

    The provision applies to decedents dying after the date of 
enactment.

8. Gifts may not be revalued for estate tax purposes after expiration 
        of statute of limitations (sec. 14618 of the bill and secs. 
        2001, 6501(c)(9) and 7477 of the code)

                              Present Law

    The Federal estate and gift taxes are unified so that a 
single progressive rate schedule is applied to an individual's 
cumulative gifts and bequests. The tax on gifts made in a 
particular year is computed by determining the tax on the sum 
of the taxable gifts made that year and all prior years and 
then subtracting the tax on the prior years' taxable gifts and 
the unified credit. Similarly, the estate tax is computed by 
determining the tax on the sum of the taxable estate and prior 
taxable gifts and then subtracting the tax on taxable gifts and 
the unified credit. Under a special rule applicable to the 
computation of the gift tax (sec. 2504(c)), the value of gifts 
made in prior years is the value that was used to determine the 
prior year's gift tax. There is no comparable rule in the case 
of the computation of the estate tax.
    Generally, any estate or gift tax must be assessed within 3 
years after the filing of the return. No proceeding in a court 
for the collection of an estate or gift tax can be begun 
without an assessment within the 3-year period. If no return is 
filed, the tax may be assessed, or a suit commenced to collect 
the tax without assessment, at any time. If an estate or gift 
tax return is filed, and the amount of unreported items exceeds 
25 percent of the amount of the reported items, the tax may be 
assessed or a suit commenced to collect the tax without 
assessment, within 6 years after the return was filed (sec. 
6501).
    Commencement of the statute of limitations generally does 
not require that a particular gift be disclosed. A special 
rule, however, applies to certain gifts that are valued under 
the special valuation rules of Chapter 14. The gift tax statute 
of limitations runs for such a gift only if it is disclosed on 
a gift tax return in a manner adequate to apprise the Secretary 
of the Treasury of the nature of the item.
    Most courts have permitted the Commissioner to redetermine 
the value of a gift for which the statute of limitations period 
for the gift tax has expired in order to determine the 
appropriate tax rate bracket and unified credit for the estate 
tax. See, e.g., Evanson v. United States, 74 AFTR 2d 94-5128 
(9th Cir. 1994); Stalcup v. United States, 946 F. 2d 1125 (5th 
Cir. 1991); Estate of Levin, 1991 T.C. Memo 1991-208, aff'd 986 
F. 2d 91 (4th Cir. 1993); Estate of Smith v. Commissioner, 94 
T.C. 872 (1990). But see Boatman's First National Bank v. 
United States, 705 F. Supp. 1407 (W.D. Mo. 1988) (Commissioner 
not permitted to revalue gifts).

                           Reasons for Change

    Revaluation of lifetime gifts at the time of death requires 
the taxpayer to retain records for a potentially lengthy 
period. Rules that encourage a determination within the gift 
tax statute of limitations ease transfer tax administration by 
eliminating reliance on stale evidence and reducing the period 
for which retention of records is required.

                        Explanation of Provision

    The bill provides that a gift for which the limitations 
period has passed cannot be revalued for purposes of 
determining the applicable estate tax bracket and available 
unified credit. For gifts made in calendar years after the date 
of enactment, the bill also extends the special rule governing 
gifts valued under Chapter 14 to all gifts. Thus, the statute 
of limitations will not run on an inadequately disclosed 
transfer in calendar years after the date of enactment, 
regardless of whether a gift tax return was filed for other 
transfers in that same year.
    It is intended that, in order to revalue a gift that has 
been adequately disclosed on a gift tax return, the IRS must 
issue a final notice of redetermination of value (a ``final 
notice'') within the statute of limitations applicable to the 
gift for gift tax purposes (generally, 3 years). This rule is 
applicable even where the value of the gift as shown on the 
return does not result in any gift tax being owed (e.g., 
through use of the unified credit). It is also anticipated that 
the IRS will develop an administrative appeals process whereby 
a taxpayer can challenge a redetermination of value by the IRS 
prior to issuance of a final notice.
    A taxpayer who is mailed a final notice may challenge the 
redetermined value of the gift (as contained in the final 
notice) by filing a motion for a declaratory judgment with the 
Tax Court. The motion must be filed on or before 90 days from 
the date that the final notice was mailed. The statute of 
limitations is tolled during the pendency of the Tax Court 
proceeding.

                             Effective Date

    The provision generally applies to gifts made after the 
date of enactment. The extension of the special rule under 
chapter 14 to all gifts applies to gifts made in calendar years 
after the date of enactment.

9. Clarifications relating to disclaimers (sec. 14619 of the bill and 
        sec. 2518 of the code)

                              Present Law

    Historically, there must be acceptance of a gift in order 
for the gift to be completed under State law and there is no 
taxable gift for Federal gift tax purposes unless there is a 
completed gift. Most States have rules that provide that, where 
there is a disclaimer of a gift, the property passes to the 
person who is entitled to the property had the disclaiming 
party died before the purported transfer.
    In the Tax Reform Act of 1976, Congress provided a uniform 
disclaimer rule (section 2518) that specified how and when a 
disclaimer under State law must be made in order to be 
effective for Federal transfer tax purposes. Under section 
2518, a State law type disclaimer is effective for Federal 
transfer tax purposes if it is an irrevocable and unqualified 
refusal to accept an interest in property and certain other 
requirements are satisfied. One of these other requirements is 
that the disclaimer generally must be made in writing not later 
than 9 months after the transfer creating the interest occurs. 
Section 2518 is not presently effective for Federal tax 
purposes other than transfer taxes.
    In 1981, Congress added a rule to section 2518 that allowed 
certain transfers of property to be treated as a qualified 
disclaimer. In order to qualify, these transfer-type 
disclaimers must be a written transfer of the disclaimant's 
``entire interest in the property'' to persons who would have 
received the property had there been a valid disclaimer under 
State law (sec. 2518(c)(3)). Like other disclaimers, the 
transfer-type disclaimer generally must be made within 9 months 
of the transfer creating the interest.

                           Reasons for Change

    Under present law, a State law type disclaimer can be a 
qualified disclaimer even first, where it is only a partial 
disclaimer of the property interest, or second, where the 
disclaimant spouse retains an interest in the property. In 
contrast, it is presently unclear whether a transfer-type 
disclaimer can qualify under similar circumstances. Thus, in 
order to equalize the treatment of State law type disclaimers 
and transfer-type disclaimers, the committee believes it is 
appropriate to allow a transfer-type disclaimer of an undivided 
portion of property or a transfer-type disclaimer where the 
disclaimant spouse has retained an interest in the property to 
be treated as a qualified disclaimer for transfer tax purposes.
    The committee also believes that qualified disclaimers 
should be effective for Federal income tax purposes, as well as 
transfer tax purposes.

                        Explanation of Provision

    The bill allows a transfer-type disclaimer of an 
``undivided portion'' of the disclaimant transferor's interest 
in property to qualify under section 2518. Also, the bill 
allows a spouse to make a qualified transfer-type disclaimer 
where the disclaimed property is transferred to a trust in 
which the disclaimant spouse has an interest (e.g., a credit 
shelter trust). Finally, the bill provides that a qualified 
disclaimer for transfer tax purposes under section 2518 is also 
effective for Federal income tax purposes (e.g., disclaimers of 
interests in annuities and income in respect of a decedent).
    None of the foregoing provisions are intended to create an 
inference regarding the Federal tax treatment of disclaimers 
under present law.

                             Effective Date

    The provision applies to disclaimers made after the date of 
enactment.

10. Clarification of treatment of survivor annuities under qualified 
        terminable interest rules (sec. 14620 of the bill and sec. 
        2056(b)(7)(C) of the code)

                              Present Law

Community property

    Under State community property laws, each spouse owns an 
undivided one-half interest in each community property asset. 
In community property States, a nonparticipant spouse may be 
treated as having a vested community property interest in his 
or her spouse's qualified plan, individual retirement 
arrangement, or simplified employee pension plan.

Transfer tax treatment of qualified plans

    In the Retirement Equity Act of 1984 [REA], qualified 
retirement plans were required to provide automatic survivor 
benefits first, in the case of a participant who retires under 
the plan, in the form of a qualified joint and survivor 
annuity, and second, in the case of a vested participant who 
dies before the annuity starting date and who has a surviving 
spouse, in the form of a preretirement survivor annuity. A 
participant generally is permitted to waive such annuities, 
provided he or she obtains the written consent of his or her 
spouse.
    The Tax Reform Act of 1986 repealed the estate tax 
exclusion, formerly contained in section 2039, for certain 
interests in qualified plans owned by a nonparticipant spouse 
attributable to community property laws and made certain other 
changes to conform the transfer tax treatment of qualified and 
nonqualified plans.
    Also, under another change made by the Tax Reform Act of 
1986, a survivorship interest in an annuity interest arising 
out of the decedent's employment that is includible his or her 
estate (under section 2039) that passes to the nonparticipant 
spouse is treated as a deductible marital transfer (i.e., the 
annuity interest is treated as a qualifying income interest for 
purposes of the marital deduction under the Qualified 
Terminable Interest Property [QTIP] 159 rules unless the 
executor of the decedent's estate elects otherwise) (sec. 
2056(b)(7)(C)). Thus, in noncommunity property States, no 
estate tax generally is imposed on such survivor annuity 
interests in the nonsurviving spouse's estate. In contrast, an 
interest of the nonparticipant spouse arising under community 
property laws in an annuity derived from the employment of his 
or her spouse is includible in his or her estate under section 
2033 and, therefore, may not qualify as a deductible transfer 
to his or her surviving spouse under the QTIP rules.
    \159\ In general, QTIP is property which passes from the decedent, 
in which the surviving spouse has a qualifying income interest for 
life, and which the executor elected to treat as QTIP. A surviving 
spouse generally has a qualifying income interest for life if he or she 
is entitled to all the income from the property payable at least 
annually, and no person has the power to appoint any part of the 
property to any person other than the surviving spouse.
---------------------------------------------------------------------------

                           Reasons for Change

    The committee believes that survivorship interests in 
annuities in community property States should be accorded 
similar treatment to the tax treatment of interests in such 
annuities in noncommunity property States. Accordingly, the 
bill would clarify that the transfer at death of a survivorship 
interest in an annuity to a surviving spouse will be a 
deductible marital transfer under the QTIP rules regardless of 
whether the decedent's annuity interest arose out of his or her 
employment or arose under community property laws by reason of 
the employment of his or her spouse.

                        Explanation of Provision

    The bill clarifies that the marital deduction is available 
with respect to a nonparticipant spouse's interest in an 
annuity attributable to community property laws where he or she 
predeceases the participant spouse. Under the bill, the 
nonparticipant spouse's interest in an annuity arising under 
the community property laws of a State that passes to the 
surviving participant spouse may qualify for treatment as QTIP 
under section 2056(b)(7).
    The provision is not intended to create an inference 
regarding the treatment under present law of a transfer to a 
surviving spouse of the decedent spouse's interest in an 
annuity arising under community property laws.

                             Effective Date

    The provision applies to decedents dying, or waivers, 
transfers and disclaimers made, after the date of enactment.

11. Treatment under qualified domestic trust rules of forms of 
        ownership which are not trusts (sec. 14621 of the bill and sec. 
        2056A(c) of the code)

                              Present Law

    Trusts are not permitted in some countries (e.g., many 
civil law countries).160 As a result, it is not possible 
to create a QDT in those countries.
    \160\ Note that in some civil law States (e.g., Louisiana) an 
entity similar to a trust, called a usufruct, exists.
---------------------------------------------------------------------------

                           Reasons for Change

    The estate of a decedent with a nonresident spouse should 
not be precluded from qualifying for the marital deduction in 
situations where the use of a trust is prohibited by another 
country. Accordingly, the committee believes it is appropriate 
to grant regulatory authority to allow qualification for the 
marital deduction in such situations where the Treasury 
Department determines that another similar arrangement allows 
the United States to retain jurisdiction and provides adequate 
security for the payment of U.S. transfer taxes on subsequent 
transfers by the surviving spouse of the property transferred 
by the decedent.

                        Explanation of Provision

    The bill provides the Treasury Department with regulatory 
authority to treat as trusts legal arrangements that have 
substantially the same effect as a trust. It is anticipated 
that such regulations, if any, would only permit a marital 
deduction with respect to nontrust arrangements under which the 
United States would retain jurisdiction and adequate security 
to impose U.S. transfer tax on transfers by the surviving 
spouse of the property transferred by the decedent. Possible 
arrangements could include the adoption of a bilateral treaty 
that provides for the collection of U.S. transfer tax from the 
noncitizen surviving spouse or a closing agreement process 
under which the surviving spouse waives treaty benefits, allows 
the U.S. to retain taxing jurisdiction and provides adequate 
security with respect to such transfer taxes.

                             Effective Date

    The provision applies to decedents dying after the date of 
enactment.

12. Authority to waive requirement of U.S. trustee for qualified 
        domestic trusts (sec. 14622 of the bill and sec. 2056A(a)(1)(A) 
        of the code)

                              Present Law

    In order for a trust to be a QDT, a U.S. trustee must have 
the power to approve all corpus distributions from the trust. 
In some countries, trusts may be prohibited from having a U.S. 
trustee (e.g., some countries do not allow real property to be 
placed in trust if a U.S. trustee must approve distributions 
from the trust.) As a result, such trusts cannot qualify as a 
QDT.

                           Reasons for Change

    The estate of a decedent with a nonresident spouse should 
not be precluded from qualifying for the marital deduction in 
situations where the use of a U.S. trustee is prohibited by 
another country. Accordingly, the committee believes it is 
appropriate to grant regulatory authority to allow 
qualification for the marital deduction in such situations 
where the Treasury Department determines that the United States 
can retain jurisdiction and other adequate security has been 
provided for the payment of U.S. transfer taxes on subsequent 
transfers by the surviving spouse of the property transferred 
by the decedent.

                        Explanation of Provision

    In order to permit the establishment of a QDT in those 
situations where a country prohibits a trust from having a U.S. 
trustee, the bill provides the Treasury Department with 
regulatory authority to waive the requirement that a QDT have a 
U.S. trustee. It is anticipated that such regulations, if any, 
provide an alternative mechanism under which the United States 
would retain jurisdiction and adequate security to impose U.S. 
transfer tax on transfers by the surviving spouse of the 
property transferred by the decedent. For example, one possible 
mechanism would be a closing agreement process under which the 
surviving spouse waives treaty benefits, allows the U.S. to 
retain taxing jurisdiction and provides adequate security with 
respect to such transfer taxes.

                             Effective Date

    The provision applies to decedents dying after the date of 
enactment.

                 C. Generation-Skipping Tax Provisions

1. Severing of trusts holding property having an inclusion ratio of 
        greater than zero (sec. 14631 of the bill and sec. 2642(a) of 
        the code)

                              Present Law

    A generation-skipping transfer tax [GST tax] generally is 
imposed on transfers, either directly or through a trust or 
similar arrangement, to a skip person (i.e., a beneficiary in 
more than one generation below that of the transferor). 
Transfers subject to the GST tax include direct skips, taxable 
terminations and taxable distributions. An exemption of $1 
million is provided for each person making generation-skipping 
transfers. The exemption may be allocated by a transferor (or 
his or her executor) to transferred property .
    If the value of the transferred property exceeds the amount 
of the GST exemption allocated to that property, the GST tax 
generally is determined by multiplying a flat tax rate equal to 
the highest estate tax rate (i.e., currently 55 percent) by the 
``inclusion percentage'' and the value of the taxable property 
at the time of the taxable event. The ``inclusion percentage'' 
is the number one minus the ``exclusion percentage''. The 
exclusion percentage generally is calculated by dividing the 
amount of the GST exemption allocated to the property by the 
value of the property.

                           Reasons for Change

    The committee believes it is appropriate to provide 
flexibility for the severance of trusts to minimize the need 
for complicated governing documents and to remove a potential 
trap for poorly advised taxpayers. The committee understands 
that a similar result can already be obtained by creating 
separate trusts in the governing document. The flexibility of a 
severance should only be afforded, however, in situations where 
the Treasury Department believes there is no significant 
opportunity for tax avoidance as a result of the severance.

                        Explanation of Provision

    If a trust with an inclusion ratio of greater than zero is 
severed into two separate trusts, the bill allows the trustee 
to elect to treat one of the separate trusts as having an 
inclusion ratio of zero and the other separate trust as having 
an inclusion ratio of one. To qualify for this treatment, the 
separate trust with the inclusion ratio of one must receive an 
interest in each property held by the single trust (prior to 
severance) equal to the single trust's inclusion ratio, except 
to the extent otherwise provided by regulation. The remaining 
interests in each property will be transferred to the separate 
trust with the inclusion ratio of zero. The election must be 
made at a time and in a manner prescribed by the Treasury 
Department. It is intended that the time for making the 
election be reasonably soon after the transfer to the single 
trust.

                             Effective Date

    The provision is effective for severances of trusts 
occurring after the date of enactment.

2. Clarification of who is transferor where subsequent gift by reason 
        of power of appointment (sec. 14632 of the bill and sec. 
        2652(a)(1) of the code)

                              Present Law

    The exercise or release of a general power of appointment 
(e.g., a power of withdrawal) generally is treated as a 
transfer of property by the person who possesses such power 
(sec. 2514(b)). Under section 2514(e), the lapse of a general 
power of appointment also is treated as a taxable transfer 
except to the extent that the power does not exceed the greater 
of $5,000 or 5 percent of the fair market value of the property 
with respect to which the power could have been exercised. 
Example 5 of Prop. Treas. Reg. sec. 26.2652-1(a)(5) involves a 
trust created by a parent that provided an income interest to 
his child for life, remainder to his grandchild with the child 
having a power to withdraw $10,000 within 60 days of the 
creation of the trust. The example states that the parent is 
the transferor with respect to the entire trust and the child 
is the transferor as to the excess of $10,000 over the greater 
of $5,000 or 5 percent of the trust.

                           Reasons for Change

    The committee wishes to resolve the uncertainty under 
present law regarding the identity of the transferor for GST 
tax purposes where a transfer is made of property with respect 
to which another person is granted a power of withdrawal or 
general power of appointment.

                        Explanation of Provision

    The bill provides that an individual cannot be treated as a 
``transferor'' with respect to any portion of property with 
respect to which another person is treated as the 
``transferor'' by reason of the exercise, release or lapse of a 
general power of appointment with respect to such property. 
Thus, for example, applying the same facts as contained in 
Example 5 of Prop. Treas. Reg. sec. 26.2652-1(a)(5), the parent 
is not treated as the transferor with respect to any portion of 
the trust which the child is deemed to have transferred by 
reason of the child's power to withdraw.
    The bill is not intended to create an inference regarding 
the identity of the transferor for GST tax purposes under 
present law.

                             Effective Date

    The provision applies to the exercise, release or lapse of 
a general power of appointment occurring after the date of 
enactment.

3. Taxable termination not to include direct skips (sec. 14633 of the 
        bill and sec. 2612(a)(1) of the code)

                              Present Law

    A generation-skipping transfer tax [GST tax] generally is 
imposed on transfers, either directly or through a trust or 
similar arrangement, to a skip person (i.e., a beneficiary in 
more than one generation below that of the transferor). 
Transfers subject to the GST tax include direct skips, taxable 
terminations and taxable distributions. For this purpose, a 
direct skip is any transfer subject to estate or gift tax of an 
interest in property to a skip person (sec. 2612(c)(1)). A 
taxable termination is a termination (by death, lapse of time, 
release of power, or otherwise) of an interest in property held 
in trust unless, immediately after such termination, a nonskip 
person has an interest in the property, or unless at no time 
after the termination may a distribution (including a 
distribution upon termination) be made from the trust to a skip 
person (sec. 2612(a)). A taxable distribution is a distribution 
from a trust to a skip person (other than a taxable termination 
or a direct skip)(sec. 2612(b)).
    Direct skips are subject to less GST tax than taxable 
terminations and distributions since the GST tax on direct 
skips is paid by the transferor (sec. 2603(a)(3)) and, 
therefore, the tax base for a direct skip is tax exclusive 
(like the Federal gift tax), while the GST tax on taxable 
terminations and distributions is paid by the trust or 
beneficiary (secs. 2603(a)(1) & (2)) and, therefore, the tax 
base on taxable terminations and distributions is tax inclusive 
(like the Federal estate tax).

                           Reasons for Change

    Present law is unclear whether a transaction should be 
taxed as a direct skip or a taxable termination where the 
transaction meets both definitions. For example, a distribution 
from a marital deduction trust to the settlor's grandchildren 
upon the death of the settlor's spouse may be treated as both a 
direct skip and a taxable termination. The overlap between the 
two definitions may cause uncertainty regarding the calculation 
of the GST tax (i.e., on a tax exclusive or tax inclusive 
basis) and the availability of various exclusions (e.g., the 
predeceased parent exclusion which is limited to direct skips 
under present law).161 Accordingly, the committee wishes 
to resolve this uncertainty by treating transactions that meet 
both definitions as a direct skip.
    \161\ Section 14634 of the bill extends the predeceased parent 
exception to certain taxable terminations.
---------------------------------------------------------------------------

                        Explanation of Provision

    The bill provides that, when a transfer is described as 
both a direct skip and a taxable termination, the transaction 
will be treated as a direct skip (i.e., treatment as a direct 
skip takes precedence over treatment as a taxable termination).

                             Effective Date

    The provision is effective for generation skipping 
transfers occurring after the date of enactment.

4. Expansion of exception from generation-skipping transfer tax for 
        transfers to individuals with deceased parents (sec. 14634 of 
        the bill and sec. 2651 of the code)

                              Present Law

    Under the ``predeceased parent exception'', a direct skip 
transfer to a transferor's grandchild is not subject to the 
generation skipping transfer (``GST'') tax if the child of the 
transferor who was the grandchild's parent is deceased at the 
time of the transfer (sec. 2612(c)(2)). This ``predeceased 
parent exception'' to the GST tax is not applicable to first, 
transfers to collateral heirs, e.g., grandnieces or 
grandnephews, or second, taxable terminations or taxable 
distributions.

                           Reasons for Change

    The committee believes that a transfer to a collateral 
relative whose parent is dead should qualify for the 
predeceased parent exception in situations where the transferor 
decedent has no lineal heirs, because no motive or opportunity 
to avoid transfer tax exists. For similar reasons, the 
committee believes that transfers to trusts should be permitted 
to qualify for the predeceased parent exclusion where the 
parent of the beneficiary is dead at the time that the transfer 
is first subject to estate or gift tax. The committee also 
understands that this treatment will remove a present law 
impediment to the establishment of charitable lead trusts.

                        Explanation of Provision

    The bill extends the predeceased parent exception to 
transfers to collateral heirs, provided that the decedent has 
no living lineal descendants at the time of the transfer. For 
example, the exception would apply to a transfer made by an 
individual (with no living lineal heirs) to a grandniece where 
the transferor's nephew or niece who is the parent of the 
grandniece is deceased at the time of the transfer.
    In addition, the bill extends the predeceased parent 
exception (as modified by the change in the preceding 
paragraph) to taxable terminations and taxable distributions, 
provided that the parent of the relevant beneficiary was dead 
at the earliest time that the transfer (from which the 
beneficiary's interest in the property was established) was 
subject to estate or gift tax. For example, where a trust was 
established to pay an annuity to a charity for a term for years 
with a remainder interest granted to a grandson, the 
termination of the term for years would not be a taxable 
termination subject to the GST tax if the grandson's parent 
(who is the son or daughter of the transferor) is deceased at 
the time the trust was created and the transfer creating the 
trust was subject to estate or gift tax.

                             Effective Date

    The provision is effective for generation skipping 
transfers occurring after the date of enactment.

                 Subtitle G. Excise Tax Simplification

  A. Provisions Relating to Distilled Spirits, Wines, and Beer (secs. 
  14701-14711 of the bill and secs. 5008(c), 5044, 5053, 5055, 5115, 
     5175(c), 5207, new sec. 5222(b), and sec. 5418(b) of the code)

                              Present Law

Credit or refund for imported bottled distilled spirits returned to 
        bonded premises

    Present law provides that when tax-paid distilled spirits 
which have been withdrawn from bonded premises of a distilled 
spirits plant are returned for destruction or redistilling, the 
excise tax is refunded (sec. 5008(c)). This provision does not 
apply to imported bottled distilled spirits because they are 
withdrawn from customs custody and not from bonded premises of 
a distilled spirits plant.

Authority to cancel or credit bonds without submission of records

    Bond generally must be furnished to the Treasury Department 
when distilled spirits are removed from bonded premises of a 
distilled spirits plant for exportation without payment of tax. 
These bonds are canceled or credited when evidence is submitted 
to the Treasury that the distilled spirits have been exported 
(sec. 5175(c)).

Required maintenance of records on premises of distilled spirits plant

    Distilled spirits plant proprietors are required to 
maintain records of their production, storage, denaturation, 
and other processing activities on the premises where the 
operations covered by the records are carried out (sec. 
5207(c)).

Transfers from breweries to distilled spirits plants

    Under present law, beer may be transferred without payment 
of tax from a brewery to a distilled spirits plant to be used 
in the production of distilled spirits, but only if the brewery 
is contiguous to the distilled spirits plant (sec. 5222(b)).

Requirement for wholesale dealers in liquors to post sign

    Wholesale liquor dealers (i.e., dealers, other than 
wholesale dealers in beer alone, who sell distilled spirits, 
wines, or beer to other persons who re-sell such products) are 
required to post a sign conspicuously on the outside of their 
place of business indicating that they are wholesale liquor 
dealers (sec. 5115).

Refund of tax on wine returned to bond

    Under present law, when unmerchantable wine is returned to 
bonded production premises, tax that has been paid is returned 
or credited to the proprietor of the bonded wine cellar to 
which the wine is delivered (sec. 5044). In contrast, when beer 
is returned to a brewery, tax that has been paid is returned or 
credited, regardless of whether the beer is unmerchantable 
(sec. 5056(a)).

Use of ameliorating material in certain wines

    The code contains rules governing the extent to which 
ameliorating material (e.g., sugar) may be added to wines made 
from high acid fruits and the product still be labelled as a 
standard, natural wine. In general, ameliorating material may 
not exceed 35 percent of the volume of juice and ameliorating 
material combined (sec. 5383(b)(1)). However, wines made 
exclusively from loganberries, currants, or gooseberries are 
permitted a volume of ameliorating material of up to 60 percent 
(sec. 5384(b)(2)(D)).

Domestically produced beer for use by foreign embassies, etc.

    Under present law, domestically produced distilled spirits 
and wine may be removed from bond, without payment of tax, for 
transfer to any customs bonded warehouse for storage pending 
removal for the official or family use of representatives of 
foreign governments or public international organizations 
(secs. 5066 and 5362(e)). A similar rule also applies to 
imported distilled spirits, wine, and beer. No such provision 
exists under present law for domestically produced beer.

Withdrawal of beer for destruction

    Present law does not specifically permit beer to be removed 
from a brewery for destruction without payment of tax.

Records of exportation of beer

    Present law provides that a brewer is allowed a refund of 
tax paid on exported beer upon submission to Treasury 
Department of certain records indicating that the beer has been 
exported (sec. 5055).

Transfer to brewery of beer imported in bulk

    Imported beer brought into the United States in bulk 
containers may not be transferred from customs custody to 
brewery premises without payment of tax. Under certain 
circumstances, distilled spirits imported into the United 
States in bulk containers may be transferred from customs 
custody to bonded premises of a distilled spirits plant where 
bottling will occur without payment of tax (sec. 5232).

                           Reasons for Change

    In addition to imposing taxes, the Internal Revenue Code 
regulates many other aspects of the alcoholic beverage 
industry. These regulations date in many cases from the 
Prohibition Era or earlier. In 1980, the method of collecting 
excise taxes on alcoholic beverages was changed from a system 
under which Treasury Department inspectors regularly were 
present at production facilities to a bonded premises system, 
which more closely tracks the systems used in connection with 
other Federal excise taxes. Many of the recordkeeping 
requirements and other regulatory measures imposed in 
connection with these taxes have not been modified to conform 
to these collection system changes. In addition, modification 
of statutory provisions is warranted in view of advances in 
technology used in the alcoholic beverage industry and 
environmental protection concerns.

                       Explanation of Provisions

Credit or refund for imported bottled distilled spirits returned to 
        bonded premises

    The procedures for refunds of tax collected on imported 
bottled distilled spirits returned to bonded premises are 
conformed to the rules for domestically produced and imported 
bulk distilled spirits. Thus, refunds will be available for all 
distilled spirits on their return to a bonded distilled spirits 
plant.

Authority to cancel or credit bonds without submission of records

    For purposes of canceling or crediting bonds furnished when 
distilled spirits are removed from bonded premises for 
exportation, the Treasury Department is authorized to permit 
records of exportation to be maintained by the exporter, rather 
than requiring submission of proof of exportation to Treasury 
in all cases.

Repeal of required maintenance of records on premises of distilled 
        spirits plant

    Distilled spirits plant proprietors are permitted to 
maintain records of their activities at locations other than 
the premises where the operations covered by the records are 
carried out (e.g., corporate headquarters where tax audits 
currently are conducted), provided that the records are 
available for inspection by the Treasury Department during 
business hours.

Fermented material from any brewery may be received at a distilled 
        spirits plant

    Beer may be transferred without payment of tax from a 
brewery to a distilled spirits plant to be used in the 
production of distilled spirits, regardless of whether the 
brewery is contiguous to the distilled spirits plant. In the 
case of beer previously removed from a brewery, a transfer to a 
distilled spirits plant also may occur without the beer being 
first re-transferred to the brewery.

Repeal of requirement for wholesale dealers in liquors to post sign

    The requirement that wholesale liquor dealers post a sign 
outside their place of business indicating that they are 
wholesale liquor dealers is repealed.

Refund of tax on wine returned to bond not limited to unmerchantable 
        wine

    The requirement that wine returned to bonded premises be 
``unmerchantable'' in order for tax to be refunded to the 
proprietor of the bonded wine cellar to which the wine is 
delivered is repealed.

Use of additional ameliorating material in certain wines

    The wine labelling restrictions are modified to allow any 
wine made exclusively from a fruit or berry with a natural 
fixed acid of 20 parts per thousand or more (before any 
correction of such fruit or berry) to contain a volume of 
ameliorating material not in excess of 60 percent.

Domestically produced beer may be withdrawn free of tax for use by 
        foreign embassies, etc.

    The present-law rule applicable to domestically produced 
distilled spirits and wine (and imported distilled spirits, 
wine, and beer) which permits these products to be withdrawn 
from the place of production without payment of tax for the 
official or family use of representatives of foreign 
governments or public international organizations is extended 
to domestically produced beer.

Beer may be withdrawn free of tax for destruction

    Beer may be removed from a brewery without payment of tax 
for destruction, subject to Treasury Department regulations.

Authority to allow drawback on exported beer without submission of 
        records

    The requirement that proof of exportation be submitted to 
the Treasury Department in all cases as a condition of 
receiving a refund of tax is repealed. This proof will continue 
to be required to be maintained at the exporter's place of 
business.

Transfer to brewery of beer imported in bulk without payment of tax

    The present law rule applicable to distilled spirits 
imported into the United States in bulk containers is extended 
to beer imported into the United States in bulk containers, so 
that imported beer may, subject to Treasury regulations, be 
withdrawn from customs custody for transfer to a brewery 
without payment of tax.

                             Effective Date

    These proposals generally are effective beginning 180 days 
after date of enactment. The provision deleting the requirement 
that wholesale liquor dealers post a sign outside their place 
of business is effective on the date of the proposal's 
enactment.

 B. Consolidation of Tax on Aviation Gasoline (sec. 14721 of the bill 
          and secs. 4041(c), 4081-4083, and 9502 of the code)

                              Present Law

    Gasoline used in noncommercial (not for hire) aviation is 
subject to a 19.4-cents-per-gallon excise tax. 18.4 cents per 
gallon of this tax is collected when the gasoline is removed 
from a registered and bonded pipeline or barge terminal. The 
remaining 1 cent per gallon is imposed at the retail level.

                           Reasons for Change

    The committee believes greater tax compliance and 
administrative simplification for taxpayers can be achieved by 
collecting the entire excise tax on aviation gasoline at only 
one point in that product's chain of distribution.

                        Explanation of Provision

    Imposition of the aviation gasoline excise tax is 
consolidated, with the entire 19.4-cents-per-gallon rate being 
imposed when the gasoline is removed from a terminal facility.

                             Effective Date

    The provision is effective for sales or uses beginning on 
January 1, 1996.

                     C. Other Excise Tax Provisions

1. Authority to grant exemptions from registration requirements (sec. 
        14731 of the bill and sec. 4222 of the code)

                              Present Law

    Under section 4222, certain sales for exempt use of 
articles subject to Federal excise taxes may not be made 
without payment of tax unless the manufacturer, the first 
purchaser, and the second purchaser (if any) are all registered 
under regulations prescribed by the Secretary.

                           Reasons for Change

    Allowing the Internal Revenue Service to exempt certain 
classes of taxpayers from the registration requirements will 
simplify the IRS's administration of the registration 
provisions. Also, the provision will reduce unnecessary 
paperwork for affected taxpayers

                        Explanation of Provision

    The IRS is allowed to provide exemptions from generally 
applicable excise tax registration requirements for certain 
classes of taxpayers (rather than only all taxpayers or 
individually identified taxpayers).

                             Effective Date

    The provision applies to sales occurring after the 180 days 
after the date of enactment.

2. Certain combinations not treated as manufacture under retail sales 
        tax on heavy trucks (sec. 14732 of the bill and sec. 4051 of 
        the code)

                               Present Law

    A 12-percent excise tax is imposed on the sale of trucks, 
tractors, and trailers having a gross vehicle weight in excess 
of specified amounts (sec. 4051). Revenues from the tax are 
dedicated to the Highway Trust Fund. The tax is imposed on the 
first retail sale of a taxable vehicle or addition thereto.
    Generally, repairs of used vehicles are treated as 
remanufacture (giving rise to tax on the entire vehicle) if--
    (1) the transportation function of the truck is changed by 
additions or modifications to the chassis of the truck;
    (2) a new vehicle is fabricated from a wrecked vehicle; or
    (3) modifications to a used vehicle are so extensive that 
they extend the vehicle's useful life.
    The mere addition of a fifth wheel to a taxable truck is 
not treated as remanufacture, although the fifth wheel itself 
would be taxed.

                           Reasons for Change

    The committee was informed that different Internal Revenue 
Service districts are applying these provisions of the retail 
truck excise tax inconsistently. The committee determined that 
a statutory clarification was appropriate to ensure uniform 
application of the law to all taxpayers.

                        Explanation of Provision

    Clarification is provided that the following activities do 
not constitute remanufacture when performed on a used truck or 
tractor chassis:
    (1) removal of a fifth wheel and addition of a power take-
off, hoist, and dump body; or
    (2) simple addition of a power take-off, hoist, and dump 
body.
    These activities will remain taxable to the extent of the 
modifications made.

                             Effective Date

    The provision is effective on the date of enactment. No 
inference is intended by the prospective effective date that 
the activities described constitute remanufacture under present 
law.

3. Exemption from diesel fuel dyeing requirements with respect to 
        certain States (sec. 14733 of the bill and secs. 4082 of the 
        code)

                              Present Law

    An excise tax totaling 24.4 cents per gallon is imposed on 
diesel fuel (code sec. 4081). In the case of fuel used in 
highway transportation, 17.5 cents per gallon (20 cents after 
September 20, 1995) is dedicated to the Highway Trust Fund. 
Revenues equal to 0.1 cent per gallon are dedicated to the 
Leaking Underground Storage Trust Fund. The remaining portion 
of this tax is imposed on transportation generally and is 
retained in the General Fund.
    The diesel fuel tax is imposed on removal of the fuel from 
a terminal facility (i.e., at the ``terminal rack''). Present 
law provides that tax is imposed on all diesel fuel removed 
from terminal facilities unless the fuel is destined for a 
nontaxable use and is indelibly dyed pursuant to Treasury 
Department regulations.
    In general, the diesel fuel tax does not apply to 
nontransportation uses of the fuel. Off-highway business uses 
are included within this nontransportation use exemption. This 
exemption includes use on a farm for farming purposes and as 
fuel powering off-highway equipment (e.g., oil drilling 
equipment). Use as heating oil also is exempt. (Most fuel 
commonly referred to as heating oil is diesel fuel.) The tax 
also does not apply to fuel used by State and local 
governments, to exported fuels, and to fuel used in commercial 
shipping. Fuel contained in (or by) intercity buses and trains 
is partially exempt from the diesel fuel tax.
    A similar dyeing regime exists for diesel fuel under the 
Clean Air Act. That Act prohibits the use on highways of diesel 
fuel with a sulphur content exceeding prescribed levels. This 
``high sulphur'' diesel fuel is required to be dyed by the EPA. 
Urban areas in the State of Alaska were exempted from the Clean 
Air Act, but not the excise tax, dyeing regime for 3 years 
(until October 1, 1996); the exemption for more remote areas is 
permanent.

                           Reasons for Change

    Most diesel fuel sold in rural areas of Alaska is sold for 
nontaxable, off-highway uses. This fact, and the Clean Air Act 
provision exempting those areas from that Act's dyeing 
requirement led the committee to believe that tax compliance in 
those areas can be achieved without dyeing diesel fuel destined 
for nontaxable uses.

                        Explanation of Provision

    Diesel fuel sold in the State of Alaska will be exempt from 
the diesel dyeing requirement during the remainder of the 
period when that State is exempt from the Clean Air Act dyeing 
requirements. Thus, dyed diesel fuel may be used in taxable 
uses without penalties being imposed (subject to a 
certification procedure to be established by the Treasury 
Department).

                             Effective Date

    The proposal is effective on the first day of the first 
calendar quarter beginning after the date of enactment.

4. Repeal of expired provisions (sec. 14743 and secs. 451(d) and 4495-
        4498 of the code)

                              Present Law

Temporary reduction in tax on piggyback trailers

    Piggyback trailers and semitrailers sold within the 1-year 
period beginning on July 18, 1984, were permitted a temporary 
reduction in the retail excise tax rate on trailers.

Expiration of excise tax on deep seabed minerals

    The Deep Seabed Mineral Resources Act (Public Law 96-283) 
imposed an excise tax on certain hard minerals mined on the 
deep seabed. The tax revenues were intended to fund obligations 
of the United States under a contemplated Law of the Sea 
Convention. Because the United States did not sign the treaty, 
this excise tax never became effective and the tax expired 
after June 28, 1990.

                        Explanation of Provision

    The tax reduction for piggy back trailers and the deep 
seabed hard minerals excise tax provisions are repealed as 
``deadwood.''

                             Effective Date

    The proposals are effective on the date of enactment.

                 Subtitle H. Administrative Provisions

                         A. General Provisions

1. Repeal of authority to disclose whether a prospective juror has been 
        audited (sec. 14801 of the bill and sec. 6103 of the code)

                              Present Law

    In connection with a civil or criminal tax proceeding to 
which the United States is a party, the Secretary must 
disclose, upon the written request of either party to the 
lawsuit, whether an individual who is a prospective juror has 
or has not been the subject of an audit or other tax 
investigation by the Internal Revenue Service (sec. 
6103(h)(5)).

                           Reasons for Change

    This disclosure requirement, as it has been interpreted by 
several recent court decisions, has created significant 
difficulties in the civil and criminal tax litigation process. 
First, the litigation process can be substantially slowed. It 
can take the Secretary a considerable period of time to compile 
the information necessary for a response (some courts have 
required searches going back as far as 25 years). Second, 
providing early release of the list of potential jurors to 
defendants (which several recent court decisions have required, 
to permit defendants to obtain disclosure of the information 
from the Secretary) can provide an opportunity for harassment 
and intimidation of potential jurors in organized crime, drug, 
and some tax protester cases. Third, significant judicial 
resources have been expended in interpreting this procedural 
requirement that might better be spent resolving substantive 
disputes. Fourth, differing judicial interpretations of this 
provision have caused confusion. In some instances, defendants 
convicted of criminal tax offenses have obtained reversals of 
those convictions because of failures to comply fully with this 
provision.

                        Explanation of Provision

    The bill repeals the requirement that the Secretary 
disclose, upon the written request of either party to the 
lawsuit, whether an individual who is a prospective juror has 
or has not been the subject of an audit or other tax 
investigation by the Internal Revenue Service.

                             Effective Date

    The provision is effective for judicial proceedings pending 
on, or commenced after, the date of enactment.

2. Clarification of statute of limitations (sec. 14802 of the bill and 
        sec. 6501 of the code)

                              Present Law

    Passthrough entities (such as S corporations, partnerships, 
and certain trusts) generally are not subject to income tax on 
their taxable income. Instead, these entities file information 
returns and the entities' shareholders (or beneficial owners) 
report their pro rata share of the gross income and are liable 
for any taxes due.
    Some believe that, prior to 1993, it may have been unclear 
as to whether the statute of limitations for adjustments that 
arise from distributions from passthrough entities should be 
applied at the entity or individual level (i.e., whether the 3-
year statute of limitations for assessments runs from the time 
that the entity files its information return or from the time 
that a shareholder timely files his or her income tax return). 
In 1993, the Supreme Court held that the limitations period for 
assessing the income tax liability of an S corporation 
shareholder runs from the date the shareholder's return is 
filed (Bufferd v. Comm., 113 S. Ct. 927 (1993)).

                           Reasons for Change

    Uncertainty regarding the correct statute of limitations 
hinders the resolution of factual and legal issues and creates 
needless litigation over collateral matters.

                        Explanation of Provision

    The bill clarifies that the return that starts the running 
of the statute of limitations for a taxpayer is the return of 
the taxpayer and not the return of another person from whom the 
taxpayer has received an item of income, gain, loss, deduction, 
or credit.

                             Effective Date

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

3. Certain notices disregarded under provision increasing interest rate 
        on large corporate underpayments (sec. 14803 of the bill and 
        sec. 6621 of the code)

                              Present Law

    The interest rate on a large corporate underpayment of tax 
is the Federal short-term rate plus 5 percentage points. A 
large corporate underpayment is any underpayment by a 
subchapter C corporation of any tax imposed for any taxable 
period, if the amount of such underpayment for such period 
exceeds $100,000. The large corporate underpayment rate 
generally applies to periods beginning 30 days after the 
earlier of the date on which the first letter of proposed 
deficiency, a statutory notice of deficiency, or a 
nondeficiency letter or notice of assessment or proposed 
assessment is sent. For this purpose, a letter or notice is 
disregarded if the taxpayer makes a payment equal to the amount 
shown on the letter or notice within that 30-day period.

                           Reasons for Change

     The large corporate underpayment rate generally applies if 
the underpayment of tax for a taxable period exceeds $100,000, 
even if the initial letter or notice of deficiency, proposed 
deficiency, assessment, or proposed assessment is for an amount 
less than $100,000. Thus, for example, under present law, a 
nondeficiency notice relating to a relatively minor 
mathematical error by the taxpayer may result in the 
application of the large corporate underpayment rate to a 
subsequently identified income tax deficiency.

                        Explanation of Provision

     For purposes of determining the period to which the large 
corporate underpayment rate applies, any letter or notice is 
disregarded if the amount of the deficiency, proposed 
deficiency, assessment, or proposed assessment set forth in the 
letter or notice is not greater than $100,000 (determined by 
not taking into account any interest, penalties, or additions 
to tax).

                             Effective Date

     The provision is effective for purposes of determining 
interest for periods after December 31, 1995.

4. Clarification of authority to withhold Puerto Rico income taxes from 
        salaries of Federal employees (sec. 14804 of the bill and sec. 
        5517 of title 5, United States Code)

                               Present Law

     If State law provides generally for the withholding of 
State income taxes from the wages of employees in a State, the 
Secretary of the Treasury shall (upon the request of the State) 
enter into an agreement with the State providing for the 
withholding of State income taxes from the wages of Federal 
employees in the State. For this purpose, a State is a State, 
territory, or possession of the United States. The Court of 
Appeals for the Federal Circuit recently held in Romero v. 
United States (38 F. 3d 1204 (1994)) that Puerto Rico was not 
encompassed within this definition; consequently, the court 
invalidated an agreement between the Secretary of the Treasury 
and Puerto Rico that provided for the withholding of Puerto 
Rico income taxes from the wages of Federal employees.

                           Reasons for Change

     The committee believes that employees of the United States 
should be in no better or worse position than other employees 
vis-a-vis local withholding.

                        Explanation of Provision

     The bill makes any Commonwealth eligible to enter into an 
agreement with the Secretary of the Treasury that would provide 
for income tax withholding from the wages of Federal employees.

                             Effective Date

    The provision is effective on the date of enactment.

                        B. Tax Court Procedures

1. Overpayment determinations of Tax Court (sec. 14811 of the bill and 
        sec. 6512 of the code)

                               Present Law

     The Tax Court may order the refund of an overpayment 
determined by the Court, plus interest, if the IRS fails to 
refund such overpayment and interest within 120 days after the 
Court's decision becomes final. Whether such an order is 
appealable is uncertain.
     In addition, it is unclear whether the Tax Court has 
jurisdiction over the validity or merits of certain credits or 
offsets (e.g., providing for collection of student loans, child 
support, etc.) made by the IRS that reduce or eliminate the 
refund to which the taxpayer was otherwise entitled.

                           Reasons for Change

     Clarification of the jurisdiction of the Tax Court and the 
ability to appeal orders of the Tax Court would provide for 
greater certainty for taxpayers and the government in 
conducting cases before the Tax Court. Clarification will also 
reduce litigation.

                        Explanation of Provision

     The bill clarifies that an order to refund an overpayment 
is appealable in the same manner as a decision of the Tax 
Court. The bill also clarifies that the Tax Court does not have 
jurisdiction over the validity or merits of the credits or 
offsets that reduce or eliminate the refund to which the 
taxpayer was otherwise entitled.

                             Effective Date

     The provision is effective on the date of enactment.

2. Awarding of administrative costs (sec. 14812 of the bill and sec. 
        7430 of the code)

                               Present Law

     Any person who substantially prevails in any action 
brought by or against the United States in connection with the 
determination, collection, or refund of any tax, interest, or 
penalty may be awarded reasonable administrative costs incurred 
before the IRS and reasonable litigation costs incurred in 
connection with any court proceeding.
     No time limit is specified for the taxpayer to apply to 
the IRS for an award of administrative costs. In addition, no 
time limit is specified for a taxpayer to appeal to the Tax 
Court an IRS decision denying an award of administrative costs. 
Finally, the procedural rules for adjudicating a denial of 
administrative costs are unclear.

                           Reasons for Change

     The proper procedures for applying for a cost award are 
uncertain in some instances. Clarifying these procedures will 
decrease litigation over these procedural issues and will 
provide for expedited settlement of these claims.

                        Explanation of Provision

     The bill provides that a taxpayer who seeks an award of 
administrative costs must apply for such costs within 90 days 
of the date on which the taxpayer was determined to be a 
prevailing party. The bill also provides that a taxpayer who 
seeks to appeal an IRS denial of an administrative cost award 
must petition the Tax Court within 90 days after the date that 
the IRS mails the denial notice.
     The bill clarifies that dispositions by the Tax Court of 
petitions relating only to administrative costs are to be 
reviewed in the same manner as other decisions of the Tax 
Court.

                             Effective Date

     The provision is effective on the date of enactment.

3. Redetermination of interest pursuant to motion (sec. 14813 of the 
        bill and sec. 7481 of the code)

                               Present Law

     A taxpayer may seek a redetermination of interest after 
certain decisions of the Tax Court have become final by filing 
a petition with the Tax Court.

                           Reasons for Change

     It would be beneficial to taxpayers if a proceeding for a 
redetermination of interest supplemented the original 
deficiency action brought by the taxpayer to redetermine the 
deficiency determination of the IRS. A motion, rather than a 
petition, is a more appropriate pleading for relief in these 
cases.

                        Explanation of Provision

     The bill provides that a taxpayer must file a ``motion'' 
(rather than a ``petition'') to seek a redetermination of 
interest in the Tax Court.

                             Effective Date

     The provision is effective on the date of enactment.

4. Application of net worth requirement for awards of litigation costs 
        (sec. 14814 of the bill and sec. 7430 of the code)

                               Present Law

     Any person who substantially prevails in any action 
brought by or against the United States in connection with the 
determination, collection, or refund of any tax, interest, or 
penalty may be awarded reasonable administrative costs incurred 
before the IRS and reasonable litigation costs incurred in 
connection with any court proceeding. A person who 
substantially prevails must meet certain net worth requirements 
to be eligible for an award of administrative or litigation 
costs. In general, only an individual whose net worth does not 
exceed $2,000,000 is eligible for an award, and only a 
corporation or partnership whose net worth does not exceed 
$7,000,000 is eligible for an award. (The net worth 
determination with respect to a partnership or S corporation 
applies to all actions that are in substance partnership 
actions or S corporation actions, including unified entity-
level proceedings under sections 6226 or 6228, that are 
nominally brought in the name of a partner or a shareholder.)

                           Reasons for Change

     Although the net worth requirements are explicit for 
individuals, corporations, and partnerships, it is not clear 
which net worth requirement is to apply to other potential 
litigants. It is also unclear how the individual net worth 
rules are to apply to individuals filing a joint tax return. 
Clarifying these rules will provide certainty for potential 
claimants and will decrease needless litigation over procedural 
issues.

                        Explanation of Provision

    The bill provides that the net worth limitations currently 
applicable to individuals also apply to estates and trusts. The 
bill also provides that individuals who file a joint tax return 
shall be treated as one individual for purposes of computing 
the net worth limitations. Consequently, the net worths of both 
spouses are aggregated for purposes of this computation. An 
exception to this rule is provided in the case of a spouse 
otherwise qualifying for innocent spouse relief.

                             Effective Date

    The provision applies to proceedings commenced after the 
date of enactment.

  C. Authority for Cooperative Agreements State Tax Authorities (sec. 
            14821 of the bill and new sec. 7524 of the code)

                              Present Law

    The IRS is generally not authorized to provide services to 
non-Federal agencies even if the cost is reimbursed (62 Comp. 
Gen. 323, 335 (1983)).

                           Reasons for Change

    Most taxpayers reside in States with an income tax and, 
therefore, must file both Federal and State income tax returns 
each year. Each return is separately prepared, with the State 
return often requiring information taken directly from the 
Federal return. Permitting the IRS to enter into agreements 
that are designed to promote efficiency through joint tax 
administration programs with States would reduce the burden on 
taxpayers because much of the same information could be used by 
both governments.
    For example, the burden on taxpayers could be significantly 
reduced through joint electronic filing of tax returns, whereby 
a taxpayer electronically transmits both Federal and State 
returns to one location. Joint Federal and State electronic 
filing could simplify and shorten return preparation time for 
taxpayers. Also, State governments could benefit from reduced 
processing costs, while the IRS could benefit from the 
potential increase in taxpayers who would elect to file 
electronically because they would be able to fulfill both their 
Federal and State obligations simultaneously.

                        Explanation of Provision

    The bill provides that the Secretary is authorized to enter 
into cooperative agreements with State tax authorities to 
enhance joint tax administration. These agreements may include 
first, joint filing of Federal and State income tax returns, 
second, single processing of these returns, and (3) joint 
collection of taxes (other than Federal income taxes).
    The bill provides that these agreements may require 
reimbursement for services provided by either party to the 
agreement. Any funds appropriated for tax administration may be 
used to carry out the responsibilities of the IRS under these 
agreements, and any reimbursement received under an agreement 
would be credited to the amount appropriated.
    No agreement may be entered into that does not provide for 
the protection of confidentiality of taxpayer information that 
is required by section 6103.

                             Effective Date

    The provision is effective on the date of enactment.

                      III. Votes of the Committee

    In compliance with clause 2(l)(2)(B) of rule XI of the 
Rules of the House of Representatives, the following statements 
are made concerning the votes of the Committee on Ways and 
Means in its consideration of titles XIII and XIV of the budget 
reconciliation recommendations.

Motion to report titles XIII and XIV

    The Committee on Ways and Means approved the reconciliation 
provisions of titles XIII and XIV by a rollcall vote of 21 yeas 
and 15 nays (with a quorum being present). The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
              Representatives                  Aye       Nay           Representatives           Aye       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer................................        X   ........  Mr. Gibbons.................  ........        X 
Mr. Crane.................................  ........  ........  Mr. Rangel..................  ........        X 
Mr. Thomas................................        X   ........  Mr. Stark...................  ........        X 
Mr. Shaw..................................        X   ........  Mr. Jacobs..................  ........        X 
Mrs. Johnson..............................        X   ........  Mr. Ford....................  ........        X 
Mr. Bunning...............................        X   ........  Mr. Matsui..................  ........        X 
Mr. Houghton..............................        X   ........  Mrs. Kennelly...............  ........        X 
Mr. Herger................................        X   ........  Mr. Coyne...................  ........        X 
Mr. McCrery...............................        X   ........  Mr. Levin...................  ........        X 
Mr. Hancock...............................        X   ........  Mr. Cardin..................  ........        X 
Mr. Camp..................................        X   ........  Mr. McDermott...............  ........        X 
Mr. Ramstad...............................        X   ........  Mr. Kleczka.................  ........        X 
Mr. Zimmer................................        X   ........  Mr. Lewis...................  ........        X 
Mr. Nussle................................        X   ........  Mr. Payne...................  ........        X 
Mr. Johnson...............................        X   ........  Mr. Neal....................  ........        X 
Ms. Dunn..................................        X   ........                                                  
Mr. Collins...............................        X   ........                                                  
Mr. Portman...............................        X   ........                                                  
Mr. Laughlin..............................        X   ........                                                  
Mr. English...............................        X   ........                                                  
Mr. Ensign................................        X   ........                                                  
Mr. Christensen...........................        X   ........                                                  
----------------------------------------------------------------------------------------------------------------

Motion on chairman's amendment

    The committee approved Chairman Archer's amendment to 
titles XIII and XIV, as amended, in the nature of a substitute 
to the original draft of titles XIII and XIV by a rollcall vote 
of 22 yeas and 15 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
              Representatives                  Aye       Nay           Representatives           Aye       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer................................        X   ........  Mr. Gibbons.................  ........        X 
Mr. Crane.................................        X   ........  Mr. Rangel..................  ........        X 
Mr. Thomas................................        X   ........  Mr. Stark...................  ........        X 
Mr. Shaw..................................        X   ........  Mr. Jacobs..................  ........        X 
Mrs. Johnson..............................        X   ........  Mr. Ford....................  ........        X 
Mr. Bunning...............................        X   ........  Mr. Matsui..................  ........        X 
Mr. Houghton..............................        X   ........  Mrs. Kennelly...............  ........        X 
Mr. Herger................................        X   ........  Mr. Coyne...................  ........        X 
Mr. McCrery...............................        X   ........  Mr. Levin...................  ........        X 
Mr. Hancock...............................        X   ........  Mr. Cardin..................  ........        X 
Mr. Camp..................................        X   ........  Mr. McDermott...............  ........        X 
Mr. Ramstad...............................        X   ........  Mr. Kleczka.................  ........        X 
Mr. Zimmer................................        X   ........  Mr. Lewis...................  ........        X 
Mr. Nussle................................        X   ........  Mr. Payne...................  ........        X 
Mr. Johnson...............................        X   ........  Mr. Neal....................  ........        X 
Ms. Dunn..................................        X   ........                                                  
Mr. Collins...............................        X   ........                                                  
Mr. Portman...............................        X   ........                                                  
Mr. Laughlin..............................        X   ........                                                  
Mr. English...............................        X   ........                                                  
Mr. Ensign................................        X   ........                                                  
Mr. Christensen...........................        X   ........                                                  
----------------------------------------------------------------------------------------------------------------

Votes on Amendments

    Roll call votes were conducted on the following amendments 
to the Chairman's substitute markup amendment.
    An amendment by Mr. Kleczka to delete the title XIII 
provision relating to transfer of excess pension assets and 
replace it with a disallowance of any ``neutral cost recovery'' 
depreciation deduction system was defeated by a rollcall vote 
of 16 yeas and 20 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
              Representatives                  Aye       Nay           Representatives           Aye       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer................................  ........        X   Mr. Gibbons.................        X   ........
Mr. Crane.................................  ........        X   Mr. Rangel..................        X   ........
Mr. Thomas................................  ........        X   Mr. Stark...................        X   ........
Mr. Shaw..................................  ........        X   Mr. Jacobs..................        X   ........
Mrs. Johnson..............................  ........        X   Mr. Ford....................        X   ........
Mr. Bunning...............................  ........        X   Mr. Matsui..................        X   ........
Mr. Houghton..............................  ........        X   Mrs. Kennelly...............        X   ........
Mr. Herger................................  ........  ........  Mr. Coyne...................        X   ........
Mr. McCrery...............................  ........        X   Mr. Levin...................        X   ........
Mr. Hancock...............................  ........        X   Mr. Cardin..................        X   ........
Mr. Camp..................................  ........        X   Mr. McDermott...............        X   ........
Mr. Ramstad...............................  ........        X   Mr. Kleczka.................        X   ........
Mr. Zimmer................................  ........        X   Mr. Lewis...................        X   ........
Mr. Nussle................................  ........        X   Mr. Payne...................        X   ........
Mr. Johnson...............................  ........        X   Mr. Neal....................        X   ........
Ms. Dunn..................................  ........        X                                                   
Mr. Collins...............................  ........        X                                                   
Mr. Portman...............................  ........        X                                                   
Mr. Laughlin..............................  ........        X                                                   
Mr. English...............................  ........        X                                                   
Mr. Ensign................................        X   ........                                                  
Mr. Christensen...........................  ........        X                                                   
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Kleczka to title XIII to require that 
pension plan participants receive reasonable advance notice of 
withdrawal of excess pension assets was defeated by a rollcall 
vote of 17 yeas and 20 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
              Representatives                  Aye       Nay           Representatives           Aye       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer................................  ........        X   Mr. Gibbons.................        X   ........
Mr. Crane.................................  ........        X   Mr. Rangel..................        X   ........
Mr. Thomas................................  ........        X   Mr. Stark...................        X   ........
Mr. Shaw..................................        X   ........  Mr. Jacobs..................        X   ........
Mrs. Johnson..............................  ........        X   Mr. Ford....................        X   ........
Mr. Bunning...............................  ........        X   Mr. Matsui..................        X   ........
Mr. Houghton..............................  ........        X   Mrs. Kennelly...............        X   ........
Mr. Herger................................  ........        X   Mr. Coyne...................        X   ........
Mr. McCrery...............................  ........        X   Mr. Levin...................        X   ........
Mr. Hancock...............................  ........        X   Mr. Cardin..................        X   ........
Mr. Camp..................................  ........        X   Mr. McDermott...............        X   ........
Mr. Ramstad...............................  ........        X   Mr. Kleczka.................        X   ........
Mr. Zimmer................................  ........        X   Mr. Lewis...................        X   ........
Mr. Nussle................................  ........        X   Mr. Payne...................        X   ........
Mr. Johnson...............................  ........        X   Mr. Neal....................        X   ........
Ms. Dunn..................................  ........        X                                                   
Mr. Collins...............................  ........        X                                                   
Mr. Portman...............................  ........        X                                                   
Mr. Laughlin..............................  ........        X                                                   
Mr. English...............................        X   ........                                                  
Mr. Ensign................................  ........        X                                                   
Mr. Christensen...........................  ........        X                                                   
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Cardin to title XIII to require use of 
interest rate and mortality assumptions for the excess pension 
plan assets as applicable to plans with unfunded current 
liabilities was defeated by a rollcall vote of 16 yeas and 21 
nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
              Representatives                  Aye       Nay           Representatives           Aye       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer................................  ........        X   Mr. Gibbons.................        X   ........
Mr. Crane.................................  ........        X   Mr. Rangel..................        X   ........
Mr. Thomas................................  ........        X   Mr. Stark...................        X   ........
Mr. Shaw..................................  ........        X   Mr. Jacobs..................        X   ........
Mrs. Johnson..............................  ........        X   Mr. Ford....................        X   ........
Mr. Bunning...............................  ........        X   Mr. Matsui..................        X   ........
Mr. Houghton..............................        X   ........  Mrs. Kennelly...............        X   ........
Mr. Herger................................  ........        X   Mr. Coyne...................        X   ........
Mr. McCrery...............................  ........        X   Mr. Levin...................        X   ........
Mr. Hancock...............................  ........        X   Mr. Cardin..................        X   ........
Mr. Camp..................................  ........        X   Mr. McDermott...............        X   ........
Mr. Ramstad...............................  ........        X   Mr. Kleczka.................        X   ........
Mr. Zimmer................................  ........        X   Mr. Lewis...................        X   ........
Mr. Nussle................................  ........        X   Mr. Payne...................        X   ........
Mr. Johnson...............................  ........        X   Mr. Neal....................        X   ........
Ms. Dunn..................................  ........        X                                                   
Mr. Collins...............................  ........        X                                                   
Mr. Portman...............................  ........        X                                                   
Mr. Laughlin..............................  ........        X                                                   
Mr. English...............................  ........        X                                                   
Mr. Ensign................................  ........        X                                                   
Mr. Christensen...........................  ........        X                                                   
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Rangel and Mrs. Kennelly to title XIII 
to replace the sunset of the low-income housing tax credit with 
a disallowance of any ``neutral cost recovery'' depreciation 
deduction system was defeated by a rollcall vote of 15 yeas and 
22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
              Representatives                  Aye       Nay           Representatives           Aye       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer................................  ........        X   Mr. Gibbons.................        X   ........
Mr. Crane.................................  ........        X   Mr. Rangel..................        X   ........
Mr. Thomas................................  ........        X   Mr. Stark...................        X   ........
Mr. Shaw..................................  ........        X   Mr. Jacobs..................        X   ........
Mrs. Johnson..............................  ........        X   Mr. Ford....................        X   ........
Mr. Bunning...............................  ........        X   Mr. Matsui..................        X   ........
Mr. Houghton..............................  ........        X   Mrs. Kennelly...............        X   ........
Mr. Herger................................  ........        X   Mr. Coyne...................        X   ........
Mr. McCrery...............................  ........        X   Mr. Levin...................        X   ........
Mr. Hancock...............................  ........        X   Mr. Cardin..................        X   ........
Mr. Camp..................................  ........        X   Mr. McDermott...............        X   ........
Mr. Ramstad...............................  ........        X   Mr. Kleczka.................        X   ........
Mr. Zimmer................................  ........        X   Mr. Lewis...................        X   ........
Mr. Nussle................................  ........        X   Mr. Payne...................        X   ........
Mr. Johnson...............................  ........        X   Mr. Neal....................        X   ........
Ms. Dunn..................................  ........        X                                                   
Mr. Collins...............................  ........        X                                                   
Mr. Portman...............................  ........        X                                                   
Mr. Laughlin..............................  ........        X                                                   
Mr. English...............................  ........        X                                                   
Mr. Ensign................................  ........        X                                                   
Mr. Christensen...........................  ........        X                                                   
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Ford to title XIII to strike section 
13637 (to repeal the tax credit for contributions to community 
development corporations) was defeated by a rollcall vote of 15 
yeas and 21 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
              Representatives                  Aye       Nay           Representatives           Aye       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer................................  ........        X   Mr. Gibbons.................        X   ........
Mr. Crane.................................  ........        X   Mr. Rangel..................        X   ........
Mr. Thomas................................  ........        X   Mr. Stark...................        X   ........
Mr. Shaw..................................  ........        X   Mr. Jacobs..................  ........  ........
Mrs. Johnson..............................  ........        X   Mr. Ford....................        X   ........
Mr. Bunning...............................  ........        X   Mr. Matsui..................        X   ........
Mr. Houghton..............................        X   ........  Mrs. Kennelly...............        X   ........
Mr. Herger................................  ........        X   Mr. Coyne...................        X   ........
Mr. McCrery...............................  ........        X   Mr. Levin...................        X   ........
Mr. Hancock...............................  ........        X   Mr. Cardin..................        X   ........
Mr. Camp..................................  ........        X   Mr. McDermott...............        X   ........
Mr. Ramstad...............................  ........        X   Mr. Kleczka.................        X   ........
Mr. Zimmer................................  ........        X   Mr. Lewis...................        X   ........
Mr. Nussle................................  ........        X   Mr. Payne...................        X   ........
Mr. Johnson...............................  ........        X   Mr. Neal....................        X   ........
Ms. Dunn..................................  ........        X                                                   
Mr. Collins...............................  ........        X                                                   
Mr. Portman...............................  ........        X                                                   
Mr. Laughlin..............................  ........        X                                                   
Mr. English...............................  ........        X                                                   
Mr. Ensign................................  ........        X                                                   
Mr. Christensen...........................  ........        X                                                   
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Kleczka to title XIII to strike section 
13631 (to tax certain Indian gaming activities) and to disallow 
any ``neutral cost recovery'' depreciation deduction system was 
defeated by a rollcall vote of 10 yeas and 26 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
              Representatives                  Aye       Nay           Representatives           Aye       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer................................  ........        X   Mr. Gibbons.................        X   ........
Mr. Crane.................................  ........        X   Mr. Rangel..................        X   ........
Mr. Thomas................................  ........        X   Mr. Stark...................        X   ........
Mr. Shaw..................................  ........        X   Mr. Jacobs..................  ........  ........
Mrs. Johnson..............................  ........        X   Mr. Ford....................  ........        X 
Mr. Bunning...............................  ........        X   Mr. Matsui..................        X   ........
Mr. Houghton..............................  ........        X   Mrs. Kennelly...............        X   ........
Mr. Herger................................  ........        X   Mr. Coyne...................        X   ........
Mr. McCrery...............................  ........        X   Mr. Levin...................  ........        X 
Mr. Hancock...............................  ........        X   Mr. Cardin..................  ........        X 
Mr. Camp..................................  ........        X   Mr. McDermott...............        X   ........
Mr. Ramstad...............................  ........        X   Mr. Kleczka.................        X   ........
Mr. Zimmer................................  ........        X   Mr. Lewis...................        X   ........
Mr. Nussle................................  ........        X   Mr. Payne...................  ........        X 
Mr. Johnson...............................  ........        X   Mr. Neal....................        X   ........
Ms. Dunn..................................  ........        X                                                   
Mr. Collins...............................  ........        X                                                   
Mr. Portman...............................  ........        X                                                   
Mr. Laughlin..............................  ........        X                                                   
Mr. English...............................  ........        X                                                   
Mr. Ensign................................  ........        X                                                   
Mr. Christensen...........................  ........        X                                                   
----------------------------------------------------------------------------------------------------------------

    An amendment by Mrs. Kennelly to title XIII to strike 
sections 13701 and 13702 (to retain the earned income tax 
credit for individuals without children and to delete the 
modification to the EITC phaseout and AGI) was defeated by a 
rollcall vote of 14 yeas and 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
              Representatives                  Aye       Nay           Representatives           Aye       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer................................  ........        X   Mr. Gibbons.................        X   ........
Mr. Crane.................................  ........        X   Mr. Rangel..................        X   ........
Mr. Thomas................................  ........        X   Mr. Stark...................  ........  ........
Mr. Shaw..................................  ........        X   Mr. Jacobs..................        X   ........
Mrs. Johnson..............................  ........        X   Mr. Ford....................        X   ........
Mr. Bunning...............................  ........        X   Mr. Matsui..................        X   ........
Mr. Houghton..............................  ........        X   Mrs. Kennelly...............        X   ........
Mr. Herger................................  ........        X   Mr. Coyne...................        X   ........
Mr. McCrery...............................  ........        X   Mr. Levin...................        X   ........
Mr. Hancock...............................  ........        X   Mr. Cardin..................        X   ........
Mr. Camp..................................  ........        X   Mr. McDermott...............        X   ........
Mr. Ramstad...............................  ........        X   Mr. Kleczka.................        X   ........
Mr. Zimmer................................  ........        X   Mr. Lewis...................        X   ........
Mr. Nussle................................  ........        X   Mr. Payne...................        X   ........
Mr. Johnson...............................  ........        X   Mr. Neal....................        X   ........
Ms. Dunn..................................  ........        X                                                   
Mr. Collins...............................  ........        X                                                   
Mr. Portman...............................  ........        X                                                   
Mr. Laughlin..............................  ........        X                                                   
Mr. English...............................  ........        X                                                   
Mr. Ensign................................  ........        X                                                   
Mr. Christensen...........................  ........        X                                                   
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Cardin to title XIII to remove the 
increase in the EITC phaseout was defeated by a rollcall vote 
of 14 yeas and 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
              Representatives                  Aye       Nay           Representatives           Aye       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer................................  ........        X   Mr. Gibbons.................        X   ........
Mr. Crane.................................  ........        X   Mr. Rangel..................        X   ........
Mr. Thomas................................  ........        X   Mr. Stark...................  ........  ........
Mr. Shaw..................................  ........        X   Mr. Jacobs..................        X   ........
Mrs. Johnson..............................  ........        X   Mr. Ford....................        X   ........
Mr. Bunning...............................  ........        X   Mr. Matsui..................        X   ........
Mr. Houghton..............................  ........        X   Mrs. Kennelly...............        X   ........
Mr. Herger................................  ........        X   Mr. Coyne...................        X   ........
Mr. McCrery...............................  ........        X   Mr. Levin...................        X   ........
Mr. Hancock...............................  ........        X   Mr. Cardin..................        X   ........
Mr. Camp..................................  ........        X   Mr. McDermott...............        X   ........
Mr. Ramstad...............................  ........        X   Mr. Kleczka.................        X   ........
Mr. Zimmer................................  ........        X   Mr. Lewis...................        X   ........
Mr. Nussle................................  ........        X   Mr. Payne...................        X   ........
Mr. Johnson...............................  ........        X   Mr. Neal....................        X   ........
Ms. Dunn..................................  ........        X                                                   
Mr. Collins...............................  ........        X                                                   
Mr. Portman...............................  ........        X                                                   
Mr. Laughlin..............................  ........        X                                                   
Mr. English...............................  ........        X                                                   
Mr. Ensign................................  ........        X                                                   
Mr. Christensen...........................  ........        X                                                   
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Levin to title XIII to strike section 
13702 (remove the modifications to AGI for the EITC phaseout) 
and replace it with a disallowance of any ``neutral cost 
recovery'' depreciation deduction system as defeated by a 
rollcall vote of 15 yeas and 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
              Representatives                  Aye       Nay           Representatives           Aye       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer................................  ........        X   Mr. Gibbons.................        X   ........
Mr. Crane.................................  ........        X   Mr. Rangel..................        X   ........
Mr. Thomas................................  ........        X   Mr. Stark...................        X   ........
Mr. Shaw..................................  ........        X   Mr. Jacobs..................        X   ........
Mrs. Johnson..............................  ........        X   Mr. Ford....................        X   ........
Mr. Bunning...............................  ........        X   Mr. Matsui..................        X   ........
Mr. Houghton..............................  ........        X   Mrs. Kennelly...............        X   ........
Mr. Herger................................  ........        X   Mr. Coyne...................        X   ........
Mr. McCrery...............................  ........        X   Mr. Levin...................        X   ........
Mr. Hancock...............................  ........        X   Mr. Cardin..................        X   ........
Mr. Camp..................................  ........        X   Mr. McDermott...............        X   ........
Mr. Ramstad...............................  ........        X   Mr. Kleczka.................        X   ........
Mr. Zimmer................................  ........        X   Mr. Lewis...................        X   ........
Mr. Nussle................................  ........        X   Mr. Payne...................        X   ........
Mr. Johnson...............................  ........        X   Mr. Neal....................        X   ........
Ms. Dunn..................................  ........        X                                                   
Mr. Collins...............................  ........        X                                                   
Mr. Portman...............................  ........        X                                                   
Mr. Laughlin..............................  ........        X                                                   
Mr. English...............................  ........        X                                                   
Mr. Ensign................................  ........        X                                                   
Mr. Christensen...........................  ........        X                                                   
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Rangel to title XIII to retain the 
earned income tax credit for individuals without children was 
defeated by a rollcall vote of 15 yeas and 22 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
              Representatives                  Aye       Nay           Representatives           Aye       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer................................  ........        X   Mr. Gibbons.................        X   ........
Mr. Crane.................................  ........        X   Mr. Rangel..................        X   ........
Mr. Thomas................................  ........        X   Mr. Stark...................        X   ........
Mr. Shaw..................................  ........        X   Mr. Jacobs..................        X   ........
Mrs. Johnson..............................  ........        X   Mr. Ford....................        X   ........
Mr. Bunning...............................  ........        X   Mr. Matsui..................        X   ........
Mr. Houghton..............................  ........        X   Mrs. Kennelly...............        X   ........
Mr. Herger................................  ........        X   Mr. Coyne...................        X   ........
Mr. McCrery...............................  ........        X   Mr. Levin...................        X   ........
Mr. Hancock...............................  ........        X   Mr. Cardin..................        X   ........
Mr. Camp..................................  ........        X   Mr. McDermott...............        X   ........
Mr. Ramstad...............................  ........        X   Mr. Kleczka.................        X   ........
Mr. Zimmer................................  ........        X   Mr. Lewis...................        X   ........
Mr. Nussle................................  ........        X   Mr. Payne...................        X   ........
Mr. Johnson...............................  ........        X   Mr. Neal....................        X   ........
Ms. Dunn..................................  ........        X                                                   
Mr. Collins...............................  ........        X                                                   
Mr. Portman...............................  ........        X                                                   
Mr. Laughlin..............................  ........        X                                                   
Mr. English...............................  ........        X                                                   
Mr. Ensign................................  ........        X                                                   
Mr. Christensen...........................  ........        X                                                   
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Hancock to title XIII to repeal the 
reachback provisions of the coal industry retiree health 
benefit program was approved by a rollcall vote of 20 yeas and 
17 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
              Representatives                  Aye       Nay           Representatives           Aye       Nay  
----------------------------------------------------------------------------------------------------------------
Mr. Archer................................        X   ........  Mr. Gibbons.................        X   ........
Mr. Crane.................................  ........        X   Mr. Rangel..................  ........        X 
Mr. Thomas................................        X   ........  Mr. Stark...................  ........        X 
Mr. Shaw..................................        X   ........  Mr. Jacobs..................  ........        X 
Mrs. Johnson..............................        X   ........  Mr. Ford....................  ........        X 
Mr. Bunning...............................  ........        X   Mr. Matsui..................  ........        X 
Mr. Houghton..............................  ........        X   Mrs. Kennelly...............        X   ........
Mr. Herger................................        X   ........  Mr. Coyne...................  ........        X 
Mr. McCrery...............................        X   ........  Mr. Levin...................  ........        X 
Mr. Hancock...............................        X   ........  Mr. Cardin..................  ........        X 
Mr. Camp..................................        X   ........  Mr. McDermott...............  ........        X 
Mr. Ramstad...............................        X   ........  Mr. Kleczka.................  ........        X 
Mr. Zimmer................................        X   ........  Mr. Lewis...................  ........        X 
Mr. Nussle................................        X   ........  Mr. Payne...................  ........        X 
Mr. Johnson...............................        X   ........  Mr. Neal....................  ........        X 
Ms. Dunn..................................        X   ........                                                  
Mr. Collins...............................        X   ........                                                  
Mr. Portman...............................        X   ........                                                  
Mr. Laughlin..............................        X   ........                                                  
Mr. English...............................  ........        X                                                   
Mr. Ensign................................        X   ........                                                  
Mr. Christensen...........................        X   ........                                                  
----------------------------------------------------------------------------------------------------------------


                               BUDGET EFFECTS OF TITLES XIII AND XIV, BY SUBTITLE                               
                                    [By fiscal years, in billions of dollars]                                   
----------------------------------------------------------------------------------------------------------------
                                        1996       1997       1998       1999       2000       2001       2002  
----------------------------------------------------------------------------------------------------------------
                                                    TITLE XII                                                   
                                                                                                                
Subtitle A: Expiring Provisions                                                                                 
    Revenue Effects:                                                                                            
        On-Budget..................     -2.213     -2.473     -1.434     -0.621     -0.382     -0.191     -0.045
        Off-Budget \1\.............     -0.233     -0.159     -0.098      0.000      0.000      0.000      0.000
Subtitle B: Medical Savings                                                                                     
 Accounts                                                                                                       
    Revenue Effects................     -0.117     -0.197     -0.233     -0.268     -0.306     -0.321     -0.337
Subtitle C: Taxpayer Bill of Rights                                                                             
 2                                                                                                              
    Revenue Effects................     -0.012     -0.095     -0.099     -0.100     -0.027     -0.030     -0.030
Subtitle D: Additional Technical                                                                                
 Corrections                                                                                                    
    Revenue Effects................      0.000      0.000      0.000      0.000      0.000      0.000      0.000
Subtitle E: Information Sharing                                                                                 
 Provision                                                                                                      
    Revenue Effects................      0.000      0.000      0.000     -0.014     -0.028     -0.042     -0.056
Subtitle F: Corporate and Other                                                                                 
 Reforms \2\                                                                                                    
    Revenue Effects................      2.893      3.907      4.104      4.107      4.295      4.992      5.929
Subtitle G: EITC Reform                                                                                         
    Revenue Effects................      0.039      0.781      0.824      0.857      0.895      0.950      1.071
    Outlay Effects.................     -0.131     -2.636     -2.779     -2.897     -3.045     -3.159     -3.197
Subtitle H: Extension of Debt                                                                                   
 Ceiling                                                                                                        
    Revenue Effects................      0.000      0.000      0.000      0.000      0.000      0.000      0.000
    Outlay Effects.................      0.000      0.000      0.000      0.000      0.000      0.000      0.000
                                                                                                                
                                                    TITLE XIV                                                   
                                                                                                                
Tax Simplification                                                                                              
    Revenue Effects................     -0.157     -0.646     -0.865     -0.717     -0.733     -0.769     -0.839
----------------------------------------------------------------------------------------------------------------
\1\ Extending the exclusion for employer-provided educational assistance would reduce Social Security revenues, 
  which are off-budget.                                                                                         
\2\ One provision, to modify the tax benefits available to certain alcohol fuels, might also affect outlays.    
  Because it depends on other action taken during reconciliation regarding farm programs, the effect can not be 
  estimated at this time.                                                                                       


                                      BUDGET EFFECTS OF TITLES XIII AND XIV                                     
                                    [By fiscal years, in billions of dollars]                                   
----------------------------------------------------------------------------------------------------------------
                                        1996       1997       1998       1999       2000       2001       2002  
----------------------------------------------------------------------------------------------------------------
                                                    Revenues                                                    
                                                                                                                
Projected Revenues Under Current                                                                                
 Law \1\...........................   1417.619   1475.210   1546.076   1617.969   1697.155   1786.321   1879.300
Proposed Changes:                                                                                               
    On Budget......................      0.433      1.277      2.297      3.258      3.742      4.631      5.749
    Off Budget.....................     -0.233     -0.159     -0.098      0.000      0.000      0.000      0.000
Projected Revenues Under Titles                                                                                 
 XIII and XIV......................   1417.819   1476.328   1548.275   1621.227   1700.897   1790.952   1885.049
                                                                                                                
                                                     Outlays                                                    
                                                                                                                
Projected EITC Outlays\1\ Under                                                                                 
 Current Law.......................     20.374     22.551     23.483     24.512     25.553     26.499     27.517
Proposed Changes...................     -0.131     -2.636     -2.779     -2.897     -3.045     -3.159     -3.197
Projected EITC Outlays Under Title                                                                              
 XIII..............................     20.243     19.915     20.704     21.615     22.508     23.340     24.320
Projected Veterans Pension Outlays                                                                              
 Under Current Law.................      2.599      2.714      2.604      2.776      3.013      2.569      2.789
Proposed Changes...................      0.000      0.000      0.000     -0.010     -0.020     -0.030     -0.040
Projected Veterans Pension Outlays                                                                              
 Under Title XIII..................      2.599      2.714      2.604      2.766      2.993      2.539      2.749
Projected Medical Care Cost                                                                                     
 Recovery Under Current Law........     -0.641     -0.731     -0.758     -0.372     -0.380     -0.400     -0.422
Proposed Changes...................      0.000      0.000      0.000     -0.004     -0.008     -0.012     -0.016
Projected Medical Care Cost                                                                                     
 Recovery Under Title XIII.........     -0.641     -0.731     -0.758     -0.376     -0.388     -0.412     -0.438
----------------------------------------------------------------------------------------------------------------
\1\ Includes the effects of Public Law 104-7 (H.R. 831).                                                        

               IV. Budget Effects of Titles XIII and XIV

              A. Committee Estimates of Budgetary Effects

    In compliance with clause 7 of Rule III of Rules of the 
House of Representatives, the following statement is made 
concerning the effects on the budget of the Committee on Ways 
and Means revenue reconciliation (title XIII) and tax 
simplification (title XIV) provisions.
    Titles XIII and XIV are estimated to have the following 
effects on budget receipts for fiscal years 1996-2002:

               ESTIMATED BUDGET EFFECTS OF RECONCILIATION PROVISIONS (TITLES XIII AND XIV) AS APPROVED BY THE COMMITTEE ON WAYS AND MEANS               
                                                    [Fiscal years 1996-2002; in millions of dollars]                                                    
--------------------------------------------------------------------------------------------------------------------------------------------------------
               Item                          Effective            1996      1997      1998      1999      2000      2001      2002     1996-00   1996-02
--------------------------------------------------------------------------------------------------------------------------------------------------------
TITLE XIII. REVENUE RECONCILIATION                                                                                                                      
                ACT                                                                                                                                     
                                                                                                                                                        
      I. Expiring Provisions                                                                                                                            
                                                                                                                                                        
A. Provisions Extended Through 12/                                                                                                                      
 31/97:                                                                                                                                                 
    1. Work opportunity tax credit  1/1/96....................       -64      -173      -176       -93       -36       -12        -2      -542      -556
     \1\.                                                                                                                                               
    2. Employer-provided            1/1/95....................      -731      -500      -307  ........  ........  ........  ........    -1,538    -1,538
     educational assistance (for                                                                                                                        
     undergraduate education after                                                                                                                      
     12/31/95).                                                                                                                                         
    3. R&D credit with              7/1/95....................    -1,149    -1,389    -1,013      -518      -343      -176       -40    -4,412    -4,628
     modifications.                                                                                                                                     
    4. Contributions of             1/1/95....................       -47      -108       -20        -7  ........  ........  ........      -182      -182
     appreciated stock to private                                                                                                                       
     foundations.                                                                                                                                       
    5. Orphan drug tax credit.....  1/1/95....................       -33       -20        -7  ........  ........  ........  ........       -60       -60
B. Permanent Extension of FUTA      1/1/95....................        -5        -3        -3        -3        -3        -3        -3       -17       -23
 exemption for alien agricultural                                                                                                                       
 workers \2\.                                                                                                                                           
C. Commercial Aviation Fuel:        10/1/95...................      -417      -439        -6  ........  ........  ........  ........      -863      -863
 extend 4.3 cents/gallon exemption                                                                                                                      
 through 9/30/97.                                                                                                                                       
D. Extend all Airport and Airway    1/1/96....................                                                                                          
 Trust Fund excise taxes through 9/                                                                                                                     
 30/96 \3\.                                                                                                                                             
(8)No Revenue Effect                                                                                                                                    
                                   ---------------------------------------------------------------------------------------------------------------------
    Total for expiring provisions.  ..........................    -2,446    -2,632    -1,532      -621      -191      -382       -45    -7,614    -7,850
                                   =====================================================================================================================
II. Medical Savings Accounts......  1/1/96....................      -117      -197      -233      -268      -306      -321      -337    -1,121    -1,779
                                   =====================================================================================================================
  III. Taxpayer Bill of Rights 2                                                                                                                        
                                                                                                                                                        
 1. Establishment of position of    DOE.......................                                                                                          
 Taxpayer Advocate.                                                                                                                                     
(8) No Revenue Effect                                                                                                                                   
 2. Expansion of authority to       DOE.......................                                                                                          
 issue Taxpayer Assistance Orders.                                                                                                                      
(8) No Revenue Effect                                                                                                                                   
 3. Notification of reasons for     6ma DOE...................                                                                                          
 termination of installment                                                                                                                             
 agreements.                                                                                                                                            
(8) No Revenue Effect                                                                                                                                   
 4. Administrative review of        1/1/96....................                                                                                          
 termination of installment                                                                                                                             
 agreements.                                                                                                                                            
(8) No Revenue Effect                                                                                                                                   
 5. Expansion of authority to       DOE.......................       (4)       (4)       (4)       (4)       (4)       (4)       (4)       (5)       (5)
 abate interest.                                                                                                                                        
 6. Review of IRS failure to abate  DOE.......................       (4)       (4)       (4)       (4)       (4)       (4)       (4)       (5)       (5)
 interest.                                                                                                                                              
 7. Extension of interest-free      6/30/96...................        -2        -7        -8        -8        -8        -9        -9       -33       -51
 period for payment of tax.                                                                                                                             
 8. Studies of Joint return-        DOE.......................                                                                                          
 related issues.                                                                                                                                        
(8) No Revenue Effect                                                                                                                                   
 9. Joint return may be made after  DOE.......................       (4)        (4       (4)       (4)       (4)       (4)       (4)       (5)       (5)
 separate returns without full                                                                                                                          
 payment of tax.                                                                                                                                        
10. Disclosure of collection        DOE.......................                                                                                          
 activities.                                                                                                                                            
(8) No Revenue Effect                                                                                                                                   
11. Withdraw notice of lien.......  1/1/96....................                                                                                          
(8) No Revenue Effect                                                                                                                                   
12. Return levied property........  1/1/96....................                                                                                          
(8) No Revenue Effect                                                                                                                                   
13. Increase levy exemption.......  1/1/96....................       (4)       (4)       (4)       (4)       (4)       (4)       (4)       (5)       (5)
14. Offers-in-compromise..........  DOE.......................       (4)       (4)       (4)       (4)       (4)       (4)       (4)       (5)       (5)
15. Civil damages for fraudulent    DOE.......................                                                                                          
 filing of information return.                                                                                                                          
(8) No Revenue Effect                                                                                                                                   
16. Requirement to conduct          DOE.......................        -3        -6        -6        -6        -7        -8        -8       -28       -44
 reasonable investigation.                                                                                                                              
17. United States must establish    DOE.......................        -2        -2        -2        -3        -3        -3        -3       -12       -18
 that position in proceeding was                                                                                                                        
 substantially justified.                                                                                                                               
18. Increased limit on attorney     DOE.......................        -1        -1        -1        -1        -1        -1        -1        -5        -7
 fees.                                                                                                                                                  
19. Failure to agree to extension   DOE.......................                                                                                          
 not taken into account.                                                                                                                                
(8) No Revenue Effect                                                                                                                                   
20. Award of litigation costs       DOE.......................     (\4\)     (\4\)     (\4\)     (\4\)     (\4\)     (\4\)     (\4\)     (\5\)     (\5\)
 permitted in declaratory judgment                                                                                                                      
 proceedings.                                                                                                                                           
21. Increase in limit on recovery   DOE.......................        -3        -3        -3        -3        -3        -3        -3       -15       -21
 of civil damages.                                                                                                                                      
22. Court discretion to reduce      DOE.......................        -1        -1        -1        -1        -1        -1        -1        -5        -7
 award for litigation costs.                                                                                                                            
23. Preliminary notice requirement  6/30/96...................                                                                                          
(8) No Revenue Effect                                                                                                                                   
24. Disclosure of certain           DOE.......................                                                                                          
 information where more than one                                                                                                                        
 person liable for penalty.                                                                                                                             
(8) No Revenue Effect                                                                                                                                   
25. Right of contribution where     DOE.......................                                                                                          
 more than one person liable for                                                                                                                        
 penalty.                                                                                                                                               
(8) No Revenue Effect                                                                                                                                   
26. Volunteer board members of tax- DOE.......................                                                                                          
 exempt organizations exempt from                                                                                                                       
 penalty.                                                                                                                                               
(8) No Revenue Effect                                                                                                                                   
27. Enrolled agents included as     DOE.......................     (\4\)     (\4\)     (\4\)     (\4\)     (\4\)     (\4\)     (\4\)     (\5\)     (\5\)
 third-party recordkeepers.                                                                                                                             
28. Safeguards relating to          DOE.......................     (\4\)     (\4\)     (\4\)     (\4\)     (\4\)     (\4\)     (\4\)     (\5\)     (\5\)
 designated summonses.                                                                                                                                  
29. Report on designated summonses  DOE.......................                                                                                          
(8) No Revenue Effect                                                                                                                                   
30. Relief from retroactive         DOE.......................  ........        -1        -4        -4        -4        -5        -5       -13       -23
 application of Treasury                                                                                                                                
 Department regulations.                                                                                                                                
31. Report on pilot program for     DOE.......................                                                                                          
 appeal of enforcement actions.                                                                                                                         
(8) No Revenue Effect                                                                                                                                   
32. Phone number of person          1/1/97....................                                                                                          
 providing payee statements.                                                                                                                            
(8) No Revenue Effect                                                                                                                                   
33. Required notice of certain      DOE.......................                                                                                          
 payments.                                                                                                                                              
(8) No Revenue Effect                                                                                                                                   
34. Unauthorized enticement of      DOE.......................                                                                                          
 information disclosure.                                                                                                                                
(8) No Revenue Effect                                                                                                                                   
35. Annual reminders to taxpayers   1/1/96....................     (\6\)     (\6\)     (\6\)     (\6\)     (\6\)     (\6\)     (\6\)     (\7\)     (\7\)
 with delinquent accounts.                                                                                                                              
36. 5-year extension of authority   DOE.......................     (\6\)     (\6\)     (\6\)     (\6\)     (\6\)     (\6\)     (\6\)     (\7\)     (\7\)
 for undercover operations.                                                                                                                             
37. Disclosure of form 8300         DOE.......................                                                                                          
 information.                                                                                                                                           
(8) No Revenue Effect                                                                                                                                   
38. Disclosure of returns and       DOE.......................                                                                                          
 return information to designee of                                                                                                                      
 taxpayer.                                                                                                                                              
(8) No Revenue Effect                                                                                                                                   
39. Study of netting of interest    DOE.......................                                                                                          
 on overpayments and liabilities.                                                                                                                       
(8) No Revenue Effect                                                                                                                                   
40. Provide tax credit for          tyba 12/31/94.............  ........       -74       -74       -74  ........  ........  ........      -222      -222
 Taxpayer Compliance Measurement                                                                                                                        
 Program for individual taxpayers.                                                                                                                      
41. Expenses of detection of        DOE.......................                                                                                          
 underpayments and fraud.                                                                                                                               
(8) Negligible Revenue Effect                                                                                                                           
                                   ---------------------------------------------------------------------------------------------------------------------
    Total of Taxpayer Bill of       ..........................       -12       -95       -99      -100       -27       -30       -30      -333      -393
     Rights 2.                                                                                                                                          
                                   =====================================================================================================================
IV. Additional Technical            ..........................  ........  ........  ........  ........  ........  ........  ........  ........  ........
 Corrections.                                                                                                                                           
                                   =====================================================================================================================
V. Information Sharing Provision:   ..........................  ........  ........  ........         7        17        27        37        24        88
 Extension of Disclosure of Return                                                                                                                      
 Information to Department of                                                                                                                           
 Veterans Affairs (outlay                                                                                                                               
 reductions) (2).                                                                                                                                       
                                   =====================================================================================================================
  VI. Corporate and Other Reforms                                                                                                                       
                                                                                                                                                        
 1. Reform the tax treatment of     5/4/95....................      -576      -481      -295       -57       238       505       643    -1,171       -23
 certain corporate stock                                                                                                                                
 redemptions.                                                                                                                                           
 2. Require corporate tax shelter   atsotppa DOE..............       (7)       (7)       (7)       (7)       (7)       (7)       (7)       (8)       (8)
 reporting.                                                                                                                                             
 3. Disallow interest deduction     ipoaa 12/31/95............       192       517       802     1,094     1,354     1,506     1,550     3,959     7,016
 for corporate-owned life                                                                                                                               
 insurance policy loans.                                                                                                                                
 4. Phaseout preferential tax       (9).......................        26        37        38        39        40        41        42       179       261
 deferral for certain large farm                                                                                                                        
 corporations required to use                                                                                                                           
 accrual accounting.                                                                                                                                    
 5. Phased-in repeal of section     tyba 12/31/95.............        31        92       258       447       586       737       951     1,414     3,102
 936.                                                                                                                                                   
 6. Corporate accounting--reform    ppisa 9/13/95.............        34        73        31        14        15        17        20       167       204
 of income forecast method.                                                                                                                             
 7. Corporate pension reversions..  1/1/95....................     2,814     2,585     2,329     1,356       491      (10)      (10)     9,575     9,538
 8. Modify exclusion of damages                                                                                                                         
 received on account of personal                                                                                                                        
 injury or sickness:                                                                                                                                    
                                    ..........................  ........  ........  ........  ........  ........  ........  ........  ........  ........
    a. Treat all punitive damages   ama 12/31/95..............         3         4         6         7         7         7         8        27        42
     as taxable.                                                                                                                                        
    b. Include in income damage     ama 12/31/95..............        31        47        49        52        54        57        60       233       350
     recoveries for nonphysical                                                                                                                         
     injuries.                                                                                                                                          
 9. Require tax reporting for       1/1/96....................       (7)       (7)       (7)       (7)       (7)       (7)       (7)       (8)       (8)
 payments to attorneys.                                                                                                                                 
10. Expatriation tax provisions...  2/6/95....................        64        97       146       199       254       289       304       760     1,353
11. Phase-out of tax credits for    tyea 9/13/95..............  ........         9        19        28        34        35        37        90       162
 wind energy and ``closed loop''                                                                                                                        
 biomass.                                                                                                                                               
12. Ethanol: Reduce blenders' tax   1/1/96....................       128       183       174       178       186       411       522       851     1,784
 subsidy from $0.54 to $0.51 per                                                                                                                        
 gallon to remove implicit subsidy                                                                                                                      
 for carbon dioxide; limit                                                                                                                              
 blenders' tax subsidy to plants                                                                                                                        
 in service before 9/14/95, not to                                                                                                                      
 exceed average production during                                                                                                                       
 the 3-year period ending 8/31/95                                                                                                                       
 (exempting small producers);                                                                                                                           
 include excise tax compliance                                                                                                                          
 measures; reverse IRS regulations                                                                                                                      
 on ETBE as qualified alcohol                                                                                                                           
 fuel, and raise small producer                                                                                                                         
 credit from $0.10 to $0.13 per                                                                                                                         
 gallon.                                                                                                                                                
13. Remove business exclusion for   ara 9/13/95...............        54        96       100       104       107       109       111       461       679
 energy subsidies provided by                                                                                                                           
 public utilities.                                                                                                                                      
14. Modify basis adjustment rules   ica 9/13/95...............         2         4         7        11        16        23        31        40        94
 under section 1033.                                                                                                                                    
15. Modify the exception to the     ica 9/13/95...............         1         2         4         7        10        13        15        24        52
 related party rule of section                                                                                                                          
 1033 for individuals to only                                                                                                                           
 provide an exception for de                                                                                                                            
 minimis amounts ($100,000).                                                                                                                            
16. Disallow rollover under         tyea 12/31/95.............         1         3         4         5         6         8         9        19        35
 section 1034 to extent of                                                                                                                              
 previously claimed depreciation                                                                                                                        
 for home office or other                                                                                                                               
 depreciable use of residence.                                                                                                                          
17. Provide that rollover of gain   sea 9/13/95...............    (\11\)    (\11\)    (\11\)    (\11\)    (\11\)    (\11\)    (\11\)    (\11\)    (\11\)
 on sale of a principal residence                                                                                                                       
 cannot be elected unless the                                                                                                                           
 replacement property purchased is                                                                                                                      
 located within the United States                                                                                                                       
 (limit to resident aliens who                                                                                                                          
 terminate residence within 2                                                                                                                           
 years).                                                                                                                                                
18. Tax gambling income of Indian   1/1/96....................        28        50        52        52        53        54        56       235       345
 tribes; repeal of targeted                                                                                                                             
 exemption from UBIT from gambling                                                                                                                      
 in certain States.                                                                                                                                     
19. Repeal exemption for            1/1/96....................        20         6         6         6         6         7         7        45        58
 withholding on gambling winnings                                                                                                                       
 from bingo and keno, where                                                                                                                             
 proceeds exceed $5,000.                                                                                                                                
20. Sunset the low-income housing   DOE.......................       -24       -29        64       333       674     1,046     1,431     1,018     3,494
 tax credit after 12/31/97.                                                                                                                             
21. Repeal tax credit for           DOE.......................         1         1         2         2         2         2         2         8        12
 contributions to special                                                                                                                               
 Community Development                                                                                                                                  
 Corporations.                                                                                                                                          
22. Repeal advance refunds of       1/1/96....................         8        19        19        19        19        19        19        84       122
 diesel fuel tax for diesel cars                                                                                                                        
 and light trucks.                                                                                                                                      
23. Apply failure to pay penalty    DOE.......................         1         3        29        30        32        33        35        95       163
 to substitute returns.                                                                                                                                 
24. Repeal section 280A(g)          typa 12/31/95.............        11        22        23        23        24        26        27       103       155
 (clarify that there is no basis                                                                                                                        
 adjustment required if                                                                                                                                 
 depreciation is not claimed).                                                                                                                          
25. Allow conversion of             DOE.......................         3         4         6         8        10        10         9        30        48
 scholarship funding corporation                                                                                                                        
 to taxable corporation.                                                                                                                                
26. Apply look-through rule for     gira 12/31/95.............         7        23        24        27        30        32        34       111       177
 purposes of characterizing                                                                                                                             
 certain subpart F insurance                                                                                                                            
 income as UBIT.                                                                                                                                        
27. Intermediate sanctions for      9/13/95...................         4         4         4         5         5         5         6        22        33
 certain tax-exempt organizations.                                                                                                                      
    Total for Corporate and Other   ..........................     2,864     3,371     3,901     3,989     4,253     4,992     5,929    18,379    29,256
     Reforms.                                                                                                                                           
                                   =====================================================================================================================
         VII. EITC Reforms                                                                                                                              
                                                                                                                                                        
1. Modify AGI for the EITC to                                                                                                                           
 include nontaxable Social                                                                                                                              
 Security benefits and nontaxable                                                                                                                       
 distributions of IRA's, pension,                                                                                                                       
 and annuities:                                                                                                                                         
    a. Revenue....................  tyba 12/31/95.............        10       201       215       219       199       246       268       843     1,357
    b. Outlay reductions..........  tyba 12/31/95.............        57     1,152     1,225     1,284     1,388     1,412     1,415     5,107     7,934
2. Restrict EITC eligibility to                                                                                                                         
 individuals with qualifying                                                                                                                            
 children:                                                                                                                                              
    a. Revenue....................  tyba 12/31/95.............         4        89        93        97       100       107       112       382       601
    b. Outlay reductions..........  tyba 12/31/95.............        27       535       557       583       610       631       658     2,313     3,602
3. Increase the EITC phaseout rate                                                                                                                      
 to 18 percent for individuals                                                                                                                          
 with one qualifying child and 23                                                                                                                       
 percent for individuals with two                                                                                                                       
 or more qualifying children:                                                                                                                           
    a. Revenue....................  tyba 12/31/95.............        30       604       637       667       698       743       783     2,636     4,162
    b. Outlay reductions..........  tyba 12/31/95.............        33       659       692       723       765       805       846     2,874     4,523
4. Require Social Security numbers                                                                                                                      
 for primary and secondary                                                                                                                              
 taxpayers, and treat omission of                                                                                                                       
 a correct Social Security number                                                                                                                       
 and underpayment of SECA as a                                                                                                                          
 math error:                                                                                                                                            
    a. Revenue....................  tyba 12/31/95.............         1        28        29        29        30        30        31       117       178
    b. Outlay reductions..........  tyba 12/31/95.............        10       224       232       236       242       245       251       945     1,441
      Total of EITC Revenue 12....  ..........................        39       781       824       857       895       950     1,071     3,397     5,423
      Total of EITC Outlay 12.....  ..........................       131     2,636     2,779     2,897     3,045     3,159     3,197    11,489    17,845
                                   =====================================================================================================================
VIII. Extension of Debt Ceiling...  ..........................  ........  ........  ........  ........  ........  ........  ........  ........  ........
                                   =====================================================================================================================
IX. Coal Industry Retiree Health    10/1/95...................                                                                                          
 Equity.                                                                                                                                                
(8) Negligible Revenue Effect                                                                                                                           
                                   =====================================================================================================================
 TITLE XIV. TAX SIMPLIFICATION ACT                                                                                                                      
                                                                                                                                                        
   I. Simplification Provisions                                                                                                                         
      Relating to Individuals                                                                                                                           
                                                                                                                                                        
1. Rollover of gain on sale of                                                                                                                          
 principal residence:                                                                                                                                   
    a. Multiple sales within        s/a DOE...................        -1        -2        -2        -2        -2        -2        -3        -9       -14
     rollover period.                                                                                                                                   
    b. Rules in case of divorce...  s/a DOE...................        -2        -2        -2        -2        -3        -3        -3       -11       -17
2. One-time exclusion on the sale   s/a 9/13/95...............       -10       -19       -20       -21       -22       -23       -24       -92      -139
 of a principal residence by an                                                                                                                         
 individual who has attained age                                                                                                                        
 55 (allow additional exclusion                                                                                                                         
 for married couples under certain                                                                                                                      
 conditions where one spouse has                                                                                                                        
 claimed an exclusion prior to                                                                                                                          
 their marriage).                                                                                                                                       
3. Permit payment of taxes by any   DOE+9 months..............                                                                                          
 commercially acceptable means.                                                                                                                         
(8) Negligible Revenue Effect                                                                                                                           
4. Simplified foreign tax credit    tyba 12/31/95.............      (13)        -1        -1        -1        -1        -1        -1        -4        -6
 limitation for individuals.                                                                                                                            
5. Treatment of personal            tyba 12/31/95.............      (13)      (13)      (13)      (13)      (13)      (13)      (13)        -1        -1
 transactions by individuals under                                                                                                                      
 foreign currency rules.                                                                                                                                
6. Treatment of certain reimbursed  tyba 12/31/95.............      (13)        -1        -1        -1        -1        -1        -1        -5        -7
 expenses of rural mail carriers.                                                                                                                       
7. Exclusion of combat pay from     r/a 12/31/95..............                                                                                          
 withholding limited to amount                                                                                                                          
 excludable from gross income.                                                                                                                          
(8) No Revenue Effect                                                                                                                                   
8. Travel expenses of Federal       tyea DOE..................    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)        -1        -1
 employee participating in a                                                                                                                            
 Federal criminal investigation.                                                                                                                        
                                                                                                                                                        
    II. Pension Simplification                                                                                                                          
                                                                                                                                                        
A. Simplified Distribution Rules:                                                                                                                       
    1. Sunset of 5-year income      tyba 12/31/95.............         4        13        23        36        44        46        48       119       213
     averaging for lump-sum                                                                                                                             
     distributions.                                                                                                                                     
    2. Repeal of $5,000 exclusion   tyba 12/31/95.............        16        46        49        52        54        55        55       218       328
     of employees' death benefits.                                                                                                                      
    3. Simplified method for        asda 12/31/95.............    (\11\)         2         4         4         6         6         6        16        28
     taxing annuity distributions                                                                                                                       
     under certain employer plans.                                                                                                                      
    4. Minimum required             yba 12/31/95..............        -1        -4        -4        -4        -4        -4        -4       -17       -25
     distributions.                                                                                                                                     
B. Increased Access to Pension                                                                                                                          
 Plans:                                                                                                                                                 
    1. Modifications of simplified  yba 12/31/95..............       -12       -35       -36       -37       -38       -39       -40      -159      -238
     employee pensions [SEP's].                                                                                                                         
    2. State and local governments  pyba 12/31/96.............  ........       -37       -89       -95       -98      -102      -105      -319      -526
     and tax-exempt organizations                                                                                                                       
     that do not maintain section                                                                                                                       
     457 plans eligible under                                                                                                                           
     section 401(k).                                                                                                                                    
C. Nondiscrimination Provisions:                                                                                                                        
    1. Simplified definition of     yba 12/31/95..............                                                                                          
     highly compensated employees.                                                                                                                      
(8) Considered in Other Provisions                                                                                                                      
    2. Repeal of family             yba 12/31/95..............                                                                                          
     aggregation rules.                                                                                                                                 
(8) Considered in Other Provisions                                                                                                                      
    3. Modification of additional   yba 12/31/95..............                                                                                          
     participation requirements.                                                                                                                        
(8) Negligible Revenue Effect                                                                                                                           
    4. Safe-harbor                  yba 12/31/95..............       -52      -149      -154      -160      -165      -171      -177      -680    -1,028
     nondiscrimination rules for                                                                                                                        
     qualified cash or deferred                                                                                                                         
     arrangements, matching                                                                                                                             
     contributions, and salary                                                                                                                          
     reduction SEP's.                                                                                                                                   
D. Miscellaneous Pension                                                                                                                                
 Simplification:                                                                                                                                        
     1. Treatment of leased         yba 12/31/95..............                                                                                          
     employees.                                                                                                                                         
(8) Negligible Revenue Effect                                                                                                                           
     2. Plans covering self-        yba 12/31/95..............                                                                                          
     employed individuals.                                                                                                                              
(8) Negligible Revenue Effect                                                                                                                           
     3. Elimination of special      pybo/a 1/1/96.............    (\11\)        -1        -1        -1        -1        -1        -1        -4        -6
     vesting rule for                                                                                                                                   
     multiemployer plans.                                                                                                                               
     4. Distributions under rural   da 12/31/95...............                                                                                          
     cooperative plans.                                                                                                                                 
(8) Negligible Revenue Effect                                                                                                                           
     5. Treatment of governmental   tybo/a DOE................                                                                                          
     plans under section 415.                                                                                                                           
(8) Negligible Revenue Effect                                                                                                                           
     6. Uniform retirement age....  yba 12/31/95..............                                                                                          
(8) Considered in Other Provisions                                                                                                                      
     7. Uniform penalty provision   1/1/96....................                                                                                          
     to apply to certain pension                                                                                                                        
     reporting requirements.                                                                                                                            
(8) No Revenue Effect                                                                                                                                   
     8. Contributions on behalf of  yba 12/31/95..............                                                                                          
     disabled employees.                                                                                                                                
(8) Negligible Revenue Effect                                                                                                                           
     9. Treatment of deferred       tyba 12/31/95.............    (\13\)        -1        -1        -1        -1        -2        -2        -4        -8
     compensation plans of State                                                                                                                        
     and local governments and tax-                                                                                                                     
     exempt organizations.                                                                                                                              
    10. Require individual          1/1/96....................        -8       -22       -23       -24       -25       -25       -26      -101      -153
     ownership of section 457 plan                                                                                                                      
     assets.                                                                                                                                            
    11. Correction of GATT          eaii GATT.................        -4        -4        -4        -4  ........  ........  ........       -16       -16
     interest and mortality rate                                                                                                                        
     provisions in the Retirement                                                                                                                       
     Protection Act.                                                                                                                                    
    12. Multiple salary reduction   tyba 12/31/95.............                                                                                          
     agreements permitted under                                                                                                                         
     section 403(b).                                                                                                                                    
(8) Negligible Revenue Effect                                                                                                                           
    13. Repeal of combined plan     lyba 12/31/96.............  ........       -66      -178      -184      -189      -195      -201      -617    -1,012
     limit (section 415(e)).                                                                                                                            
    14. Modify notice required of   pyba 12/31/95.............                                                                                          
     right to qualified joint and                                                                                                                       
     survivor annuity.                                                                                                                                  
(8) Negligible Revenue Effect                                                                                                                           
    15. Date for adoption of plan   DOE.......................                                                                                          
     amendments.                                                                                                                                        
(8) No Revenue Effect                                                                                                                                   
                                                                                                                                                        
  III. Partnership Simplification                                                                                                                       
            Provisions                                                                                                                                  
                                                                                                                                                        
A. General Provisions:                                                                                                                                  
    1. Simplified reporting to      tyba 12/31/95.............         7         8         9         9         9        10        10        42        62
     partners and audit procedures                                                                                                                      
     for large partnerships.                                                                                                                            
    2. Due date for furnishing      tyba 12/31/95.............                                                                                          
     information to partners of                                                                                                                         
     large partnerships.                                                                                                                                
(8) No Revenue Effect                                                                                                                                   
    3. Returns required on          tyba 12/31/95.............                                                                                          
     magnetic media for                                                                                                                                 
     partnerships with 100                                                                                                                              
     partners or more.                                                                                                                                  
(8) Negligible Revenue Effect                                                                                                                           
    4. UBIT reporting exception     tyba 12/31/95.............                                                                                          
     for certain IRA income.                                                                                                                            
(8) No Revenue Effect                                                                                                                                   
B. Other Partnership Audit Rules..  ..........................    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)        -1        -1
                                                                                                                                                        
                                                                                                                                                        
  IV. Foreign Tax Simplification                                                                                                                        
                                                                                                                                                        
A. Modification of Passive Foreign  tyba 12/31/95.............        -7       -18       -20       -21       -22       -24       -25       -88      -137
 Investment Company Provisions to                                                                                                                       
 Eliminate Overlap with Subpart F                                                                                                                       
 and to Allow Mark-to-Market                                                                                                                            
 Election.                                                                                                                                              
B. Modifications to Provisions                                                                                                                          
 Affecting Controlled Foreign                                                                                                                           
 Corporations:                                                                                                                                          
    1. General provisions.........  ..........................        -1        -2        -2        -3        -3        -3        -3       -11       -17
    2. Repeal of excess passive     tyba 9/30/95..............       -17       -26       -29       -35       -41       -45       -51      -148      -244
     assets provision (section                                                                                                                          
     956A).                                                                                                                                             
C. Other Foreign Provisions:                                                                                                                            
    1. Exchange rate used in        ..........................    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)
     translating foreign taxes.                                                                                                                         
    2. Election to use simplified   tyba 12/31/95.............    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)        -1        -1
     foreign tax credit limitation                                                                                                                      
     for alternative minimum tax.                                                                                                                       
    3. Treatment of inbound and     ..........................        -1        -2        -2        -2        -2        -2        -2        -9       -13
     outbound transfers.                                                                                                                                
    4. Application of uniform       tyba 12/31/95.............       -31       -87       -26       -15       -17       -19       -21      -176      -216
     capitalization rules to                                                                                                                            
     foreign persons.                                                                                                                                   
    5. Modification of reporting    reoa 12/31/95.............    (\13\)    (\13\)    (\13\)        -1        -1        -2        -2        -2        -6
     threshold for stock ownership                                                                                                                      
     of a foreign corporation.                                                                                                                          
    6. Prizes and awards received   DOE.......................    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)
     by a nonresident alien                                                                                                                             
     relating to amateur sports                                                                                                                         
     competitions held in the                                                                                                                           
     United States.                                                                                                                                     
    7. Conform estate and income    DOE.......................                                                                                          
     tax treatments of certain                                                                                                                          
     short-term OID obligations                                                                                                                         
     held by a nonresident alien.                                                                                                                       
(8) Negligible Revenue Effect                                                                                                                           
                                                                                                                                                        
V. Other Income Tax Simplification                                                                                                                      
            Provisions                                                                                                                                  
                                                                                                                                                        
A. Subchapter S Corporations:                                                                                                                           
     1. Increase number of          tyba 12/31/95.............        -7       -12       -14       -16       -20       -22       -25       -69      -116
     eligible shareholders.                                                                                                                             
     2. Permit certain trusts to    tyba 12/31/95.............        -1        -2        -2        -2        -2        -2        -2        -9       -13
     hold stock in S corporations.                                                                                                                      
     3. Extend holding period for   tyba 12/31/95.............     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)
     certain trusts.                                                                                                                                    
     4. Financial institutions      tyba 12/31/95.............    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)        -1        -1
     permitted to hold safe-harbor                                                                                                                      
     debt.                                                                                                                                              
     5. Authority to validate       tyba 12/31/82.............    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)        -1        -1
     certain invalid elections.                                                                                                                         
     6. Allow interim closing of    tyba 12/31/95.............                                                                                          
     the books.                                                                                                                                         
(8) Negligible Revenue Effect                                                                                                                           
     7. Expand post-termination     tyba 12/31/95.............    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)        -1        -1
     period and amend subchapter S                                                                                                                      
     audit procedures.                                                                                                                                  
     8. S corporations permitted    tyba 12/31/95.............        -3        -7        -9       -11       -13       -15       -17       -43       -75
     to hold S or C subsidiaries.                                                                                                                       
     9. Treatment of distributions  tyba 12/31/95.............    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)    (\13\)        -1        -1
     during loss years.                                                                                                                                 
    10. Treatment of S              tyba 12/31/95.............     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)
     corporations as shareholders                                                                                                                       
     in C corporations.                                                                                                                                 
    11. Elimination of certain      tyba 12/31/95.............     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)
     earnings and profits of S                                                                                                                          
     corporations.                                                                                                                                      
    12. Treatment of certain        tyba 12/31/95.............     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)
     losses carried over under at-                                                                                                                      
     risk rules.                                                                                                                                        
    13. Adjustments to basis of     dda DOE...................     (\6\)     (\6\)     (\6\)     (\6\)     (\6\)     (\6\)     (\6\)     (\6\)     (\6\)
     inherited S stock.                                                                                                                                 
    14. Treatment of certain real   tyba 12/31/95.............    (\13\)        -1        -1        -2        -2        -2        -2        -6       -10
     estate held by an S                                                                                                                                
     corporation.                                                                                                                                       
    15. Transition rule for         tyba 12/31/95.............     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)
     elections after terminaiton.                                                                                                                       
    16. Interaction of subchapter     ........................        -3       -10       -26       -32       -37       -38       -39      -108      -185
     S changes.                                                                                                                                         
B. Regulated Investment Companies                                                                                                                       
 [RIC's] and Real Estate                                                                                                                                
 Investment Trusts [REIT's]:                                                                                                                            
     1. Repeal of 30% gross income  tyba DOE..................        -9       -17       -20       -24       -28       -32       -35       -98      -164
     limitation for RIC's.                                                                                                                              
     2. Modification of rules for                                                                                                                       
     real estate investment trusts                                                                                                                      
     [REIT's]:                                                                                                                                          
         a. Repeal 30% gross        tyba DOE..................        -4        -6        -7        -8        -9       -10       -11       -34       -55
         income test.                                                                                                                                   
         b. Intermediate sanctions  tyba DOE..................    (\14\)    (\14\)    (\14\)    (\14\)    (\14\)    (\14\)    (\14\)    (\15\)    (\15\)
         c. Phantom income          tyba DOE..................    (\14\)    (\14\)    (\14\)    (\14\)    (\14\)    (\14\)    (\14\)    (\15\)    (\15\)
         exclusion from 95%                                                                                                                             
         distribution rule.                                                                                                                             
         d. Other provisions......  tyba DOE..................                                                                                          
(8) Negligible Revenue Effect                                                                                                                           
C. Accounting Provisions:                                                                                                                               
    1. Modifications to look-back   cc/tyea/E.................        -2        -3        -3        -3        -4        -4        -4       -15       -23
     method for long-term                                                                                                                               
     contracts.                                                                                                                                         
    2. Allow traders to adopt mark- DOE.......................                                                                                          
     to-market accounting for                                                                                                                           
     securities.                                                                                                                                        
(8) Negligible Revenue Effect                                                                                                                           
    3. Modification of Treasury     tyba DOE..................        -4        -4        -5        -5        -5        -5        -5       -23       -33
     ruling requirement for                                                                                                                             
     nuclear decommissioning funds.                                                                                                                     
    4. Fiscal year election for     tyba 12/31/96.............  ........      -100      -200       -25       -10       -10       -10      -335      -355
     partnerships and S                                                                                                                                 
     corporations.                                                                                                                                      
    5. Provide that a taxpayer may  pra 12/31/95..............         7        -1        -1        -1        -1        -1        -1         3         1
     elect to include in income                                                                                                                         
     crop insurance proceeds and                                                                                                                        
     disaster payments in the year                                                                                                                      
     of the disaster or in the                                                                                                                          
     following year.                                                                                                                                    
D. Tax-Exempt Bond Provisions:                                                                                                                          
    1. Repeal of $100,000           bia DOE...................        -2        -3        -4        -4        -5        -8       -10       -18       -36
     limitation on unspent                                                                                                                              
     proceeds under 1-year                                                                                                                              
     exception from rebate.                                                                                                                             
    2. Exception from rebate for    bia DOE...................        -1        -2        -2        -3        -3        -4        -8       -11       -23
     earnings on bona fide debt                                                                                                                         
     service fund under                                                                                                                                 
     construction bond rules.                                                                                                                           
    3. Repeal of debt service-      bia DOE...................                                                                                          
     based limitation on                                                                                                                                
     investment in certain                                                                                                                              
     nonpurpose investments.                                                                                                                            
(8) Negligible Revenue Effect                                                                                                                           
    4. Repeal of expired            DOE.......................                                                                                          
     provisions affecting student                                                                                                                       
     loan bonds.                                                                                                                                        
(8) No Revenue Effect                                                                                                                                   
E. Insurance Provisions:                                                                                                                                
    1. Treatment of certain         tyba 12/31/95.............         6        -4         5         4         4        12        -7        16        21
     insurance contracts on                                                                                                                             
     retired lives.                                                                                                                                     
    2. Treatment of modified        tyba 12/31/95.............        -1         2         4         1         2         1        -1         8         8
     guaranteed contracts.                                                                                                                              
    3. Treatment of certain small   tyba 12/31/95.............        -1        -2        -2        -2        -3        -3        -3       -11       -16
     property and casualty                                                                                                                              
     insurance companies under the                                                                                                                      
     alternative minimum tax.                                                                                                                           
F. Other Provisions:                                                                                                                                    
    1. Closing of partnership       tyba 12/31/95.............      (13)      (13)      (13)      (13)      (13)      (13)      (13)        -1        -1
     taxable year with respect to                                                                                                                       
     deceased partner.                                                                                                                                  
    2. Modifications to the FICA    eaii OBRA.................                                                                                          
     tip credit.                                                                                                                                        
(8) Negligible Revenue Effect                                                                                                                           
     3. Conform due date for first  1/1/96....................                                                                                          
     quarter estimated tax by                                                                                                                           
     private foundations.                                                                                                                               
(8) Negligible Revenue Effect                                                                                                                           
     4. Treatment of dues paid to   1/1/96....................                                                                                          
     agricultural or horticultural                                                                                                                      
     organizations.                                                                                                                                     
(8) Negligible Revenue Effect                                                                                                                           
                                                                                                                                                        
  VI. Estate, Gift, and Trust Tax                                                                                                                       
            Provisions                                                                                                                                  
                                                                                                                                                        
A. Estate and Trust Income Tax                                                                                                                          
 Provisions:                                                                                                                                            
     1. Certain revocable trusts    DOE.......................     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)     (\5\)    (\16\)    (\16\)
     treated as part of estate.                                                                                                                         
     2. Distributions during the    DOE.......................                                                                                          
     first 65 days of taxable year                                                                                                                      
     of estate.                                                                                                                                         
(8) Negligible Revenue Effect                                                                                                                           
     3. Separate share rules        DOE.......................                                                                                          
     available to estates.                                                                                                                              
(8) Negligible Revenue Effect                                                                                                                           
     4. Executor of estate and      DOE.......................                                                                                          
     beneficiaries treated as                                                                                                                           
     related persons for                                                                                                                                
     disallowance of losses.                                                                                                                            
(8) Negligible Revenue Effect                                                                                                                           
     5. Limitation on taxable year  DOE.......................                                                                                          
     of estates.                                                                                                                                        
(8) Negligible Revenue Effect                                                                                                                           
     6. Repeal of throwback rules   DOE.......................        -8        -9       -10       -10       -10       -10       -10       -47       -67
     applicable to domestic trusts.                                                                                                                     
     7. Simplified taxation of      DOE.......................    (\11\)    (\11\)    (\11\)    (\11\)    (\11\)    (\11\)    (\11\)     (\7\)     (\7\)
     earnings of pre-need funeral                                                                                                                       
     trusts.                                                                                                                                            
B. Estate and Gift Tax Provisions:                                                                                                                      
     1. Clarification of waiver of  DOE.......................                                                                                          
     certain rights of recovery.                                                                                                                        
(8) Negligible Revenue Effect                                                                                                                           
     2. Adjustments for gifts       DOE.......................  ........        -6        -6        -7        -7        -7        -7       -26       -40
     within 3 years of decedent's                                                                                                                       
     death.                                                                                                                                             
     3. Clarification of qualified  DOE.......................                                                                                          
     terminable interest rules.                                                                                                                         
(8) Negligible Revenue Effect                                                                                                                           
     4. Transitional rule under     DOE.......................                                                                                          
     section 2056A.                                                                                                                                     
(8) Negligible Revenue Effect                                                                                                                           
     5. Opportunity to correct      DOE.......................                                                                                          
     certain failures under                                                                                                                             
     section 2032A.                                                                                                                                     
(8) Negligible Revenue Effect                                                                                                                           
     6. Unified credit of decedent  DOE.......................  ........        -9        -9       -10       -10       -11       -11       -38       -60
     increased by unified credit                                                                                                                        
     of spouse used on split gift                                                                                                                       
     included in decedent's gross                                                                                                                       
     estate.                                                                                                                                            
     7. Reformation of defective    DOE.......................  ........       -11       -11       -12       -13       -13       -14       -47       -74
     bequests to spouse of                                                                                                                              
     decedent.                                                                                                                                          
     8. Gifts may not be revalued   ga DOE....................                 -15       -16       -16       -18       -21       -26       -65      -112
     for estate tax purposes after                                                                                                                      
     expiration of statute of                                                                                                                           
     limitations.                                                                                                                                       
     9. Clarifications relating to  DOE.......................                  -2        -2        -2        -2        -3        -3        -8       -14
     disclaimers.                                                                                                                                       
    10. Clarify relationship        DOE.......................                  -3        -4        -4        -4        -4        -4       -15       -23
     between community property                                                                                                                         
     rights and retirement                                                                                                                              
     benefits.                                                                                                                                          
    11. Treatment under qualified   DOE.......................                                                                                          
     domestic trust rules of forms                                                                                                                      
     of ownership which are not                                                                                                                         
     trusts.                                                                                                                                            
(8) Negligible Revenue Effect                                                                                                                           
    12. Authority to waive          DOE.......................                                                                                          
     requirement of U.S. trustee                                                                                                                        
     for qualified domestic trusts.                                                                                                                     
(8) No Revenue Effect                                                                                                                                   
C. Generation-Skipping Tax                                                                                                                              
 Provisions:                                                                                                                                            
     1. Severing of trusts holding  DOE.......................                  -5        -6        -6        -6        -6        -7       -23       -36
     property having an inclusion                                                                                                                       
     ratio of greater than zero.                                                                                                                        
     2. Clarification of who is     DOE.......................                                                                                          
     transferor where subsequent                                                                                                                        
     gift by reason of power of                                                                                                                         
     appointment.                                                                                                                                       
(8) Negligible Revenue Effect                                                                                                                           
     3. Taxable termination not to  DOE.......................                                                                                          
     include direct skips.                                                                                                                              
(8) Negligible Revenue Effect                                                                                                                           
     4. Modification of generation- DOE.......................        -3        -4        -4        -4        -4        -4        -4       -19       -27
     skipping transfer tax for                                                                                                                          
     transfer to individuals with                                                                                                                       
     deceased parents.                                                                                                                                  
                                                                                                                                                        
  VII. Excise Tax Simplification                                                                                                                        
                                                                                                                                                        
A. Distilled Spirits, Wines, and                                                                                                                        
 Beer:                                                                                                                                                  
     1. Credit or refund for        fcq DOE+180 days..........                                                                                          
     imported bottled distilled                                                                                                                         
     spirits returned to bonded                                                                                                                         
     premises.                                                                                                                                          
(8) Negligible Revenue Effect                                                                                                                           
     2. Authority to cancel or      fcq DOE+180 days..........                                                                                          
     credit export bonds without                                                                                                                        
     submission of records.                                                                                                                             
(8) No Revenue Effect                                                                                                                                   
     3. Repeal of required          fcq DOE+180 days..........                                                                                          
     maintenance of records on                                                                                                                          
     premises of distilled spirits                                                                                                                      
     plant.                                                                                                                                             
(8) No Revenue Effect                                                                                                                                   
     4. Fermented material from     fcq DOE+180 days..........                                                                                          
     any brewery may be received                                                                                                                        
     at a distilled spirits plant.                                                                                                                      
(8) Negligible Revenue Effect                                                                                                                           
     5. Repeal of requirement for   DOE.......................                                                                                          
     wholesale dealers in liquors                                                                                                                       
     to post sign.                                                                                                                                      
(8) No Revenue Effect                                                                                                                                   
     6. Refund of tax on wine       fcq DOE+180 days..........                                                                                          
     returned to bond not limited                                                                                                                       
     to unmerchantable wine.                                                                                                                            
(8) Negligible Revenue Effect                                                                                                                           
     7. Use of additional           fcq DOE+180 days..........                                                                                          
     ameliorating material in                                                                                                                           
     certain wines.                                                                                                                                     
(8) No Revenue Effect                                                                                                                                   
     8. Domestically produced beer  fcq DOE+180 days..........                                                                                          
     may be withdrawn free of tax                                                                                                                       
     for use of foreign embassies,                                                                                                                      
     legations, etc.                                                                                                                                    
(8) Negligible Revenue Effect                                                                                                                           
     9. Beer may be withdrawn free  fcq DOE+180 days..........                                                                                          
     of tax for destruction.                                                                                                                            
(8) Negligible Revenue Effect                                                                                                                           
    10. Authority to allow          fcq DOE+180 days..........                                                                                          
     drawback on exported beer                                                                                                                          
     without submission of records.                                                                                                                     
(8) No Revenue Effect                                                                                                                                   
    11. Transfer to brewery of      fcq DOE+180 days..........                                                                                          
     beer imported in bulk without                                                                                                                      
     payment of tax.                                                                                                                                    
(8) Negligible Revenue Effect                                                                                                                           
B. Consolidate Imposition of        1/1/96....................    (\11\)  ........  ........  ........  ........  ........  ........    (\11\)    (\11\)
 Aviation Gasoline Excise Tax.                                                                                                                          
C. Other Excise Tax Provisions:                                                                                                                         
     1. Authority for IRS to grant  fcq DOE+180 days..........                                                                                          
     exemptions from registration                                                                                                                       
     requirements.                                                                                                                                      
(8) No Revenue Effect                                                                                                                                   
     2. Clarify present law for     DOE.......................                                                                                          
     retail truck excise tax                                                                                                                            
     (certain activities do not                                                                                                                         
     constitute remanufacture).                                                                                                                         
(8) Negligible Revenue Effect                                                                                                                           
     3. Exempt Alaska from diesel   DOE.......................        -1    (\13\)  ........  ........  ........  ........  ........        -1        -1
     dyeing requirement during                                                                                                                          
     period that the State is                                                                                                                           
     exempt from Clean Air Act                                                                                                                          
     dyeing requirement.                                                                                                                                
     4. Repeal of temporary         DOE.......................                                                                                          
     reduction in tax on piggyback                                                                                                                      
     trailers as ``deadwood''.                                                                                                                          
(8) No Revenue Effect                                                                                                                                   
     5. Delete deep seabed hard     DOE.......................                                                                                          
     minerals excise tax as                                                                                                                             
     ``deadwood''.                                                                                                                                      
(8) No Revenue Effect                                                                                                                                   
                                                                                                                                                        
       VIII. Administrative                                                                                                                             
     Simplification Provisions                                                                                                                          
                                                                                                                                                        
A. General Provisions:                                                                                                                                  
     1. Repeal of authority to      DOE.......................                                                                                          
     disclose whether prospective                                                                                                                       
     juror has been audited.                                                                                                                            
(8) No Revenue Effect                                                                                                                                   
     2. Clarification of statute    tyba DOE..................                                                                                          
     of limitations for items from                                                                                                                      
     pass-through entities.                                                                                                                             
(8) No Revenue Effect                                                                                                                                   
     3. Certain notices             1/1/96....................      (13)      (13)      (13)      (13)      (13)      (13)      (13)        -1        -1
     disregarded under provision                                                                                                                        
     increasing interest rate on                                                                                                                        
     large corporate underpayments.                                                                                                                     
     4. Withholding of Puerto Rico  tyba 1995.................                                                                                          
     income taxes from the                                                                                                                              
     salaries of employees of the                                                                                                                       
     United States.                                                                                                                                     
(8) No Revenue Effect                                                                                                                                   
B. Tax Court Procedures:                                                                                                                                
     1. Overpayment determinations  DOE.......................                                                                                          
     of Tax Court.                                                                                                                                      
(8) No Revenue Effect                                                                                                                                   
     2. Awarding of administrative  DOE.......................                                                                                          
     costs and attorneys fees.                                                                                                                          
(8) No Revenue Effect                                                                                                                                   
     3. Redetermination of          DOE.......................                                                                                          
     interest pursuant to motion.                                                                                                                       
(8) No Revenue Effect                                                                                                                                   
     4. Application of net worth    DOE.......................                                                                                          
     requirement for awards of                                                                                                                          
     litigation costs.                                                                                                                                  
(8) No Revenue Effect                                                                                                                                   
C. Authority for Certain                                                                                                                                
 Cooperative Agreements:                                                                                                                                
     1. Cooperative agreements      DOE.......................                                                                                          
     with State tax authorities.                                                                                                                        
(8) No Revenue Effect                                                                                                                                   
                                   ---------------------------------------------------------------------------------------------------------------------
      Total of Tax Simplification   ..........................      -157      -646      -865      -717      -733      -769      -839    -3,129    -4,735
       Act (Title XIV).                                                                                                                                 
                                   =====================================================================================================================
      Grand total of revenue        ..........................       171       582     1,996     3,140     3,700     4,631     5,749     9,579    19,922
       effects (Titles XIII and                                                                                                                         
       XIV).                                                                                                                                            
                                   ---------------------------------------------------------------------------------------------------------------------
      Grand total of outlay         ..........................       131     2,636     2,779     2,904     3,062     3,186     3,234    11,513    17,933
       effects (Titles XIII and                                                                                                                         
       XIV).                                                                                                                                            
--------------------------------------------------------------------------------------------------------------------------------------------------------
Joint Committee on Taxation.                                                                                                                            
NOTES: Details may not add to totals due to rounding. For revenue estimation purposes, the date of enactment of this bill is assumed to be October 1,   
  1995.                                                                                                                                                 
Legend and Footnotes:                                                                                                                                   
Legend for ``Effective'' column:                                                                                                                        
    s/a=sales after;                                                                                                                                    
    sea=sales and exchanges after;                                                                                                                      
    DOE=date of enactment;                                                                                                                              
    tyba=taxable years beginning after;                                                                                                                 
    r/a=remuneration after;                                                                                                                             
    asda=annuity starting date after;                                                                                                                   
    yba=years beginning after;                                                                                                                          
    pyba=plan years beginning after;                                                                                                                    
    fcq DOE+180 days=beginning of first calendar quarter that starts at least 180 days after date of enactment;                                         
    ppisa DOE=property placed in service after date of enactment;                                                                                       
    cc/tyea/E=contracts completed in taxable years ending after date of enactment;                                                                      
    gira=gross income received after;                                                                                                                   
    eaii GATT=effective as if included in GATT;                                                                                                         
    tyea=taxable years ending after;                                                                                                                    
    reoa=reportable events that occur after;                                                                                                            
    pybo/a=plan years beginning on or after;                                                                                                            
    lyba=limitation years beginning after;                                                                                                              
    da=distributions after;                                                                                                                             
    tybo/a=taxable years beginning on or after;                                                                                                         
    bia=bonds issued after;                                                                                                                             
    pra=payments received after;                                                                                                                        
    ama=awards made after;                                                                                                                              
    6ma DOE=6 months after date of enactment;                                                                                                           
    tyea DOE=taxable years ending after date of enactment;                                                                                              
    ga DOE=gifts after date of enactment;                                                                                                               
    dda DOE+decedents dying after date of enactment;                                                                                                    
    ara=amounts received after;                                                                                                                         
    ipoaa=interest paid or accrued after;                                                                                                               
    ica=involuntary conversion after;                                                                                                                   
    atsotppa DOE=any tax shelter offered to potential participants after date of enactment;                                                             
    eaii OBRA=effective as if included in the Omnibus Budget Reconciliation Act of 1993.                                                                
\1\ Credit rate at 35% on first $6,000 of income and AFDC included.                                                                                     
\2\ Estimates provided by the Congressional Budget Office [CBO].                                                                                        
\3\ Section 257(b)(2)(c) of the Balanced Budget and Emergency Deficit Control Act of 1985, as amended by the Budget Enforcement Act of 1990, indicates  
  that ``excise taxes dedicated to a trust fund, if expiring, are assumed to be extended at current rates''. Since the revenues from these taxes are    
  dedicated to the Airport and Airway Trust Fund, an extension of the taxes is scored as having no revenue effect.                                      
\4\ Loss of less than $1 million.                                                                                                                       
\5\ Loss of less than $5 million.                                                                                                                       
\6\ Gain of less than $1 million.                                                                                                                       
\7\ Gain of less than $5 million.                                                                                                                       
\8\ Gain of less than $25 million.                                                                                                                      
\9\ No new suspense accounts could be established in taxable years ending after 9/13/95. The income in existing suspense accounts would be recognized in
  equal installments over a 20-year period beginning with the first taxable year beginning after 9/13/95.                                               
\10\ Loss of less than $50 million.                                                                                                                     
\11\ Gain of less than $500,000.                                                                                                                        
\12\ Due to interaction between the provisions, items do not sum to total package.                                                                      
\13\ Loss of less than $500,000.                                                                                                                        
\14\ Gain of less than $50,000.                                                                                                                         
\15\ Gain of less than $250,000.                                                                                                                        
\16\ Loss of less than $25 million.                                                                                                                     

    B. Statement Regarding New Budget Authority and Tax Expenditures

Budget authority

    In compliance with subdivision (B) of clause 2(l)(3) of 
Rule XI of the Rules of the House of Representatives, the 
committee states that titles XIII and XIV involve no new or 
increased budget authority. The amounts shown in the revenue 
table above relating to information sharing and EITC reforms 
(outlay reduction amounts) involve reductions in budget 
authority.

Tax expenditures

    In compliance with subdivision (B) of clause 2(l)(3) of 
Rule XI of the Rules of the House of Representatives, the 
committee states that the provisions shown in the revenue table 
above relating to income tax revenue increases generally 
involve reductions in tax expenditures and that the provisions 
relating to income tax revenue reductions generally involve 
increases in tax expenditures. The title XIII provision 
establishing medical savings accounts involves new tax 
expenditure amounts.

          C. Cost Estimate of the Congressional Budget Office

    In compliance with subdivision (c) of clause 2(l)(3) of 
Rule XI of the Rules of the House of Representatives requiring 
a cost estimate prepared by the Congressional Budget Office, 
the committee advises that the Congressional Budget Office 
submitted the following statement with respect to titles XIII 
and XIV.

                                     U.S. Congress,
                               Congressional Budget Office,
                                   Washington, DC, October 3, 1995.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed Title XIII, the Revenue Reconciliation Act of 1995, 
and Title XIV, the Tax Simplification Act of 1995, as 
transmitted from the House Committee on Ways and Means to the 
Committee on the Budget on September 22, 1995. The Joint 
Committee on Taxation [JCT] provided estimates for most of the 
revenue provisions, and CBO concurs with their estimates. CBO 
estimates that title XIII and title XIV would decrease the 
deficit by $0.3 billion in fiscal year 1996 and by $37.9 
billion over fiscal years 1996 through 2002. This estimate, 
which reflects JCT's final estimate of the corporate pension 
reversion provision, supersedes CBO's estimate of September 22, 
1995.
    Title XIII extends expiring tax provisions, establishes 
medical savings accounts, provides a second taxpayer bill of 
rights, increases the taxes of corporations and other 
businesses, reduces the cost of the earned income tax credit, 
and makes technical corrections. In addition, it extends the 
Department of Veterans Affairs' access to Internal Revenue 
Service data through fiscal year 2002. CBO estimates that this 
provision would reduce outlays on veterans programs by $0.140 
billion in fiscal years 1999 through 2002. Finally, title XIII 
increases the public debt limit to $5.5 trillion. Title XIV 
includes provisions for tax simplification. The budget effects 
of title XIII and title XIV are shown in the enclosed tables.
    CBO understands that the Committee on the Budget will be 
responsible for interpreting how these proposals compare with 
the reconciliation instructions in the budget resolution.
    If you wish further details, please feel free to contact me 
or your staff may wish to contact Stephanie Weiner.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).

                               BUDGET EFFECTS OF TITLES XIII AND XIV, BY SUBTITLE                               
                                    [By fiscal year, in billions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                              1996      1997      1998      1999      2000      2001      2002  
----------------------------------------------------------------------------------------------------------------
                                                                                                                
                                                   TITLE XIII                                                   
                                                                                                                
Subtitle A: Expiring Provisions--Revenue                                                                        
 Effects:                                                                                                       
    On-Budget.............................    -2.213    -2.473    -1.434    -0.621    -0.382    -0.191    -0.045
    Off-Budget \1\........................    -0.233    -0.159    -0.098     0.000     0.000     0.000     0.000
Subtitle B: Medical Savings Accounts--                                                                          
 Revenue Effects..........................    -0.117    -0.197    -0.233    -0.268    -0.306    -0.321    -0.337
Subtitle C: Taxpayer Bill of Rights No. 2--                                                                     
 Revenue Effects..........................    -0.012    -0.095    -0.099    -0.100    -0.027    -0.030    -0.030
Subtitle D: Additional Technical                                                                                
 Corrections--Revenue Effects.............     0.000     0.000     0.000     0.000     0.000     0.000     0.000
Subtitle E: Information Sharing Provision--                                                                     
 Outlay Effects...........................     0.000     0.000     0.000    -0.014    -0.028    -0.042    -0.056
Subtitle F: Corporate and Other Reforms--                                                                       
 Revenue Effects \2\......................     2.864     3.371     3.901     3.989     4.253     4.974     5.911
Subtitle G: EITC Reform:                                                                                        
    Revenue Effects.......................     0.039     0.781     0.824     0.857     0.895     0.950     1.071
    Outlay Effects........................    -0.131    -2.636    -2.779    -2.897    -3.045    -3.159    -3.197
Subtitle H: Extension of Debt Ceiling:                                                                          
    Revenue Effects.......................     0.000     0.000     0.000     0.000     0.000     0.000     0.000
    Outlay Effects........................     0.000     0.000     0.000     0.000     0.000     0.000     0.000
Subtitle I: Coal Industry Retiree Health                                                                        
 Equity--Revenue Effects..................     0.000     0.000     0.000     0.000     0.000     0.000     0.000
                                                                                                                
                                                    TITLE XIV                                                   
                                                                                                                
Tax Simplification--Revenue Effects.......    -0.157    -0.646    -0.865    -0.717    -0.733    -0.769    -0.839
----------------------------------------------------------------------------------------------------------------
\1\ Extending the exclusion for employer-provided educational assistance would reduce Social Security revenues, 
  which are off-budget.                                                                                         
\2\ One provision, to modify the tax benefits available to certain alcohol fuels, might also affect outlays.    
  Because it depends on other action taken during reconciliation regarding farm programs, the effect cannot be  
  estimated at this time.                                                                                       


                                      BUDGET EFFECTS OF TITLES XIII AND XIV                                     
                                    [By fiscal year, in billions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                        1996       1997       1998       1999       2000       2001       2002  
----------------------------------------------------------------------------------------------------------------
                                                                                                                
                                                    REVENUES                                                    
                                                                                                                
Projected Revenues Under Current                                                                                
 Law \1\...........................  1,417.619  1,475.210  1,546.076  1,617.969  1,697.155  1,786.321  1,879.300
Proposed Changes:                                                                                               
    On Budget......................      0.404      0.741      2.094      3.140      3.700      4.613      5.731
    Off Budget.....................     -0.233     -0.159     -0.098      0.000      0.000      0.000      0.000
                                    ----------------------------------------------------------------------------
Projected Revenues Under Titles                                                                                 
 XIII and XIV......................  1,417.790  1,475.792  1,548.072  1,621.109  1,700.855  1,790.934  1,885.031
                                    ============================================================================
                                                                                                                
                                                     OUTLAYS                                                    
                                                                                                                
Projected EITC Outlays: \1\                                                                                     
    Under Current Law..............     20.374     22.551     23.483     24.512     25.553     26.499     27.517
    Proposed Changes...............     -0.131     -2.636     -2.779     -2.897     -3.045     -3.159     -3.197
                                    ----------------------------------------------------------------------------
Projected EITC Outlays Under Title                                                                              
 XIII..............................     20.243     19.915     20.704     21.615     22.508     23.340     24.320
                                    ============================================================================
Projected Veterans Pension Outlays:                                                                             
    Under Current Law..............      2.599      2.714      2.604      2.776      3.013      2.569      2.789
    Proposed Changes...............      0.000      0.000      0.000     -0.010     -0.020     -0.030     -0.040
                                    ----------------------------------------------------------------------------
Projected Veterans Pension Outlays                                                                              
 Under Title XIII..................      2.599      2.714      2.604      2.766      2.993      2.539      2.749
                                    ============================================================================
Projected Medical Care Cost                                                                                     
 Recovery:                                                                                                      
    Under Current Law..............     -0.641     -0.731     -0.758     -0.577     -0.608     -0.641     -0.676
    Proposed Changes...............      0.000      0.000      0.000     -0.004     -0.008     -0.012     -0.016
                                    ----------------------------------------------------------------------------
Projected Medical Care Cost                                                                                     
 Recovery Under Title XIII.........     -0.641     -0.731     -0.758     -0.581     -0.616     -0.653     -0.692
----------------------------------------------------------------------------------------------------------------
\1\ Includes the effects of Public Law 104-7 (H.R. 831).                                                        

           V. Other Matters to be Discussed Under House Rules

          A. Committee Oversight Findings and Recommendations

    With respect to subdivision (A) of clause 2(l)(3) of Rule 
XI of the Rules of the House of Representatives (relating to 
oversight findings), the Committee on Ways and Means advises 
that it was as a result of the committee's oversight activities 
concerning expiring tax provisions, health care expenses, 
taxpayer rights, technical corrections, tax information 
sharing, corporate and other tax reforms, reform of the earned 
income tax credit program, the public debt limit, the coal 
industry retiree health benefit program, and tax simplification 
that the Committee on Ways and Means concluded it is 
appropriate to enact the provisions contained in titles XIII 
and XIV. (See also the Legislative History portion of the 
committee's report for background on the legislative hearings 
held on provisions contained in titles XIII and XIV.)

 B. Findings and Recommendations of the Committee on Government Reform 
                             and Oversight

    With respect to subdivision (D) of clause 2(l)(3) of Rule 
XI of the Rules of the House of Representatives, the Committee 
on Ways and Means advises that no oversight findings or 
recommendations have been submitted to the committee by the 
Committee on Government Reform and Oversight with respect to 
the provisions contained in titles XIII and XIV.

                    C. Inflationary Impact Statement

    In compliance with clause 2(l)(4) of Rule XI of the Rules 
of the House of Representatives, the committee makes the 
following statement concerning the possible inflationary impact 
of titles XIII and XIV.
    The provisions of titles XIII and XIV are projected to 
reduce the net Federal deficit, and will not have any overall 
inflationary impact on prices in the operation of the nation's 
economy.

                 D. Applicability of House Rule XXI5(c)

    Rule XXI5(c) of the Rules of the House of Representatives 
provides that ``No bill or joint resolution, amendment, or 
conference report carrying a Federal income tax rate increase 
shall be considered as passed or agreed to unless so determined 
by a vote of not less than three-fifths of the Members 
voting.'' The committee has carefully reviewed the provisions 
of titles XIII and XIV of the revenue reconciliation provisions 
approved by the committee to determine whether any of these 
provisions constitute a Federal income tax rate increase within 
the meaning of the House Rules. It is the opinion of the 
committee that there is no provision of titles XIII and XIV of 
the revenue reconciliation provisions that constitutes a 
Federal income tax rate increase within the meaning of House 
Rule XXI5(c) or (d).
           TITLE XVI--TRANSFORMATION OF THE MEDICAID PROGRAM

                          House of Representatives,
                                     Committee on Commerce,
                                   Washington, DC, October 9, 1995.
Hon. John R. Kasich,
Chairman, Committee on the Budget,
Washington, DC.
    Dear Mr. Chairman: I am transmitting herewith the 
recommendations of the Committee on Commerce for changes in 
laws within its jurisdiction with respect to the Medicaid 
Program pursuant to the provisions of section 310 of the 
Congressional Budget Act of 1974 and section 105(a)(2)(B)(iii) 
of House Concurrent Resolution 67, the Concurrent Resolution on 
the Budget--Fiscal Years 1996-2002. The committee's 
recommendations for Medicare will be transmitted to you 
separately.
    The enclosed recommendations were embodied in a committee 
print adopted by the committee on September 22, 1995. Pursuant 
to your instructions, the legislative language of this 
committee print has been incorporated into title XVI. The 
enclosed recommendations will meet to exceed the budget targets 
for the committee with respect to the Medicaid Program.
    Also enclosed is the accompanying report language for title 
XVI, the Congressional Budget Office cost estimate, and a 
Ramseyer submission.
    If you have any questions concerning the committee's 
recommendations, or if I can be of any further assistance to 
you as you proceed with your committee's deliberations, please 
do not hesitate to contact me.
            Sincerely,
                                     Thomas J. Bliley, Jr.,
                                                          Chairman.
  
                           table of contents
                                                                   Page
Transmittal letter...............................................   603
Purpose and summary..............................................   604
Background and need for legislation..............................   604
Hearings.........................................................   616
Committee consideration..........................................   618
Committee votes..................................................   618
Section-by-section analysis and discussion.......................   631
Technical appendix...............................................   655
Appendices.......................................................   662
Changes in existing law made by the bill, as reported............   664
Congressional Budget Office estimate.............................   735
Committee oversight findings.....................................   741
Committee on Government Reform and Oversight.....................   741
Committee cost estimate..........................................   741
Inflationary impact statement....................................   741

                           Purpose and Summary

    The purpose of the Committee Print on the Transformation of 
the Medicaid Program, as amended, is to repeal title XIX and 
establish title XXI of the Social Security Act to provide block 
grants to the States to enable them to provide medical 
assistance to low-income individuals and families in a more 
effective, efficient, and responsive manner. The committee 
print also establishes a formula by which funds are allocated 
among the States.

                  Background and Need for Legislation

    Established by President Lyndon Johnson in 1965, Medicaid 
is a joint Federal-State matching open-ended entitlement 
program that pays for medically necessary health care services 
provided to eligible beneficiaries by qualified providers. 
There are Medicaid programs in all States except Arizona, which 
runs a similar medical assistance program under a Federal 
waiver. (Federal funds for the Arizona program come from the 
Medicaid budget.) In addition, the Medicaid program is operated 
in the District of Columbia and United States territories, such 
as Puerto Rico and Guam.
    According to the Congressional Budget Office [CBO], the 
Medicaid Program will cost $156.5 billion in fiscal year 1995. 
Of this amount, the Federal Government will be responsible for 
an estimated $89.2 billion. This expenditure represents a 
11,050 percent increase over the program's initial cost to the 
Federal Government of $800 million in fiscal year 1966. Since 
1990, Medicaid has been the fastest-growing segment of the 
Federal Government's budget, with costs soaring at annual rates 
as high as 31 percent. Placed in broader context, the Medicaid 
Program's average annual rate of growth since 1990 has been 4 
times that of private sector health care costs, which are 
rising at roughly 4-5 percent annually. Although CBO projects 
Medicaid spending will rise at a comparatively stable rate of 
10 percent per year, at that rate total program costs will 
double by the year 2002 absent reform. As detailed in the 
section entitled ``Program Growth versus Program Cuts'' below, 
the MediGrant plan replaces the Medicaid Program's 
unsustainable cost spiral with considerable and consistent 
funding to the States.
    Medicaid's extraordinary rate of growth has made it the 
single largest item in many State budgets. According to the 
testimony of Governors and Medicaid officials appearing before 
the Committee on Commerce, States have been compelled by the 
program's cost to restrict investment in other critical human 
services, including child welfare, education, mental health, 
and public safety. As described in the ``Fiscal Impact of 
Medicaid Growth on the Federal and State Budgets'' section 
below, the program's cost has been frequently underestimated 
and continues to threaten the budgetary stability of virtually 
every State.
    Medicaid was also intended to operate as a joint Federal-
State matching entitlement program providing medical assistance 
for low-income persons who are aged, blind, disabled, members 
of families with dependent children, and certain other pregnant 
women and children. Accordingly, States were permitted to 
design and administer their own programs, subject to specified 
Federal guidelines. In reality, however, the current Medicaid 
Program hardly resembles that which was originally intended. 
Instead of allowing State and local officials the flexibility 
to best administer Medicaid, the Federal Government created an 
extensive ``one-size-fits-all'' maze of Federal mandates and 
administrative requirements. The nature of this centralized 
approach to program administration is described in the 
``Medicaid Micromanagement'' section below.
    Finally, the operational and administrative inflexibility 
of the current Medicaid Program has prevented States from 
developing innovative and cost-efficient mechanisms designed to 
meet the health care needs of their residents. Instead, they 
have been forced to shoulder the uncontrollable costs of what 
has become a rigid and ineffective health care program. The 
program's centralized micromanagement, complex bureaucratic 
requirements, and outdated service delivery is often cited by 
the States as impeding their ability to provide the quality 
health coverage, patient responsiveness, and efficient 
administration common in the private sector. As a result, 
States have long sought enhanced operational flexibility so 
that they can better meet the health care needs of their low-
income residents. The current program's complex system of 
waivers and the anticipated impact of the MediGrant plan's 
flexibility is described below in the section entitled 
``Fostering Greater State Innovation.''

                   program growth versus program cuts

    During the debate on the new MediGrant Program, the 
assertion has been repeatedly made that this legislation cuts 
health care spending for low-income people. This assertion is 
categorically false. Over the 7-year period ending in fiscal 
year 2002, the average growth rate in the program is a 
guaranteed 4.9 percent annual increase. Total Federal spending 
between fiscal years 1996-2002 will total $773.1 billion. Total 
Federal expenditures in fiscal year 2002 will be $124.3 
billion, a 39 percent cumulative increase over fiscal year 
1995. During every year during the seven year budget window, 
Federal Medicaid spending will grow by an annual rate of at 
least 4 percent.
    The MediGrant plan's provision for annual rates of positive 
growth is even clearer when compared with President Clinton's 
1993 proposal for Medicaid spending. In fact, a comparison of 
the two proposals reveals which represents spending growth and 
which represents a spending cut. As the chart below clearly 
illustrates, H.R. 3600 (the President's ``Health Security 
Act,'' introduced November 20, 1993) proposed a very different 
first-year Medicaid spending than that contained in the 
MediGrant plan. In fact, Section 9101 of the Health Security 
Act actually cut the Federal contribution to Medicaid by 5 
percent (i.e., a growth rate of negative 5 percent). By 
contrast, the MediGrant plan increases MediGrant spending 7.2 
percent in the first year.



    Clearly, the MediGrant plan funding levels far exceed those 
proposed by the President in his Health Security Act. Just as 
important, however, is the fact that the MediGrant spending 
growth rates even exceed actual State Medicaid spending. 
Currently, all States report to HCFA quarterly estimates of 
their projected Medicaid expenditures for the upcoming fiscal 
year. Reported on a form called the HCFA-307, these projections 
are very important, since they are produced not by the Federal 
Government but by the States themselves. As a result, these 
projections have been highly accurate predictors of future 
State spending.
    In the HCFA-37 report submitted by all the States during 
August 1995, States projected the growth in their Medicaid 
spending between fiscal year 1995 and fiscal year 1996 
(including administration) to be 4.3 percent. The MediGrant 
plan increases Medicaid spending by 7.24 percent during this 
same period--thereby exceeding State projections of actual 
spending by nearly 3 percentage points. It is for this reason 
that the MediGrant plan permits States to roll over unused 
MediGrant funds to future years, for investment in innovative 
health care delivery systems or to meet unanticipated rainy day 
needs.

 the fiscal impact of medicaid growth on the federal and state budgets

    Federal expenditures on the Medicaid Program during the 
past 7 years have contributed significantly to the Federal 
budget deficit. However, Federal costs--while great--are only 
half the story. The States have been faced with even more 
extraordinary fiscal pres- 
sures because Medicaid mandates have made health care the 
fastest growing area of State budgets. Since almost all States 
are constitutionally required to annually balance their 
budgets, the Medicaid financial squeeze has had dramatic 
effects.
    The table below, prepared by the National Association of 
State Budget Officers [NASBO], documents the extraordinary 
growth of Medicaid expenditures as a percentage of State 
expenditures. In 1987, Medicaid represented approximately 10.2 
percent of all State expenditures. By 1991, Medicaid's State 
spending share had risen to 14.2 percent, and by 1994 it was a 
striking 19.4 percent of all State spending.

                            MEDICAID SPENDING AS A PERCENTAGE OF TOTAL STATE SPENDING                           
----------------------------------------------------------------------------------------------------------------
                                    1987      1988      1989      1990      1991      1992      1993      1994  
----------------------------------------------------------------------------------------------------------------
Medicaid spending...............     10.20     10.80     11.30     12.50     14.20     17.50     18.40     19.40
Non-Medicaid spending...........     89.90     89.20     88.70     87.50     85.80     82.50     81.60    80.60 
----------------------------------------------------------------------------------------------------------------
Source: National Association of State Budget Officers (NASBO) 1994 State Expenditure Report.                    

    As State Medicaid spending has experienced uncontrollable 
rates of growth, other critical State funding initiatives have 
suffered commensurately. The table below, also prepared by 
NASBO, documents the decline in State spending for (a) 
elementary and secondary education, (b) higher education, (c) 
welfare, and (d) transportation due to the growth in Medicaid. 
Based on NASBO data, State expenditures for elementary and 
secondary education declined 11 percent between 1987 and 1994; 
State higher education spending dropped 8 percent over the same 
time period; State welfare spending experienced a 13 percent 
decrease; and State investment in public transportation 
declined 16 percent. On the other hand, during the 1987-94 time 
period, Medicaid spending increased by more than 90 percent!

                     PROGRAM SPENDING WITHIN SECTORS AS A PERCENTAGE OF TOTAL STATE SPENDING                    
----------------------------------------------------------------------------------------------------------------
               1                    1987      1988      1989      1990      1991      1992      1993      1994  
----------------------------------------------------------------------------------------------------------------
Elementary/secondary ed.........     22.80     23.00     24.30     22.80     22.00     21.10     21.20     20.30
Higher education................     12.30     11.80     12.00     12.20     11.50     10.90     10.60     10.50
Welfare.........................      5.20      5.30      5.10      5.00      5.30      5.00      4.90      4.50
Medicaid........................     10.20     10.80     11.30     12.50     14.20     17.50     18.40     19.40
Transportation..................     10.60     10.30     10.10      9.90      9.40      9.10      9.00      8.90
----------------------------------------------------------------------------------------------------------------
Source: National Association of State Budget Officers (NASBO) 1994 State Expenditure Report.                    

    This data clearly reveals why many States officials have 
described Medicaid mandates as the worst of all the Federal 
unfunded mandates placed on the States. As these mandates were 
enacted into law through budget reconciliation in the late 
1980's and early 1990's, they created havoc with State budgets 
and ultimately drained State funds away from education and 
welfare programs.

Federal and State budgetary havoc within budget reconciliation

     One of the most perplexing issues concerning the 
unconstrained fiscal growth of Medicaid is the manner in which 
it was accomplished. Most of the Medicaid mandates were enacted 
through reconciliation bills which were supposed to be budget-
cutting vehicles.
    How was this accomplished? In the days of the Gramm-Rudman-
Hollings Budgetary Act, it was accomplished by budgetary 
tricks. For example, in the concurrent resolution of the budget 
for fiscal year 1990 (H. Con. Res. 106), $200 million of new 
budget entitlement authority became available for fiscal year 
1990 for Medicaid spending. With this $200 million, the Energy 
and Commerce Committee was able to report out five new mandated 
Medicaid expansions by slipping effective dates on some of the 
pending provisions so that only one calendar quarter's worth of 
spending would occur in fiscal year 1990. By this budgetary 
trick, the Medicaid provisions technically met the budget 
target in the budget resolution. However, in the out-years, 
these five Medicaid provisions would cost additional billions 
of dollars. In 1989, the Office of Management and Budget [OMB] 
estimated that, taken together, these Medicaid provisions would 
have increased Federal spending by approximately $8.6 billion 
over a 5-year period.
    Another perplexing issue in the enactment of Medicaid 
mandates has been the inability of the Congressional Budget 
Office [CBO] to provide accurate estimates of the projected 
costs of these laws. The table below documents the astounding 
inaccuracies in the CBO analysis of a number of Medicaid 
mandates enacted into law in the Omnibus Reconciliation Act of 
1989 (OBRA 1989).

    CBO OBRA 1989 MEDICAID MANDATES--ESTIMATES VERSUS ACTUAL FLORIDA    
                          EXPENDITURES FY 1991                          
                              [In millions]                             
------------------------------------------------------------------------
                                      CBO scoring of    Florida Federal 
                                        all States        expenditures  
------------------------------------------------------------------------
Mandatory coverage of pregnant                                          
 women............................                270                 31
EPSDT.............................                 25                 63
Payment for federally qualified                                         
 health centers...................                 15                  8
Payment for obstetrical and                                             
 pediatric services...............                 11                  4
    Total.........................                321                106
------------------------------------------------------------------------
Florida represents 3.8 percent of all Federal Medicaid expenditures--but
  accounted for 33 percent of total estimated expenditures.             

    This table lists four major Medicaid mandates enacted into 
law in 1989: First, mandatory coverage of pregnant women up to 
133 percent; second, mandatory coverage of early and periodic 
screening, diagnostic, and treatment services [EPSDT]; third, 
enhanced payment for health care centers; and fourth, enhanced 
payments for obstetrical and pediatric services.\1\ The first 
column is the official CBO estimate for all Federal 
expenditures for these benefits in fiscal year 1991. The second 
column is the actual Florida Federal expenditures provided by 
the Florida Medicaid director at that time. Florida represents 
only 3.8 percent of all Federal Medicaid expenditures.
    \1\ In a 1990 official policy document of the National Governors' 
Association [NGA] entitled ``Short-Term Medicaid Policy'' [Appendix A], 
the Nation's Governors identified several of these mandates as 
particularly troublesome. In this NGA official document, they asked for 
relief from mandates in general and specified detailed changes to the 
EPSDT benefit. Governor Florio of New Jersey chaired the NGA Health 
Care task force which produced this policy, and then-Governor Bill 
Clinton was a member of the task force.
---------------------------------------------------------------------------
    First, compare the totals for fiscal year 1991. The CBO 
calculated that the total Federal expenditures for these four 
mandates would be $321 million in fiscal year 1991 for all 
States. However, Florida's actual total was a whopping $106 
million.
    With regard to the CBO cost estimate of the EPSDT benefit, 
the picture is even more disturbing. Incredibly, the CBO 
estimated that the total Federal expenditures for all States 
would be $25 million for fiscal year 1991. The State of Florida 
alone spent $63 million in fiscal year 1991 to comply with this 
mandate, or more than double the CBO official estimate.2
    \2\ In 1990, the American Public Welfare Association [APWA], 
conducted a study of the effect of the EPSDT expansions of OBRA 1989. 
Preliminary results from just 13 states showed an increase of $468 
million in State and Federal spending in fiscal year 1991. The States 
responding were: Alabama, Alaska, Arizona, Florida, Idaho, Maryland, 
Missouri, North Dakota, Oregon, South Dakota, Texas, Utah, and 
Wisconsin. The APWA study states ``Please also be advised that this 
total figure is likely to increase as more states complete a budget 
analysis.'' Note that the two largest Medicaid programs--California and 
New York--were not included in this study.
---------------------------------------------------------------------------
    If one projects the Florida cost experience for these OBRA 
1989 mandates to the entire Nation, the analysis leads to a 
disturbing conclusion. While CBO projected expenditures of $323 
million in fiscal year 1991, estimated Federal expenditures 
were closer to $2.8 billion. Though forecasting is not an exact 
science, an error of 888 percent is truly indefensible. This 
staggering forecasting error not only contributed to the growth 
of the Federal budget deficit but was a devastating fiscal blow 
to the States.

                        Medicaid Micromanagement

    According to many State officials, the explosion of 
Medicaid spending is due in large part to congressional and 
Executive directives. Over the last decade, federally mandated 
eligibility changes fueled the expansion of the Medicaid-
eligible population and the cost of the program. Although 
States have the discretion of supplementing Medicaid's mandated 
coverage standards, the Federal government frequently expanded 
the scope of these standards. As a result, States have been 
compelled to increase their spending levels in order to receive 
their share of federally-matched Medicaid spending.
    One of the most frequently heard State complaints regarding 
the Medicaid program concerns HCFA micromanagement. At the 
Federal level, Medicaid is administered by HCFA which, through 
a network of regional offices, is supposed to work with State 
Medicaid departments to ensure appropriate management of the 
Medicaid Program. However, the reality of HCFA-State relations 
has been described by many State officials as less a matter of 
coordinated cooperation than as an example of Federal 
micromanagement in State affairs.
    When questioned during the committee's six hearings on the 
Medicaid Program, State Governors and Medicaid directors 
pointed to program mandates as evidence of excessive Federal 
interference. In its June 8, 1995 hearing, the Subcommittee on 
Health and Environment heard from Florida Governor Lawton 
Chiles, Illinois Governor Jim Edgar, Michigan Governor John 
Engler, Tennessee Governor Don Sundquist, and Utah Governor 
Mike Leavitt. Speaking for many of his colleagues, Governor 
Edgar expressed grave concern over the impact on other critical 
human service priorities of spiraling Medicaid spending 
resulting from Federal Medicaid micromanagement.

          The Federal Government has micromanaged the program 
        by heaping mandate after mandate upon the States. It 
        has told us whom we must serve and dictated how we must 
        provide the service without regard to cost. In 1966, 
        the first year of Medicaid, Illinois spent $87 million 
        on the program. This year, we will spend 64 times that 
        much, or nearly $6 billion. In Illinois, the tab for 
        recent Federal mandates alone tops $480 million this 
        year.

    Governor Engler cited the Boren amendment, which requires 
States to pay reasonable rates for nursing and hospital care, 
as one of many Federal directives that have served to impose 
substantial burdens on State Medicaid Programs. Intended to aid 
States in their efforts to contain program costs, the Boren 
amendment's vague payment standard resulted in numerous 
lawsuits and the imposition of arbitrarily higher reimbursement 
levels.

          Creeping micromanagement has entangled us in a briar 
        patch of perverse incentives that are costing taxpayers 
        dearly. One example * * * is a direct result of the 
        Boren amendment: in 1989, Michigan Medicaid costs in a 
        nursing facility were $35 a day. In 1994, they were up 
        to $57 a day. We are paying a lot more money, but our 
        patients are not getting a lot more care.

    Governors Edgar and Engler are neither the first nor the 
only State executives to describe to Congress the burdens of 
HCFA and the Medicaid Program it administers. On December 8, 
1990, then-Governor Bill Clinton told the House Government 
Operations Committee that ``Medicaid used to be a program with 
a lot of options and few mandates--now, it's just the 
opposite.''
    This sentiment was echoed during the subcommittee's June 
22, 1995 Medicaid hearing. At that hearing, John Rodriguez, the 
deputy director of the California Medicaid Program, cited a 
number of instances in which Federal micromanagement has 
impeded optimal service delivery and program administration. 
One case concerns the preadmission screening and annual 
resident review [PASARR] under which States are required to 
independently assess the need for nursing home placement. After 
evaluating 81,500 nursing home patients in 1989, at a cost of 
$28.5 million, California concluded that only five placements 
were inappropriate. In other words, this mandate resulted in a 
cost of $5.6 million per individual identified as needing more 
appropriate placement. Moreover, PASARR merely duplicated more 
efficient California procedures.
    Not surprisingly, many States have sought to take advantage 
of one of the only forms of relief available to them: waivers 
granted by the Federal Government. Faced with the bureaucratic 
complexity and escalating costs of the Medicaid Program, States 
have sought to make more efficient use of Medicaid dollars by 
such means as managed care. In many instances, the savings 
realized from these measures have been used to help fund 
program expansions, as part of State initiatives to extend 
coverage to uninsured individuals. Since significant use of 
managed care in Medicaid is not permitted under current 
Medicaid rules, States have sought waivers of statutory and 
regulatory requirements from the Secretary of Health and Human 
Services.
    Currently, Federal Medicaid law makes two basic types of 
waivers available to the States. Section 1915 of the Social 
Security Act provides for program waivers, which allow States 
meeting specified conditions to operate certain types of 
special programs that are listed in the statute. Section 
1115(a) provides much broader authority to grant demonstration 
waivers, under which nearly any provision of Medicaid law may 
be waived to allow States to experiment with program 
improvements.
    The experience of those States with waivers permitted under 
sections 1915 and 1115(a) has been mixed. While any relief from 
the Medicaid Program's many restrictions is certainly 
appreciated by the States, the waiver process itself is a 
source of great dissatisfaction. The process by which States 
seek section 1115 waivers is particularly complex and costly. 
In order to comply with HCFA's numerous application 
requirements, States must devote staff time and money to the 
process--resources they charge could be used to provide health 
care services to low-income State residents. When the 
application is complete, it typically contains enough paper to 
measure almost 3 feet in height.
    Unfortunately, States still face often insurmountable 
obstacles to flexibility even after completing their waiver 
applications. To date, only 10 of an estimated 23 section 1115 
waivers have been approved by HCFA. In addition, the length of 
Federal waiver application review averages at least 12 months.
    According to Ohio's Medicaid director, Arnold Tompkins, who 
appeared before the subcommittee on June 22, 1995, HCFA's slow 
process for reviewing State waiver applications is largely due 
to the substantial flaws of the waiver process itself:

          Five months into the [waiver] process we learned that 
        our approach to budget neutrality * * * was considered 
        off-base by HCFA. We spent the summer redesigning the 
        budget to meet HCFA's concerns. But this redesign was 
        still not enough. In the ninth month we were told that 
        the redrawn budget had to be redrawn again because 
        Federal thinking had changed about how budget 
        neutrality should be demonstrated.

                   Fostering Greater State Innovation

    All across the Nation, States are working to improve the 
quality, effectiveness, and efficiency of the health care 
assistance they provide to their low-income residents. However, 
they have little of the operational or administrative 
flexibility they need to make their medical assistance programs 
more responsive and efficient. As a result, Governors and other 
State officials have long complained that Medicaid has served 
as an obstacle, rather than as an opportunity, to developing 
innovative health care delivery strategies.
    The limited role that States are currently permitted to 
play has given State officials little choice but to watch, 
almost from the sidelines, as Medicaid has consumed more and 
more of their State resources. With Medicaid already the single 
largest program in virtually every State budget, its projected 
growth raises the prospect of severe financial crisis in the 
States. Already, Medicaid spending has prevented increased 
State investments in education, welfare services, law 
enforcement, and other critical human services.
    Amidst the charges that the Health Care Financing 
Administration has served more as a hindrance than a help in 
States' efforts to get control over Medicaid spending, many 
States have sought relief through the Federal waiver process. 
As described above, however, that process is itself a source of 
considerable State frustration.
    This is particularly difficult for many States to 
understand, given the success achieved by the relatively few 
States that have received waivers. For example, HCFA data 
reveals that States have achieved significant program 
efficiencies by means of waiver-facilitated managed care 
initiatives. In particular, section 1915(b) waivers have 
enabled some States to establish limited managed care programs. 
Based on State reports to HCFA, the General Accounting Office 
has calculated that the national weighted average of the 
savings realized from such Medicaid managed care initiatives is 
9.4 percent. As a result, States were able to serve the 
populations enrolled in these programs using almost 10 percent 
fewer dollars than required by the traditional Medicaid 
Program.
    According to State officials, the lesson to be drawn from 
such experiences is clear: If Medicaid is to be substantially 
improved and the growth rate of its costs brought under 
control, States must be empowered to restructure their Medicaid 
Programs. They argue that the millions of low-income Americans 
who need health care assistance will be more effectively and 
efficiently served only when Governors and State legislators 
are given the flexibility to tailor Medicaid to meet the unique 
conditions in their States.
    In light of the inflexibility of the current Medicaid 
Program and the ineffectiveness of its waiver process, many 
States have petitioned Congress for significant Medicaid 
reform. In fact, State Governors have forged a close working 
relationship with the 104th Congress in an effort to develop 
the MediGrant block grant reform initiative. During the course 
of its hearings on the Medicaid Program, the Subcommittee on 
Health and Environment was advised by State Governors, Medicaid 
Directors, and other program experts to replace the current 
Medicaid Program and its lengthy waiver process with a block 
grant reform initiative.
    Described as the most effective means for transforming 
Medicaid into a truly State-driven program, block grants would 
give States unprecedented operational and administrative 
flexibility. According to State officials, a block grant 
program would enable States to develop innovative service 
delivery strategies to meet the health care needs of their low-
income residents. In other words, Medicaid block grants would 
free States in a manner far surpassing any flexibility they may 
enjoy under a waiver. In fact, under the proposed block grant 
reform initiative Medicaid would become the State-run program 
it was initially intended to be. In place of the current rigid, 
bureaucratic, and often inadequate service delivery system, 
States would be able to develop health service strategies 
tailored to match the differing characteristics of their 
communities. These can include capitation and managed care, 
enhanced maternal, child, and mental health care initiatives, 
and insurance premium subsidy programs.
    Medicaid block grants would also create compelling 
incentives for States to achieve unprecedented program 
efficiency. Currently, the Medicaid Program effectively 
penalizes States which save Medicaid resources. On average, 57 
percent of all State savings revert to the Federal Government, 
not the States that made the savings possible. Under a block 
grant approach, States would be able to utilize the full value 
of any savings they achieve because they would be free to 
reinvest those resources into better service delivery, expanded 
benefits, and new program innovations.
    The contribution that the flexibility of block grants can 
make to State medical assistance programs may be ascertained by 
examining current State initiatives. While ongoing State 
innovations have been severely restricted by the current 
Medicaid System, they are indicative of how States would 
respond to the flexibility of a Medicaid block grant. As is 
illustrated by the following summaries of several of the 
initiatives undertaken nationwide, State and managed care 
provider innovations appear capable of substantially improving 
Medicaid service delivery and administration:

The Arizona Health Care Cost Containment System [AHCCCS]

    Enacted in 1981, AHCCCS was the Nation's first Statewide 
Medicaid managed care system based on a prepaid capitated 
financing arrangement with HMO's and other private health 
plans. Today, AHCCCS covers 450,000 low-income Arizonans and 
includes extensive participation of Arizona's elderly and 
disabled eligible residents. Because AHCCCS awards bids to 
health plans on the basis of a competitive contract award 
process, it has realized significant ongoing savings due to the 
increased level of competition among health plans that AHCCCS 
has fostered.

New England-region managed care initiatives

    Many of the Medicaid-eligible residents of Philadelphia, 
Pittsburgh, and Camden receive their care through the Mercy 
Health Plan. Among Mercy's health care service delivery 
innovations are: the Perinatal Risk Reduction Program (known as 
WeeCare), the Immunization Outreach Program, the Breast Cancer 
Screening and Outreach Program, HIV/AIDS Case Management 
Services, and the Asthma Action program. HIP is another managed 
care company serving the Medicaid population in the New England 
region. Among its various innovative coverage programs are the 
Well Baby Program, the Good Health Program, the Good Health 
Incentive Program, and the Retention Program. All of these 
programs create incentives and offer rewards to induce HIP's 
enrollees to get regular check-ups and emphasize preventive 
care, including immunizations and proper nutrition.

South Carolina's Neonatal Cocaine Treatment and Prevention Program

    In 1989, the city of Charleston, SC established a program 
at the Medical University of South Carolina [MUSC] that offered 
drug rehabilitation, amnesty from criminal prosecution, and 
free health care to cocaine-dependent pregnant women. Those 
refusing to join the program were prosecuted for their drug 
use. As a result of the program, the number of crack babies was 
reduced without a corresponding reduction in the number of 
total live births. Despite the unprecedented success of this 
program, however, the U.S. Department of Health and Human 
Services threatened to terminate MUSC's Federal funding on the 
grounds that the program discriminated against and violated the 
privacy rights of participating mothers. Faced with the 
potential loss of 60 percent of its total annual budget, MUSC 
was forced to suspend the program in 1993. Since that time the 
number of crack babies born in Charleston has returned to 
approximately pre-program levels. If Medicaid is block granted 
to the States, South Carolina has stated its intention to 
reestablish the crack baby prevention program, thus saving an 
estimated 18 babies a year from the suffering and death that 
results from the prenatal cocaine use of pregnant women.

TennCare

    Faced with spiraling Medicaid costs, Tennessee consolidated 
its Medicaid, uninsured, and indigent programs into a statewide 
capitated managed care initiative. Despite early provider 
payment difficulties, TennCare has achieved a marked reduction 
in the number of uninsured. TennCare has also helped Tennessee 
contain utilization rates of emergency room and hospital care, 
improve primary care access, and achieve cost control through 
carrier competition.

The Watts Health Foundation

    The Watts Health Foundation, which is operated by United 
Health Plan in Los Angeles, began as a neighborhood health 
center soon after the 1965 Watts revolt. Since then, it has 
grown into a full-service managed care network serving 200,000 
area residents. United operates two community health centers 
and specialized programs providing substance abuse treatment, 
geriatric care, school-based health centers, mobile medical 
centers, and HIV outreach and treatment.

             quality assurance for nursing home facilities

    Under the MediGrant plan, current Federal nursing home 
reform provisions would be replaced with new requirements. 
States would be required to establish and maintain standards in 
the following areas for nursing facilities providing services 
under the State's plan: First, quality assurance systems; 
second, resident assessment procedures, including care planning 
and outcome evaluation; third, the assurance of a safe and 
adequate physical plan for the facility; fourth, staff 
qualifications; fifth, utilization review; sixth, the treatment 
of resident medical records; and seventh, policies, procedures, 
and bylaws for operation.
    Standards for nursing facilities would also be required to 
provide for the protection and enforcement of resident rights 
including the rights: First, to exercise one's rights as a 
resident of the facility and as a citizen of the United States; 
second, to receive notice of rights and services; third, to be 
protected against the misuse of resident funds; fourth, to be 
provided privacy and confidentiality; fifth, to voice 
grievances; sixth, to examine the results of State 
certification program inspections; seventh, to refuse to 
perform services for the facility; eighth, to be provided 
privacy in communications and to receive mail; ninth, to have 
the facility provide immediate access to any resident by any 
representative of the State's certification program, the 
resident's individual physician, the State long-term care 
ombudsman, and any person the resident has designated as a 
visitor; tenth, to be free from abuse, including verbal, 
sexual, physical and mental abuse, corporal punishment, and 
involuntary seclusion; eleventh, to retain the use of personal 
property; and twelfth, to be provided with prior written notice 
of pending transfer and discharge.
    The legislation requires as a condition of receiving 
MediGrant Federal funds that States promulgate standards 
through the State's legislative, regulatory, or other 
processes, which can only take effect after the State had 
provided the public with notice and the opportunity for 
comment.
    States would also be required to provide for the 
establishment and operation of a program for certification of 
nursing facilities that meet specific standards as well as the 
decertification of those facilities that fail to meet such 
standards. States would be required to ensure public access to 
the certification program's evaluations, including compliance 
records and enforcement actions. States would be required to 
periodically audit their expenditures under the program.
    States would be required to impose certain sanctions 
against nursing facilities not meeting these requirements and 
standards. If a State determined that a certified nursing 
facility no longer substantially met specified requirements and 
further determined that the facility's deficiencies immediately 
jeopardized the health and safety of residents, then the State 
would be required, at a minimum, to terminate the facility's 
certification for participation. If the facility's deficiencies 
did not immediately jeopardize the health and safety of 
residents, the State could provide lesser sanctions.
    These new and extensive requirements will provide for the 
protection and well-being of nursing home residents while 
allowing the States the flexibility they need to tailor 
enforcement programs to the need of their citizens. This 
combination of quality assurances for nursing home residents 
and State flexibility is exactly what the National Governors' 
Association asked for in their Medicaid Policy Document of 1990 
which stated that ``States should be considered in compliance 
with the law if a comparable quality assurance program is in 
place or developed.'' [Appendix A]

         the implementation of obra 1987 nursing home standards

    One of the major problems with the Federal nursing home 
requirements has been its implementation by HCFA. Since the law 
was enacted as part of OBRA 1987, it has been mired in the 
Federal Government's micromanagement morass. The first problem 
that developed was that the law required States to implement 
the requirements of OBRA 1987 even without regulations or 
guidance from HCFA. For example, the law required States to 
undertake preadmission screening and annual resident review 
[PASARR] effective January 1989. Unfortunately, HCFA issued no 
regulations or guidance on how to perform PASSAR until May 
1989. This placed the States and nursing facilities in the 
absurd position of implementing a statutory requirement which 
had no explanation or content. In fact, in 1989 the 
implementation of the nursing home standards law was so flawed 
that the Committee on Energy and Commerce reported out of 
committee, as part of OBRA 1989, 22 highly technical multipart 
amendments to correct elements of the underlying statute.
    In 1990, the initial regulations and State Operations 
Manual 232 [SOM 232] were released by HCFA--but only described 
the survey process. Although States were required to implement 
the following, there were still no regulations for: First, 
requirements for nurse aide certification; second, enforcement 
regulations; and third, the minimum data set [MDS]. In 1992, a 
new State operations manual [SOM 250] was issued making further 
modifications to the survey process and establishing 
transitional enforcement. However, it too did not provide any 
guidance concerning enforcement regulations or MDS.
    On July 1, 1995, the enforcement regulations went into 
effect, approximately 8 years after enactment of the 
legislation. These regulations impose a significant additional 
workload on the States without commensurate funding. The Office 
of Management and Budget [OMB] declared these regulations to be 
budget neutral when, in fact, they are an unfunded mandate. A 
sample of additional requirements include: First, additional 
noticing requirements and paperwork increases which have 
doubled the amount of clerical staff time and trebled the 
amount of supervisory review required for each survey not found 
to be in substantial compliance and second, requiring the use 
of an abbreviated survey protocol for investigating complaints. 
Based on estimates of just one State, California, this protocol 
trebles the amount of time previously taken to investigate 
complaints.

                                Hearings

    The Subcommittee on Health and Environment held six 
hearings on Medicaid issues, including the Vaccines For 
Children Program. The hearing dates were: June 8, 1995, June 
15, 1995, June 21, 1995, June 22, 1995, July 26, 1995, and 
August 1, 1995. Testimony at these hearings was received from 
64 witnesses, including Governors, Members of Congress, 
representatives of the administration, representatives of State 
health care administrations, representatives of health care 
professionals, representatives from the health care industry, 
and persons served by the Medicaid Program.
    Testifying before the subcommittee on June 8, 1995, were: 
The Honorable Jim Edgar, Governor, State of Illinois; the 
Honorable Mike Leavitt, Governor, State of Utah; the Honorable 
Don Sundquist, Governor, State of Tennessee; the Honorable 
Lawton Chiles, Governor, State of Florida; and the Honorable 
John Engler, Governor, State of Michigan.
    Testifying before the subcommittee on June 15, 1995, were: 
Mr. Kwai-Cheung Chan, Director, Division of Program, Evaluation 
and Methodology, General Accounting Office; Dr. David Satcher, 
Director, Centers for Disease Control, accompanied by Mr. Jose 
Cordero, Deputy Director, National Immunization Program, 
Centers for Disease Control; Mr. Lance Hackett, vice president, 
Mercer Management Consulting; Mr. Henry Grabowski, department 
of economics, Duke University; Dr. J. Leighton Read, chairman 
and CEO, Aviron; Mr. Lance K. Gordon, Oravax, Inc.; Dr. Gordon 
Douglas, president, Merck vaccine division, Merck & Co., Inc.; 
Dr. Elin Gursky, senior assistant commissioner of health, New 
Jersey Department of Health, State of New Jersey; Mr. Robert M. 
Goldberg, Gordon Public Policy Center, Brandeis University; Dr. 
David Smith, Commissioner, Texas Department of Health, 
representing the Association of State and Territorial Health 
Officers; Dr. Louis Cooper, director of pediatrics, St. Lukes 
Roosevelt Hospital Center, representing the American Academy of 
Pediatrics; and Mr. James Weill, general counsel, Children's 
Defense Fund.
    Testifying before the subcommittee on June 21, 1995, were: 
Mr. Bruce Vladeck, Administrator, Health Care Financing 
Administration; Mr. Joe Antos, Assistant Director for Health 
and Human Resources, Congressional Budget Office; and Dr. Gail 
Wilensky, senior fellow, the Project HOPE.
    Testifying before the subcommittee on June 22, 1995, were: 
Ms. Sally Richardson, Director of the Medicaid Bureau, Health 
Care Financing Administration; Ms. Barbara Matula, director, 
division of medical assistance, department of human resources, 
State of North Carolina; Mr. John Rodriquez, Deputy Director, 
Medical Care Services, State of California; Mr. Arnold 
Tompkins, director, department of human services, State of 
Ohio; Mr. Kevin Piper, health care financing director, 
department of health and human services, State of Wisconsin; 
Mr. Michael Diely, acting division director, division of health 
care financing, department of health, State of Utah; Mr. Don 
Herman, administrator, division of medical services, department 
of human services, State of Iowa; Dr. Gail Wilensky, senior 
fellow, the Project HOPE; Ms. Elizabeth Wehr, research 
associate, Center for Health Policy Research, George Washington 
University; and Mr. William Scanlon, Associate Director of 
Health Care Financing and Policy, General Accounting Office.
    Testifying before the subcommittee on July 26, 1995 were: 
The Honorable Fife Symington, Governor of Arizona, accompanied 
by Dr. Mabel Chen, director, Arizona Health Care Cost 
Containment System; the Honorable Kay C. James, secretary of 
health and human resources, Commonwealth of Virginia; the 
Honorable Charles Condon, attorney general of South Carolina; 
Mr. Bruce Vladeck, Administrator, Health Care Financing 
Administration; Michael D. McKinney, M.D., commissioner, 
department of health and human services, State of Texas; Mr. 
Robert Corker, commissioner, department of finance and 
administration, State of Tennessee; Ms. Jean Thorne, director, 
office of medical assistance programs, Oregon Department of 
Human Resources, State of Oregon; Ms. Debra Ward, MPH, 
director, governmental relations, United Health Plan; Mr. 
Michael W. Murray, executive director, Health Plan of San 
Mateo; Ms. Judith Stavisky, associate vice president for health 
services, Mercy Health Plan; Ms. Maura Bluestone, president and 
CEO, the Bronx Health Plan; and Dr. Jesse Jampol, HIP Health 
Insurance Plan.
    Testifying before the subcommittee on August 1, 1995, were: 
Ms. Donna Checkett, director, Missouri Division of Medical 
Services, chair, National Association of State, Medicaid 
Directors, representing the American Public Welfare 
Association; Ms. Diane Rowland, senior vice president, Henry J. 
Kaiser Family Foundation; Dr. Jennifer L. Howse, president, 
March of Dimes Birth Defects Foundation; Ms. Yvette Elkins; Dr. 
George Comerci, president, American Academy of Pediatrics; Ms. 
Beth Houghton, general counsel, chief financial officer, All 
Childrens Hospital, representing the National Association of 
Children's Hospitals; Mr. Mark Barnes, executive director, AIDS 
Action Council; Ms. Chris Koyanagi, director, government 
relations, the Bazelon Center for Mental Health Law; Mrs. 
Brenda Hantzes; Mr. Edwin W. Brown, chief executive officer, 
Florida Community Health Centers, Inc., representing the 
National Association of Community, Health Centers; Mr. Gail L. 
Warden, president and CEO, Henry Ford Health System, 
representing the American Hospital Association; Mr. Stephen 
McConnell, senior vice president for public policy, Alzheimer's 
Association; Dr. Paul Willging, executive vice president, 
American Health Care Association; Ms. Celia Wcislo, president, 
Local 285, Service Employees International Union; Ms. Judy 
Waxman, director, government affairs, Families USA; Ms. 
Kathleen Gannoe, program vice president, board of directors, 
National Citizen's Coalition for Nursing Home Reform; Ms. 
Beatrice Braun, board member, American Association of Retired 
Persons; Hon. Albert Eisenberg, supervisor, Arlington County, 
VA, representing the National Association of Counties; Mr. 
Larry S. Gage, president, National Association of Public 
Hospitals; and Mr. Charles DeBrunner, executive director, Urban 
Health Care Coalition of Pennsylvania.

                        Committee Consideration

    On September 20 through 22, 1995, the Committee on Commerce 
met in open session and considered a committee print entitled 
``Title XVI--Transformation of the Medicaid Program.'' On 
September 22, 1995, the committee ordered the committee print 
entitled ``Title XVI--Transformation of the Medicaid Program'' 
transmitted to the House Committee on the Budget for inclusion 
in the fiscal year 1996 Omnibus Budget Reconciliation Act, as 
amended, by a rollcall vote of 27 yeas to 18 nays.

                             Rollcall Votes

    Pursuant to clause 2(l)(2)(B) of rule XI of the Rules of 
the House of Representatives, following are listed the recorded 
votes on the motion to order the committee print entitled 
``Title XVI--Transformation of the Medicaid Program'' 
transmitted to the House Committee on the Budget, and on 
amendments offered to the measure, including the names of those 
Members voting for and against.

                          rollcall vote no. 77

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Waxman re: maintain current regulations 
for residents of nursing homes.
    Disposition: Not agreed to, by a rollcall vote of 17 yeas 
to 26 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........  ........  .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........  ........  ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......  ........  ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........        X   .........  Mr. Towns........  ........  ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......        X   ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........        X   ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 78

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Markey re: maintain current regulations 
against spousal impoverishment.
    Disposition: Not agreed to, by a rollcall vote of 18 yeas 
to 23 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas       Nay     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........  ........  .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........        X   .........  Mr. Towns........  ........  ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......        X   ........  .........
Mr. Stearns....................  ........  ........  .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........  ........  .........  Mr. Gordon.......  ........  ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........  ........  .........  Mr. Rush.........        X   ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          ROLLCALL VOTE No. 79

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Klink re: maintain current regulations 
with respect to adult children and long-term care costs.
    Disposition: Not agreed to, by a rollcall vote of 17 yeas 
to 23 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........  ........  .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........  ........  ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........  ........  .........  Mr. Towns........  ........  ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......        X   ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........  ........  .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........  ........  ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........  ........  .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote No. 80

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mrs. Lincoln re: protection against liens on 
family homes and farms.
    Disposition: Not agreed to, by a rollcall vote of 19 yeas 
to 24 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........        X   .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........  ........  .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......        X   ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........  ........  ........  .........
Mr. Cox........................  ........  ........  .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 81

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Ms. Eshoo and Ms. Furse re: maintain current 
regulations with respect to children of families below the 
poverty level.
    Disposition: Not agreed to, by a rollcall vote of 18 yeas 
to 23 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Represnetative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........  ........  .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........  ........  .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........        X   .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........  ........  .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......        X   ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........  ........  ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........  ........  ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X                                                              
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........  ........  .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 82

    Bill: Committee print entitled ``Title XVI--Transformation 
of Medicaid Program.''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Wyden re: coverage for screening and 
treatment of breast and cervical cancer for women whose 
families are below the poverty level.
    Disposition: Not agreed to, by a rollcall vote of 18 yeas 
to 26 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........        X   .........  Mr. Wyden........        x   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........        X   .........  Mr. Towns........  ........  ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......        X   ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........  ........  .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........  ........  ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 83

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Pallone re: maintain current regulations 
with respect to Medicare cost sharing and premium assistance 
for elderly individuals below the poverty level.
    Disposition: Not agreed to, by a rollcall vote of 18 yeas 
to 24 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........  ........  .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........        X   .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........  ........  ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........  ........  .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........        X   .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......        X   ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........  ........  .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........  ........  ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 84

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Amendment: Amendment to the the Bliley amendment in the 
nature of a substitute by Mr. Deutsch re: maintain current 
regulations with respect to Medicaid coverage of Alzheimer 
patients.
    Disposition: Not agreed to, by a rollcall vote of 19 yeas 
to 25 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........  ........  .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........        X   .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........  ........  .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........        X   .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......        X   ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........  ........  ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 85

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Bryant re: adjust the Medicaid allotment 
formula.
    Disposition: Not agreed to, by a rollcall vote of 15 yeas 
to 30 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................        X   ........  .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......  ........        X   .........
Mr. Fields.....................  ........        X   .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......  ........        X   .........
Mr. Hastert....................  ........  ........  .........  Mr. Towns........  ........        X   .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......  ........        X   .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......  ........        X   .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......  ........        X   .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........  ........  ........  .........
Mr. Cox........................        X   ........  .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........  ........        X   .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................        X   ........  .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 86

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Waxman re: State-based entitlement.
    Disposition: Not agreed to, by a rollcall vote of 14 yeas 
to 31 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........        X   .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........  ........        X   .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......  ........  ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......  ........        X   .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......  ........  ........  .........
Mr. Hastert....................  ........        X   .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......        X   ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....  ........        X   .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......  ........        X   .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........        X   ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 87

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mrs. Lincoln re: payment for medically 
necessary services provided by childrens' hospitals to children 
with special needs.
    Disposition: Not agreed to, by a rollcall vote of 19 yeas 
to 22 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........  ........  .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........  ........  .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........  ........  .........  Mr. Towns........  ........  ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......        X   ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........  ........  .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........        X   ........  .........
Mr. Cox........................  ........  ........  .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 88

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Rush re: maintain current regulations 
providing Medicaid coverage during a welfare-to-work 
transition.
    Disposition: Not agreed to, by a rollcall vote of 19 yeas 
to 27 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......  ........  ........  .........
Mr. Fields.....................  ........        X   .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........        X   .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......        X   ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........        X   ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          Rollcall vote No. 89

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Pallone re: payment safeguards under 
Medigrant.
    Disposition: Not agreed to, by a rollcall vote of 20 yeas 
to 26 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........        X   .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........        X   .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......        X   ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........  ........  .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........        X   ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          ROLLCALL VOTE NO. 90

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Wyden re: protection for waivered 
States.
    Disposition: Not agreed to, by a rollcall vote of 17 yeas 
to 27 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........        X   .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........  ........  .........  Mr. Hall.........  ........        X   .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......  ........  ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........        X   .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......        X   ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....  ........        X   .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........        X   ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 91

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Stupak re: maintain current regulations 
with respect to access of rural residents to basic and 
preventive services.
    Disposition: Not agreed to, by a rollcall vote of 21 yeas 
to 23 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........        X   .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......  ........  ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........        X   .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......        X   ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........  ........  .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........        X   ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................        X   ........  .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................        X   ........  .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 92

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Towns re: nondiscrimination among lawful 
providers.
    Disposition: Not agreed to, by a rollcall vote of 17 yeas 
to 23 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorehead..................  ........        X   .........  Mr. Waxman.......  ........  ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......  ........  ........  .........
Mr. Fields.....................  ........        X   .........  Mr. Wyden........  ........  ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........        X   .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......  ........  ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........  ........        X   .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........  ........  .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........        X   ........  .........
Mr. Cox........................  ........  ........  .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........  ........  .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................        X   ........  .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................        X   ........  .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 93

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Waxman re: maintain current regulations 
for pregnant women and infants whose families have incomes 
below the poverty level.
    Disposition: Not agreed to, by rollcall vote of 18 yeas to 
25 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........        X   .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........        X   .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......  ........  ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........  ........  .........  Mr. Gordon.......  ........  ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........        X   ........  .........
Mr. Cox........................  ........  ........  .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          ROLLCALL VOTE No. 94

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program.''
    Motion: Motion by Mr. Bliley to order the committee print 
entitled ``Title XVI--Transformation of the Medicaid Program,'' 
as amended, transmitted to the Committee on the Budget for 
inclusion in the fiscal year 1996 Omnibus Budget Reconciliation 
Act.
    Disposition: Not agreed to, by a rollcall vote of 27 yeas 
to 18 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................        X   ........  .........  Mr. Dingell......  ........        X   .........
Mr. Moorhead...................        X   ........  .........  Mr. Waxman.......  ........        X   .........
Mr. Tauzin.....................        X   ........  .........  Mr. Markey.......  ........        X   .........
Mr. Fields.....................        X   ........  .........  Mr. Wyden........  ........        X   .........
Mr. Oxley......................        X   ........  .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................        X   ........  .........  Mr. Bryant.......  ........        X   .........
Mr. Schaefer...................        X   ........  .........  Mr. Boucher......  ........        X   .........
Mr. Barton.....................        X   ........  .........  Mr. Manton.......  ........        X   .........
Mr. Hastert....................        X   ........  .........  Mr. Towns........  ........        X   .........
Mr. Upton......................        X   ........  .........  Mr. Studds.......  ........  ........  .........
Mr. Stearns....................        X   ........  .........  Mr. Pallone......  ........        X   .........
Mr. Paxon......................        X   ........  .........  Mr. Brown........  ........        X   .........
Mr. Gillmor....................        X   ........  .........  Mrs. Lincoln.....  ........        X   .........
Mr. Klug.......................  ........  ........  .........  Mr. Gordon.......  ........        X   .........
Mr. Franks.....................        X   ........  .........  Ms. Furse........  ........        X   .........
Mr. Greenwood..................        X   ........  .........  Mr. Deutsch......  ........        X   .........
Mr. Crapo......................        X   ........  .........  Mr. Rush.........  ........        X   .........
Mr. Cox........................        X   ........  .........  Ms. Eshoo........  ........        X   .........
Mr. Deal.......................        X   ........  .........  Mr. Klink........  ........        X   .........
Mr. Burr.......................        X   ........  .........  Mr. Stupak.......  ........        X   .........
Mr. Bilbray....................        X   ........  .........                                                  
Mr. Whitfield..................        X   ........  .........                                                  
Mr. Ganske.....................        X   ........  .........                                                  
Mr. Frisa......................        X   ........  .........                                                  
Mr. Norwood....................        X   ........  .........                                                  
Mr. White......................        X   ........  .........                                                  
Mr. Coburn.....................        X   ........  .........                                                  
----------------------------------------------------------------------------------------------------------------

           Committee on Commerce--104th Congress Voice Votes

    Bill: Committee print entitled ``Title XVI--Transformation 
of the Medicaid Program''.
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Ms. Eshoo re: clarifying amendment with 
respect to antifraud provisions.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Tauzin re: treatment of health centers 
in the State medigrant plan.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Bilirakis and Mr. Deal re: require 
protections against spousal impoverishment to be included in 
the State medigrant plans.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Studds re: provide no exclusions for 
preexisting conditions.
    Disposition: Withdrawn, by unanimous consent.
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Ganske re: equal payment rates for rural 
providers.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Ms. Eshoo re: description of support for 
public hospitals.
    Disposition: Withdrawn, by unanimous consent.
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Studds re: provide no exclusions for 
preexisting conditions.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Coburn re: 100 percent FMAP for certain 
Indian health care facilities.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Mr. Coburn re: preclude payment for 
abortions in the case of statutory rape.
    Disposition: Agreed to, by unanimous consent.
    Amendment: Amendment to the Bliley amendment in the nature 
of a substitute by Ms. Eshoo re: description of support for 
public hospitals.
    Disposition: Agreed to, by a voice vote.
    Amendment: En bloc amendment to the Bliley amendment in the 
nature of a substitute by Mr. Bilirakis re: technical 
amendments.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment in the nature of a substitute by Mr. 
Bliley.
    Disposition: Agree to, as amended, by a voice vote.

           Section-by-Section Analysis of the Committee Print

Sec. 16000. Short title

    Section 16000 establishes the short title of the committee 
print to be the ``Medicaid Transformation Act of 1995.''

Sec. 16001. Transformation of the Medicaid Program

    Section 16001 amends the Social Security Act by adding to 
the end Title XXI, ``MediGrant Program for Low-Income 
Individuals and Families.''

Sec. 2100. Purpose: State MediGrant plans

    Current law.--Medicaid is authorized under title XIX of the 
Social Security Act to enable each State to furnish medical 
assistance and rehabilitation and other services on behalf of 
families with dependent children and aged, blind, or disabled 
individuals whose income and resources are insufficient to meet 
the costs of necessary medical services. Each State is required 
to have a State plan approved by the Secretary of the 
Department of Health and Human Services [HHS]. The plan 
describes the State's basic eligibility, coverage, 
reimbursement, and administrative policies and is updated 
periodically to reflect changes.
    Explanation of provision.--The proposal would create an 
entitlement to States under title XXI of the Social Security 
Act for block grants to enable States to provide medical 
assistance to low-income individuals and families. A State 
would be required to provide the Secretary with a MediGrant 
plan that sets forth how the State intends to use the funds 
provided to provide medical assistance. An approved plan would 
continue in effect unless and until first, the State amends the 
plan, second, the State terminates participation in the 
program, or third the Secretary finds substantial noncompliance 
of the plan with the program's requirements.

      PART A--OBJECTIVES, GOALS, AND PERFORMANCE UNDER STATE PLANS

Sec. 2101. Description of strategic objectives and performance goals

    Current law.--There are no provisions for objectives and 
goals, except that States are required to meet participation 
goals in their early and periodic screening, diagnostic, and 
treatment [EPSDT] programs for eligibles under age 21.
    Explanation of provision.--A State would be required to 
include in its MediGrant plan a description of its strategic 
objectives and performance goals for providing health care 
services, and the manner in which the plan is designed to meet 
the objectives and goals. Goals and objectives related to rates 
of childhood immunizations and reductions in infant mortality 
and morbidity would be required. With regard to other 
objectives and goals, the State could consider factors such as 
priorities for providing assistance to low-income populations, 
priorities for general public health and health status for low-
income populations, the State's financial resources and 
economic conditions, and the adequacy of the State's health 
care infrastructure. To the extent practicable, a State would 
be required to establish one or more performance goals for each 
strategic objective and describe how performance would be 
measured and compared against goals. Strategic objectives would 
be required to cover a period of at least 5 years and would 
have to be updated and revised at least every 3 years. 
Performance goals would have to be established for dates not 
more than 3 years apart.

Sec. 2102. Annual reports

    Current law.--State plans must provide for reports, in such 
form and containing such information, as the Secretary may 
require. In addition, the law requires States to report 
annually certain information relating to EPSDT services.
    Explanation of provision.--By March 31 following a fiscal 
year during which a State MediGrant plan has been in effect, 
each State would be required to submit a report to the 
Secretary and the Congress on program activities and 
performance for that Federal fiscal year. Each report would be 
required to include data on the following: aggregate 
expenditures for each category of eligible individuals, 
expenditures by each category of eligibles for covered services 
provided on a fee-for-service basis, expenditures for payments 
to capitated organizations by each category of eligibles, and 
administrative expenditures; utilization of services, including 
summary statistics, for each category of eligible individuals, 
of items and services provided on a fee-for-service basis and a 
summary of data reported by capitated health care 
organizations; achievement of performance goals including 
actions to be taken in case a goal was not met; program 
evaluations; fraud and abuse and quality control activities; 
and plan administration, including a description of the roles 
and responsibilities of State entities responsible for 
administering the program and organization charts for each, a 
description of any interstate compact entered into, and 
citations to State law and rules governing the State's 
activities under the program. With respect to inpatient 
hospital services provided on a fee-for-service basis, a 
description of the average amount paid per discharge compared 
to either the average charge, or to the State's estimate of the 
average amount paid by commercial insurers. For subsequent 
fiscal years, expenditures and utilization reports would be 
required to fit the reporting format specified by the MediGrant 
task force established under title XXI.
    Categories of eligible individuals would include children, 
blind or disabled adults under age 65, persons 65 or older, and 
other adults.

Sec. 2103. Periodic, independent evaluations

    Current law.--No provision.
    Explanation of provision.--Beginning in FY1998 and at least 
every third year thereafter, each State would be required to 
provide for evaluation of the operation of its MediGrant plan, 
conducted by an entity that is responsible neither for 
submission of the State plan nor for administering any activity 
under the plan.

Sec. 2104. Description of process for MediGrant plan development

    Current law.--No provision.
    Explanation of provision.--State MediGrant plans would be 
required to include a description of the process for 
development and implementation of the plan.

Sec. 2105. Consultation in MediGrant plan development

    Current law.--A State plan must provide for methods of 
administration that are found by the Secretary to be necessary 
for the proper and efficient operation of the plan. Based on 
this statutory provision, Medicaid regulations require that 
each State establish a medical care advisory committee.
    Explanation of provision.--Before submitting a plan or 
amendment to the Secretary, each State would be required to 
provide a public notice with a description of the plan or 
amendment, a means for the public to inspect or obtain a copy 
of the plan or amendment, and an opportunity for submittal and 
consideration of public comments. This provision would apply 
except when the State submitted a revision of a plan or 
amendment in response to a determination of disapproval by HHS.
    Each State with a MediGrant plan would be required to 
establish and maintain an advisory committee for consultation 
in the development, revision, and monitoring the performance of 
the plan. Such consultation would include the development of 
strategic objectives and performance goals, the annual report, 
and the research design for evaluating the State's plan 
operations. Members of the advisory committee should represent 
different geographic regions of the State although proportional 
representation would not be required. A State would be 
permitted to establish more than one advisory committee, 
including committees that represent the interests of specific 
population groups, provider groups, or geographic areas.

Sec. 2106. MediGrant task force

    Current law.--No provision.
    Explanation of provision.--The Secretary of HHS would be 
required to establish a MediGrant task force consisting of six 
members appointed by the chair of the National Governors 
Association [NGA] and six appointed by the vice chair of the 
NGA. The task force would be assisted by an advisory group 
composed of one representative from each of the following 
associations: National Committee for Quality Assurance; Joint 
Commission for the Accreditation of Healthcare Organizations; 
Group Health Association of America; American Managed Care and 
Review Association; Association of State and Territorial Health 
Officers; American Medical Association; American Hospital 
Association; American Dental Association; American College of 
Gerontology; American Health Care Association; and associations 
identified by the Secretary as representing the interests of 
disabled individuals, children, the elderly, and mentally ill 
individuals. The task force would be required to first specify 
the format of expenditure and utilization summaries by December 
31, 1996; second study and report to Congress and the States by 
April 1, 1997, with recommendations on models for strategic 
objectives and performance goals; methodologies for measuring 
and verifying each objective or goal recommended; an assessment 
of the usefulness to States of quality assurance safeguards, 
utilization data sets, and accreditation programs used in the 
private sector; and designs and methodologies for providing for 
independent evaluations. States would not be required to adopt 
any of the objectives or goals suggested by the task force. The 
Agency for Health Care Policy and Research, or the Secretary, 
would be required to provide administrative support for the 
task force.

             PART B--ELIGIBILITY, BENEFITS, AND SET-ASIDES

Sec. 2111. General description of eligibility and benefits

    Current law.--Each State designs its own Medicaid program 
within proscribed Federal guidelines. States must provide 
Medicaid to certain population groups and have the option of 
covering others. Similarly, a State must cover certain basic 
services and may cover additional services if it chooses. 
States set their own payment rates for services, with some 
limitations.
    The Medicaid statute defines over 50 distinct population 
groups as potentially eligible, including those for which 
coverage is mandatory in all States and those that may be 
covered at a State's option. These generally fall into five 
basic groups: Current and some former recipients of cash 
assistance, either Aid to Families with Dependent Children 
[AFDC] or Supplemental Security Income [SSI]; low-income 
pregnant women and children who do not qualify for AFDC; the 
medically needy, persons who do not meet the financial 
standards for cash assistance programs but meet the categorical 
standards and have income and resources within special 
medically needy limits established by the States; persons 
requiring institutional care and covered under special 
eligibility rules; and low-income Medicare beneficiaries, for 
whom Medicaid pays required Medicare premiums, deductibles, and 
coinsurance. Applicants' income and other resources must be 
within program financial standards. These standards vary among 
States, and different standards apply to different population 
groups within a State.
    Mandatory services for all groups except the medically 
needy and qualified Medicare beneficiaries [QMB's] include: 
Inpatient and outpatient hospital services, nursing facilities 
[NF] services for individuals 21 or older, physicians' 
services, laboratory and x-ray services, early and periodic 
screening, diagnostic and treatment [EPSDT] services for 
individuals under age 21, family planning services, home health 
services for any individual entitled to NF care, rural health 
clinic and federally qualified health center [FQHC] services, 
and services of nurse-midwives, certified pediatric nurse 
practitioners, and certified family nurse practitioners. States 
may also offer any of a broad range of optional services. Among 
the most important, in terms of program expenditure, are 
prescribed drugs, dental and optical services, clinic services, 
and care in ICF's-MR and in institutions for mental diseases 
[IMD's].
    In general, States develop their own methods and standards 
for reimbursement of Medicaid services. However, two Federal 
statutory provisions have had a significant effect on program 
spending: The so-called Boren amendment, which requires that 
payments to hospitals and NF's be ``reasonable and adequate to 
meet the costs [of] efficiently and economically operated 
facilities,'' and requirements for payment adjustments to 
disproportionate share hospitals [DSH's], those that serve a 
higher than average number of Medicaid and other low-income 
patients. States are also required to pay federally qualified 
health centers (FQHC's, including specified centers with Public 
Health Service grants and other entities eligible for but not 
receiving grants) on a full reasonable cost basis.
    Explanation of provision.--The MediGrant plan would be 
required to include a description of (a) the eligible 
population, including categories, duration of eligibility, 
financial standards and methodologies, and standards for the 
protection of income and resources of the community spouses of 
institutionalized beneficiaries, among others; (b) duration and 
scope of covered services, including variations by population 
group; (c) the delivery method, such as use of vouchers, fee-
for-service, or managed care arrangements; (d) required 
beneficiary cost-sharing, including any responsibility of 
parents and spouses of recipients; (e) any incentives or 
requirements to encourage appropriate utilization; and (f) any 
payment provisions for health centers (similar to FQHC's), 
public hospitals, and certain hospitals serving a high share of 
low-income patients, along with a description of where and how 
enrollees previously using these facilities under Medicaid 
would obtain services (if these facilities were no longer 
available to them). A State using a fee-for-service system 
would also have to describe how it determines provider 
qualifications and sets reimbursement rates. The MediGrant plan 
would have to include coverage of immunizations for eligible 
children, in accordance with a schedule developed by the State 
health department in consultation with those responsible for 
administering the MediGrant plan. Payment rates for rural 
providers would have to equal those for comparable nonrural 
providers, except that States could offer incentives for 
providers in underserved areas. No MediGrant plan could deny or 
exclude services on the basis of a preexisting condition. If a 
State contracted with a capitated organization or other entity 
and allowed the organization to impose preexisting condition 
exclusions, the State would have to provide alternate coverage 
for any covered services denied as a result.
    It is the committee's intention that States protect against 
the impoverishment of the community spouses and adult children 
of institutionalized family members. The MediGrant plan 
explicitly requires States to describe in their State medical 
assistance plan provisions designed to protect against spousal 
impoverishment and similar circumstances, such as the 
impoverishment of adult children. It is the committee's view 
that States will provide medical assistance to 
institutionalized recipients in a manner designed both to meet 
the care needs of those recipients and preserve the financial 
well-being of their families. With regard to the adult children 
of institutionalized patients, it is the committee's intention 
that the policy under current law (section 1902(a)(17)(D)) 
shall apply to children of institutionalized parents. This 
policy provides that the States cannot require an adult child 
to contribute to the cost of nursing facility and other long-
term care services.
    In an October 4, 1995, letter to President Clinton, a 
number of Governors expressed their longstanding commitment to 
such protection. [Appendix B] In that letter, the Governors 
cited the fact that 36 States already exceed Federal standards 
and the remainder maintain generous exemptions protecting 
against impoverishment.
    As further protection against family impoverishment, the 
MediGrant plan replaces Federal mandates passed in OBRA 1993 
that require States to establish a mandatory State recovery 
program. This mandate has resulted in the seizure of family 
homes, farms, and businesses. Rather than employ this 
burdensome and destructive approach, the MediGrant plan 
empowers States to protect against family impoverishment and 
grants them unprecedented flexibility in designing similar 
eligibility safeguards.

Sec. 2112. Set-asides of funds for population groups

    Current law.--No provision.
    Explanation of provision.--States would be required to 
devote specified minimum percentages of total program spending 
to services for each of three groups: Low-income families, low-
income elderly, and low-income blind and disabled. (Funds set 
aside for low-income families would have to be spent on 
families below 185 percent of poverty that included a pregnant 
woman or child.) For each group, the minimum percentage to be 
spent would be set equal to 85 percent of the average 
percentage of the State's Medicaid spending during fiscal years 
1992 through 1994 devoted to mandatory services for members of 
that group who were required to be covered under Federal 
Medicaid law. (The percentage would be set at 75 percent in the 
case of a State that covered only mandatory services during the 
base period.)
    For the elderly, there would be an additional set-aside for 
Medicare premium assistance, again based on the percentage of 
the State's spending that went for such assistance to mandatory 
individuals in the base period. For purposes of computing the 
base-period expenditures for the low-income elderly, all 
elderly persons who were in nursing homes would be treated as 
persons whose coverage was required. Thus, the computation of 
the base for elderly includes all current long-term spending 
for elderly who qualify under options that States may use for 
covering persons with higher income levels. One of these 
options is the medically needy option. Medically needy persons 
have incomes too high to qualify for cash welfare, but incur 
medical expenses that deplete their assets and incomes to 
levels that make them needy according to State-determined 
standards. The base also includes State spending under a 
special income rule referred to as the ``300 percent rule'', 
for extending eligibility to persons needing nursing home care. 
Under this rule, States were allowed to cover persons needing 
nursing home care so long as their income did not exceed 300 
percent of the basic Supplemental Security Income [SSI] cash 
welfare payment. Nursing home payments for these two groups of 
nonpoor accounted for 61 percent of total program payments for 
all elderly beneficiaries and approximately 90 percent of all 
spending on nursing home services.3
    \3\ These calculations are based on a Congressional Research 
Service memo to the Commerce Committee entitled ``Medicaid Nursing Home 
Expenditures for the Elderly'' dated October 6, 1995.
---------------------------------------------------------------------------
    In computing the base-period spending percentages, payments 
to disproportionate share hospitals [DSH] and to providers for 
emergency care to illegal immigrants would not be treated as 
payments for mandatory services.
    In providing eligibility for the disabled under the 
MediGrant Program set-aside, the committee urges States to 
consider the special circumstances of women and children with 
disabilities. It also urges States to provide services to meet 
the preventive and primary care needs of people with 
disabilities, including such measures as the prevention of 
illness through prophylactic and early intervention drugs and 
the prevention of transmission of illness through measures such 
as the administration of antiviral drugs to HIV-positive women 
during pregnancy. Such measures may prevent needless disability 
and unnecessary medical costs.
    The MediGrant plan prohibits any State from utilizing 
MediGrant funds for any purpose other than medical assistance 
for low-income residents and support functions essential to the 
provision of that assistance. As a result, it is the 
committee's expectation that actual State MediGrant spending on 
the recipient populations designated by the set-asides will be 
significantly higher than is mandated be the set-asides. It is 
the committee's intention that the set-aside calculations serve 
as a floor, thereby protecting recipient populations who may be 
less well represented before State legislatures than are 
others.
    A State could establish a set-aside percentage for a 
population group below the specified minimum percentages if it 
determined and certified to the Secretary that the health care 
needs of that group (and any related performance goals in the 
MediGrant plan) could be met with a lower level of expenditure. 
Such exceptions could not apply before fiscal year 1998, and 
determinations would have to be renewed at intervals of no more 
than 3 years. It is the committee's intention that the 
alternative set-aside be utilized only in cases where a State's 
innovations in health care service delivery have achieved 
sufficient efficiencies to enable it to serve a targeted 
recipient population at a cost below currently calculated 
estimates.
    A State that spent less on any group than the required set-
aside amount would not be found in substantial violation of the 
requirements if its spending for each of the three population 
groups was at least 95 percent of the required amounts and an 
independent actuary certified that the MediGrant plan was 
reasonably designed to result in expenditures of the required 
amounts.
    Funds not required to be spent under the set-asides could 
be spent for additional medical assistance, program 
administration, or medically related services, defined as 
services not included in the definition of medical assistance 
(see part F) but related to or supporting the attainment of the 
strategic objectives and performance goals established under 
the State's MediGrant plan.

Sec. 2113. Premiums and cost-sharing

    Current law.--States may impose nominal deductible and 
coinsurance requirements for services. Cost-sharing 
requirements may not apply to services to children, pregnancy-
related services, or emergency, family planning, or hospice 
services; certain other restrictions apply. Premiums or 
enrollment fees are generally precluded except for the 
medically needy, for pregnant women and infants with income 
over 150 percent of poverty, or for certain families receiving 
work-transition coverage after loss of AFDC benefits.
    Explanation of provision.--States would be permitted to 
impose premiums, copayments, coinsurance, or deductibles 
pursuant to a public schedule. Cost-sharing could be designed 
to encourage primary and preventive care and discourage 
unnecessary or less economical care and inappropriate use of 
emergency services. Amounts could be scaled to reflect economic 
factors, employment status, family size, availability of other 
health insurance, or participation in employment training, drug 
abuse or alcohol treatment, counseling, or other programs 
promoting personal responsibility. For a family below 100 
percent of poverty and including a pregnant woman or child, no 
premium could be imposed and cost-sharing amounts would have to 
be nominal (except for cost-sharing designed to deter 
inappropriate use of services delivered through hospital 
emergency rooms or by other emergency providers).

Sec. 2114. Description of process for developing capitation payment 
        rates

    Current law.--States may enter into risk contracts with 
health maintenance organizations [HMO's] or comparable 
entities. Under a risk contract, the organization agrees to 
make available a specified set of medical services to an 
individual beneficiary in return for a fixed periodic payment 
(capitation) issued by the Medicaid Program on the 
beneficiary's behalf. Certain restrictions apply to a 
comprehensive contract, under which the organization has agreed 
to accept risk for any three of the mandatory Medicaid 
services, or for inpatient hospital care and any other 
mandatory service. Generally, no more than 75 percent of the 
enrollees of a contractor may be Medicaid or Medicare 
beneficiaries, and beneficiaries must ordinarily be permitted 
to disenroll at any time. Premium rates must be established on 
an actuarially sound basis. The Secretary has provided by 
regulation that rates may not exceed the amount which the State 
would have spent to provide the set of services covered by the 
organization to an equivalent group of beneficiaries not 
enrolled in the organization and continuing to receive care on 
a fee-for-service basis.
    Explanation of provision.--If a State contracted with HMO's 
or similar entities on a risk basis for a package of services 
including at least inpatient hospital and physician care, the 
MediGrant plan would have to describe (a) the use of actuarial 
science in projecting expenditures and utilization for 
enrollees and setting capitation payment rates; (b) required 
qualifications for participating organizations; and (c) a 
process for dissemination to contractors of information on 
capitation rates and historical fee-for-service cost and 
utilization data. The State would also have to provide for 
public notice and an opportunity to comment on this information 
before each contract year; the notice would have to include the 
amounts of capitation payments made under the MediGrant plan in 
the preceding year and expected to be made in the coming year 
(unless exempt from disclosure under State law).

Sec. 2115. Construction

    Current law.--Medicaid is an entitlement program; that is, 
Federal payments must be made to States that make expenditures 
in accordance with an approved State plan, and States must 
furnish covered services to individuals who meet eligibility 
requirements. The entitlement status of the current Medicaid 
Program permits eligible recipients and certain providers to 
sue State officials under Federal law. In addition to the 
eligibility, coverage, and reimbursement rules imposed on 
States by Medicaid law, State plans must meet three general 
requirements: Comparability (the services available to any 
categorically needy beneficiary in a State must generally be 
equal in amount, duration, and scope to those available to any 
other categorically needy beneficiary in the State); 
statewideness (generally, the amount, duration, and scope of 
coverage must be the same statewide); and selection of 
providers (beneficiaries must be free to obtain services from 
any institution, agency, pharmacy, person, or organization that 
undertakes to provide the services and is qualified to perform 
the services).
    Explanation of provision.--The bill would specify that no 
provision would be construed as creating an individual or group 
entitlement to medical assistance under Federal law. In 
addition, the bill grants States flexibility in determining (a) 
coverage of any particular service or provider use and any 
level of payment; (b) geographical coverage area; and (c) 
selection of providers. The MediGrant plan also removes 
existing limitations on States ability to contract with managed 
care plans or individual providers on a capitated or other 
basis, to contract for case management or coordination 
services, or to set capitation rates on the basis of 
competition or negotiation.

Sec. 2116. Limitation on causes of action

    Current law.--The current Medicaid statute permits lawsuits 
brought against State officials in Federal court. 42 U.S.C. 
1983 authorizes such suits against State officials who, under 
color of State law, are alleged to have deprived any person of 
rights under Federal law or the Federal Constitution.
    If a person sues a State official and seeks a Federal court 
to order that the State official comply with a Federal statute, 
such an order effectively operates against the State. Such an 
order, however, may operate prospectively only.
    Explanation of provision.--The bill would remove the 
existing right of an applicant, beneficiary, provider, or 
health plan to sue a State official under 42 U.S.C. 1983 to 
require prospective enforcement of the Medicaid statute. 
However, the plan would have no effect on any action brought 
under State law.

                       part c--payments to states

Sec. 2121. Allotment of funds among States

    Current law.--Medicaid services and associated 
administrative costs are jointly financed by the Federal 
Government and the States. The Federal share of a State's 
payments for services is known as the Federal Medical 
Assistance Percentage [FMAP]. The Federal share of 
administrative costs is 50 percent for all States, though 
higher rates are applicable for specific items. Federal 
matching payments for States and the District of Columbia are 
open-ended; that is, there is no limit on the amount a State 
may receive for expenditures that are allowable under its 
approved Medicaid State plan. Payments for Commonwealths and 
territories are subject to annual maximums fixed in the 
statute.
    Explanation of provision.--Beginning with fiscal year 1996, 
the bill would limit Federal obligations and outlays for each 
State to fixed allotments. (Obligations are binding agreements 
to make Federal payments, immediately or in the future. Outlays 
are actual payments to liquidate obligations.) The obligation 
allotments would include adjustments to reflect obligations 
incurred in 1 year that did not result in outlays until the 
following year.
    For fiscal year 1996, the MediGrant outlay allotment for 
each State and the District of Columbia would be based on 
Federal Medicaid payments to the State in fiscal year 1994, 
increased by the ratio of $95,529,490,500 (the total available 
for outlay allotments to States and the District for fiscal 
year 1996) to $83,213,431,458 (the total of fiscal year 1994 
Federal payments to the States and the District). For fiscal 
year 1997 and later years, the outlay allotment would be based 
on a formula allocation from a fixed pool of total MediGrant 
funds. A State could carry over any unused outlay allotment 
amount to subsequent years.
    The pool for fiscal year 1996 would be $95.673 billion 
(this represents outlay allotments to the States and the 
District plus allotments to Commonwealths and territories). The 
pool would be $102.135 billion for fiscal year 1997, $106.221 
billion for fiscal year 1998, $110.469 billion for fiscal year 
1999, $114.888 billion for fiscal year 2000, $119.483 billion 
for fiscal year 2001, and $124.263 billion for fiscal year 
2002. For later years, the pool amount would be the previous 
year's amount increased by the lesser of 4 percent or the 
growth in the consumer price index for all urban consumers 
[CPI-U] for the 12 months ending in June before the start of 
the year in question. The increase in the pool amount over that 
for the preceding year would be designated the ``national 
MediGrant growth percentage'' [NMGP].
    For fiscal year 1997 and later years, each State's outlay 
allotment from the pool would equal a needs-based amount times 
a scalar factor, subject to certain floors and ceilings. The 
needs-based amount for a State would be the product of its 
aggregate need and its old Federal Medical Assistance 
Percentage for the previous year (FMAP; see below). The scalar 
factor would be a constant multiplier for all States used to 
ensure that floor and ceiling provisions, along with the 
allotments for Commonwealths and territories, do not cause 
total allotments to exceed the pool amount.
    The State's aggregate need would be the product of four 
factors: residents in poverty, a case mix index, an input cost 
index, and national average spending per resident in poverty. 
Residents in poverty would be the average number of individuals 
in the State below the Federal poverty threshold in the most 
recent period of 3 calendar years for which data were 
available. The case mix index would equal the 3-year average 
ratio between the State's expected per recipient spending and 
national average per recipient spending, given the State's 
relative proportions of aged, disabled, and other recipients 
and assuming that the State's per recipient spending for each 
group was equal to the national average for that group. The 
case mix index could not be less than .9 or more than 1.15. The 
input cost index would be the 3-year average of the sum of .15 
and the product of .85 and a hospital wage index. This index 
would equal the ratio between annual average wages for hospital 
employees in the State and the national average; it would be 
based on the area wage indices computed under Medicare's 
prospective payment system for inpatient hospital services (or 
a comparable index if the Medicare index should no longer be 
available). National average spending per resident in poverty 
would be computed for fiscal year 1997 using fiscal year 1994 
data; for fiscal year 1998 and later years, the figure would be 
increased by the NMGP.
    No State would receive an outlay allotment less than 102 
percent of the State's allotment in the previous year. 
Beginning in fiscal year 1998, a higher floor would apply for 
certain States based on the one-time increase in the State's 
allotment from fiscal year 1996 to fiscal year 1997. For a 
State whose fiscal year 1996-97 increase was greater than 125 
percent of the fiscal year 1997 NMGP, the floor for any year 
would be 104 percent of the previous year's allotment. For a 
State whose fiscal year 1996-97 increase was between 75 and 125 
percent of the fiscal year 1997 NMGP, the floor would be 103 
percent of the previous year's allotment. The allotment for a 
State could not exceed the State's allotment for the previous 
year by more than 133 percent of the NMGP, or 150 percent of 
the NMGP in the case of the 10 States with the lowest rates of 
Federal Medicaid spending per resident-in-poverty. Allotments 
for Commonwealths and territories would equal their previous 
year's allotments increased by the NMGP (in place of the 
percentage increases provided under current law).
    To reduce variations in increases in outlay allotments over 
time, any State or the District could elect an alternative 
growth rate formula. A portion of the State's allotment for 
fiscal year 1996 could be deferred and applied to increase its 
allotment for one or more subsequent years, so long as the 
total of the increases did not exceed the amount deferred in 
fiscal year 1996. (Obligation allotments for the State would be 
adjusted accordingly.)
    The Secretary would publish preliminary allotments for each 
fiscal year by April 1 of the preceding fiscal year. The 
General Accounting Office [GAO] would report to Congress by May 
15 on the extent to which the allotments comply with statutory 
requirements. The Secretary would publish final allotments by 
July 1, taking into account the GAO analysis and explaining any 
changes from the preliminary allotments; the Secretary could 
not modify allotments thereafter. By August 1, GAO would report 
to Congress on the statutory compliance of the final 
allotments.

Sec. 2122. Payments to States

    Current law.--The FMAP for each State is calculated 
annually based on a formula designed to provide a higher 
Federal matching rate to States with lower per capita incomes. 
No State may have an FMAP lower than 50 percent or higher than 
83 percent. The FMAP for Commonwealths and territories is set 
at 50 percent.
    Explanation of provision.--Subject to the allotment limits, 
payments to States for medical assistance and medically-related 
services would equal the State's spending for the services 
times the applicable FMAP. This would be the greater of the old 
FMAP, computed as under current law, or a new FMAP, (or, if 
less, the old FMAP plus 10 percentage points). The new FMAP 
would equal 100 percent minus the product of (a) 0.39 and (b) 
the ratio of the total taxable resources [TTR] ratio for the 
State to the aggregate expenditure need ratio for the State. 
The TTR ratio would be the ratio of the most recent 3-year 
average of the State's TTR, as determined by the Secretary of 
the Treasury, to the sum of the average TTRs for all States 
(for the District of Columbia, a per capita income ratio would 
be substituted). The aggregate expenditure need ratio would be 
the ratio of the State's aggregate expenditure need (as 
determined in computing the State's allotment; see above) to 
the sum of the aggregate expenditure needs for all States. The 
new FMAP could not be less than 40 percent or greater than 83 
percent. The FMAP for Commonwealths and territories would be 50 
percent. The FMAP for services in Indian Health Service 
facilities (and for specified facilities of Indian tribes that 
are not Indian Health Service facilities) would continue to be 
100 percent; in addition, no State matching would be required 
for services to unlawful aliens. For administrative services, 
the Federal matching percentage would generally be 50 percent, 
with enhanced matching for specified expenditures as under 
current law. Provisions of current Medicaid law relating to 
periodic payments to States and treatment of overpayments and 
disallowances would be retained.

Sec. 2123. Limitation on use of funds

    Current law.--Federal funds are available for expenditures 
made in accordance with the approved State plan. A State may 
exclude a provider on its own or in response to action by the 
Secretary; if the Secretary excludes a provider from Medicare, 
the State must exclude the provider from Medicaid. Payment for 
medically-related services that do not meet the definition of 
medical assistance is generally not permitted. There is no 
restriction on total State spending for administration. Federal 
matching payments are not available for services that would 
have been paid for by a private insurer but for a provision of 
the insurance contract making the insurer secondary to 
Medicaid. In order to receive Medicaid payments for outpatient 
prescription drugs, the manufacturer must provide cash rebates 
to Medicaid programs for the products Medicaid purchases. 
Manufacturers must also comply with section 8126 of title 38 of 
the United States Code (relating to prices of drugs procured by 
the Department of Veterans Affairs and other agencies), 
including entering into a master agreement with the Secretary 
of Veterans Affairs. Payments may be made for services to 
illegal aliens only in the case of emergency services. Payment 
for abortion services is required in cases of rape or incest, 
or when necessary to save the life of the mother.
    Explanation of provision.--States could use Federal funds 
only to carry out the purposes of title XXI. Federal payments 
would not be made to a State for nonemergency services provided 
or ordered by providers excluded under the maternal and child 
health or social services block grant, Medicare, or Medicaid. 
Spending for medically-related services could not exceed 5 
percent of total spending under the MediGrant plan. Spending 
for administration could not exceed the sum of $20 million plus 
10 percent of total spending under the MediGrant plan. This 
limit would not apply, during the first two years the MediGrant 
plan was in effect, to spending for quality assurance, 
utilization review, and similar activities or to spending 
needed to comply with reporting requirements. As under current 
law, Federal matching would not be available for services that 
would have been paid for by a private insurer but for a 
provision of the insurance contract making the insurer 
secondary to Medicaid. The definition of allowable emergency 
services for illegal aliens would be clarified. Payment could 
not be made for prescription drugs unless the manufacturer had 
entered into a MediGrant master rebate agreement with the 
Secretary (see below) and was in compliance with current 
requirements section 8126 of title 38, including those for a 
master agreement with the Secretary of Veterans Affairs. 
Payment for abortions (or for health benefit coverage including 
abortions) would be permitted only to save the life of the 
mother, or in cases of rape or incest. Payment could not be 
made for drugs or services furnished to cause or assist in 
causing the death, suicide, euthanasia, or mercy killing of a 
person.

                 PART D--PROGRAM INTEGRITY AND QUALITY

Sec. 2131. Use of audits to achieve fiscal integrity

    Current law.--States are required to make such reports as 
the Secretary may require, and comply with provisions to assure 
the correctness and verification of such reports. Regulations 
state that the HHS Office of Inspector General [OIG] 
periodically audits State operations in order to determine 
whether, first, the program is being operated in a cost-
efficient manner, and, second, funds are being properly 
expended for the purposes for which they were appropriated. The 
OIG releases audit reports simultaneously to officials of the 
State and HHS.
    Explanation of provision.--Each MediGrant plan would be 
required to provide for an annual audit of the State's medical 
assistance expenditures in compliance with chapter 75 of title 
31, United States Code. If the Secretary determined that a 
State's audit was performed in substantial violation of the 
chapter 75 provision, the Secretary would be permitted to 
conduct a verification audit or require that the State do so. 
Within 30 days of completion of an audit or verification audit, 
the State would be required to provide a copy of the audit 
report to the Secretary along with the State's response to the 
auditor's recommendation. The State also would be required to 
make the audit report available for public inspection.
    Each State would be required to maintain fiscal controls, 
accounting procedures, and data processing safeguards that are 
reasonably necessary to assure the fiscal integrity of the 
State's activities. The State's controls and procedures would 
be required to be generally consistent with generally accepted 
accounting principles as recognized by the Governmental 
Accounting Standards Board or the Comptroller General.
    Each MediGrant plan would be required to provide that the 
records of any provider could be audited to ensure that proper 
payments were made under the plan.

Sec. 2132. Fraud prevention program

    Current law.--States are required to operate systems for 
the detection of fraud. Where fraud is found, the law provides 
for civil and criminal penalties.
    Explanation of provision.--To detect fraud and abuse by 
providers, beneficiaries, and others, each MediGrant plan would 
be required to have a program that includes the following. 
Certain program contractors and providers would be required to 
disclose ownership and control information to State agencies in 
accordance with sections 1124 and 1124(a) of the Social 
Security Act. An entity (other than an individual practitioner 
or a group of practitioners) would be required to supply 
information on ownership, controlling interests, and conviction 
of certain offenses upon request by the Secretary or the State 
agency. A State could exclude a provider from participation in 
the MediGrant plan on its own initiative, and would be required 
to exclude any entity when required to do so by the Secretary 
pursuant to section 1128 or 1128A of the act. Whenever a 
provider was terminated, suspended, sanctioned, or prohibited 
from participating under a State's plan, the State agency would 
be required to notify the Secretary and, in the case of a 
physician, the State medical licensing board. States would be 
required to provide information and access to information 
respecting sanctions taken against practitioners and providers 
by State licensing authorities.

Sec. 2133. Information concerning sanctions taken by State licensing 
        authorities against health care practitioners and providers

    Current law.--The law includes details on the information 
reporting requirements respecting sanctions taken against 
practitioners and providers by State licensing authorities.
    Explanation of provision.--The provision is identical to 
the current law provision. Each State would be required to have 
in effect a system for reporting and providing access to 
information for use by the Secretary and other officials 
concerning licensing revocations and other sanctions taken 
against providers and practitioners by State licensing 
authorities, peer review organizations, or accreditation 
entities. A State would be required to report any adverse 
action taken, whether a provider had surrendered a license or 
left the State, any other loss of license, and any negative 
action taken by a reviewing authority. The State would be 
required to provide the Secretary with access to whatever 
documents the Secretary needed to determine the facts and 
circumstances concerning the actions taken. Such information 
would have to be provided under arrangements made by the 
Secretary in the form the Secretary determined to be 
appropriate to, first, provide for the Secretary's activities, 
and second, provide information to other specified authorities 
in order to protect their programs and services.
    The Secretary would be required to safeguard the 
confidentiality of information furnished. However, any party 
authorized to disclose information would be permitted to do so. 
In implementing this section, the Secretary would be required 
to provide for maximum coordination of section 422 of the 
Health Care Quality Improvement Act of 1986.
    It is the committee's intention that paragraph (a)(1)(D) of 
this section shall pertain to such consequential negative 
actions or findings as those related to the provision of direct 
patient care by a practitioner or entity.

Sec. 2134. State MediGrant fraud control units

    Current law.--Each State is required to have a Medicaid 
fraud control unit, independent of the State Medicaid agency, 
unless the State demonstrates that operation of such a unit 
would not be cost-effective because minimal fraud exists, and 
beneficiaries will be protected from abuse and neglect without 
such a unit. Each unit is required to submit an annual report 
to the Secretary.
    Explanation of provision.--Each MediGrant plan would be 
required to provide for a State MediGrant fraud control unit 
[FCU] unless the State demonstrated that such a unit would not 
be cost-effective because minimal fraud existed, and that 
beneficiaries would be protected from abuse and neglect without 
such a unit. The FCU would be required to be separate and 
distinct from the State agency responsible for the operation 
and administration of the MediGrant plan. It would have to be a 
part of the State attorney general's office or coordinate with 
that office. It would be required to have statewide 
prosecutorial authority or the ability to refer to local 
prosecutors. The FCU would investigate and prosecute violations 
of State fraud laws, and review and prosecute cases involving 
neglect or abuse of beneficiaries in nursing homes and other 
facilities. It would be required to provide for the collection 
of overpayments it had discovered were made to health care 
providers. It would be required to employ auditors, attorneys, 
investigators, and other necessary personnel.

Sec. 2135. Recoveries from third parties and others

    Current law.--States are required to ascertain the 
potential third-party liability for payment of a beneficiary's 
medical claims and, where legal liability exists, seek 
reimbursement from the third party unless it would not be cost-
effective to do so. States generally are limited in the 
circumstances which permit them to place liens against property 
or seek other recovery from States.
    Explanation of provision.--Each MediGrant plan would be 
required to ascertain the legal liability of third parties to 
pay for care and services available under the plan and seek 
reimbursement to the extent of legal liability unless the cost 
of recovery was expected to exceed the amount of reimbursement.
    MediGrant plans would be required to prohibit a provider 
from refusing to furnish a covered service to a beneficiary 
because of a third party's potential liability for the service, 
and from trying to collect payment from a beneficiary that 
exceeded payment that would be made under the plan. For 
violation of the collection provision, a MediGrant plan could 
provide for a payment reduction up to three times the amount 
sought to be collected.
    States would be required to prohibit any health insurer, in 
enrolling an individual or in making payments for benefits, 
from taking into account that the individual was eligible for 
or was provided medical assistance under a MediGrant plan.
    A State would be required to have laws in effect under 
which the State is considered to have acquired the rights of an 
individual to payments by a party that is liable for the 
individual's health care items and services. Each State would 
be required to provide for mandatory assignment of rights of 
payment for medical support and care to beneficiaries.
    Each State with a MediGrant plan would be required to have 
in effect laws relating to medical child support. Each State 
would have to prohibit an insurer from denying enrollment of a 
child because the child was born out of wedlock, was not 
claimed as a dependent on the parent's Federal income tax 
return, or did not reside with the parent or in the insurer's 
area. In a case in which a parent was required by a court or 
administrative order to provide health coverage for a child, 
and the parent was eligible for family health coverage, State 
laws would have to require the employer and insurer to permit 
the parent to enroll the child upon application by either 
parent or by the State child support agency, and limit the 
circumstances under which the insurer could disenroll such a 
child. State laws would be required to prohibit an insurer from 
imposing requirements on a State agency that has been assigned 
the rights of an individual that are different from 
requirements applicable to an agent of any other covered 
individual; require an insurer, in the case of a child who has 
health coverage through the insurer of a noncustodial parent, 
to provide information to the custodial parent; permit the 
custodial parent to submit claims for covered services without 
the approval of the noncustodial parent, and make payment on 
claims to the custodial parent, the provider, or the State 
agency; permit the State agency to garnish the employment 
income of, and require withholding amounts from State tax 
refunds to, any person who is required by court or 
administrative order to cover the medical costs of a child who 
is eligible for medical assistance, has received payment from a 
third party for the costs of the child's services, and has not 
used the payment to reimburse the appropriate party.
    A State would be permitted to take appropriate action to 
adjust or recover from an individual or the individual's State 
amounts paid as medical assistance under a MediGrant plan.

Sec. 2136. Assignment of rights of payment

    Current law.--At each eligibility determination, an 
applicant, as a condition of eligibility, must assign to the 
State any rights to medical support and payment.
    Explanation of provision.--As a condition of eligibility 
for medical assistance under a State's MediGrant plan, an 
individual would be required to assign to the State any rights 
to medical support and payment for medical care from any third 
party of the individual or any other person who is eligible and 
on whose behalf the individual has the legal authority to 
execute an assignment of such rights. An individual would be 
required to cooperate with the State agency in establishing 
paternity of a child born out of wedlock and in obtaining 
support and payments for the individual and child unless the 
individual was a pregnant woman or was found to have good cause 
for refusing to cooperate as determined by the State. An 
individual would be required to cooperate with the State in 
identifying and providing information to assist the State to 
pursue any liable third party unless the individual had good 
cause for refusing to cooperate as determined by the State. The 
State would be required to provide for entering into 
cooperative arrangements (including financial arrangements) 
with any appropriate agency of any State and with appropriate 
courts and law enforcement officials, to assist the agency or 
agencies administering the State plan with respect to the 
enforcement and collection of rights to support or payment that 
had been assigned.
    Any amount collected by the State under an assignment would 
be retained by the State to reimburse it for payments made on 
behalf of an individual with respect to whom the assignment was 
executed (with appropriate reimbursement to the Federal 
Government of its share of the payment). The remainder of such 
amount collected would be paid to the individual.

Sec. 2137. Quality assurance standards for nursing facilities

    Current law.--OBRA 87 comprehensively revised Medicaid 
requirements for nursing homes participating in the program. 
These provisions, collectively referred to as nursing home 
reform law, have three major parts: First, requirements that 
nursing homes must meet in order to be certified to participate 
in Medicaid, including requirements about assessments of 
residents, available services, nurse staffing, nurse aide 
training, and resident rights; second, provisions revising the 
survey and certification process that State survey agencies 
must use for determining whether nursing homes comply with the 
requirements for participation; and third, provisions that 
expand the range of sanctions and penalties that States and the 
Secretary of HHS may impose against nursing homes found to be 
out of compliance with the requirements for participation.
    Explanation of provision.--OBRA 87 nursing home reform 
provisions would be replaced with new requirements. State plans 
would be required to establish and maintain standards in the 
following areas for nursing facilities providing services under 
the State's program: the treatment of resident medical records; 
policies, procedures, and bylaws for operation; quality 
assurance systems; resident assessment procedures, including 
care planning and outcome evaluation; the assurance of a safe 
and adequate physical plant for the facility; staff 
qualifications; and utilization review.
    Standards for nursing facilities would also be required to 
provide for the protection and enforcement of resident rights, 
including rights to exercise the individual's rights as a 
resident of the facility and as a citizen or resident of the 
United States; to receive notice of rights and services; to be 
protected against the misuse of resident funds; to be provided 
privacy and confidentiality; to voice grievances; to examine 
the results of State certification program inspections; to 
refuse to perform services for the facility; to be provided 
privacy in communications and to receive mail; to have the 
facility provide immediate access to any resident by any 
representative of the State's certification program, the 
resident's individual physician, the State long-term care 
ombudsman, and any person the resident has designated as a 
visitor; to retain and use personal property; to be free from 
abuse, including verbal, sexual, physical and mental abuse, 
corporal punishment, and involuntary seclusion; and to be 
provided with prior written notice of a pending transfer or 
discharge.
    States would be required to promulgate standards through 
the State's legislative, regulatory, or other processes, and 
they could take effect only after the State had provided the 
public with notice and an opportunity for comment.
    State plans would also be required to provide for the 
establishment and operation of a program for the certification 
of nursing facilities that meet specified standards as well as 
the decertification of those facilities that fail to meet the 
standards. States would be required to ensure public access to 
the certification program's evaluations of participating 
facilities, including compliance records and enforcement 
actions and other reports by the State regarding ownership, 
compliance histories, and services provided by certified 
facilities. States would be required to audit their 
expenditures under the program, not less often than every 4 
years, through an entity designated by the State which is not 
affiliated with the program.
    States would be required to impose certain sanctions 
against nursing facilities not meeting requirements. If a State 
determined that a certified nursing facility no longer 
substantially met specified requirements and further determined 
that the facility's deficiencies immediately jeopardized the 
health and safety of residents, then the State would be 
required, at a minimum, to terminate the facility's 
certification for participation. If the facility's deficiencies 
did not immediately jeopardize the health and safety of 
residents, the State could, in lieu of termination, provide 
lesser sanctions, including denial of payment for persons 
admitted after a specified date.
    States could not impose sanctions until a facility has had 
a reasonable opportunity to correct its deficiencies, following 
the initial determination that it no longer substantially met 
the requirements for certification and has been given 
reasonable notice and opportunity for a hearing. A State's 
decision to deny payment for new admissions would be effective 
only after notice to the public and the facility, as may be 
provided for by the State. Denial of payment for new admissions 
would end when the State found that the facility was in 
substantial compliance (or was making good faith efforts to 
achieve substantial compliance). Facilities would, however, be 
required to be in compliance by the end of the 11th month 
following the month when the decision to deny payments becomes 
effective. If facilities did not substantially meet the 
requirements by that time, States would be required to 
terminate their certification for participation.
    It is the committee's intention in reporting these 
provisions to strengthen nursing home standards by replacing 
existing federalized standards with strong provisions requiring 
substantial State oversight. Current nursing home standards 
have been bureaucratically burdensome and have forced States to 
divert tens of millions of dollars that could otherwise have 
funded patient care into administration instead. After years 
lost to Federal rulemaking, the standards established in the 
Omnibus Budget Reconciliation Act of 1987 are widely perceived 
today as a centralized effort to meet the needs of residents 
living in very different States. This perspective has been 
shared by Democrat and Republican Governors alike. In fact, 
then-Governor Bill Clinton helped formulate and pass a National 
Governors Association Policy Statement in 1990 that called upon 
Congress to give States greater flexibility in administering 
nursing home standards. [Appendix A] The MediGrant plan gives 
States this flexibility and conditions their receipt of Federal 
funding upon their complete implementation of extensive nursing 
home quality, safety, and patient rights standards.

Sec. 2138. Other provisions promoting program integrity

    Current law.--Each State, and the Secretary, are required 
to make available to the public information respecting all 
surveys of nursing facilities within 14 days after such 
information is made available to the facilities. Copies of cost 
reports, Statements of ownership, and other information 
required to be disclosed also must be made public.
    Each State Medicaid plan must provide for agreements with 
all providers of services to keep such records as are necessary 
to fully disclose the extent of the services provided to 
Medicaid recipients, and to furnish information regarding 
payments claimed for providing services.
    Explanation of provision.--State agencies responsible for 
surveying health care facilities or organizations would be 
required to make public, in readily available form and place, 
pertinent findings on the compliance of the facility or 
organization with the requirements of law. Persons or 
institutions providing services under the State's plan would be 
required to keep such records (including ledgers, books, and 
original evidence of costs) as are necessary to fully disclose 
the extent of the services provided, and to furnish information 
about payments claimed, as the State may from time to time 
request.

      part e--establishment and amendment of state medigrant plans

Sec. 2151. Submittal and approval of MediGrant plans

    Current law.--Each State is required to establish and 
maintain a State plan for medical assistance that is approved 
by the Secretary. The process for approval of State plans and 
State plan amendments is set forth in Medicaid regulations, not 
in statute.
    Explanation of provision.--States would be required to 
submit to the Secretary a MediGrant plan that meets the 
requirements of title XXI. A State with a title XXI Fiscal Year 
1996 allotment of more than $10 billion would be required to 
have specific authorization of its State legislature to submit 
a plan. Unless the Secretary found that a plan substantially 
violated the requirements of title XXI, the plan would be 
approved and would be effective beginning with the calendar 
quarter specified in the plan, but no earlier than the first 
calendar quarter that begins at least 60 days after the plan is 
submitted.

Sec. 2152. Submittal and approval of plan amendments

    Current law.--According to regulation, States may submit 
amendments to their Medicaid plans at any time, and are 
considered approved unless written notice is sent to the State 
within 90 days.
    Explanation of provision.--A State would be permitted to 
submit an amendment to its MediGrant plan at any time. However, 
any amendment that would eliminate or restrict eligibility or 
benefits under the plan could not take effect before it was 
transmitted to the Secretary, unless there was prior or 
contemporaneous public notice of the change, as provided under 
State law, nor could it be effective for longer than a 60-day 
period unless the amendment had been transmitted to the 
Secretary before the end of the period. Any other amendment 
could not remain in effect after the end of a State fiscal year 
(or if later, the end of the 90-day period on which it becomes 
effective) unless the amendment had been transmitted to the 
Secretary. These requirements would not apply to an amendment 
submitted on a timely basis in response to an order of a court 
or the Secretary.

Sec. 2153. Process for State withdrawal from program

    Current law.--States can withdraw from Medicaid, but there 
is no formal process included in current law.
    Explanation of provision.--A State could rescind its plan 
and discontinue participation in the program at any time after 
providing 90 days prior notice to the public and to the 
Secretary. Such discontinuation would not apply to Federal 
payments to States for expenditures made for items and services 
furnished under the plan before the effective date of the 
discontinuation.

Sec. 2154. Sanctions for substantial noncompliance

    Current law.--If the Secretary finds, after reasonable 
notice and opportunity for hearing, that either the plan does 
not comply with the provisions of Federal law, or that in 
administration of the plan there is a failure to comply 
substantially with any provision(s), then the Secretary is 
required to notify the State that payments will be withheld, in 
whole or in part, until the Secretary is satisfied regarding 
the State's compliance. (Under Medicaid regulations, these 
duties and responsibilities are delegated to the Administrator 
of the Health Care Financing Administration [HCFA] in HHS.)
    Explanation of provision.--The Secretary would be required 
to review promptly MediGrant plans and plan amendments to 
determine if they substantially comply with requirements. If 
the Secretary determines that a plan or plan amendment 
substantially violates the requirements and, within 30 days of 
submittal, provides written notice to the State, the Secretary 
would be required to issue an order specifying that the plan or 
amendment would not be effective at the end of a 30-day period 
(or 120 days in the case of the initial submission of the 
MediGrant plan). Before making such a determination, the 
Secretary would be required to consult with the State and 
consider any clarifications and additional information 
submitted. The Secretary would be required to explain and 
justify any determination inconsistent with any previous 
determination. A plan or amendment could only be considered to 
substantially violate a requirement if a provision were 
material and substantial in nature and effect, and were 
inconsistent with an express requirement. Failure to meet a 
strategic objective or performance goal would not be considered 
a substantial violation. A State could appeal the Secretary's 
determination through administrative and judicial procedures.

Sec. 2155. Secretarial authority

    Current law.--No provision. Medicaid regulations, however, 
specify the State and the HCFA may, at any time, negotiate to 
resolve issues.
    Explanation of provision.--The Secretary would be permitted 
to negotiate a satisfactory resolution to any dispute 
concerning the approval of a plan or the compliance of a plan. 
In cases of dispute between the Secretary and a State, the 
Secretary would, whenever practicable, engage in informal 
dispute resolution in lieu of formal enforcement or sanctions. 
The Secretary would be prohibited from delegating authority for 
approval of plans other than to the Administrator of the Health 
Care Financing Administration. The Administrator would be 
prohibited from making any further delegation of such 
authority. The Secretary would be required to administer the 
program only through a prospective formal rulemaking process, 
including issuing notices of proposed rule making, publishing 
proposed rules or modifications to rules in the Federal 
Register, and soliciting public comment.

                       part f--general provisions

Sec. 2171. Definitions

    Current law.--Medical assistance means payment of part or 
all of the cost of a number of specified services. States are 
required to provide some services (including hospital, 
physicians', and laboratory and x-ray services) and permitted 
to cover others (such as prescription drugs and intermediate 
care facilities for the mentally retarded). The law also 
provides that medical assistance expenditures may include 
payments for Medicare cost-sharing; Medicare Part B premiums 
for certain persons; payments for group health plan premiums, 
deductibles, and coinsurance and certain other cost-sharing 
obligations; and payments to Indian Health Service facilities 
for services provided to eligible recipients. The law excludes 
any payments for care or services for first, an inmate of a 
public institution (except as a patient in a medical 
institution) or second, payments for care for an individual 
under age 65 who is a patient in an institution for mental 
diseases, except that States may cover inpatient psychiatric 
services for individuals under age 21.
    The term child means an individual under 19 years of age. 
The term ``pregnant woman'' includes a woman during the 60-day 
period beginning on the last day of pregnancy. The term 
``poverty line'' means the income official poverty line as 
defined by the Office of Management and Budget and revised 
annually in accordance with section 673(2) of the Omnibus 
Budget Reconciliation Act of 1981.
    Explanation of provision.--Medical assistance would be 
defined as including an extensive list of services similar to 
those specified under current law, and, in addition, enabling 
services to increase accessibility to primary and preventive 
services. Eligible low-income individual would mean an 
individual who has been determined eligible by the State and 
whose family income does not exceed a percentage specified in 
the plan that is not greater than 300 percent of the poverty 
line. In determining income, States would be permitted to 
exclude costs incurred for medical care. Medicare cost sharing 
would include Medicare premiums, coinsurance, and deductibles. 
Definitions of child, pregnant woman, and poverty line would be 
the same as in current law.
    It is the committee's intention that the definition of 
medical assistance shall include services provided by a 
Christian Science sanatorium (nursing facility) and a Christian 
Science visiting nurse organization, listed and certified by 
The First Church of Christ, Scientist, in Boston, MA, or the 
Commission for Accreditation of Christian Science Nursing 
Organizations/Facilities, Inc., and services provided in a home 
setting by a Christian Science nurse listed in the Christian 
Science Journal.

Sec. 2172. Treatment of territories

    Current law.--For American Samoa and the Northern Mariana 
Islands, the Secretary is authorized to waive or modify any 
requirement other than a waiver of the Federal matching share 
of expenditures, the annual expenditure limit, or the 
requirement that payment may be made only with respect to 
amounts expended for certain care and services.
    Explanation of provision.--The Secretary's waiver 
authorization would be extended to include Puerto Rico, Guam, 
and the Virgin Islands.

Sec. 2173. Description of treatment of Indian health service facilities

    Current law.--For services provided to Medicaid 
beneficiaries in Indian Health Service facilities, the Federal 
matching rate to State Medicaid Programs is 100 percent. 
Indians may qualify for Medicaid the same as members of any 
other population groups by meeting the categorical and 
financial standards.
    Explanation of provision.--In a State in which there is at 
least one Indian Health Service facility, the MediGrant plan 
would have to describe first, what provision, if any, has been 
made for payment of items and services furnished by the 
facilities, and second, how medical assistance will be provided 
to eligible Indians, as determined by the State in consultation 
with appropriate Indian tribes and tribal organizations. For 
services provided to Indians, the Federal matching rate to 
State Medicaid Programs would be 100 percent, as provided in 
section 2122.

Sec. 2174. Application of certain general provisions

    Current law.--Certain sections of title XI of the Social 
Security Act apply to Medicaid.
    Explanation of provision.--The proposal would clarify that 
certain sections of title XI would apply to MediGrant.

Sec. 2175. Requirements for manufacturers of outpatient prescription 
        drugs

    Current law.--Federal reimbursement to States for covered 
outpatient prescription drugs is available only for products of 
a manufacturer that has agreed to grant rebates to Medicaid 
programs for the manufacturer's products that they purchase. A 
drug manufacturer must comply with the provisions of section 
8126 of title 38 of the U.S. Code (relating to prices of drugs 
procured by the Department of Veterans Affairs and other 
Federal agencies), including entering into a master agreement 
with the Secretary of Veterans Affairs.
    Explanation of provision.--No Federal funds would be 
available to a State for covered outpatient drugs unless the 
drug's manufacturer had entered into a MediGrant master rebate 
agreement with the Secretary and is complying with the 
provisions of section 8126 of title 38 of the U.S. Code, 
including entering into a master agreement with the Secretary 
of Veterans Affairs.
    States would not be required to participate in the 
MediGrant master rebate agreement. States would be permitted to 
enter into rebate agreements on their own. States could opt to 
cover drugs for which there was no rebate agreement in effect. 
If a State had a rebate agreement already in effect which 
provided for a minimum rebate equal to or greater than the 
minimum rebate that would be paid under the master agreement, 
then at the State's option the agreement would be considered to 
meet the requirements of the MediGrant master rebate agreement 
and the State would be considered to have elected to 
participate in the master agreement.
    Under the MediGrant master agreement, a drug manufacturer 
would be required to provide a rebate to each State not later 
than 30 days after receipt of certain information from 
participating States. Not later than 60 days after the end of a 
rebate period, each State participating in the master rebate 
agreement would be required to report to each manufacturer, 
with a copy to the Secretary, information on the drugs for 
which the State made payment during the period. A manufacturer 
would be permitted to audit the State's information. 
Adjustments would be made as necessary.
    Not later than 30 days after the end of a rebate period, 
each manufacturer subject to the master agreement would be 
required to report to the Secretary on the average manufacturer 
price [AMP] and the best price of each of the manufacturer's 
covered products. In addition, within 30 days of entering into 
the agreement, the manufacturer would have to report the AMP as 
of October 1, 1990, for each of the manufacturer's covered 
outpatient drugs. The Secretary would be permitted to verify 
the manufacturer's prices and impose a civil monetary penalty 
of up to $10,000 for refusal of the Secretary's request for 
information. For failure to provide timely information, the 
penalty would be $10,000 paid to the Treasury for each day 
information was not provided. After 90 days, the agreement 
would be suspended until the information was reported. For the 
provision of false information, a civil money penalty of up to 
$100,000 could be imposed in addition to other penalties. 
Information disclosed by manufacturers or wholesalers would be 
confidential. The Secretaries of HHS and Veterans Affairs and 
State agencies or contractors would be prohibited from 
disclosing information in a form that discloses the identity of 
a specific manufacturer or wholesaler or their prices except as 
the Secretary determined appropriate, and to permit review by 
the Comptroller General and the Congressional Budget Office.
    Unless terminated, a MediGrant master rebate agreement 
would be effective for at least 1 year and automatically 
renewed for 1 year. The Secretary could terminate an agreement 
for violation of requirements or for good cause. A manufacturer 
could terminate participation for any reason. In case of 
termination, another agreement could not be entered into with 
that manufacturer for at least 1 calendar quarter, unless the 
Secretary found good cause for earlier reinstatement.
    The provision provides for a basic rebate and an additional 
rebate. The basic rebate would be based on the number of 
products paid for by the State during the period, and the 
greater of, first, the minimum rebate percentage, or second, 
the difference between the AMP and the best price. The minimum 
rebate percentage would be 15.1 percent of the AMP. The best 
price would be the lowest price available from the manufacturer 
during the rebate period. The additional rebate amount would be 
based on the amount, if any, by which the AMP of a product 
exceeded the product's AMP as of July 1, 1990, increased by the 
increase in consumer price index for all urban consumers since 
September 1990.
    For certain drugs, including a brand name drug that a 
physician has certified as medically necessary, the minimum 
rebate amount would be 11 percent of the AMP. The Secretary 
may, upon request of a manufacturer, limit the rebate amounts 
of covered products of which most were dispensed to inpatients 
of nursing facilities.
    A State that participated in the master rebate agreement 
would be permitted to subject a product to prior authorization 
controls that meet specified requirements, exclude or restrict 
coverage of specified drugs or classes of drugs that are 
updated periodically by the Secretary, establish formularies 
that meet specified requirements, and impose minimum and 
maximum quantities on prescriptions and refills.
    A State would be permitted to operate a drug use review 
program under standards established by the State. The Secretary 
would be required to encourage each State to establish a point-
of-sale electronic system for processing claims for covered 
outpatient drugs. The Secretary would be required to submit 
annual reports on the drug rebate program to the House 
Committee on Commerce, the Senate Committee on Finance, and the 
Senate Committee on Aging.
    The requirements of the MediGrant master rebate agreement 
would not apply to covered outpatient drugs dispensed by a 
capitated health care organization or a hospital or nursing 
facility that uses a formulary. Amounts paid by such entities 
could be included in the determination of best price.
    If the MediGrant plan of a State participating in the 
master rebate agreement included coverage of drugs that could 
be sold without a prescription (known as over-the-counter 
drugs), those drugs would be regarded as covered outpatient 
drugs for purposes of the State's participation in the 
agreement.
    With respect to the provision in this section permitting 
the exclusion of fertility drugs from coverage, it is not the 
intention of this Committee to classify products which treat 
the male disease of erectile dysfunction as a fertility drug.

Section 16002. Termination of current program and transition

    Effective on the date of enactment, title XIX would cease 
to be an entitlement program for individuals and Federal 
obligations to States would be limited to statutory obligation 
allotments for fiscal year 1996. The Secretary would be 
prohibited from entering into any obligation with a State for 
expenses incurred on or after the earlier of October 1, 1996, 
or the first day the State's plan under title XXI was 
effective. A State that submitted claims for payment under 
title XIX after the date of enactment would be deemed to have 
accepted the obligation limitation. States' claims for 
obligations incurred before the date of enactment would have to 
be submitted for payment by June 30, 1996.
    Any cause of action that required a State to establish or 
maintain minimum payment rates under title XIX that was not 
final as of the date of enactment would not be continued. For 
any payment made under title XIX before October 1, 1995, for 
which disallowance was not taken or not completed by that date, 
the Secretary would be required to discontinue the disallowance 
proceeding. If the disallowance had been taken as of the date 
of enactment, the Secretary would be required to rescind any 
effected payment reductions and return payments to the State.
    The Vaccines for Children program would be repealed 
effective on the date of enactment. Although the repeal would 
not affect the distribution of vaccines purchased and delivered 
before enactment, no further vaccine purchases could be made 
under any title XIX contract.
    A MediGrant plan under title XXI would be added to the term 
``State health care program.'' The role of the Inspector 
General under title XIX would continue under title XXI.
    It is the Committee's intention that the existing 
moratorium against classifying as institutions for mental 
diseases certain low-cost community hospitals serving a 
substantial proportion of medical assistance patients be 
extended until the first quarter in which a State's MediGrant 
plan comes into effect. This treatment is needed to prevent the 
disruption of services for patients being served by 
institutions currently operating under the moratorium.

                           Technical Appendix

Explanation of MediGrant computation of State payments

    The MediGrant Program would limit Federal matching payments 
to each State to a fixed allotment. The first section of this 
appendix explains how the State allotments are computed. 
Subject to allotments, payments to the State out of those 
allotments are based on a new Federal medical assistance 
percentage [New FMAP] which is explained in the second section 
of this appendix.

Allotment of funds among States

    Overview.--This section presents a step-by-step description 
of the computation of allotments of funds. The allotment is 
based on the States sharing a fixed pool of funds. In fiscal 
year 1996, States shares of the pool are based on the shares of 
the fiscal year 1994 base year Medicaid grant to the State. 
Beginning in fiscal year 1997, a needs-based State allotment 
formula is used. The needs- based formula is intended to 
provide a measure of the relative needs of States for Medicaid 
expenditures. The needs-based allotment is then subject to 
``floors'' and ``ceilings'' which are transition rules intended 
to ensure that no State would be subject to sudden large shifts 
in payments from year-to-year and that no State will lose 
funds. Finally, the formula computation uses proportional 
scaling to ensure that the combination of the needs-based 
formula together with floors and ceilings produces State 
allotments that sum exactly to the overall funding level for 
the program in each fiscal year.
    Pool of funds.--The pool available to be allotted would be 
$95.673 billion for fiscal year 1996, $102.135 billion for 
fiscal year 1997, $106.221 billion for fiscal year 1998, 
$110.469 billion for fiscal year 1999, $114.888 billion for 
fiscal year 2000, $119.483 billion for fiscal year 2001, and 
$124.263 billion for fiscal year 2002. For later years, the 
pool amount would be the previous year's amount increased by 
the lesser of 4 percent or the growth in the consumer price 
index for all urban consumers [CPI-U] for the 12-month period 
ending in June before the start of the year in question. Pool 
amounts to be allocated among the 50 States and the District of 
Columbia would be reduced by the amount of allotments to 
Commonwealths and territories. The percentage growth in the 
pool amount over the pool amount in the preceding year would be 
designated the ``national Medicaid growth percentage'' [NMGP]. 
This percentage is used in floors and ceilings described below.
    Fiscal year 1996 allotment.--For fiscal year 1996, the 
State grant amount is to be computed so that every State 
allocation is proportional to the fiscal year 1994 base year 
spending amounts. Every State's allocation equals its fiscal 
year 1994 base year spending amount multiplied by the ratio of 
the available pool of funds in fiscal year 1996 to the sum of 
the States fiscal year 1994 base year spending amounts. (That 
ratio is approximately 1.14, reflecting a 14 percent increase 
from 1994 to 1996).
    Base-year spending (fiscal year 1994).--The fiscal year 
1994 base year Federal Medicaid expenditures are from the HCFA 
Form 64 reports for the four quarters in fiscal year 1994. The 
expenditure amount to be used for each State is the greater of 
the amount reported on line 11 or line 6 (proportionally scaled 
up so that the line 6 amounts sum to the line 11 total). Line 6 
represents current expenditures, that is, the amount spent 
during each quarter that applies solely to that quarter's 
activity. Line 11 represents net expenditures, which is current 
expenditures with various adjustments to account for such items 
as: prior period claims, collections received during the 
quarter, Federal audit and overpayments. HCFA prepares a year-
end report, the Medicaid Financial Management Report, 
summarizing the HCFA 64 reports from each State for each 
quarter of that year. As noted, these data are to be used in 
computing the fiscal year 1996 amounts and in computing the 
floor and ceiling amounts in subsequent fiscal years.
    Commonwealths and territories.--Beginning with fiscal year 
1997, the Commonwealths and territories will have percentage 
increases equal to the national Medicaid growth percentage 
[NMGP] defined above under ``Pool Amounts.'' Because comparable 
data are unavailable, the needs-based formula described below 
could not be applied to the Commonwealths and territories. 
Unless otherwise specified, ``State'' in this Appendix refers 
to the 50 States and the District of Columbia.

Description of the needs-based allotment formula

    Needs-based formula allotment.--The needs-based formula 
allotment [NBFA] for a State is the product of State aggregate 
expenditure need, the ``old'' FMAP, and a constant multiplier 
called the adjustment factor. As explained subsequently, the 
adjustment factor proportionally increases or decreases the 
NBFA so that, when these amounts are subject to the floors and 
ceilings, all State allotments sum to the total amount 
available. If a State is not subject to any floor or ceiling, 
the NBFA is that State's allotment. If a State's NBFA amount 
would represent growth in funding in excess of a growth ceiling 
or less than a floor, the State's allotment is instead set by 
that ceiling or floor rule.
    Each State's needs-based formula allotment [NBFA] is 
computed using the following formula:




    State aggregate expenditure need.--A State's aggregate need 
is an amount that represents what the total cost would be for 
the State to provide MediGrant health services to the State's 
poverty population. Aggregate need is the product of four 
factors: poverty count, a caseload cost index, an input cost 
index, and the national average spending per person in poverty.




    Poverty count.--The poverty count represents the average 
number of persons in poverty in the United States for the 3 
most recent years for which data is available. The poverty 
count data are from the Current Population Survey conducted by 
the Census Bureau in March of each year from which the Bureau 
calculates the number of persons in poverty for the prior 
calendar year. Census poverty estimates for a single year are 
based on a survey of a sample of the total State population. 
Because of the small sample size, annual estimates of the 
poverty count could change substantially from year to year, so 
an average of the 3 most recent years is used to smooth such 
variation.
    Caseload cost index.--The caseload cost index represents 
each State's caseload by eligibility category weighted by the 
U.S. average spending for that category. Based on caseload data 
by eligibility category from the HCFA 2082 reports prepared by 
the States for the most recent year for which data is 
available, the number of recipients served is grouped into 
three categories representing: elderly, blind and disabled, and 
``other'' which are essentially children and mothers on AFDC 
and pregnant women. Excluded from this grouping are any 
recipients whose eligibility category is reported by States as 
``unknown''. Expenditures for these same groups are also 
obtained from the HCFA 2082 reports on the basis of reported 
vendor payments for each eligibility category. For each State, 
a case-mix weighted cost is calculated by multiplying the 
State's percentage of recipients in each of the three 
categories by the U.S. average spending based on vendor 
payments for that category, then adding together the calculated 
amounts for the three categories. Each State's case-mix 
weighted cost is then divided by the U.S. average spending 
based on vendor payments for all categories to derive an index 
for each State.
    The caseload cost index described in the preceding 
paragraph is to be computed for each State for the 3 most 
recent years for which the data are available. For each State, 
these three indices are then averaged, and that 3-year average 
is then constrained so it is not less than 0.9 and does not 
exceed 1.15 (the index is constructed so that 1.00 is the value 
equaling the U.S. average cost mix). That constrained 3-year 
average is used in computing State aggregate expenditure needs.
    Input cost index.--The input cost index is a factor 
representing the cost of labor and other inputs used to provide 
health care services. Data is obtained from HCFA representing 
wages paid and hours worked in hospitals participating in the 
Medicare prospective payment system. Based on the total wages 
paid and hours worked as reported by each participating 
hospital in a State, an average annual wage per hour is 
calculated for the State. This average wage rate for each State 
is then divided by the U.S. average annual wage rate to produce 
an index for each State.
    The index described in the preceding paragraph is computed 
for each State in each of the 3 most recent years for which the 
data are available, and for each State an average of those 
three indices is computed. The input cost index used in the 
formula for State aggregate need is based on multiplying the 3-
year average wage index by 85 percent and adding to that 15 
percent of one (1.00) to reflect costs of inputs that are 
uniform nationwide, such as the cost of prescription drugs.
    U.S. spending per person in poverty.--U.S. spending 
represents total Federal and State Medicaid spending based on 
line 11 of the HCFA form 64 reports from each State and the 
District of Columbia for the most recent year for which data is 
available from HCFA. This amount is divided by the U.S. average 
number of persons in poverty for the 3 most recent years data. 
This term is a constant; it is the same value for every State.
    Old Federal Medical Assistance Percentage.--A State's 
``old'' Federal Medical Assistance Percentage [OldFMAP] is the 
Federal share of total Medicaid spending as calculated by HCFA 
under current law.4 (This is not the use of historical 
FMAP values; the OldFMAP formula would continue to be computed 
as more current data becomes available). OldFMAP equals one 
minus the product of .45 multiplied by square of the ratio of 
State per capita personal income [PCI] to the U.S. average PCI. 
This formula is expressed as:
    \4\ Note that OldFMAP is used to compute State aggregate needs and 
thus the State allotment, but NewFMAP is used to compute payments out 
of that State allotment.




    As provided in current law, the FMAP for any State shall 
not be less than 50 percent or greater than 83 percent.

Description of the floor and ceilings

    The needs-based formula allotment of each State is 
constrained by floors and ceilings which are collectively 
intended to moderate year-to-year changes and, in particular, 
to ensure that no State loses funds compared to the previous 
year. Three floors are provided:
          No State's growth from the previous year can fall 
        below 2 percent.
          Beginning in fiscal year 1998, if the percentage 
        growth in a State's allotment from fiscal year 1996 to 
        fiscal year 1997 at least 125 percent of the national 
        MediGrant growth percentage [NMGP], then the State's 
        growth percentage in any fiscal year cannot fall below 
        4 percent.
          Beginning in fiscal year 1998, if the percentage 
        growth in a State's allotment from fiscal year 1996 to 
        fiscal year 1997 is at least 75 percent, but less than 
        125 percent, of the NMGP, then the State's growth 
        percentage in any fiscal year cannot fall below 3 
        percent.
    Two ceilings are provided:
          No State's growth in allotment is to exceed 133 
        percent of the NMGP, except for States eligible for the 
        special rule.
          Special rule: Beginning with fiscal year 1998, the 10 
        States with the lowest Federal medical assistance 
        allotment (in the preceding fiscal year) per person in 
        poverty are to have a growth ceiling of 150 percent. 
        (Poverty count is the 3-year average defined earlier.)

Ensuring that the formula allotments comply with budget targets

    The allotment process is designed to guarantee that three 
fundamental conditions are met:
          1. The amounts allotted any two States are 
        proportional to their relative needs-based formula 
        amounts (except for States subject to a floor or 
        ceiling). For example, if State A has a needs-based 
        formula amount 5 percent greater than that of State B, 
        then its allotment will also be 5 percent greater 
        (provided neither State is subject to a floor or 
        ceiling).
          2. In any instance where the needs-based formula 
        amount would otherwise fall below a floor or exceed a 
        ceiling, the grant allotment is set to the amount of 
        the applicable growth floor or ceiling.
          3. The sum of all the individual State allotment 
        amounts for a given fiscal year must match and not 
        exceed the pool amount available for that fiscal year.
    These three conditions are satisfied by computing a unique, 
constant multiplier (called the ``adjustment factor'' or 
``scalar factor'') which increases or decreases every needs-
based formula allotment in equal proportions as necessary to 
ensure that the State grants sum to the target amount. The 
differences among States' allotments remain in proportion to 
differences in their aggregate needs with the only exceptions 
being those States whose allotments are determined according to 
the applicable floors and ceilings.
    The adjustment factor is used to compute needs-based 
formula amounts that sum exactly to the pool amount only when 
subjected to the rules for floors and ceilings. Needs-based 
formula amounts without any floors or ceilings do not sum to 
the target pool amount; that is not the purpose of the 
adjustment factor. The application of growth ceilings decreases 
allotments from the needs-based amounts while the growth floors 
increase allotments over the needs-based formula amount. It is 
highly unlikely these opposing effects of the ceilings and 
floors on the allotments will exactly balance. In effect, the 
adjustment factor balances the aggregate effects of the 
ceilings and floors by proportionally adjusting all the needs-
based formula amounts.
    The adjustment factor is determined using a computer model 
programmed to subject the needs-based formula amounts to the 
ceilings and floors. The adjustment factor produces a set of 
needs-based formula amounts such that, after any applicable 
growth ceiling amounts and floor amounts are substituted for 
any needs-based formula amounts, the State allotments will then 
match to the funding amount available. The resulting 
distribution among States thereby satisfies all three 
fundamental conditions above.
    Computing the adjustment factor for a fiscal year is easily 
within the capacity of a recent-model microcomputer with 
standard software. Any one of the three current best-selling 
spreadsheet software packages has commands built into the 
software that allow the operator to start a search procedure 
that will find an adjustment factor. Such a search procedure 
will test hundreds of adjustment factors and will successively 
narrow the search until it yields an adjustment factor that 
will satisfy the above three fundamental conditions to within a 
one-penny range of accuracy.
    The MediGrant plan specifies a simultaneous approach to 
satisfying these three fundamental conditions. The alternative 
would be to apply the floors and ceilings to grant allotments 
in some step-by-step fashion. Such a stepwise application of 
the floors and ceilings must be specified in great detail 
because the final outcome is affected by the way in which these 
steps are carried out. In short, a stepwise approach would be 
far more complex and the method could be open to 
challenge.5 By contrast, the simultaneous ap- 
proach specified in this bill satisfies the three fundamental 
conditions above without needing an elaborate set of 
procedures.
    \5\ Stepwise approaches may not provide proportional allotments to 
the maximum extent possible. For example, title III of the Older 
Americans Act required that allotments be proportional toe the elderly 
population, except that they be subject to a hold-harmless provision. 
However, the agency allocated funds in a first step to cover the hold-
harmless provision, and then in the next step distributed the remaining 
funds in proportion to the elder population. This instance is explained 
in the GAO report ``Older Americans Act: Title III Funds Not 
Distributed According to Statute'' [GAO/HEHS-94-37].
---------------------------------------------------------------------------
    Finally, it is worth noting that existing and past Federal 
formula grant programs have used this method (or a mathematical 
equivalent of it). One example is the General Revenue Sharing 
Program (1972-86) local government allocation formula, which 
was required to use a three-factor formula to compute amounts 
which were subjected to a floor and three caps. A computer 
program subjected the formula amounts to the floor and caps and 
proportionally increased or decreased the three-factor amounts 
in a search for allotments that summed to the total amount of 
available funds.6
    \6\ Revenue, sharing annually allocated about $4.5 billion to local 
governments and the law specified the three fundamental conditions 
above. While no specific procedural steps for accomplishing this were 
stated in the law, officials in Treasury (following the advice of their 
lawyers, analysts, and programmers) decided to use a method that is the 
mathematical equivalent of the use of a scalar factor with floor and 
ceilings applied simultaneously.
---------------------------------------------------------------------------
    Election of alternative growth formula.--The bill allows a 
State to choose to defer a portion of its fiscal year 1996 
State allotment in any 1 year and then apply those funds to one 
or more subsequent fiscal years. This does not in any way 
reduce or change amounts allotted to any other State.

FMAP computations for payments to the State

    Payments to the States under the MediGrant Program would 
become closed-ended which means that State expenditures would 
be matched up to the amount of the State's allotment in that 
year. (However, carryover of allotment is permitted so that any 
State allotment that is unused in a fiscal year is available 
for matching in a subsequent year or years.) Federal payments 
to a State would equal the State's spending multiplied by the 
new Federal Medical Assistance Percentage [New FMAP] computed 
for that State.
    The new FMAP is the greater of the old FMAP, as computed 
under current law, or a new FMAP formula amount. The new FMAP 
formula amount is 100 percent minus the product of .39 
multiplied by the ratio of the State's total taxable resources 
[TTR] share to the State aggregate expenditure needs share. The 
TTR is a measure of State revenue raising capacity produced by 
the U.S. Department of the Treasury. It includes per capita 
personal income as does the old FMAP, but it is a more 
comprehensive measure of a State's economy. A State's TTR share 
is equal to the most recent 3-year average of TTR of the State 
divided by the sum of the 3-year average TTRs of all 
States.7 The State aggregate expenditure needs share is 
the ratio of the State aggregate expenditure needs as defined 
earlier to the sum of all States' aggregate expenditure needs. 
NewFMAP can be expressed as:
    \7\ In the case of the District of Columbia, the TTR share is 
replaced by a personal income share which is the quotient of DC's most 
recent 3-year average of personal income divided by the sum of the 
personal income of the states.



    The new FMAP formula amount is also subject to constraints 
that limit its range, and prevent decreases and limit increases 
when compared to old FMAP. The new FMAP cannot be less than 40 
percent, nor more than 83 percent. The new FMAP also cannot be 
less than the old FMAP, nor can it exceed an amount calculated 
as the old FMAP plus 10 percentage points.
                              ----------                              

                              [Appendix A]
                    c-27. short-term medicaid policy
27.1  Preface
    The nation's Governors recognize that rapidly escalating health 
care costs in the face of the increasing need for health care access is 
the essence of the health care crisis that confronts our nation. The 
Governors are also aware of the varied and complex factors that must be 
dealt with if we are to achieve a solution to this crisis.
    Currently, thirty-one states are struggling with budget shortfalls. 
A significant part of the fiscal pressure on states is coming from 
increased costs in the Medicaid program. In 1980, Medicaid spending 
accounted for 9 percent of states' budgets: in 1990, it accounted for 
nearly 14 percent of all state spending.
    The increased costs of Medicaid not only represent the generally 
inflated cost of health care experienced by all purchasers, but are 
exacerbated by four years of Medicaid mandates.
    States must have some immediate relief from the real and pressing 
problems presented by the Medicaid program if they are to move forward 
on long-term solutions. Therefore, the Governors call on Congress and 
the administration to work with us to immediately make the following 
changes to the Medicaid program.
    Congress should delay the mandated implementation of the 1990 
Medicaid mandates for two years. This will give federal and state 
governments time to assess the depth of the recession and the 
opportunity to develop long-term solutions for the restructuring of the 
Medicaid program. Accountability based upon results is a better test of 
state performance than strict compliance with mandated procedures. In 
return for flexibility, the Governors seek to work with the 
administration and Congress to develop state-specific mutually 
acceptable agreements to measure accountability.
    States must not be expected to implement any Medicaid program 
changes until the Health Care Financing Administration (HCFA) has 
published final regulations to guide program administration. States 
must be allowed to maintain their complete authority to raise funds to 
match federal Medicaid dollars without restriction from the federal 
government.
    To promote cost control and efficiency, states should be encouraged 
to continue innovations in provider payment methods. Though Medicare 
and most private payers have moved away from cost based reimbursement, 
federal legislation has mandated that certain Medicaid providers be 
paid on the basis of costs. In operating our Medicaid programs, states 
should not be denied cost control options available to the federal 
government in operating the Medicare program.
    In addition, with respect to three particularly troublesome 
mandates over the last four years, the Governors call upon Congress and 
the administration to make the following specific, programmatic 
changes.
27.2  Qualified Medicare Beneficiaries (QMB's)
    Congress should assume full financial responsibility for all low-
income Medicare beneficiaries who are not otherwise Medicaid-eligible. 
Since the passage of the Medicare catastrophic legislation in 1988, the 
federal government has increasingly passed on to the states the 
responsibility to protect low-income Medicare beneficiaries.
27.3  Nursing Home Reform
    States should be considered in compliance with the law if a 
comparable quality assurance program is in place or developed. In the 
Omnibus Reconciliation Act of 1987, Congress mandated extensive new 
quality assurance measures for the Medicaid nursing home program. The 
statutory language permits limited state flexibility and plus Congress 
in the position of micro-managing the program.
27.4  Early Periodic Screening, Diagnosis, and Treatment (EPSDT)
    In ``technical'' amendments to the EPSDT program legislated in 
1989, Congress added major costs to this program. Therefore, the 
Governors propose two technical amendments to the 1989 law to: With 
regard to screening services, clarify that states have the authority to 
specify qualified screening providers and that states are permitted to 
insist that such a provider can be required to provide all screening 
services. Give states the authority to provide only those services 
identified in a screen that are currently offered in a state's Medicaid 
program.
    While these changes clearly will not resolve the nation's long-term 
struggle to restructure the Medicaid program, they will provide 
immediate and sensible relief in dire economic times. These changes 
also would mark the beginning of a new and real partnership between the 
federal government and state governments over the design and 
implementation of the Medicaid program.
                               __________
                              [Appendix B]
                  Republican Governors Association,
                                    Now America's Majority,
                                                   October 4, 1995.
Hon. William J. Clinton,
The White House, Washington, DC.
    Dear Mr. President: It was with great disappointment that we 
listened to your September 30 comments regarding the House Medicaid 
bill. We found your statements concerning how governors and state 
legislatures would act with regard to spousal impoverishment 
protections to be alarming. As a former governor, you have called into 
question our dedication to protecting the most vulnerable of our 
citizens. Your assumption that states would throw people out of their 
homes is out of character for Presidential discussions.
    Today, all states actively protect against spousal impoverishment. 
According to the HCFA State Plan Database for calendar year 1994, 36 
states have spousal protections that exceed the federal minimum, 22 
states are at the federal ceiling, and all others maintain generous 
exemptions protecting against impoverishment. We find your outrage and 
distrust of states extremely difficult to understand, given the facts 
of the matter.
    We should also note that you proposed in your FY 1994 budget, a 
Democrat congress passed, and you signed into law legislation requiring 
estate recovery programs. Moreover, the Robert Wood Johnson 
demonstrations permitting states to offer long-term care insurance have 
been effectively shut down by Democrat congresses. These demonstrations 
would permit individuals to protect a portion of their assets while at 
the same time relying on the private sector to provide for payment of 
long-term care.
    We hope that we can work together in a constructive manner to bring 
crucial reforms to the Medicaid program rather than engage in a war of 
words.
            Sincerely,
                                   Michael O. Leavitt.
                                   John Engler.
                                   Jim Edgar.
                                   Pete Wilson.
                                   Christine T. Whitman.
                                   Terry E. Branstad.
                                   Arne H. Carlson.
                                   George E. Pataki.
                                   Tommy G. Thompson.
                                   Edward T. Schafer.
                                   Gary E. Johnson.
                                   Frank G. Keating.
                                   David M. Beasley.
                                   George Allen.
                                   John Rowland.
                                   Kirk Fordice.
                                   George V. Voinovich.
                                   Fife Symington.
                                   Bill Graves.
                                   Phil Batt.
                                   Lincoln Almond.
                                   Jim Geringer.

      Changes in Existing Law Made by the Committee Recommendation

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
Committee recommendation are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                        THE SOCIAL SECURITY ACT

              TITLE XI--GENERAL PROVISIONS AND PEER REVIEW

          * * * * * * *

  exclusion of certain individuals and entities from participation in 
                medicare and state health care programs

  Sec. 1128. (a) * * *
          * * * * * * *
  (h) Definition of State Health Care Program.--For purposes of 
this section and sections 1128A and 1128B, the term ``State 
health care program'' means--
          (1) a State plan approved under title XIX or a 
        MediGrant plan under title XXI,
          * * * * * * *

      TITLE XIX--GRANTS TO STATES FOR MEDICAL ASSISTANCE PROGRAMS

          * * * * * * *

            [PROGRAM FOR DISTRIBUTION OF PEDIATRIC VACCINES

  [Sec. 1928. (a) Establishment of Program.--
          [(1) In general.--In order to meet the requirement of 
        section 1902(a)(62), each State shall establish a 
        pediatric vaccine distribution program (which may be 
        administered by the State department of health), 
        consistent with the requirements of this section, under 
        which--
                  [(A) each vaccine-eligible child (as defined 
                in subsection (b)), in receiving an 
                immunization with a qualified pediatric vaccine 
                (as defined in subsection (h)(8)) from a 
                program-registered provider (as defined in 
                subsection (c)) on or after October 1, 1994, is 
                entitled to receive the immunization without 
                charge for the cost of such vaccine; and
                  [(B)(i) each program-registered provider who 
                administers such a pediatric vaccine to a 
                vaccine-eligible child on or after such date is 
                entitled to receive such vaccine under the 
                program without charge either for the vaccine 
                or its delivery to the provider, and (ii) no 
                vaccine is distributed under the program to a 
                provider unless the provider is a program-
                registered provider.
          [(2) Delivery of sufficient quantities of pediatric 
        vaccines to immunize federally vaccine-eligible 
        children.--
                  [(A) In general.--The Secretary shall provide 
                under subsection (d) for the purchase and 
                delivery on behalf of each State meeting the 
                requirement of section 1902(a)(62) (or, with 
                respect to vaccines administered by an Indian 
                tribe or tribal organization to Indian 
                children, directly to the tribe or 
                organization), without charge to the State, of 
                such quantities of qualified pediatric vaccines 
                as may be necessary for the administration of 
                such vaccines to all federally vaccine-eligible 
                children in the State on or after October 1, 
                1994. This paragraph constitutes budget 
                authority in advance of appropriations Acts, 
                and represents the obligation of the Federal 
                Government to provide for the purchase and 
                delivery to States of the vaccines (or payment 
                under subparagraph (C)) in accordance with this 
                paragraph.
                  [(B) Special rules where vaccine is 
                unavailable.--To the extent that a sufficient 
                quantity of a vaccine is not available for 
                purchase or delivery under subsection (d), the 
                Secretary shall provide for the purchase and 
                delivery of the available vaccine in accordance 
                with priorities established by the Secretary, 
                with priority given to federally vaccine-
                eligible children unless the Secretary finds 
                there are other public health considerations.
                  [(C) Special rules where state is a 
                manufacturer.--
                          [(i) Payments in lieu of vaccines.--
                        In the case of a State that 
                        manufactures a pediatric vaccine the 
                        Secretary, instead of providing the 
                        vaccine on behalf of a State under 
                        subparagraph (A), shall provide to the 
                        State an amount equal to the value of 
                        the quantity of such vaccine that 
                        otherwise would have been delivered on 
                        behalf of the State under such 
                        subparagraph but only if the State 
                        agrees that such payments will only be 
                        used for purposes relating to pediatric 
                        immunizations.
                          [(ii) Determination of value.--In 
                        determining the amount to pay a State 
                        under clause (i) with respect to a 
                        pediatric vaccine, the value of the 
                        quantity of vaccine shall be determined 
                        on the basis of the price in effect for 
                        the qualified pediatric vaccine under 
                        contracts under subsection (d). If more 
                        than 1 such contract is in effect, the 
                        Secretary shall determine such value on 
                        the basis of the average of the prices 
                        under the contracts, after weighting 
                        each such price in realtion to the 
                        quantity of vaccine under the contract 
                        involved.
  [(b) Vaccine-Eligible Children.--For purposes of this 
section:
          [(1) In general.--The term ``vaccine-eligible child'' 
        means a child who is a federally vaccine-eligible child 
        (as defined in paragraph (2)) or a State vaccine-
        eligible child (as defined in paragraph (3)).
          [(2) Federally vaccine-eligible child.--
                  [(A) In general.--The term ``federally 
                vaccine-eligible child'' means any of the 
                following children:
                          [(i) A medicaid-eligible child.
                          [(ii) A child who is not insured.
                          [(iii) A child who (I) is 
                        administered a qualified pediatric 
                        vaccine by a federally-qualified health 
                        center (as defined in section 
                        1905(l)(2)(B)) or a rural health clinic 
                        (as defined in section 1905(l)(1)), and 
                        (II) is not insured with respect to the 
                        vaccine.
                          [(iv) A child who is an Indian (as 
                        defined in subsection (h)(3)).
                  [(B) Definitions.--In subparagraph (A):
                          [(i) The term ``medicaid-eligible'' 
                        means, with respect to a child, a child 
                        who is entitled to medical assistance 
                        under a state plan approved under this 
                        title.
                          [(ii) The term ``insured'' means, 
                        with respect to a child--
                                  [(I) for purposes of 
                                subparagraph (A)(ii), that the 
                                child is enrolled under, and 
                                entitled to benefits under, a 
                                health insurance policy or 
                                plan, including a group health 
                                plan, a prepaid health plan, or 
                                an employee welfare benefit 
                                plan under the Employee 
                                Retirement Income Security Act 
                                of 1974; and
                                  [(II) for purposes of 
                                subparagraph (A)(iii)(II) with 
                                respect to a pediatric vaccine, 
                                that the child is entitled to 
                                benefits under such a health 
                                insurance policy or plan, but 
                                such benefits are not available 
                                with respect to the cost of the 
                                pediatric vaccine.
          [(3) State vaccine-eligible child.--The term ``State 
        vaccine-eligible child'' means, with respect to a State 
        and a qualified pediatric vaccine, a child who is 
        within a class of children for which the State is 
        purchasing the vaccine pursuant to subsection 
        (d)(4)(B).
  [(c) Program-Registered Providers.--
          [(1) Defined.--In this section, except as otherwise 
        provided, the term ``program-registered provider'' 
        means, with respect to a State, any health care 
        provider that--
                  [(A) is licensed or otherwise authorized for 
                administration of pediatric vaccines under the 
                law of the State in which the administration 
                occurs (subject to section 333(e) of the Public 
                Health Service Act), without regard to whether 
                or not the provider participates in the plan 
                under this title;
                  [(B) submits to the State an executed 
                provider agreement described in paragraph (2); 
                and
                  [(C) has not been found, by the Secretary or 
                the State, to have violated such agreement or 
                other applicable requirements established by 
                the Secretary or the State consistent with this 
                section.
          [(2) Provider agreement.--A provider agreement for a 
        provider under this paragraph is an agreement (in such 
        form and manner as the Secretary may require) that the 
        provider agrees as follows:
                  [(A)(i) Before administering a qualified 
                pediatric vaccine to a child, the provider will 
                ask a parent of the child such questions as are 
                necessary to determine whether the child is a 
                vaccine-eligible child, but the provider need 
                not independently verify the answers to such 
                questions.
                  [(ii) The provider will, for a period of time 
                specified by the Secretary, maintain records of 
                responses made to the questions.
                  [(iii) The provider will, upon request, make 
                such records available to the State and to the 
                Secretary, subject to section 1902(a)(7).
                  [(B)(i) Subject to clause (ii), the provider 
                will comply with the schedule, regarding the 
                appropriate periodicity, dosage, and 
                contraindications applicable to pediatric 
                vaccines, that is established and periodically 
                reviewed and, as appropriate, revised by the 
                advisory committee referred to in subsection 
                (e), except in such cases as, in the provider's 
                medical judgment subject to accepted medical 
                practice, such compliance is medically 
                inappropriate.
                  [(ii) The provider will provide pediatric 
                vaccines in compliance with applicable State 
                law, including any such law relating to any 
                religious or other exemption.
                  [(C)(i) In administering a qualified 
                pediatric vaccine to a vaccine-eligible child, 
                the provider will not impose a charge for the 
                cost of the vaccine. A program-registered 
                provider is not required under this section to 
                administer such a vaccine to each child for 
                whom an immunization with the vaccine is sought 
                from the provider.
                  [(ii) The provider may impose a fee for the 
                administration of a qualified pediatric vaccine 
                so long as the fee in the case of a federally 
                vaccine-eligible child does not exceed the 
                costs of such administration (as determined by 
                the Secretary based on actual regional costs 
                for such administration).
                  [(iii) The provider will not deny 
                administration of a qualified pediatric vaccine 
                to a vaccine-eligible child due to the 
                inability of the child's parent to pay an 
                administration fee.
          [(3) Encouraging involvement of providers.--Each 
        program under this section shall provide, in accordance 
        with criteria established by the Secretary--
                  [(A) for encouraging the following to become 
                program-registered providers: private health 
                care providers, the Indian Health Service, 
                health care providers that receive funds under 
                title V of the Indian Health Care Improvement 
                Act, and health programs or facilities operated 
                by Indian tribes or tribal organizations; and
                  [(B) for identifying, with respect to any 
                population of vaccine-eligible children a 
                substantial portion of whose parents have a 
                limited ability to speak the English language, 
                those program-registered providers who are able 
                to communicate with the population involved in 
                the language and cultural context that is most 
                appropriate.
          [(4) State requirements.--Except as the Secretary may 
        permit in order to prevent fraud and abuse and for 
        related purposes, a State may not impose additional 
        qualifications or conditions, in addition to the 
        requirements of paragraph (1), in order that a provider 
        qualify as a program-registered provider under this 
        section. This subsection does not limit the exercise of 
        State authority under section 1915(b).
  [(d) Negotiation of Contracts with Manufacturers.--
          [(1) In general.--For the purpose of meeting 
        obligations under this section, the Secretary shall 
        negotiate and enter into contracts with manufacturers 
        of pediatric vaccines consistent with the requirements 
        of this subsection and, to the maximum extent 
        practicable, consolidate such contracting with any 
        other contracting activities conducted by the Secretary 
        to purchase vaccines. The Secretary may enter into such 
        contracts under which the Federal Government is 
        obligated to make outlays, the budget authority for 
        which is not provided for in advance in appropriations 
        Acts, for the purchase and delivery of pediatric 
        vaccines under subsection (a)(2)(A).
          [(2) Authority to decline contracts.--The Secretary 
        may decline to enter into such contracts and may modify 
        or extend such contracts.
          [(3) Contract price.--
                  [(A) In general.--The Secretary, in 
                negotiating the prices at which pediatric 
                vaccines will be purchased and delivered from a 
                manufacturer under this subsection, shall take 
                into account quantities of vaccines to be 
                purchased by States under the option under 
                paragraph (4)(B).
                  [(B) Negotiation of discounted price for 
                current vaccines.--With respect to contracts 
                entered into under this subsection for a 
                pediatric vaccine for which the Centers for 
                Disease Control and Prevention has a contract 
                in effect under section 317(j)(1) of the Public 
                Health Service Act as of May 1, 1993, no price 
                for the purchase of such vaccine for vaccine-
                eligible children shall be agreed to by the 
                Secretary under this subsection if the price 
                per dose of such vaccine (including delivery 
                costs and any applicable excise tax established 
                under section 4131 of the Internal Revenue Code 
                of 1986) exceeds the price per dose for the 
                vaccine in effect under such a contract as of 
                such date increased by the percentage increase 
                in the consumer price index for all urban 
                consumers (all items; United States city 
                average) from May 1993 to the month before the 
                month in which such contract is entered into.
                  [(C) Negotiation of discounted price for new 
                vaccines.--With respect to contracts entered 
                into for a pediatric vaccine not described in 
                subparagraph (B), the price for the purchase of 
                such vaccine shall be a discounted price 
                negotiated by the Secretary that may be 
                established without regard to such 
                subparagraph.
          [(4) Quantities and terms of delivery.--Under such 
        contracts--
                  [(A) the Secretary shall provide, consistent 
                with paragraph (6), for the purchase and 
                delivery on behalf of States (and tribes and 
                tribal organizations) of quantities of 
                pediatric vaccines for federally vaccine-
                eligible children; and
                  [(B) each State, at the option of the State, 
                shall be permitted to obtain additional 
                quantities of pediatric vaccines (subject to 
                amounts specified to the Secretary by the State 
                in advance of negotiations) through purchasing 
                the vaccines from the manufacturers at the 
                applicable price negotiated by the Secretary 
                consistent with paragraph (3), if (i) the State 
                agrees that the vaccines will be used to 
                provide immunizations only for children who are 
                not federally vaccine-eligible children and 
                (ii) the State provides to the Secretary such 
                information (at a time and manner specified by 
                the Secretary, including in advance of 
                negotiations under paragraph (1)) as the 
                Secretary determines to be necessary, to 
                provide for quantities of pediatric vaccines 
                for the State to purchase pursuant to this 
                subsection and to determine annually the 
                percentage of the vaccine market that is 
                purchased pursuant to this section and this 
                subparagraph.
        The Secretary shall enter into the initial negotiations 
        under the preceding sentence not later than 180 days 
        after the date of the enactment of the Omnibus Budget 
        Reconciliation Act of 1993.
          [(5) Charges for shipping and handling.--The 
        Secretary may enter into a contract referred to in 
        paragraph (1) only if the manufacturer involved agrees 
        to submit to the Secretary such reports as the 
        Secretary determines to be appropriate to assure 
        compliance with the contract and if, with respect to a 
        State program under this section that does not provide 
        for the direct delivery of qualified pediatric 
        vaccines, the manufacturer involved agrees that the 
        manufacturer will provide for the delivery of the 
        vaccines on behalf of the State in accordance with such 
        program and will not impose any charges for the costs 
        of such delivery (except to the extent such costs are 
        provided for in the price established under paragraph 
        (3)).
          [(6) Assuring adequate supply of vaccines.--The 
        Secretary, in negotiations under paragraph (1), shall 
        negotiate for quantities of pediatric vaccines such 
        that an adequate supply of such vaccines will be 
        maintained to meet unanticipated needs for the 
        vaccines. For purposes of the preceding sentence, the 
        Secretary shall negotiate for a 6-month supply of 
        vaccines in addition to the quantity that the Secretary 
        otherwise would provide for in such negotiations. In 
        carrying out this paragraph, the Secretary shall 
        consider the potential for outbreaks of the diseases 
        with respect to which the vaccines have been developed.
          [(7) Multiple suppliers.--In the case of the 
        pediatric vaccine involved, the Secretary shall, as 
        appropriate, enter into a contract referred to in 
        paragraph (1) with each manufacturer of the vaccine 
        that meets the terms and conditions of the Secretary 
        for an award of such a contract (including terms and 
        conditions regarding safety and quality). With respect 
        to multiple contracts entered into pursuant to this 
        paragraph, the Secretary may have in effect different 
        prices under each of such contracts and, with respect 
        to a purchase by States pursuant to paragraph (4)(B), 
        the Secretary shall determine which of such contracts 
        will be applicable to the purchase.
  [(e) Use of Pediatric Vaccines List.--The Secretary shall 
use, for the purpose of the purchase, delivery, and 
administration of pediatric vaccines under this section, the 
list established (and periodically reviewed and as appropriate 
revised) by the Advisory Committee on Immunization Practices 
(an advisory committee established by the Secretary, acting 
through the Director of the Centers for Disease Control and 
Prevention).
  [(f) Requirement of State Maintenance of Immunization Laws.--
In the case of a State that had in effect as of May 1, 1993, a 
law that requires some or all health insurance policies or 
plans to provide some coverage with respect to a pediatric 
vaccine, a State program under this section does not comply 
with the requirements of this section unless the State 
certifies to the Secretary that the State has not modified or 
repealed such law in a manner that reduces the amount of 
coverage so required.
  [(g) Termination.--This section, and the requirement of 
section 1902(a)(62), shall cease to be in effect beginning on 
such date as may be prescribed in Federal law providing for 
immunization services for all children as part of a broad-based 
reform of the national health care system.
  [(h) Definitions.--For purposes of this section:
          [(1) The term ``child'' means an individual 18 years 
        of age or younger.
          [(2) The term ``immunization'' means an immunization 
        against a vaccine-preventable disease.
          [(3) The terms ``Indian'', ``Indian tribe'' and 
        ``tribal organization'' have the meanings given such 
        terms in section 4 of the Indian Health Care 
        Improvement Act.
          [(4) The term ``manufacturer'' means any corporation, 
        organization, or institution, whether public or private 
        (including Federal, State, and local departments, 
        agencies, and instrumentalities), which manufactures, 
        imports, processes, or distributes under its label any 
        pediatric vaccine. The term ``manufacture'' means to 
        manufacture, import, process, or distribute a vaccine.
          [(5) The term ``parent'' includes, with respect to a 
        child, an individual who qualifies as a legal guardian 
        under State law.
          [(6) The term ``pediatric vaccine'' means a vaccine 
        included on the list under subsection (e).
          [(7) The term ``program-registered provider'' has the 
        meaning given such term in subsection (c).
          [(8) The term ``qualified pediatric vaccine'' means a 
        pediatric vaccine with respect to which a contract is 
        in effect under subsection (d).
          [(9) The terms ``vaccine-eligible child'', 
        ``federally vaccine-eligible child'', and ``State 
        vaccine-eligible child'' have the meaning given such 
        terms in subsection (b).]


termination of medicaid program; limitation on new obligation authority


  Sec. 1931. (a) Elimination of Individual Entitlement.--
Effective on the date of the enactment of this section--
          (1) except as provided in subsection (b), the Federal 
        Government has no obligation to provide payment with 
        respect to items and services provided under this 
        title, and
          (2) this title shall not be construed as providing 
        for an entitlement, under Federal law in relation to 
        the Federal Government, in an individual or person 
        (including any provider) at the time of provision or 
        receipt of services.
  (b) Limitation on Obligation Authority.--Notwithstanding any 
other provision of this title--
          (1) Post-enactment, pre-medigrant.--Subject to 
        paragraph (2), the Secretary is authorized to enter 
        into obligations with any State under this title for 
        expenses incurred after the date of the enactment of 
        this Act and during fiscal year 1996, but not in excess 
        of the obligation allotment for that State for fiscal 
        year 1996 under section 2121(b)(4).
          (2) None after medigrant.--The Secretary is not 
        authorized to enter into any obligation with any State 
        under this title for expenses incurred on or after the 
        earlier of--
                  (A) October 1, 1996; or
                  (B) the first day of the first quarter on 
                which the State plan under title XXI is first 
                effective.
          (3) Agreement.--A State's submission of claims for 
        payment under section 1903 after the date of the 
        enactment of this title with respect to which the 
        limitation described in paragraph (1) applies is deemed 
        to constitute the State's acceptance of the obligation 
        limitation under such paragraph (including the formula 
        for computing the amount of such obligation 
        limitation).
  (c) Requirement for Timely Submittal of Claims.--No payment 
shall be made to a State under this title with respect to an 
obligation incurred before the date of the enactment of this 
section, unless the State has submitted to the Secretary, by 
not later than June 30, 1996, a claim for Federal financial 
participation for expenses paid by the State with respect to 
such obligations. Nothing in subsection (a) or (b) shall be 
construed as affecting the obligation of the Federal Government 
to pay claims described in the previous sentence.

         references to laws directly affecting medicaid program

  Sec. [1931]. 1932. (a) * * *
          * * * * * * *

  TITLE XXI--MEDIGRANT PROGRAM FOR LOW-INCOME INDIVIDUALS AND FAMILIES


                       table of contents of title


Sec. 2100. Purpose; State MediGrant plans.

      Part A--Objectives, Goals, and Performance Under State Plans

Sec. 2101. Description of strategic objectives and performance goals.
Sec. 2102. Annual reports.
Sec. 2103. Periodic, independent evaluations.
Sec. 2104. Description of process for MediGrant plan development.
Sec. 2105. Consultation in MediGrant plan development.
Sec. 2106. MediGrant Task Force.

              Part B--Eligibility, Benefits, and Set-asides

Sec. 2111. General description of eligibility and benefits.
Sec. 2112. Set-asides of funds for population groups.
Sec. 2113. Premiums and cost-sharing.
Sec. 2114. Description of process for developing capitation payment 
          rates.
Sec. 2115. Construction.
Sec. 2116. Limitations on causes of action.

                       Part C--Payments to States

Sec. 2121. Allotment of funds among States.
Sec. 2122. Payments to States.
Sec. 2123. Limitation on use of funds; disallowance.

                  Part D--Program Integrity and Quality

Sec. 2131. Use of audits to achieve fiscal integrity.
Sec. 2132. Fraud prevention program.
Sec. 2133. Information concerning sanctions taken by State licensing 
          authorities against health care practitioners and providers.
Sec. 2134. State MediGrant fraud control units.
Sec. 2135. Recoveries from third parties and others.
Sec. 2136. Assignment of rights of payment.
Sec. 2137. Quality assurance standards for nursing facilities.
Sec. 2138. Other provisions promoting program integrity.

      Part E--Establishment and Amendment of State MediGrant Plans

Sec. 2151. Submittal and approval of MediGrant plans.
Sec. 2152. Submittal and approval of plan amendments.
Sec. 2153. Process for State withdrawal from program.
Sec. 2154. Sanctions for substantial noncompliance.
Sec. 2155. Secretarial authority.

                       Part F--General Provisions

Sec. 2171. Definitions.
Sec. 2172. Treatment of territories.
Sec. 2173. Description of treatment of Indian Health Service facilities.
Sec. 2174. Application of certain general provisions.
Sec. 2175. MediGrant master drug rebate agreements.

SEC. 2100. PURPOSE; STATE MEDIGRANT PLANS.

  (a) Purpose.--The purpose of this title is to provide block 
grants to States to enable them to provide medical assistance 
to low-income individuals and families in a more effective, 
efficient, and responsive manner.
  (b) State Plan Required.--A State is not eligible for payment 
under section 2122 of this title unless the State has submitted 
to the Secretary under part E a plan (in this title referred to 
as a ``MediGrant plan'') that--
          (1) sets forth how the State intends to use the funds 
        provided under this title to provide medical assistance 
        to needy individuals and families consistent with the 
        provisions of this title, and
          (2) is approved under such part.
  (c) Continued Approval.--An approved MediGrant plan shall 
continue in effect unless and until--
          (1) the State amends the plan under section 2152,
          (2) the State terminates participation under this 
        title under section 2153, or
          (3) the Secretary finds substantial noncompliance of 
        the plan with the requirements of this title under 
        section 2154.
  (d) State Entitlement.--This title constitutes budget 
authority in advance of appropriations Acts, and represents the 
obligation of the Federal Government to provide for the payment 
to States of amounts provided under part C.

      Part A--Objectives, Goals, and Performance Under State Plans

SEC. 2101. DESCRIPTION OF STRATEGIC OBJECTIVES AND PERFORMANCE GOALS.

  (a) Description.--A MediGrant plan shall include a 
description of the strategic objectives and performance goals 
the State has established for providing health care services to 
low-income populations under this title, including a general 
description of the manner in which the plan is designed to meet 
these objectives and goals.
  (b) Certain Objectives and Goals Required.--A MediGrant plan 
shall include strategic objectives and performance goals 
relating to rates of childhood immunizations and reductions in 
infant mortality and morbidity.
  (c) Considerations.--In specifying these objectives and goals 
the State may consider factors such as the following:
          (1) The State's priorities with respect to such areas 
        as providing assistance to low-income populations.
          (2) The State's priorities with respect to the 
        general public health and the health status of 
        individuals eligible for assistance under the MediGrant 
        plan.
          (3) The State's financial resources, the particular 
        economic conditions in the State, and relative adequacy 
        of the health care infrastructure in different regions 
        of the State.
  (d) Performance Measures.--To the extent practicable--
          (1) one or more performance goals shall be 
        established by the State for each strategic objective 
        identified in the MediGrant plan; and
          (2) the MediGrant plan shall describe, how program 
        performance will be--
                  (A) measured through objective, independently 
                verifiable means, and
                  (B) compared against performance goals, in 
                order to determine the State's performance 
                under this title.
  (e) Period Covered.--
          (1) Strategic objectives.--The strategic objectives 
        shall cover a period of not less than 5 years and shall 
        be updated and revised at least every 3 years.
          (2) Performance goals.--The performance goals shall 
        be established for dates that are not more than 3 years 
        apart.

SEC. 2102. ANNUAL REPORTS.

  (a) In General.--In the case of a State with a MediGrant plan 
that is in effect for part or all of a fiscal year, no later 
than March 31 following such fiscal year (or March 31, 1998, in 
the case of fiscal year 1996) the State shall prepare and 
submit to the Secretary and the Congress a report on program 
activities and performance under this title for such fiscal 
year.
  (b) Contents.--Each annual report under this section for a 
fiscal year shall include the following:
          (1) Expenditure and beneficiary summary.--
                  (A) Initial summary.--For the report for 
                fiscal year 1997 (and, if applicable, fiscal 
                year 1996), a summary of all expenditures under 
                the MediGrant plan during the fiscal year (and 
                during any portions of fiscal year 1996 during 
                which the MediGrant plan was in effect under 
                this title) as follows:
                          (i) Aggregate medical assistance 
                        expenditures, disaggregated to the 
                        extent required to determine compliance 
                        with the set-aside requirements of 
                        subsections (a) through (c) section 
                        2112 and to compute the case mix index 
                        under section 2121(d)(3).
                          (ii) For each general category of 
                        eligible individuals (specified in 
                        subsection (c)(1), aggregate medical 
                        assistance expenditures and the total 
                        and average number of eligible 
                        individuals under the MediGrant plan.
                          (iii) By each general category of 
                        eligible individuals, total 
                        expenditures for each of the categories 
                        of health care items and services 
                        (specified in subsection (c)(2)) which 
                        are covered under the MediGrant plan 
                        and provided on a fee-for-service 
                        basis.
                          (iv) By each general category of 
                        eligible individuals, total 
                        expenditures for payments to capitated 
                        health care organizations (as defined 
                        in section 2114(c)(1)).
                          (v) Total administrative 
                        expenditures.
                  (B) Subsequent summaries.--For reports for 
                each succeeding fiscal year, a summary of--
                          (i) all expenditures under the 
                        MediGrant plan consistent with the 
                        reporting format specified by the 
                        MediGrant Task Force under section 
                        2106(d)(1), and
                          (ii) the total and average number of 
                        eligible individuals under the 
                        MediGrant plan for each general 
                        category of eligible individuals..
          (2) Utilization summary.--
                  (A) Initial summary.--For the report for 
                fiscal year 1997 (and, if applicable, fiscal 
                year 1996), summary statistics on the 
                utilization of health care services under the 
                MediGrant plan during the year (and during any 
                portions of fiscal year 1996 during which the 
                MediGrant plan was in effect under this title) 
                as follows:
                          (i) For each general category of 
                        eligible individuals and for each of 
                        the categories of health care items and 
                        services which are covered under the 
                        MediGrant plan and provided on a fee-
                        for-service basis, the number and 
                        percentage of persons who received such 
                        a type of service or item during the 
                        period covered by the report.
                          (ii) Summary of health care 
                        utilization data reported to the State 
                        by capitated health care organizations.
                  (B) Subsequent summaries.--For reports for 
                each succeeding fiscal year, summary statistics 
                on the utilization of health care services 
                under the MediGrant plan consistent with the 
                reporting format specified by the MediGrant 
                Task Force under section 2106(d)(1).
          (3) Achievement of performance goals.--With respect 
        to each performance goal established under section 2101 
        and applicable to the year involved--
                  (A) a brief description of the goal;
                  (B) data on the actual performance with 
                respect to the goal;
                  (C) a review of the extent to which the goal 
                was achieved, based on such data; and
                  (D) where a performance goal has not been 
                met--
                          (i) why the goal was not met, and
                          (ii) actions to be taken in response 
                        to such performance (including 
                        adjustments in performance goals or 
                        program activities for subsequent 
                        years).
          (4) Program evaluations.--A summary of the findings 
        of evaluations under section 2103 completed during the 
        fiscal year covered by the report.
          (5) Fraud and abuse and quality control activities.--
        A general description of the State's activities under 
        part D to detect and deter fraud and abuse and to 
        assure quality of services provided under the program.
          (6) Plan administration.--
                  (A) A description of the administrative roles 
                and responsibilities of entities in the State 
                responsible for administration of this title.
                  (B) Organizational charts for each entity in 
                the State primarily responsible for activities 
                under this title.
                  (C) A brief description of each interstate 
                compact (if any) the State has entered into 
                with other States with respect to activities 
                under this title.
                  (D) General citations to the State statutes 
                and administrative rules governing the State's 
                activities under this title.
          tech deg.(7) Inpatient hospital payments.--
        With respect to inpatient hospital services provided 
        under the MediGrant plan on a fee-for-service basis, a 
        description of the average amount paid per discharge in 
        the fiscal year compared either to the average charge 
        for such services or to the State's estimate of the 
        average amount paid per discharge by commercial health 
        insurers in the State.
  (c) Definitions.--In this section:
          (1) Each of the following is a general category of 
        eligible individuals:
                  (A) Children.
                  (B) Blind or disabled adults under 65 years 
                of age.
                  (C) Persons 65 years of age or older.
                  (D) Other adults.
          (2) The health care items and services described in 
        each subparagraph of section 2171(a)(1) shall be 
        considered a separate category of health care items and 
        services.

SEC. 2103. PERIODIC, INDEPENDENT EVALUATIONS.

  (a) In General.--During fiscal year 1998 and every third 
fiscal year thereafter, each State shall provide for an 
evaluation of the operation of its MediGrant plan under this 
title.
  (b) Independent.--Each such evaluation with respect to an 
activity under the MediGrant plan shall be conducted by an 
entity that is neither responsible under State law for the 
submission of the State plan (or part thereof) nor responsible 
for administering (or supervising the administration of) the 
activity. If consistent with the previous sentence, such an 
entity may be a college or university, a State agency, a 
legislative branch agency in a State, or an independent 
contractor.
  (c) Research Design.--Each such evaluation shall be conducted 
in accordance with a research design that is based on generally 
accepted models of survey design and sampling and statistical 
analysis.

SEC. 2104. DESCRIPTION OF PROCESS FOR MEDIGRANT PLAN DEVELOPMENT.

  Each MediGrant plan shall include a description of the 
process under which the plan shall be developed and implemented 
in the State (consistent with section 2105).

SEC. 2105. CONSULTATION IN MEDIGRANT PLAN DEVELOPMENT.

  (a) Public Notice Process.--
          (1) In general.--Before submitting a MediGrant plan 
        or a plan amendment described in paragraph (3) to the 
        Secretary under part E, a State shall provide--
                  (A) public notice respecting the submittal of 
                the proposed plan or amendment, including a 
                general description of the plan or amendment;
                  (B) a means for the public to inspect or 
                obtain a copy (at reasonable charge) of the 
                proposed plan or amendment; and
                  (C) an opportunity for submittal and 
                consideration of public comments on the 
                proposed plan or amendment.
        The previous sentence shall not apply to a revision of 
        a MediGrant plan (or revision of an amendment to a 
        plan) made by a State under section 2154(c)(1) or to a 
        plan amendment withdrawal described in section 
        2152(c)(4).
          (2) Contents of notice.--A notice under paragraph 
        (1)(A) for a proposed plan or amendment shall include a 
        description of--
                  (A) the general purpose of the proposed plan 
                or amendment (including applicable effective 
                dates),
                  (B) where the public may inspect the proposed 
                plan or amendment,
                  (C) how the public may obtain a copy of the 
                proposed plan or amendment and the applicable 
                charge (if any) for the copy, and
                  (D) how the public may submit comments on the 
                proposed plan or amendment, including any 
                deadlines applicable to consideration of such 
                comments.
          (3) Amendments described.--An amendment to a 
        MediGrant plan described in this paragraph is an 
        amendment which makes a material and substantial change 
        in eligibility under the MediGrant plan or the benefits 
        provided under the plan.
          (4) Publication.--Notices under this subsection may 
        be published (as selected by the State) in one or more 
        daily newspapers of general circulation in the State or 
        in any publication used by the State to publish State 
        statutes or rules.
          (5) Comparable process.--A separate notice, or 
        notices, shall not be required under this subsection 
        for a State if notice of the MediGrant plan or an 
        amendment to the plan will be provided under a process 
        specified in State law that is substantially equivalent 
        to the notice process specified in this subsection.
  (b) Advisory Committee.--
          (1) In general.--Each State with a MediGrant plan 
        shall establish and maintain an advisory committee.
          (2) Consultation.--The State shall periodically 
        consult with the advisory committee in the development, 
        revision, and monitoring the performance of the 
        MediGrant plan, including--
                  (A) the development of strategic objectives 
                and performance goals under section 2101,
                  (B) the annual report under section 2102, and
                  (C) the research design under section 
                2103(c).
          (3) Geographic diversity.--The composition of the 
        advisory committee shall be chosen in a manner that 
        assures some representation on the advisory committee 
        of the different general geographic regions of the 
        State. Nothing in the previous sentence shall be 
        construed as requiring proportional representation of 
        geographic areas in a State.
          (4) Construction.--Nothing in this title shall be 
        construed as preventing a State from establishing more 
        than one advisory committee, including specialized 
        advisory committees that represent the interests of 
        specific population groups, provider groups, or 
        geographic areas.

SEC. 2106. MEDIGRANT TASK FORCE.

  (a) In General.--The Secretary shall provide for the 
establishment of a MediGrant Task Force (in this section 
referred to as the ``Task Force'').
  (b) Composition.--The Task Force shall consist of 6 members 
appointed by the chair of the National Governors Association 
and 6 members appointed by the vice chair of the National 
Governors Association.
  (c) Advisory Group for Task Force.--The Secretary shall 
provide for the establishment of an advisory group to assist 
the Task Force in carrying out its duties under this section, 
consisting of one representative appointed by each of the 
following associations:
          (1) National Committee for Quality Assurance.
          (2) Joint Commission for the Accreditation of 
        Healthcare Organizations.
          (3) Group Health Association of America.
          (4) American Managed Care and Review Association.
          (5) Association of State and Territorial Health 
        Officers.
          (6) American Medical Association.
          (7) American Hospital Association.
          tech deg.(8) American Dental Association.
          (9) American College of Gerontology.
          (10) American Health Care Association.
          (11) An association identified by the Secretary as 
        representing the interests of disabled individuals.
          (12) An association identified by the Secretary as 
        representing the interests of children.
          tech deg.(13) An association identified by 
        the Secretary as representing the interests of the 
        elderly.
          tech deg.(14) An association identified by 
        the Secretary as representing the interests of mentally 
        ill individuals.
Any reference in this subsection to a particular group shall be 
deemed a reference to any successor to such group.
  (d) Duties.--
          (1) Format for expenditure and utilization 
        summaries.--The Task Force shall specify, by not later 
        than December 31, 1996, the format of expenditure 
        summaries and utilization summaries required under 
        section 2102. Such format may provide for the reporting 
        of different information from that required under 
        section 2102(a), but shall include the reporting of at 
        least the information described in section 
        2102(b)(1)(A)(i).
          (2) Models and suggestions.--The Task Force shall 
        study and report to Congress and the States, by not 
        later than April 1, 1997, recommendations on the 
        following:
                  (A) Recommended models for strategic 
                objectives and performance goals for 
                consideration by States in the development of 
                such objectives and goals under section 2102, 
                including alternative models for each of the 
                objectives and goals described in section 
                2101(b).
                  (B) For each suggested model for a strategic 
                objective or performance goal suggested 
                methodologies for States to consider in 
                measuring and verifying the objective or goal.
                  (C) An assessment of the potential usefulness 
                to States of quality assurance safeguards, 
                utilization data sets, and accreditation 
                programs that are used or under development in 
                the private sector.
                  (D) Recommended designs and evaluation 
                methodologies for consideration by States in 
                providing for independent evaluations under 
                section 2103.
          (3) Construction.--Nothing in this subsection shall 
        be construed as requiring a State to adopt any of the 
        strategic objectives or performance goals suggested 
        under paragraph (2).
  (e) Administrative Assistance.--Administrative support for 
the Task Force shall be provided by the Agency for Health Care 
Policy and Research (or, in the absence of such Agency, the 
Secretary).

             Part B--Eligibility, Benefits, and Set-asides

SEC. 2111. GENERAL DESCRIPTION OF ELIGIBILITY AND BENEFITS.

  (a) In General.--Each MediGrant plan shall include a 
description (consistent with this title) of the following:
          (1) Eligible population.--The population eligible for 
        medical assistance under the plan, including--
                  (A) any limitations on categories of such 
                individuals;
                  (B) any limitations as to the duration of 
                eligibility;
                  (C) any eligibility standards relating to 
                age, income (including any standards relating 
                to spenddowns), residency, resources, 
                disability status, immigration status, or 
                employment status of individuals;
                  (D) methods of establishing (and continuing) 
                eligibility and enrollment (including the 
                methodology for computing family income);
                  Deal/Bilirakis; bilira.001 deg.(E) 
                the eligibility standards in the plan that 
                protect the income and resources of a married 
                individual who is living in the community and 
                whose spouse is residing in an institution in 
                order to prevent the impoverishment of the 
                community spouse; and
                  (F) any other standards relating to 
                eligibility for medical assistance under the 
                plan.
          (2) Scope of assistance.--The amount, duration, and 
        scope of health care services and items covered under 
        the plan, including differences among different 
        eligible population groups.
          (3) Delivery method.--The State's approach to 
        delivery of medical assistance, including a general 
        description of--
                  (A) the use (or intended use) of vouchers, 
                fee-for-service, or managed care arrangements 
                (such as capitated health care plans, case 
                management, and case coordination), and
                  (B) utilization control systems.
          (4) Fee-for-service benefits.--To the extent that 
        medical assistance is furnished on a fee-for-service 
        basis--
                  (A) how the State determines the 
                qualifications of health care providers 
                eligible to provide such assistance, and
                  (B) how the State determines rates of 
                reimbursement for providing such assistance.
          (5) Cost-sharing.--Beneficiary cost-sharing (if any), 
        including variations in such cost-sharing by population 
        group or type of service and financial responsibilities 
        of parents of recipients under 21 years of age and the 
        spouses of recipients.
          (6) Utilization incentives.--Incentives or 
        requirements (if any) to encourage the appropriate 
        utilization of services.
          tauzin; mntlhlth.001 deg.(7) Treatment of 
        health centers.--
                  (A) In general.--In the case of a State in 
                which one or more health centers is located, 
                the MediGrant plan shall include a description 
                of--
                          (i) what provision (if any) has been 
                        made for payment for items and services 
                        furnished by health centers, and
                          (ii) the manner in which medical 
                        assistance for low-income eligible 
                        individuals who received health care 
                        services at health centers on or before 
                        the date of the enactment of this title 
                        may be provided, as determined by the 
                        State in consultation with the health 
                        centers in the State.
                  (B) Health center defined.--For purposes of 
                subparagraph (A), the term ``health center'' 
                means an entity that--
                          (i) is receiving a grant under 
                        section 329, 330, 340, or 340A of the 
                        Public Health Service Act; or
                          (ii) based on the recommendation of 
                        the Health Resources and Services 
                        Administration within the Public Health 
                        Service, was determined by the 
                        Secretary to meet the requirements to 
                        receive such a grant.
          eshoo deg.(8) Support for certain 
        hospitals.--
                  (A) In general.--With respect to hospitals 
                described in subparagraph (B) located in the 
                State, the MediGrant plan shall include a 
                description--
                          (i) of the extent to which provisions 
                        have been made for expenditures for 
                        items and services furnished by such 
                        hospitals and covered under the plan, 
                        and
                          (ii) for individuals who (I) are 
                        enrolled for benefits for covered 
                        services under the MediGrant plan and 
                        (II) were previously receiving benefits 
                        for such services under the medicaid 
                        program by or through such hospitals, 
                        where or how they will receive benefits 
                        for such services under the MediGrant 
                        plan if the MediGrant plan does not 
                        permit such individuals to obtain 
                        benefits for those services by or 
                        through such hospitals.
                  (B) Hospitals described.--For purposes of 
                subparagraph (A), a hospital described in this 
                subparagraph is a subsection (d) hospital (as 
                defined in section 1886(d)(1)(B)) that is 
                described in clauses (i) and (ii) of section 
                340B(a)(4)(L) of the Public Health Service Act.
  (b) Immunizations for Children.--The MediGrant plan shall 
provide medical assistance for immunizations for children 
eligible for any medical assistance under the MediGrant plan, 
in accordance with a schedule for immunizations established by 
the Health Department of the State in consultation with the 
individuals and entities in the State responsible for the 
administration of the plan.
  Ganske deg.(c) Equal Payment Rates for Rural 
Providers.--A State with a MediGrant plan shall establish 
payment rates for all services of rural providers that are 
comparable to the payment rates established for like services 
of such type of providers not in rural areas; except that a 
State may provide for incentive payments to attract and retain 
providers to medically underserved areas.
  Studds deg.(d) Preexisting Condition Exclusions.--
Notwithstanding any other provision of this title--
          (1) a MediGrant plan may not deny or exclude coverage 
        of any item or service for an eligible individual for 
        benefits under the MediGrant plan for such item or 
        service on the basis of a preexisting condition; and
          (2) if a State contracts or makes other arrangements 
        (through the eligible individual or through another 
        entity) with a capitated health care organization, 
        insurer, or other entity, for the provision of items or 
        services to eligible individuals under the MediGrant 
        plan and the State permits such organization, insurer, 
        or other entity to exclude coverage of a covered item 
        or service on the basis of a preexisting condition, the 
        State shall provide, through its MediGrant plan, for 
        such coverage (through direct payment or otherwise) for 
        any such covered item or service denied or excluded on 
        the basis of a preexisting condition.

SEC. 2112. SET-ASIDES OF FUNDS FOR POPULATION GROUPS.

  (a) For Targeted Low-Income Families.--
          (1) In general.--Subject to subsection (e), a 
        MediGrant plan shall provide that the amount of funds 
        expended under the plan for medical assistance for 
        targeted low-income families (as defined in paragraph 
        (3)) for a fiscal year shall be not less than the 
        minimum low-income-family percentage specified in 
        paragraph (2) of the total funds expended under the 
        plan for all medical assistance for the fiscal year.
          (2) Minimum low-income-family percentage.--The 
        minimum low-income-family percentage specified in this 
        paragraph for a State is equal to 85 percent of the 
        average percentage of the expenditures under title XIX 
        for medical assistance in the State during Federal 
        fiscal years 1992 through 1994 which were attributable 
        to expenditures for medical assistance for mandated 
        benefits (as defined in subsection (h)) furnished to 
        individuals--
                  (A) who (at the time of furnishing the 
                assistance) were under 65 years of age,
                  (B) whose coverage (at such time) under a 
                State plan under title XIX was required under 
                Federal law, and
                  (C) whose eligibility for such coverage (at 
                such time) was not on a basis directly related 
                to disability status (including being blind).
          (3) Targeted low-income family defined.--In this 
        subsection, the term ``targeted low-income family'' 
        means a family (which may be an individual)--
                  (A) which includes a child or a pregnant 
                woman, and
                  (B) the income of which does not exceed 185 
                percent of the poverty line applicable to a 
                family of the size involved.
  (b) For Low-Income Elderly.--
          (1) Set-asides.--Subject to subsection (e)--
                  (A) General set-aside.--A MediGrant plan 
                shall provide that the amount of funds expended 
                under the plan for medical assistance for 
                eligible low-income individuals 65 years of age 
                or older for a fiscal year shall be not less 
                than the minimum low-income-elderly percentage 
                specified in paragraph (2)(A) of the total 
                funds expended under the plan for all medical 
                assistance for the fiscal year.
                  (B) Set-aside for medicare premium 
                assistance.--A MediGrant plan shall provide 
                that the amount of funds expended under the 
                plan for medical assistance for medicare cost-
                sharing described in section 2171(c)(1) for a 
                fiscal year shall be not less than the minimum 
                medicare premium assistance percentage 
                specified in paragraph (2)(B) of the total 
                funds expended under the plan for all medical 
                assistance for the fiscal year.
          (2) Minimum percentages.--
                  (A) For general set-aside.--The minimum low-
                income-elderly percentage specified in this 
                subparagraph for a State is equal to 85 percent 
                of the average percentage of the expenditures 
                under title XIX for medical assistance in the 
                State during Federal fiscal years 1992 through 
                1994 which was attributable to expenditures for 
                medical assistance for mandated benefits 
                furnished to individuals--
                          (i) whose eligibility for such 
                        assistance was based on their being 65 
                        years of age or older; and
                          (ii)(I) whose coverage (at such time) 
                        under a State plan under title XIX was 
                        required under Federal law, or (II) who 
                        (at such time) were residents of a 
                        nursing facility.
                  (B) For set-aside for medicare premium 
                assistance.--The minimum medicare premium 
                assistance percentage specified in this 
                subparagraph for a State is equal to 85 percent 
                of the average percentage of the expenditures 
                under title XIX for medical assistance in the 
                State during Federal fiscal years 1992 through 
                1994 which was attributable to expenditures for 
                medical assistance for medicare premiums 
                described in section 1905(p)(3)(A) for 
                individuals whose coverage (at such time) for 
                such assistance for such premiums under a State 
                plan under title XIX was required under Federal 
                law.
  (c) For Low-Income Disabled Persons.--
          (1) In general.--Subject to subsection (e), a 
        MediGrant plan shall provide that the percentage of 
        funds expended under the plan for medical assistance 
        for eligible low-income individuals who are under 65 
        years of age and are eligible for such assistance on 
        the basis of a disability (including being blind) for a 
        fiscal year is not less than the minimum low-income-
        disabled percentage specified in paragraph (2) of the 
        total funds expended under the plan for medical 
        assistance for the fiscal year.
          (2) Minimum low-income-disabled percentage.--The 
        minimum low-income-disabled percentage specified in 
        this paragraph for a State is equal to 85 percent of 
        the average percentage of the expenditures under title 
        XIX for medical assistance in the State during Federal 
        fiscal years 1992 through 1994 which was attributable 
        to expenditures for medical assistance for mandated 
        benefits furnished to individuals--
                  (A) whose coverage (at such time) under a 
                State plan under title XIX was required under 
                Federal law, and
                  (B) whose coverage (at such time) was on a 
                basis directly related to disability status 
                (including being blind).
  (d) Use of Residual Funds.--
          (1) In general.--Subject to limitations on payment 
        under section 2123tech deg., any funds not 
        required to be expended under the set-asides under the 
        previous subsections may be expended under the 
        MediGrant plan for any of the following:
                  (A) Additional medical assistance.--Medical 
                assistance for eligible low-income individuals 
                (as defined in section 2171(b)), in addition to 
                any medical assistance made available under a 
                previous subsection.
                  (B) Medically-related services.--Payment for 
                medically-related services (as defined in 
                paragraph (2)).
                  (C) Administration.--Payment for the 
                administration of the MediGrant plan.
          (2) Medically-related services defined.--In this 
        title, the term ``medically-related services'' means 
        services reasonably related to, or in direct support 
        of, the State's attainment of one or more of the 
        strategic objectives and performance goals established 
        under section 2101, but does not include items and 
        services included on the list under section 2171(a)(1) 
        (relating to the definition of medical assistance).
  (e) Exceptions to Minimum Set-Asides.--
          (1) Alternative minimum set-asides.--
                  (A) In general.--A State may provide in its 
                MediGrant plan (through an amendment to the 
                plan) for a lower dollar amount of expenditures 
                than the minimum amounts specified in any (or 
                all) of paragraphs (2) of subsections (a), (b), 
                and (c) if State determines (and certifies to 
                the Secretary) that--
                          (i) the health care needs of the low-
                        income populations described in 
                        paragraph (1) of the respective 
                        subsection who are eligible for medical 
                        assistance under the plan during the 
                        previous fiscal year (or medicare 
                        premium assistance needs described in 
                        subsection (b)(1)(B)) can be reasonably 
                        met without the expenditure of the 
                        amounts otherwise required to be 
                        expended, and
                          (ii) the performance goals 
                        established under section 2101 relating 
                        to the respective population can 
                        reasonably be met with such lower 
                        amount of funds expended.
                  (B) Period of application.--The determination 
                and certification under subparagraph (A) shall 
                be made for such period as a State may request, 
                but may not be made for a period of more than 3 
                consecutive Federal fiscal years (beginning 
                with the first fiscal year for which the lower 
                amount is sought). A new determination and 
                certification must be made under such paragraph 
                for any subsequent period.
                  (C) No exception permitted before fiscal year 
                1998.--This paragraph may not apply with 
                respect to a State for a fiscal year before 
                fiscal year 1998.
          (2) Independent certification of compliance with 
        goals.--
                  (A) In general.--For purposes of section 
                2151(c), a MediGrant plan shall not be 
                considered to be in substantial violation of 
                the requirements of this section if the amount 
                of actual State expenditures specified in any 
                (or all) of paragraphs (1) of subsections (a), 
                (b), and (c) is lower than the minimum amounts 
                specified in any (or all) of paragraphs (2) of 
                subsections (a), (b), and (c) if an independent 
                actuary determines and certifies to the State 
                that the MediGrant plan is reasonably designed 
                to result in a level of expenditures which is 
                consistent with the requirements of such 
                subsections.
                  (B) Limit on variation.--Subparagraph (A) 
                shall not apply in the case of a MediGrant plan 
                for which the actual State expenditures 
                described in any (or all) of paragraphs (1) of 
                subsections (a), (b), and (c) are less than 95 
                percent of the expenditures which would be made 
                if the amount of State expenditures specified 
                in any (or all) of such paragraphs was equal to 
                the applicable minimum amount specified in any 
                (or all) of paragraphs (2) of subsections (a), 
                (b), and (c).
          (3) Treatment of states with no optional benefits.--
        In the case of a State for which all expenditures under 
        title XIX for medical assistance in the State during 
        Federal fiscal years 1992 through 1994 were 
        expenditures for medical assistance for mandated 
        benefits, ``75 percent'' shall be substituted for ``85 
        percent'' each place it appears in paragraphs (2) of 
        subsections (a), (b), and (c).
  (f) Computations.--
          (1) Minimum percentages.--States shall calculate the 
        minimum percentages under subsections (a)(2), (b)(2), 
        and (c)(2) in a reasonable manner consistent with 
        reports submitted to the Secretary for the fiscal years 
        involved.
          (2) Exclusion of payments for certain aliens.--For 
        purposes of this section, medical assistance 
        attributable to the exception provided under section 
        1903(v)(2) shall not be considered to be expenditures 
        for medical assistance.
  (g) Benefits Included for Purposes of Computing Set Asides.--
In this section, the term ``mandated benefits''--
          (1) means medical assistance for items and services 
        described in section 1905(a) to the extent such 
        assistance with respect to such items and services was 
        required to be provided under title XIX,
          (2) includes medical assistance for medicare cost-
        sharing only to the extent such assistance was required 
        to be provided under section 1902(a)(10)(E), and
          (3) does not include medical assistance attributable 
        to disproportionate share payment adjustments described 
        in section 1923.

SEC. 2113. PREMIUMS AND COST-SHARING.

  (a) In General.--Subject to subsection (b), if any charges 
are imposed under the MediGrant plan for cost-sharing (as 
defined in subsection (d)), such cost-sharing shall be pursuant 
to a public cost-sharing schedule.
  (b) Limitation on Premium and Certain Cost-Sharing for Low-
Income Families Including Children or Pregnant Women.--
          (1) In general.--In the case of a family described in 
        paragraph (2)--
                  (A) the plan shall not impose any premium, 
                and
                  (B) the plan shall not (except as provided in 
                subsection (c)(1)) impose any cost-sharing with 
                respect to primary and preventive care services 
                (as defined by the State) covered under the 
                MediGrant plan for children or pregnant women 
                unless such cost-sharing is nominal in nature.
          (2) Family described.--A family described in this 
        paragraph is a family (which may be an individual) 
        which--
                  (A) includes a child or a pregnant woman,
                  (B) is made eligible for medical assistance 
                under the MediGrant plan, and
                  (C) the income of which does not exceed 100 
                percent of the poverty line applicable to a 
                family of the size involved.
  (c) Certain Cost-Sharing Permitted.--Nothing in this section 
shall be construed as preventing a MediGrant plan (consistent 
with subsection (b))--
          (1) from imposing cost-sharing to discourage the 
        inappropriate use of emergency medical services 
        (delivered through a hospital emergency room, a medical 
        transportation provider, or otherwise);
          (2) from imposing premiums and cost-sharing 
        differentially in order to encourage the use of primary 
        and preventive care and discourage unnecessary or less 
        economical care;
          (3) from scaling cost-sharing in a manner that 
        reflects economic factors, employment status, and 
        family size;
          (4) from scaling cost-sharing based on the 
        availability to the individual or family of other 
        health insurance coverage; or
          (5) from scaling cost-sharing based on participation 
        in employment training program, drug or alcohol abuse 
        treatment, counseling programs, or other programs 
        promoting personal responsibility.
  (d) Cost-Sharing Defined.--In this section, the term ``cost-
sharing'' includes copayments, deductibles, coinsurance, and 
other charges for the provision of health care services.

SEC. 2114. DESCRIPTION OF PROCESS FOR DEVELOPING CAPITATION PAYMENT 
                    RATES.

  (a) In General.--If a State contracts (or intends to 
contract) with a capitated health care organization (as defined 
in subsection (c)(1)) under which the State makes a capitation 
payment (as defined in subsection (c)(2)) to the organization 
for providing or arranging for the provision of medical 
assistance under the MediGrant plan for a group of services 
(including at least inpatient hospital services and physicians' 
services), the plan shall include a description of the 
following:
          (1) Use of actuarial science.--The extent and manner 
        in which the State uses actuarial science--
                  (A) to analyze and project health care 
                expenditures and utilization for individuals 
                enrolled (or to be enrolled) in such an 
                organization under the MediGrant plan, and
                  (B) to develop capitation payment rates, 
                including a brief description of the general 
                methodologies used by actuaries.
          (2) Qualifications of organizations.--The general 
        qualifications (including any accreditation, State 
        licensure or certification, or provider network 
        standards) required by the State for participation of 
        capitated health care organizations under the MediGrant 
        plan.
          (3) Dissemination process.--The process used by the 
        State under subsection (b) and otherwise to 
        disseminate, before entering into contracts with 
        capitated health care organizations, actuarial 
        information to such organizations on the historical 
        fee-for-service costs (or, if not available, other 
        recent financial data associated with providing covered 
        services) and utilization associated with individuals 
        described in paragraph (1)(A).
  (b) Public Notice and Comment.--Under the MediGrant plan the 
State shall provide a process for providing, before the 
beginning of each contract year--
          (1) public notice of--
                  (A) the amounts of the capitation payments 
                (if any) made under the plan for the contract 
                year preceding the public notice, and
                  (B)(i) the information described under 
                subsection (a)(1) with respect to capitation 
                payments for the contract year involved or (ii) 
                the amounts of the capitation payments the 
                State expects to make for the contract year 
                involved,
        unless such information is designated as proprietary 
        and not subject to public disclosure under State law; 
        and
          (2) an opportunity for receiving public comment on 
        the amounts and information for which notice is 
        provided under paragraph (1).
  (c) Definitions.--In this title:
          (1) Capitated health care organization.--The term 
        ``capitated health care organization'' means a health 
        maintenance organization or any other entity (including 
        a health insuring organization, managed care 
        organization, prepaid health plan, integrated service 
        network, or similar entity) which under State law is 
        permitted to accept capitation payments for providing 
        (or arranging for the provision of) a group of items 
        and services including at least inpatient hospital 
        services and physicians' services.
          (2) Capitation payment.--The term ``capitation 
        payment'' means, with respect to payment, payment on a 
        prepaid capitation basis or any other risk basis to an 
        entity for the entity's provision (or arranging for the 
        provision) of a group of items and services (including 
        at least inpatient hospital services and physicians' 
        services).

SEC. 2115. CONSTRUCTION.

  (a) No Federal Entitlement.--Nothing in this title (including 
section 2112) shall be construed as creating an entitlement 
under Federal law in any individual or category of individuals 
for medical assistance under a MediGrant plan.
  (b) State Flexibility in Benefits, Provider Payments, 
Geographical Coverage Area, and Selection of Providers.--
Nothing in this title (other than section 2111(b)) shall be 
construed as requiring a State--
          (1) to provide medical assistance for any particular 
        items or services;
          (2) subject to section 2111(c), to provide for any 
        payments with respect to any specific health care 
        providers or any level of payments for any services;
          (3) to provide for the same medical assistance in all 
        geographical areas or political subdivisions of the 
        State;
          (4) to provide that the medical assistance made 
        available to any individual eligible for medical 
        assistance must not be less in amount, duration, or 
        scope than the medical assistance made available to any 
        other such individual; or
          (5) to provide that any individual eligible for 
        medical assistance with respect to an item or service 
        may choose to obtain such assistance from any 
        institution, agency, or person qualified to provide the 
        item or service.
  (c) State Flexibility with Respect to Managed Care.--Nothing 
in this title shall be construed--
          (1) to limit a State's ability to contract with, on a 
        capitated basis or otherwise, health care plans or 
        individual health care providers for the provision or 
        arrangement of medical assistance;
          (2) to limit a State's ability to contract with 
        health care plans or other entities for case management 
        services or for coordination of medical assistance; or
          (3) to restrict a State from establishing capitation 
        rates on the basis of competition among health care 
        plans or negotiations between the State and one or more 
        health care plans.

SEC. 2116. LIMITATIONS ON CAUSES OF ACTION.

  (a) In General.--Notwithstanding any other provision of this 
Act (including section 1130A), no person (including an 
applicant, beneficiary, provider, or health plan) shall have a 
cause of action under Federal law against a State in relation 
to a State's compliance (or failure to comply) with the 
provisions of this title or of a MediGrant plan.
  (b) No Effect on State Law.--Nothing in subsection (a) may be 
construed as affecting any actions brought under State law.

                       Part C--Payments to States

SEC. 2121. ALLOTMENT OF FUNDS AMONG STATES.

  (a) Allotments.--
          (1) Computation.--The Secretary shall provide for the 
        computation of State obligation and outlay allotments 
        in accordance with this section for each fiscal year 
        beginning with fiscal year 1996.
          (2) Limitation on obligations.--
                  (A) In general.--Subject to subparagraph (B), 
                tech deg.the Secretary shall not enter 
                into obligations with any State under this 
                title for a fiscal year in excess of the 
                obligation allotment for that State for the 
                fiscal year under paragraph (4). The sum of 
                such obligation allotments for all States in 
                any fiscal year (excluding amounts carried over 
                under subparagraph (B) and excluding changes in 
                allotments effected under paragraph (4)(D)) 
                shall not exceed the aggregate limit on new 
                obligation authority specified in paragraph (3) 
                for that fiscal year.
                  (B) Adjustments.--
                          (i) Carryover of allotment 
                        permitted.--If the amount of 
                        obligations entered into under this 
                        part with a State for quarters in a 
                        fiscal year is less than the amount of 
                        the obligation allotment under this 
                        section to the State for the fiscal 
                        year, the amount of the difference 
                        shall be added to the amount of the 
                        State obligation allotment otherwise 
                        provided under this section for the 
                        succeeding fiscal year.
                          (ii) Reduction for post-enactment new 
                        obligations under title xix in fiscal 
                        year 1996.--The amount of the 
                        obligation allotment otherwise provided 
                        under this section for fiscal year 1996 
                        for a State shall be reduced by the 
                        amount tech deg.of the 
                        obligations entered into with respect 
                        to the State under section 1903(a) 
                        tech deg.after the date of the 
                        enactment of this Act.
          (3) Aggregate limit on new obligation authority.--
                  (A) In general.--For purposes of this 
                subsection, subject to subparagraph (C), the 
                ``aggregate limit on new obligation 
                authority'', for a fiscal year, is the pool 
                amount under subsection (b) for the fiscal 
                year, divided by the payout adjustment factor 
                (described in subparagraph (B)) for the fiscal 
                year.
                  (B) Payout adjustment factor.--For purposes 
                of this subsection, the ``payout adjustment 
                factor''--
                          (i) for fiscal year 1996 is .950,
                          (ii) for fiscal year 1997 is .986, 
                        and
                          (iii) for a subsequent fiscal year is 
                        .998.
                  (C) Transitional adjustment for pre-
                enactment-obligation outlays.--In order to 
                account for pre-enactment-obligation outlays 
                described in paragraph (4)(C)(iv), in 
                determining the aggregate limit on new 
                obligation authority under subparagraph (A) for 
                fiscal year 1996, the pool amount for such 
                fiscal year is equal to--
                          (i) the pool amount for such year, 
                        reduced by
                          (ii) $24.624 billion.
          (4) Obligation allotments.--
                  (A) General rule for 50 states and the 
                district of columbia.--Except as provided in 
                this paragraph, the ``obligation allotment'' 
                for any of the 50 States or the District of 
                Columbia for a fiscal year (beginning with 
                fiscal year 1997) is an amount that bears the 
                same ratio to the outlay allotment under 
                subsection (c)(2) for such State or District 
                (not taking into account any adjustment due to 
                an election under paragraph (4)) for the fiscal 
                year as the ratio of--
                          (i) the aggregate limit on new 
                        obligation authority (less the total of 
                        the obligation allotments under 
                        subparagraph (B)) for the fiscal year, 
                        to
                          (ii) the pool amount (less the sum of 
                        the outlay allotments for the 
                        territories) for such fiscal year.
                  (B) Territories.--The obligation allotment 
                for each of the Commonwealths and territories 
                for a fiscal year is the outlay allotment for 
                such Commonwealth or territory (as determined 
                under subsection (c)(5)) for the fiscal year 
                divided by the payout adjustment factor for the 
                fiscal year (as defined in paragraph (3)(B)).
                  (C) Transitional rule for fiscal year 1996.--
                          (i) In general.--The obligation 
                        amount for fiscal year 1996 for any 
                        State (including the District, a 
                        Commonwealth, or territory) is 
                        determined according to the formula: 
                        A=(B-C)/D, where--
                                  (I) ``A'' is the obligation 
                                amount for such State;
                                  (II) ``B'' is the outlay 
                                allotment of such State for 
                                fiscal year 1996, as determined 
                                under subsection (c);
                                  (III) ``C'' is the amount of 
                                the pre-enactment-obligation 
                                outlays (as established for 
                                such State under clause (ii)); 
                                and
                                  (IV) ``D'' is the payout 
                                adjustment factor for such 
                                fiscal year (as defined in 
                                paragraph (3)(B)).
                          (ii) Pre-enactment-obligation outlay 
                        amounts.--Within 30 days after the date 
                        of the enactment of this title, the 
                        Secretary shall estimate (based on the 
                        best data available) and publish in the 
                        Federal Register the amount of the pre-
                        enactment-obligation outlays (as 
                        defined in clause (iv)) for each State 
                        (including the District, Commonwealths, 
                        and territories). The total of such 
                        amounts shall equal the dollar amount 
                        specified in paragraph (3)(C)(ii).
                          (iii) Agreement.--The submission of a 
                        MediGrant plan by a State under this 
                        title is deemed to constitute the 
                        State's acceptance of the obligation 
                        allotment limitations under this 
                        subsection (including the formula for 
                        computing the amount of such obligation 
                        allotment).
                          (iv) Pre-enactment-obligation outlays 
                        defined.--In this subsection, the term 
                        ``pre-enactment-obligation outlays'' 
                        means, for a State, the outlays of the 
                        Federal Government that result from 
                        obligations that have been incurred 
                        under title XIX with respect to the 
                        State before the date of the enactment 
                        of this title, but for which payments 
                        to States have not been made as of such 
                        date of enactment.
                  (D) Adjustment to reflect adoption of 
                alternative growth formula.--Any State that has 
                elected an alternative growth formula under 
                subsection (c)(4) which increases or decreases 
                the dollar amount of an outlay allotment for a 
                fiscal year is deemed to have increased or 
                decreased, respectively, its obligation amount 
                for such fiscal year by the amount of such 
                increase or decrease.
  (b) Pool of Available Funds.--
          (1) In general.--For purposes of this section, the 
        ``pool amount'' under this subsection for--
                  (A) fiscal year 1996 is $95.673 billion;
                  (B) fiscal year 1997 is $102.135 billion;
                  (C) fiscal year 1998 is $106.221 billion;
                  (D) fiscal year 1999 is $110.469 billion;
                  (E) fiscal year 2000 is $114.888 billion;
                  (F) fiscal year 2001 is $119.483 billion;
                  (G) fiscal year 2002 is $124.263 billion; and
                  (H) each subsequent fiscal year is the pool 
                amount under this paragraph for the previous 
                fiscal year increased by the lesser of 4 
                percent or the annual percentage increase in 
                the consumer price index for all urban 
                consumers (U.S. city average) for the 12-month 
                period ending in June before the beginning of 
                that subsequent fiscal year.
          (2) National medigrant growth percentage.--For 
        purposes of this section for a fiscal year (beginning 
        with fiscal year 1997), the ``national MediGrant growth 
        percentage'' is the percentage by which--
                  (A) the pool amount under paragraph (1) for 
                the fiscal year, exceeds
                  (B) such pool amount for the previous fiscal 
                year.
  (c) State tech deg.Outlay Allotments.--
          (1) Fiscal year 1996.--
                  (A) In general.--For each of the 50 States 
                and the District of Columbia, the amount of the 
                State outlay allotment under this subsection 
                for fiscal year 1996 is, subject to paragraph 
                (4), equal to--
                          (i) the total amount of Federal 
                        expenditures made to the State under 
                        title XIX for the 4 quarters in fiscal 
                        year 1994, increased by
                          (ii) the percentage by which (I) 
                        $95,529,490,500 (which represents the 
                        total amount of outlay allotments for 
                        such States and District for fiscal 
                        year 1996), exceeds (II) 
                        $83,213,431,458 (which represents 
                        Federal medicaid expenditures for such 
                        States and District for fiscal year 
                        1994).
                  (B) Computation of expenditures.--The amount 
                of Federal expenditures described in 
                subparagraph (A)(i) shall be computed, using 
                data reported on the HCFA Form 64 as of 
                September 1, 1995, based on--
                          (i) the amount reported on line 11, 
                        or
                          (ii) on the amount reported on line 6 
                        multiplied by the ratio of (I) the sum 
                        of the amounts so reported on line 11 
                        of such Form for fiscal year 1994 for 
                        the 50 States and the District of 
                        Columbia, to (II) the sum of the 
                        amounts so reported on line 6 of such 
                        Form for fiscal year 1994 for such 
                        States and District,
                whichever is greater.
                  (C) Limitation on adjustment.--The amount 
                computed under subparagraph (B) shall not be 
                subject to adjustment (based on any subsequent 
                disallowances or otherwise).
          (2) Computation of state outlay allotments.--
                  (A) In general.--Subject to the succeeding 
                provisions of this subsection, the amount of 
                the State outlay allotment under this 
                subsection for one of the 50 States and the 
                District of Columbia for a fiscal year 
                (beginning with fiscal year 1997) is equal to 
                the product of--
                          (i) the needs-based amount determined 
                        under subparagraph (B) for the State 
                        for the fiscal year, and
                          (ii) the scalar factor described in 
                        subparagraph (C) for the fiscal year.
                  (B) Needs-based amount.--The needs-based 
                amount under this subparagraph for a State for 
                a fiscal year is equal to the product of--
                          (i) the State's aggregate expenditure 
                        need for the fiscal year (as determined 
                        under subsection (d)), and
                          (ii) the State's old Federal medical 
                        assistance percentage (as defined in 
                        section 2122(d)) for the previous 
                        fiscal year (or, in the case of fiscal 
                        year 1997, the Federal medical 
                        assistance percentage determined under 
                        section 1905(b) for fiscal year 1996).
                  (C) Scalar factor.--The scalar factor under 
                this subparagraph for a fiscal year is such 
                proportion so that, when it is applied under 
                subparagraph (A)(ii) for the fiscal year 
                (taking into account the floors and ceilings 
                under paragraph (3)), the total of the outlay 
                allotments under this subsection for all the 50 
                States and the District of Columbia for the 
                fiscal year (not taking into account any 
                increase in an outlay allotment for a fiscal 
                year attributable to the election of an 
                alternative growth formula under paragraph (4)) 
                is equal to the amount by which (i) the pool 
                amount for the fiscal year (as determined under 
                subsection (b)), exceeds (ii) the sum of the 
                outlay allotments provided under paragraph (5) 
                for the Commonwealths and territories for the 
                fiscal year.
          (3) Floors and ceilings.--
                  (A) Floors.--In no case shall the amount of 
                the State outlay allotment under paragraph (2) 
                for a fiscal year be less than the following:
                          (i) Floor based on previous year's 
                        outlay allotment.--102 percent of the 
                        amount of the State outlay allotment 
                        under this subsection for the previous 
                        fiscal year.
                          (ii) Floor based on outlay allotment 
                        growth rate in first year.--Beginning 
                        with fiscal year 1998, in the case of a 
                        State for which the outlay allotment 
                        under this subsection for fiscal year 
                        1997 exceeded its outlay allotment 
                        under this subsection for the previous 
                        fiscal year by--
                                  (I) more than 125 percent of 
                                the national MediGrant growth 
                                percentage for fiscal year 
                                1997, 104 percent of the amount 
                                of the State outlay allotment 
                                under this subsection for the 
                                previous fiscal year; or
                                  (II) less than 125 percent 
                                (but more than 75 percent) of 
                                the national MediGrant growth 
                                percentage for fiscal year 
                                1997, 103 percent of the amount 
                                of the State outlay allotment 
                                under this subsection for the 
                                previous fiscal year.
                  (B) Ceiling.--
                          (i) In general.--Subject to clause 
                        (ii), in no case shall the amount of 
                        the State outlay allotment under 
                        paragraph (2) for a fiscal year be 
                        greater than the product of--
                                  (I) the State outlay 
                                allotment under this subsection 
                                for the State for the preceding 
                                fiscal year, and
                                  (II) 133 percent of the 
                                national MediGrant growth 
                                percentage (as determined under 
                                subsection (b)(2)) for the 
                                fiscal year involved.
                          (ii) Special rule.--For a fiscal year 
                        after fiscal year 1997, in the case of 
                        a State (among the 50 States and the 
                        District of Columbia) that is one of 
                        the 10 States with the lowest Federal 
                        MediGrant spending per resident-in-
                        poverty rates (as determined under 
                        clause (iii)) for the fiscal year, the 
                        reference in clause (i)(II) to ``133 
                        percent'' is deemed a reference to 
                        ``150 percent''.
                          (iii) Determination of federal 
                        medigrant spending per resident-in-
                        poverty rate.--For purposes of clause 
                        (ii), the ``Federal MediGrant spending 
                        per resident-in-poverty rate'' for a 
                        State for a fiscal year is equal to--
                                  (I) the State's outlay 
                                allotment under this subsection 
                                for the previous fiscal year 
                                (determined without regard to 
                                paragraph (4)), divided by
                                  (II) the average annual 
                                number of residents of the 
                                State in poverty (as defined in 
                                subsection (d)(2)) with respect 
                                to the fiscal year.
          (4) Election of alternative growth formula.--
                  (A) Election.--In order to reduce variations 
                in increases in outlay allotments over time, 
                any of the 50 States or the District of 
                Columbia may elect (by notice provided to the 
                Secretary by not later than April 1, 1996) to 
                adopt an alternative growth rate formula under 
                this paragraph for the determination of the 
                State's outlay allotment in fiscal year 1996 
                and for the increase in the amount of such 
                allotment in subsequent fiscal years.
                  (B) Formula.--The alternative growth formula 
                under this paragraph may be any formula under 
                which a portion of the State outlay allotment 
                for fiscal year 1996 under paragraph (1) is 
                deferred and applied to increase the amount of 
                its outlay allotment for one or more subsequent 
                fiscal years, so long as the total amount of 
                such increases for all such subsequent fiscal 
                years does not exceed the amount of the outlay 
                allotment deferred from fiscal year 1996.
          (5) Commonwealths and territories.--The outlay 
        allotment for each of the Commonwealths and territories 
        for a fiscal year is the maximum amount that could have 
        been certified under section 1108(c) with respect to 
        the Commonwealth or territory for the fiscal year with 
        respect to title XIX, if the national MediGrant growth 
        percentage (as determined under subsection (b)(2)) for 
        the fiscal year had been substituted (beginning with 
        fiscal year 1997) for the percentage increase referred 
        to in section 1108(c)(1)(B).
  (d) State Aggregate Expenditure Need Determined.--
          (1) In general.--For purposes of subsection (c), the 
        ``State aggregate expenditure need'' for a State for a 
        fiscal year is equal to the product of the following 4 
        factors:
                  (A) Residents in poverty.--The average annual 
                number of residents in poverty of the State 
                with respect to the fiscal year (as determined 
                under paragraph (2)).
                  (B) Case mix index.--The average of the case 
                mix indexes for the State (as determined under 
                paragraph (3)) for the 3 most recent fiscal 
                years for which data are available, but in no 
                case less than .9 or greater than 1.15.
                  (C) Input cost index.--The average of the 
                input cost indexes for the State (as determined 
                under paragraph (4)) for the 3 most recent 
                fiscal years for which data are available.
                  (D) National average spending per resident in 
                poverty.--The national average spending per 
                resident in poverty (as determined under 
                paragraph (5)).
          (2) Residents in poverty.--In this section--
                  (A) In general.--The term ``average annual 
                number of residents in poverty'' means, with 
                respect to a State and a fiscal year, the 
                average annual number of residents in poverty 
                (as defined in subparagraph (B)) in the State 
                (based on data made generally available by the 
                Bureau of the Census from the Current 
                Population Survey) for the most recent 3-
                calendar-year period (ending before the fiscal 
                year) for which such data are available.
                  (B) Resident in poverty defined.--The term 
                ``resident in poverty'' means an individual 
                whose family income does not exceed the poverty 
                threshold (as such terms are defined by the 
                Office of Management and Budget and are 
                generally interpreted and applied by the Bureau 
                of the Census for the year involved).
          (3) Case mix index.--
                  (A) In general.--In this subsection, the 
                ``case mix index'' for a State for a fiscal 
                year is equal to--
                          (i) the sum of--
                                  (I) the projected per 
                                recipient expenditures with 
                                respect to elderly individuals 
                                in the State for the fiscal 
                                year (determined under 
                                subparagraph (B)),
                                  (II) the projected per 
                                recipient expenditures with 
                                respect to the blind and 
                                disabled individuals in the 
                                State for the fiscal year 
                                (determined under subparagraph 
                                (C)), and
                                  (III) the projected per 
                                recipient expenditures with 
                                respect to other individuals in 
                                the State (determined under 
                                subparagraph (D));
                divided by--
                          (ii) the national average spending 
                        per recipient determined under 
                        subparagraph (E) for the fiscal year 
                        involved.
                  (B) Projected per recipient expenditures for 
                the elderly.--For purposes of subparagraph 
                (A)(I)(i), the ``projected per recipient 
                expenditures with respect to elderly 
                individuals'' in a State for a fiscal year is 
                equal to the product of--
                          (i) the national average per 
                        recipient expenditures under this title 
                        in the 50 States and the District of 
                        Columbia for the most recent fiscal 
                        year for which data are available for 
                        individuals who are 65 years of age or 
                        older, and
                          (ii) the proportion, of all 
                        individuals who received medical 
                        assistance under this title in the 
                        State in the most recent fiscal year 
                        referred to in clause (i), that were 
                        individuals described in such clause.
                  (C) Projected per recipient expenditures for 
                the blind and disabled.--For purposes of 
                subparagraph (A)(i)(II), the ``projected per 
                recipient expenditures with respect to blind 
                and disabled individuals'' in a State for a 
                fiscal year is equal to the product of--
                          (i) the national average per 
                        recipient expenditures under this title 
                        in the 50 States and the District of 
                        Columbia for the most recent fiscal 
                        year for which data are available for 
                        individuals who are eligible for 
                        medical assistance because they are 
                        blind or disabled and under 65 years of 
                        age, and
                          (ii) the proportion, of all 
                        individuals who received medical 
                        assistance under this title in the 
                        State in the most recent fiscal year 
                        referred to in clause (i), that were 
                        individuals described in such clause.
                  (D) Projected per recipient expenditures for 
                other individuals.--For purposes of 
                subparagraph (A)(i)(III), the ``projected per 
                recipient expenditures with respect to other 
                individuals'' in a State for a fiscal year is 
                equal to the product of--
                          (i) the national average per 
                        recipient expenditures under this title 
                        in the 50 States and the District of 
                        Columbia for the most recent fiscal 
                        year for which data are available for 
                        individuals who are not described in 
                        subparagraph (B)(i) or (C)(i), and
                          (ii) the proportion, of all 
                        individuals who received medical 
                        assistance under this title in the 
                        State in the most recent fiscal year 
                        referred to in clause (i), that were 
                        individuals described in such clause.
                  (E) National average spending per 
                recipient.--For purposes of this paragraph, the 
                ``national average expenditures per recipient'' 
                for a fiscal year is equal to the sum of--
                          (i) the product of (I) the national 
                        average described in subparagraph 
                        (B)(i), and (II) the proportion, of all 
                        individuals who received medical 
                        assistance under this title in any of 
                        the 50 States or the District of 
                        Columbia in the fiscal year referred to 
                        in such subparagraph, who are described 
                        in such subparagraph;
                          (ii) the product of (I) the national 
                        average described in subparagraph 
                        (C)(i), and (II) the proportion, of all 
                        individuals who received medical 
                        assistance under this title in any of 
                        the 50 States or the District of 
                        Columbia in the fiscal year referred to 
                        in such subparagraph, who are described 
                        in such subparagraph; and
                          (iii) the product of (I) the national 
                        average described in subparagraph 
                        (D)(i), and (II) the proportion, of all 
                        individuals who received medical 
                        assistance under this title in any of 
                        the 50 States or the District of 
                        Columbia in the fiscal year referred to 
                        in such subparagraph, who are described 
                        in such subparagraph.
                  (F) Determination of national averages and 
                proportions.--
                          (i) In general.--The national 
                        averages per recipient and the 
                        proportions referred to in clauses (i) 
                        and (ii), respectively, of 
                        subparagraphs (B), (C), and (D) and 
                        subparagraph (E) shall be determined by 
                        the Secretary using the most recent 
                        data available.
                          (ii) Use of medicaid data.--If for a 
                        fiscal year there is inadequate data to 
                        compute such averages and proportions 
                        based on expenditures and numbers of 
                        individuals receiving medical 
                        assistance under this title, the 
                        Secretary may compute such averages 
                        based on expenditures and numbers of 
                        such individuals under title XIX for 
                        the most recent fiscal year for which 
                        data are available and, for this 
                        purpose--
                                  (I) any reference in 
                                subparagraph (B)(i) to 
                                ``individuals 65 years of age 
                                or older'' is deemed a 
                                reference to ``individuals 
                                whose eligibility for medical 
                                assistance is based on being 65 
                                years of age or older'',
                                  (II) the reference in 
                                subparagraph (C)(i) to ``and 
                                under 65 years of age'' shall 
                                be considered to be deleted, 
                                and
                                  (III) individuals whose basis 
                                for eligibility for medical 
                                assistance was reported as 
                                unknown shall not be counted as 
                                individuals under subparagraph 
                                (D)(i).
          (4) Input cost index.--
                  (A) In general.--In this section, the ``input 
                cost index'' for a State for a fiscal year is 
                the sum of--
                          (i) 0.15, and
                          (ii) 0.85 multiplied by the ratio of 
                        (I) the annual average wages for 
                        hospital employees in the State for the 
                        fiscal year (as determined under 
                        subparagraph (B)), to (II) the annual 
                        average wages for hospital employees in 
                        the 50 States and the District of 
                        Columbia for such year (as determined 
                        under such subparagraph).
                  (B) Determination of annual average wages of 
                hospital employees.--The Secretary shall 
                provide for the determination of annual 
                average deg. wages for hospital 
                employees in a State and, collectively, in the 
                50 States and the District of Columbia for a 
                fiscal year based on the area wage index 
                applicable to hospitals under 1886(d)(2)(E) 
                (or, if such index no longer exists, a 
                comparable index of hospital wages) for 
                discharges occurring during the fiscal year 
                involved.
          (5) National average spending per resident in 
        poverty.--For purposes of this subsection, the 
        ``national average spending per resident in poverty''--
                  (A) for fiscal year 1997 is equal to--
                          (i) the sum (for each of the 50 
                        States and the District of Columbia) of 
                        the total of the Federal and State 
                        expenditures under title XIX for 
                        calendar quarters in fiscal year 1994, 
                        increased by the percentage specified 
                        in subsection (c)(1)(A)(ii), divided by
                          (ii) the sum of the number of 
                        residents in poverty (as defined in 
                        paragraph (2)(A)) for all of the 50 
                        States and the District of Columbia for 
                        fiscal year 1994;
                  (B) for a succeeding fiscal year is equal to 
                the national average spending per resident in 
                poverty under this paragraph for the preceding 
                fiscal year increased by the national MediGrant 
                growth percentage (as defined in subsection 
                (b)(2)) for the fiscal year involved.
  (e) Publication of Obligation and Outlay Allotments.--
          (1) Notice of preliminary allotments.--Not later than 
        April 1 before the beginning of each fiscal year 
        (beginning with fiscal year 1997), the Secretary shall 
        initially compute, after consultation with the 
        Comptroller General, and publish in the Federal 
        Register notice of the proposed obligation and outlay 
        allotments for each State under this section (not 
        taking into account subsection (a)(2)(B)) for the 
        fiscal year. The Secretary shall include in the notice 
        a description of the methodology and data used in 
        deriving such allotments for the year.
          (2) Review by gao.--The Comptroller General shall 
        submit to Congress by not later than May 15 of each 
        such fiscal year, a report analyzing such allotments 
        and the extent to which they comply with the precise 
        requirements of this section.
          (3) Notice of final allotments.--Not later than July 
        1 before the beginning of each such fiscal year, the 
        Secretary, taking into consideration the analysis 
        contained in the report of the Comptroller General 
        under paragraph (2), shall compute and publish in the 
        Federal Register notice of the final allotments under 
        this section (confusing deg.both taking into 
        account and not taking into account subsection 
        (a)(2)(B)) for the fiscal year. The Secretary shall 
        include in the notice a description of any changes in 
        such allotments from the initial allotments published 
        under paragraph (1) for the fiscal year and the reasons 
        for such changes. Once published under this paragraph, 
        the Secretary is not authorized to change such 
        allotments.
          (4) GAO report on final allotments.--The Comptroller 
        General shall submit to Congress by not later than 
        August 1 of each such fiscal year, a report analyzing 
        the final allotments under paragraph (3) and the extent 
        to which they comply with the precise requirements of 
        this section.

SEC. 2122. PAYMENTS TO STATES.

  (a) Amount of Payment.--From the allotment of a State under 
section 2121 for a fiscal year, subject to the succeeding 
provisions of this title, the Secretary shall pay to each State 
which has a MediGrant plan approved under part E, for each 
quarter in the fiscal year--
          (1) an amount equal to the applicable Federal medical 
        assistance percentage (as defined in subsection (c)) of 
        the total amount expended during such quarter as 
        medical assistance under the plan; plus
          (2) an amount equal to the applicable Federal medical 
        assistance percentage of the total amount expended 
        during such quarter for medically-related services (as 
        defined in section 2112(e)(2)); plus
          (3) subject to section 2123(c)--
                  (A) an amount equal to 90 percent of the 
                amounts expended during such quarter for the 
                design, development, and installation of 
                information systems and for providing 
                incentives to promote the enforcement of 
                medical support orders, plus
                  (B) an amount equal to 75 percent of the 
                amounts expended during such quarter for 
                medical personnel, administrative support of 
                medical personnel, operation and maintenance of 
                information systems, modification of 
                information systems, quality assurance 
                activities, utilization review, medical and 
                peer review, anti-fraud activities, independent 
                evaluations, coordination of benefits, and 
                meeting reporting requirements under this 
                title, plus
                  (C) an amount equal to 50 percent of so much 
                of the remainder of the amounts expended during 
                such quarter as are expended by the State in 
                the administration of the State plan.
  (b) Payment Process.--
          (1) Quarterly estimates.--Prior to the beginning of 
        each quarter, the Secretary shall estimate the amount 
        to which a State will be entitled under subsection (a) 
        for such quarter, such estimates to be based on (A) a 
        report filed by the State containing its estimate of 
        the total sum to be expended in such quarter in 
        accordance with the provisions of such subsections, and 
        stating the amount appropriated or made available by 
        the State and its political subdivisions for such 
        expenditures in such quarter, and if such amount is 
        less than the State's proportionate share of the total 
        sum of such estimated expenditures, the source or 
        sources from which the difference is expected to be 
        derived, and (B) such other investigation as the 
        Secretary may find necessary.
          (2) Payment.--
                  (A) In general.--The Secretary shall then pay 
                to the State, in such installments as the 
                Secretary may determine and in accordance with 
                section 6503(a) of title 31, United States 
                Code, the amount so estimated, reduced or 
                increased to the extent of any overpayment or 
                underpayment which the Secretary determines was 
                made under this section (or section 1903) to 
                such State for any prior quarter and with 
                respect to which adjustment has not already 
                been made under this subsection (or under 
                section 1903(d)).
                  (B) Treatment as overpayments.--Expenditures 
                for which payments were made to the State under 
                subsection (a) shall be treated as an 
                overpayment to the extent that the State or 
                local agency administering such plan has been 
                reimbursed for such expenditures by a third 
                party pursuant to the provisions of its plan in 
                compliance with section 2135.
                  (C) Recovery of overpayments.--For purposes 
                of this subsection, when an overpayment is 
                discovered, which was made by a State to a 
                person or other entity, the State shall have a 
                period of 60 days in which to recover or 
                attempt to recover such overpayment before 
                adjustment is made in the Federal payment to 
                such State on account of such overpayment. 
                Except as otherwise provided in subparagraph 
                (D), the adjustment in the Federal payment 
                shall be made at the end of the 60 days, 
                whether or not recovery was made.
                  (D) No adjustment for uncollectables.--In any 
                case where the State is unable to recover a 
                debt which represents an overpayment (or any 
                portion thereof) made to a person or other 
                entity on account of such debt having been 
                discharged in bankruptcy or otherwise being 
                uncollectable, no adjustment shall be made in 
                the Federal payment to such State on account of 
                such overpayment (or portion thereof).
          (3) Federal share of recoveries.--The pro rata share 
        to which the United States is equitably entitled, as 
        determined by the Secretary, of the net amount 
        recovered during any quarter by the State or any 
        political subdivision thereof with respect to medical 
        assistance furnished under the State plan shall be 
        considered an overpayment to be adjusted under this 
        subsection.
          (4) Timing of obligation of funds.--Upon the making 
        of any estimate by the Secretary under this subsection, 
        any appropriations available for payments under this 
        section shall be deemed obligated.
          (5) Disallowances.--In any case in which the 
        Secretary estimates that there has been an overpayment 
        under this section to a State on the basis of a claim 
        by such State that has been disallowed by the Secretary 
        under section 1116(d), and such State disputes such 
        disallowance, the amount of the Federal payment in 
        controversy shall, at the option of the State, be 
        retained by such State or recovered by the Secretary 
        pending a final determination with respect to such 
        payment amount. If such final determination is to the 
        effect that any amount was properly disallowed, and the 
        State chose to retain payment of the amount in 
        controversy, the Secretary shall offset, from any 
        subsequent payments made to such State under this 
        title, an amount equal to the proper amount of the 
        disallowance plus interest on such amount disallowed 
        for the period beginning on the date such amount was 
        disallowed and ending on the date of such final 
        determination at a rate (determined by the Secretary) 
        based on the average of the bond equivalent of the 
        weekly 90-day treasury bill auction rates during such 
        period.
  (c) Applicable Federal Medical Assistance Percentage 
Defined.--In this section, except as provided in subsection 
(f), the term ``applicable Federal medical assistance 
percentage'' means, with respect to one of the 50 States or the 
District of Columbia, at the State's or District's 
option deg.--
          (1) the old Federal medical assistance percentage (as 
        determined in subsection (d)), or
          (2) the new Federal medical assistance percentage (as 
        determined under subsection (e)) or, if less, the old 
        Federal medical assistance percentage plus 10 
        percentage points.
  (d) Old Federal Medical Assistance Percentage.--
          (1) In general.--Except as provided in paragraph (2) 
        and subsection (f), the term ``old Federal medical 
        assistance percentage'' for any State is 100 percent 
        less the State percentage; and the State percentage is 
        that percentage which bears the same ratio to 45 
        percent as the square of the per capita income of such 
        State bears to the square of the per capita income of 
        the continental United States (including Alaska) and 
        Hawaii.
          (2) Limitation on range.--In no case shall the old 
        Federal medical assistance percentage be less than 50 
        percent or more than 83 percent.
          (3) Promulgation.--The old Federal medical assistance 
        percentage for any State shall be determined and 
        promulgated in accordance with the provisions of 
        section 1101(a)(8)(B).
  (e) New Federal Medical Assistance Percentage Defined.--
          (1) In general.--
                  (A) Term defined.--Except as provided in 
                paragraph (3) and subsection (f), the term 
                ``new Federal medical assistance percentage'' 
                means, for each of the 50 States and the 
                District of Columbia, 100 percent reduced by 
                the product 0.39 and the ratio of--
                          (i)(I) for each of the 50 States, the 
                        total taxable resources (TTR) ratio of 
                        the State specified in subparagraph 
                        (B), or
                          (II) for the District of Columbia, 
                        the per capita income ratio specified 
                        in subparagraph (C),
                to--
                          (ii) the aggregate expenditure need 
                        ratio of the State or District, as 
                        described in subparagraph (D).
                  (B) Total taxable resources (ttr) ratio.--For 
                purposes of subparagraph (A)(i)(I), the total 
                taxable resources (TTR) ratio for each of the 
                50 States is--
                          (i) an amount equal to the most 
                        recent 3-year average of the total 
                        taxable resources (TTR) of the State, 
                        as determined by the Secretary of the 
                        Treasury, divided by
                          (ii) an amount equal to the sum of 
                        the 3-year averages determined under 
                        clause (i) for each of the 50 States.
                  (C) Per capita income ratio.--For purposes of 
                subparagraph (A)(i)(II), the per capita income 
                ratio of the District of Columbia is--
                          (i) an amount equal to the most 
                        recent 3-year average of the total 
                        personal income of the District of 
                        Columbia, as determined in accordance 
                        with the provisions of section 
                        1101(a)(8)(B), divided by
                          (ii) an amount equal to the total 
                        personal income of the continental 
                        United States (including Alaska) and 
                        Hawaii, as determined under section 
                        1101(a)(8)(B).
                  (D) Aggregate expenditure need ratio.--For 
                purposes of subparagraph (A), with respect to 
                each of the 50 States and the District of 
                Columbia for a fiscal year, the aggregate 
                expenditure need ratio is--
                          (i) the State aggregate expenditure 
                        need (as defined in section 2121(d)) 
                        for the State for the fiscal year, 
                        divided by
                          (ii) the such of such State aggregate 
                        expenditure needs for the 50 States and 
                        the District of Columbia for the fiscal 
                        year.
          (2) Limitation on range.--Except as provided in 
        subsection (f), the new Federal medical assistance 
        percentage shall in no case be less than 40 percent or 
        greater than 83 percent.
          (3) Promulgation.--The new Federal medical assistance 
        percentage for any State shall be promulgated in a 
        timely manner consistent with the promulgation of the 
        old Federal medical assistance percentage under section 
        1101(a)(8)(B).
  (f) Special Rules.--For purposes of this title--
          (1) Commonwealths and territories.--In the case of 
        Puerto Rico, the Virgin Islands, Guam, the Northern 
        Mariana Islands, and American Samoa, the old and new 
        Federal medical assistance percentages are 50 percent.
          (2) Indian health service facilities.--
                  (A) In general.--The old and new Federal 
                medical assistance percentages shall be 100 
                percent with respect to the amounts expended as 
                medical assistance for services which are 
                received through a facility described in 
                subparagraph (B) of an Indian tribe or tribal 
                organization or through an Indian Health 
                Service facility whether operated by the Indian 
                Health Service or by an Indian tribe or tribal 
                organization (as defined in section 4 of the 
                Indian Health Care Improvement Act).
                  Coburn: deg.(B) Facility 
                described.--For purposes of subparagraph (A), a 
                facility described in this subparagraph is a 
                facility of an Indian tribe if--
                          (i) the facility is located in a 
                        State which, as of the date of the 
                        enactment of this title, was not 
                        operating its State plan under title 
                        XIX pursuant to a Statewide waiver 
                        approved under section 1115,
                          (ii) the facility is not an Indian 
                        Health Service facility,
                          (iii) the tribe owns at least 2 such 
                        facilities, and
                          (iv) the tribe has at least 50,000 
                        members (as of the date of the 
                        enactment of this title).
          (3) No state matching required for certain 
        expenditures.--In applying subsection (a)(1) with 
        respect to medical assistance provided to unlawful 
        aliens pursuant to the exception specified in section 
        2123(e)(2), payment shall be made for the amount of 
        such assistance without regard to any need for a State 
        match.

SEC. 2123. LIMITATION ON USE OF FUNDS; DISALLOWANCE.

  (a) In General.--Funds provided to a State under this title 
shall only be used to carry out the purposes of this title.
  (b) Disallowances for Excluded Providers.--
          (1) In general.--Payment shall not be made to a State 
        under this part for expenditures for items and services 
        furnished--
                  (A) by a provider who was excluded from 
                participation under title V, XVIII, or XX or 
                under this title pursuant to section 1128, 
                1128A, 1156, or 1842(j)(2), or
                  (B) under the medical direction or on the 
                prescription of a physician who was so 
                excluded, if the provider of the services knew 
                or had reason to know of the exclusion.
          (2) Exception for emergency services.--Paragraph (1) 
        shall not apply to emergency items or services, not 
        including hospital emergency room services.
  (c) Limitations.--
          (1) In general.--No Federal financial assistance is 
        available for expenditures under the MediGrant plan 
        for--
                  (A) medically-related services for a quarter 
                to the extent such expenditures exceed 5 
                percent of the total expenditures under the 
                plan for the quarter; or
                  (B) total administrative expenses (other than 
                expenses described in paragraph (2) during the 
                first 8 quarters in which the plan is in effect 
                under this title) for quarters in a fiscal year 
                to the extent such expenditures exceed the sum 
                of $20,000,000 plus 10 percent of the total 
                expenditures under the plan for the year.
          (2) Administrative expenses not subject to 
        limitation.--The administrative expenses referred to in 
        this paragraph are expenditures under the MediGrant 
        plan for the following activities:
                  (A) Quality assurance.
                  (B) The development and operation of the 
                certification program for nursing facilities 
                and intermediate care facilities for the 
                mentally retarded under section 2137(a)(2).
                  (C) Utilization review activities, including 
                medical activities and activities of peer 
                review organizations.
                  (D) Inspection and oversight of providers and 
                capitated health care organizations.
                  (E) Anti-fraud activities.
                  (F) Independent evaluations.
                  (G) Activities required to meet reporting 
                requirements under this title.
  (d) Treatment of Third Party Liability.--No payment shall be 
made to a State under this part for expenditures for medical 
assistance provided for an individual under its MediGrant plan 
to the extent that a private insurer (as defined by the 
Secretary by regulation and including a group health plan (as 
defined in section 607(1) of the Employee Retirement Income 
Security Act of 1974), a service benefit plan, and a health 
maintenance organization) would have been obligated to provide 
such assistance but for a provision of its insurance contract 
which has the effect of limiting or excluding such obligation 
because the individual is eligible for or is provided medical 
assistance under the plan.
  (e) Limitation on Payments to Emergency Services for 
Nonlawful Aliens.--
          (1) In general.--Notwithstanding the preceding 
        provisions of this section, except as provided in 
        paragraph (2), no payment may be made to a State under 
        this part for medical assistance furnished to an alien 
        who is not lawfully admitted for permanent residence or 
        otherwise permanently residing in the United States 
        under color of law.
          (2) Exception for emergency services.--Payment may be 
        made under this section for care and services that are 
        furnished to an alien described in paragraph (1) only 
        if--
                  (A) such care and services are necessary for 
                the treatment of an emergency medical condition 
                of the alien,
                  (B) such alien otherwise meets the 
                eligibility requirements for medical assistance 
                under the MediGrant plan (other than a 
                requirement of the receipt of aid or assistance 
                under title IV, supplemental security income 
                benefits under title XVI, or a State 
                supplementary payment), and
                  (C) such care and services are not related to 
                an organ transplant procedure.
          (3) Emergency medical condition defined.--For 
        purposes of this subsection, the term ``emergency 
        medical condition'' means a medical condition 
        (including emergency labor and delivery) manifesting 
        itself by acute symptoms of sufficient severity 
        (including severe pain) such that the absence of 
        immediate medical attention could reasonably be 
        expected to result in--
                  (A) placing the patient's health in serious 
                jeopardy,
                  (B) serious impairment to bodily functions, 
                or
                  (C) serious dysfunction of any bodily organ 
                or part.
  (f) Limitation on Payment for Certain Outpatient Prescription 
Drugs.--
          (1) In general.--No payment may be made to a State 
        under this part for medical assistance for covered 
        outpatient drugs (as defined in section 2175(i)(2)) of 
        a manufacturer provided under the MediGrant plan unless 
        the manufacturer (as defined in section 2175(i)(4)) of 
        the drug--
                  (A) has entered into a MediGrant master 
                rebate agreement with the Secretary under 
                section 2175; and
                  (B) is complying with the provisions of 
                section 8126 of title 38, United States Code, 
                including the requirement of entering into a 
                master agreement with the Secretary of Veterans 
                Affairs under such section.
          (2) Construction.--Nothing in this subsection shall 
        be construed as requiring a State to participate in the 
        MediGrant master rebate agreement under section 2175.
          (3) Effect of subsequent amendments.--For purposes of 
        paragraph (1)(B), in determining whether a manufacturer 
        is in compliance with the requirements of section 8126 
        of title 38, United States Code--
                  (A) the Secretary shall not take into account 
                any amendments to such section that are enacted 
                after the enactment of title VI of the Veterans 
                Health Care Act of 1992; and
                  (B) a manufacturer is deemed to meet such 
                requirements if the manufacturer establishes to 
                the satisfaction of the Secretary that the 
                manufacturer would comply (and has offered to 
                comply) with the provisions of section 8126 of 
                title 38, United States Code (as in effect 
                immediately after the enactment of the Veterans 
                Health Care Act of 1992) and would have entered 
                into an agreement under such section (as such 
                section was in effect at such time), but for a 
                legislative change in such section after the 
                date of the enactment of the Veterans Health 
                Care Act of 1992.
  (g) Limitation on Payment for Abortions.--
          (1) In general.--Payment shall not be made to a State 
        under this part for any amount expended under the 
        MediGrant plan to pay for any abortion or to assist in 
        the purchase, in whole or in part, of health benefit 
        coverage that includes coverage of abortion.
          (2) Exception.--Paragraph (1) shall not apply to an 
        abortion--
                  (A) if the pregnancy is the result of an act 
                of rape or incest, or
                  (B) in the case where a woman suffers from a 
                physical disorder, illness, or injury that 
                would, as certified by a physician, place the 
                woman in danger of death unless an abortion is 
                performed.
  (h) Limitation on Payment for Assisting Deaths.--Payment 
shall not be made to a State under this part for amounts 
expended under the MediGrant plan to pay for, or to assist in 
the purchase, in whole or in part, of health benefit coverage 
that includes payment for any drug, biological product, or 
service which was furnished for the purpose of causing, or 
assisting in causing, the death, suicide, euthanasia, or mercy 
killing of a person.

                 Part D--Program Integrity and Quality

SEC. 2131. USE OF AUDITS TO ACHIEVE FISCAL INTEGRITY.

  (a) Financial Audits of Program.--
          (1) In general.--Each MediGrant plan shall provide 
        for an annual audit of the State's expenditures from 
        amounts received under this title, in compliance with 
        chapter 75 of title 31, United States Code.
          (2) Verification audits.--If, after consultation with 
        the State and the Comptroller General and after a fair 
        hearing, the Secretary determines that a State's audit 
        under paragraph (1) was performed in substantial 
        violation of chapter 75 of title 31, United States 
        Code, the Secretary may--
                  (A) require that the State provide for a 
                verification audit in compliance with such 
                chapter, or
                  (B) conduct such a verification audit.
          (3) Availability of audit reports.--Within 30 days 
        after completion of each audit or verification audit 
        under this subsection, the State shall--
                  (A) provide the Secretary with a copy of the 
                audit report, including the State's response to 
                any recommendations of the auditor, and
                  (B) make the audit report available for 
                public inspection in the same manner as 
                proposed MediGrant plan amendments are made 
                available under section 2105.
  (b) Fiscal Controls.--
          (1) In general.--With respect to the accounting and 
        expenditure of funds under this title, each State shall 
        adopt and maintain such fiscal controls, accounting 
        procedures, and data processing safeguards as the State 
        deems reasonably necessary to assure the fiscal 
        integrity of the State's activities under this title.
          (2) Consistency with generally accepted accounting 
        principles.--Such controls and procedures shall be 
        generally consistent with generally accepted accounting 
        principles as recognized by the Governmental Accounting 
        Standards Board or the Comptroller General.
  (c) Audits of Providers.--Each MediGrant plan shall provide 
that the records of any entity providing items or services for 
which payment may be made under the plan may be audited as 
necessary to ensure that proper payments are made under the 
plan.

SEC. 2132. FRAUD PREVENTION PROGRAM.

  (a) Establishment.--Each MediGrant plan shall provide for the 
establishment and maintenance of an effective program for the 
detection and prevention of fraud and abuse by beneficiaries, 
providers, and others in connection with the operation of the 
program.
  (b) Program Requirements.--The program established pursuant 
to subsection (a) shall include at least the following 
requirements:
          (1) Disclosure of information.--Any disclosing entity 
        (as defined in section 1124(a)) receiving payments 
        under the MediGrant plan shall comply with the 
        requirements of section 1124.
          (2) Supply of information.--An entity (other than an 
        individual practitioner or a group of practitioners) 
        that furnishes, or arranges for the furnishing of, an 
        item or service under the MediGrant plan shall supply 
        upon request specifically addressed to the entity by 
        the Secretary or the State agency the information 
        described in section 1128(b)(9).
          (3) Exclusion.--
                  (A) In general.--The MediGrant plan shall 
                exclude any specified individual or entity from 
                participation in the plan for the period 
                specified by the Secretary when required by the 
                Secretary to do so pursuant to section 1128 or 
                section 1128A, and provide that no payment may 
                be made under the plan with respect to any item 
                or service furnished by such individual or 
                entity during such period.
                  (B) Authority.--In addition to any other 
                authority, a State may exclude any individual 
                or entity for purposes of participating under 
                the MediGrant plan for any reason for which the 
                Secretary could exclude the individual or 
                entity from participation in a program under 
                title XVIII or under section 1128, 1128A, or 
                1866(b)(2).
          (4) Notice.--The MediGrant plan shall provide that 
        whenever a provider of services or any other person is 
        terminated, suspended, or otherwise sanctioned or 
        prohibited from participating under the plan, the State 
        agency responsible for administering the plan shall 
        promptly notify the Secretary and, in the case of a 
        physician, the State medical licensing board of such 
        action.
          (5) Access to information.--The MediGrant plan shall 
        provide that the State will provide information and 
        access to certain information respecting sanctions 
        taken against health care practitioners and providers 
        by State licensing authorities in accordance with 
        section 2133.

SEC. 2133. INFORMATION CONCERNING SANCTIONS TAKEN BY STATE LICENSING 
                    AUTHORITIES AGAINST HEALTH CARE PRACTITIONERS AND 
                    PROVIDERS.

  (a) Information Reporting Requirement.--The requirement 
referred to in section 2132(b)(5) is that the State must 
provide for the following:
          (1) Information reporting system.--The State must 
        have in effect a system of reporting the following 
        information with respect to formal proceedings (as 
        defined by the Secretary in regulations) concluded 
        against a health care practitioner or entity by any 
        authority of the State (or of a political subdivision 
        thereof) responsible for the licensing of health care 
        practitioners (or any peer review organization or 
        private accreditation entity reviewing the services 
        provided by health care practitioners) or entities:
                  (A) Any adverse action taken by such 
                licensing authority as a result of the 
                proceeding, including any revocation or 
                suspension of a license (and the length of any 
                such suspension), reprimand, censure, or 
                probation.
                  (B) Any dismissal or closure of the 
                proceedings by reason of the practitioner or 
                entity surrendering the license or leaving the 
                State or jurisdiction.
                  (C) Any other loss of the license of the 
                practitioner or entity, whether by operation of 
                law, voluntary surrender, or otherwise.
                  (D) Any negative action or finding by such 
                authority, organization, or entity regarding 
                the practitioner or entity.
          (2) Access to documents.--The State must provide the 
        Secretary (or an entity designated by the Secretary) 
        with access to such documents of the authority 
        described in paragraph (1) as may be necessary for the 
        Secretary to determine the facts and circumstances 
        concerning the actions and determinations described in 
        such paragraph for the purpose of carrying out this 
        Act.
  (b) Form of Information.--The information described in 
subsection (a)(1) shall be provided to the Secretary (or to an 
appropriate private or public agency, under suitable 
arrangements made by the Secretary with respect to receipt, 
storage, protection of confidentiality, and dissemination of 
information) in such a form and manner as the Secretary 
determines to be appropriate in order to provide for activities 
of the Secretary under this Act and in order to provide, 
directly or through suitable arrangements made by the 
Secretary, information--
          (1) to agencies administering Federal health care 
        programs, including private entities administering such 
        programs under contract,
          (2) to licensing authorities described in subsection 
        (a)(1),
          (3) to State agencies administering or supervising 
        the administration of State health care programs (as 
        defined in section 1128(h)),
          (4) to utilization and quality control peer review 
        organizations described in part B of title XI and to 
        appropriate entities with contracts under section 
        1154(a)(4)(C) with respect to eligible organizations 
        reviewed under the contracts,
          (5) to State MediGrant fraud control units (as 
        defined in section 2134),
          (6) to hospitals and other health care entities (as 
        defined in section 431 of the Health Care Quality 
        Improvement Act of 1986), with respect to physicians or 
        other licensed health care practitioners that have 
        entered (or may be entering) into an employment or 
        affiliation relationship with, or have applied for 
        clinical privileges or appointments to the medical 
        staff of, such hospitals or other health care entities 
        (and such information shall be deemed to be disclosed 
        pursuant to section 427 of, and be subject to the 
        provisions of, that Act),
          (7) to the Attorney General and such other law 
        enforcement officials as the Secretary deems 
        appropriate, and
          (8) upon request, to the Comptroller General,
        in order for such authorities to determine the fitness 
        of individuals to provide health care services, to 
        protect the health and safety of individuals receiving 
        health care through such programs, and to protect the 
        fiscal integrity of such programs.
  (c) Confidentiality of Information Provided.--The Secretary 
shall provide for suitable safeguards for the confidentiality 
of the information furnished under subsection (a). Nothing in 
this subsection shall prevent the disclosure of such 
information by a party which is otherwise authorized, under 
applicable State law, to make such disclosure.
  (d) Appropriate Coordination.--The Secretary shall provide 
for the maximum appropriate coordination in the implementation 
of subsection (a) of this section and section 422 of the Health 
Care Quality Improvement Act of 1986.

SEC. 2134. STATE MEDIGRANT FRAUD CONTROL UNITS.

  (a) In General.--Each MediGrant plan shall provide for a 
State MediGrant fraud control unit described in subsection (b) 
that effectively carries out the functions and requirements 
described in such subsection, unless the State demonstrates to 
the satisfaction of the Secretary that the effective operation 
of such a unit in the State would not be cost-effective because 
minimal fraud exists in connection with the provision of 
covered services to eligible individuals under the plan, and 
that beneficiaries under the plan will be protected from abuse 
and neglect in connection with the provision of medical 
assistance under the plan without the existence of such a unit.
  (b) Units Described.--For purposes of this subsection, the 
term ``State MediGrant fraud control unit'' means a single 
identifiable entity of the State government which meets the 
following requirements:
          (1) Organization.--The entity--
                  (A) is a unit of the office of the State 
                Attorney General or of another department of 
                State government which possesses statewide 
                authority to prosecute individuals for criminal 
                violations;
                  (B) is in a State the constitution of which 
                does not provide for the criminal prosecution 
                of individuals by a statewide authority and has 
                formal procedures that--
                          (i) assure its referral of suspected 
                        criminal violations relating to the 
                        program under this title to the 
                        appropriate authority or authorities in 
                        the State for prosecution, and
                          (ii) assure its assistance of, and 
                        coordination with, such authority or 
                        authorities in such prosecutions; or
                  (C) has a formal working relationship with 
                the office of the State Attorney General and 
                has formal procedures (including procedures for 
                its referral of suspected criminal violations 
                to such office) which provide effective 
                coordination of activities between the entity 
                and such office with respect to the detection, 
                investigation, and prosecution of suspected 
                criminal violations relating to the program 
                under this title.
          (2) Independence.--The entity is separate and 
        distinct from any State agency that has principal 
        responsibilities for administering or supervising the 
        administration of the MediGrant plan.
          (3) Function.--The entity's function is conducting a 
        statewide program for the investigation and prosecution 
        of violations of all applicable State laws regarding 
        any and all aspects of fraud in connection with any 
        aspect of the provision of medical assistance and the 
        activities of providers of such assistance under the 
        MediGrant plan.
          (4) Review of complaints.--The entity has procedures 
        for reviewing complaints of the abuse and neglect of 
        patients of health care facilities which receive 
        payments under the MediGrant plan under this title, 
        and, where appropriate, for acting upon such complaints 
        under the criminal laws of the State or for referring 
        them to other State agencies for action.
          (5) Overpayments.--The entity provides for the 
        collection, or referral for collection to a single 
        State agency, of overpayments that are made under the 
        MediGrant plan to health care providers and that are 
        discovered by the entity in carrying out its 
        activities.
          (6) Personnel.--The entity employs such auditors, 
        attorneys, investigators, and other necessary personnel 
        and is organized in such a manner as is necessary to 
        promote the effective and efficient conduct of the 
        entity's activities.

SEC. 2135. RECOVERIES FROM THIRD PARTIES AND OTHERS.

  (a) Third Party Liability.--Each MediGrant plan shall provide 
for reasonable steps--
          (1) to ascertain the legal liability of third parties 
        to pay for care and services available under the plan, 
        including the collection of sufficient information to 
        enable States to pursue claims against third parties; 
        and
          (2) to seek reimbursement for medical assistance 
        provided to the extent legal liability is establish 
        where the amount expected to be recovered exceeds the 
        costs of the recovery.
  (b) Beneficiary Protection.--
          (1) In general.--Each MediGrant plan shall provide 
        that in the case of a person furnishing services under 
        the plan for which a third party may be liable for 
        payment--
                  (A) the person may not seek to collect from 
                the individual (or financially responsible 
                relative) payment of an amount for the service 
                more than could be collected under the plan in 
                the absence of such third party liability, and
                  (B) may not refuse to furnish services to 
                such an individual because of a third party's 
                potential liability for payment for the 
                service.
          (2) Penalty.--A MediGrant plan may provide for a 
        reduction of any payment amount otherwise due with 
        respect to a person who furnishes services under the 
        plan in an amount equal to up to three times the amount 
        of any payment sought to be collected by that person in 
        violation of paragraph (1)(A).
  (c) General Liability.--The State shall prohibit any health 
insurer (including a group health plan as defined in section 
607 of the Employee Retirement Income Security Act of 1974, a 
service benefit plan, or a health maintenance organization), in 
enrolling an individual or in making any payments for benefits 
to the individual or on the individual's behalf, from taking 
into account that the individual is eligible for or is provided 
medical assistance under a MediGrant plan for any State.
  (d) Acquisition of Rights of Beneficiaries.--To the extent 
that payment has been made under a MediGrant plan in any case 
where a third party has a legal liability to make payment for 
such assistance, the State shall have in effect laws under 
which, to the extent that payment has been made under the plan 
for health care items or services furnished to an individual, 
the State is considered to have acquired the rights of such 
individual to payment by any other party for such health care 
items or services.
  (e) Assignment of Medical Support Rights.--The MediGrant plan 
shall provide for mandatory assignment of rights of payment for 
medical support and other medical care owed to recipients in 
accordance with section 2136.
  (f) Required Laws Relating to Medical Child Support.--
          (1) In general.--Each State with a MediGrant plan 
        shall have in effect the following laws:
                  (A) A law that prohibits an insurer from 
                denying enrollment of a child under the health 
                coverage of the child's parent on the ground 
                that--
                          (i) the child was born out of 
                        wedlock,
                          (ii) the child is not claimed as a 
                        dependent on the parent's Federal 
                        income tax return, or
                          (iii) the child does not reside with 
                        the parent or in the insurer's service 
                        area.
                  (B) In any case in which a parent is required 
                by a court or administrative order to provide 
                health coverage for a child and the parent is 
                eligible for family health coverage through an 
                insurer, a law that requires such insurer--
                          (i) to permit such parent to enroll 
                        under such family coverage any such 
                        child who is otherwise eligible for 
                        such coverage (without regard to any 
                        enrollment season restrictions);
                          (ii) if such a parent is enrolled but 
                        fails to make application to obtain 
                        coverage of such child, to enroll such 
                        child under such family coverage upon 
                        application by the child's other parent 
                        or by the State agency administering 
                        the program under this title or part D 
                        of title IV; and
                          (iii) not to disenroll (or eliminate 
                        coverage of) such a child unless the 
                        insurer is provided satisfactory 
                        written evidence that--
                                  (I) such court or 
                                administrative order is no 
                                longer in effect, or
                                  (II) the child is or will be 
                                enrolled in comparable health 
                                coverage through another 
                                insurer which will take effect 
                                not later than the effective 
                                date of such disenrollment.
                  (C) In any case in which a parent is required 
                by a court or administrative order to provide 
                health coverage for a child and the parent is 
                eligible for family health coverage through an 
                employer doing business in the State, a law 
                that requires such employer--
                          (i) to permit such parent to enroll 
                        under such family coverage any such 
                        child who is otherwise eligible for 
                        such coverage (without regard to any 
                        enrollment season restrictions);
                          (ii) if such a parent is enrolled but 
                        fails to make application to obtain 
                        coverage of such child, to enroll such 
                        child under such family coverage upon 
                        application by the child's other parent 
                        or by the State agency administering 
                        the program under this title or part D 
                        of title IV; and
                          (iii) not to disenroll (or eliminate 
                        coverage of) any such child unless--
                                  (I) the employer is provided 
                                satisfactory written evidence 
                                that such court or 
                                administrative order is no 
                                longer in effect, or the child 
                                is or will be enrolled in 
                                comparable health coverage 
                                which will take effect not 
                                later than the effective date 
                                of such disenrollment, or
                                  (II) the employer has 
                                eliminated family health 
                                coverage for all of its 
                                employees; and
                          (iv) to withhold from such employee's 
                        compensation the employee's share (if 
                        any) of premiums for health coverage 
                        (except that the amount so withheld may 
                        not exceed the maximum amount permitted 
                        to be withheld under section 303(b) of 
                        the Consumer Credit Protection Act), 
                        and to pay such share of premiums to 
                        the insurer, except that the Secretary 
                        may provide by regulation for 
                        appropriate circumstances under which 
                        an employer may withhold less than such 
                        employee's share of such premiums.
                  (D) A law that prohibits an insurer from 
                imposing requirements on a State agency, which 
                has been assigned the rights of an individual 
                eligible for medical assistance under this 
                title and covered for health benefits from the 
                insurer, that are different from requirements 
                applicable to an agent or assignee of any other 
                individual so covered.
                  (E) A law that requires an insurer, in any 
                case in which a child has health coverage 
                through the insurer of a noncustodial parent--
                          (i) to provide such information to 
                        the custodial parent as may be 
                        necessary for the child to obtain 
                        benefits through such coverage;
                          (ii) to permit the custodial parent 
                        (or provider, with the custodial 
                        parent's approval) to submit claims for 
                        covered services without the approval 
                        of the noncustodial parent; and
                          (iii) to make payment on claims 
                        submitted in accordance with clause 
                        (ii) directly to such custodial parent, 
                        the provider, or the State agency.
                  (F) A law that permits the State agency under 
                this title to garnish the wages, salary, or 
                other employment income of, and requires 
                withholding amounts from State tax refunds to, 
                any person who--
                          (i) is required by court or 
                        administrative order to provide 
                        coverage of the costs of health 
                        services to a child who is eligible for 
                        medical assistance under this title,
                          (ii) has received payment from a 
                        third party for the costs of such 
                        services to such child, but
                          (iii) has not used such payments to 
                        reimburse, as appropriate, either the 
                        other parent or guardian of such child 
                        or the provider of such services,
                to the extent necessary to reimburse the State 
                agency for expenditures for such costs under 
                its plan under this title, but any claims for 
                current or past-due child support shall take 
                priority over any such claims for the costs of 
                such services.
          (2) Definition.--For purposes of this subsection, the 
        term ``insurer'' includes a group health plan, as 
        defined in section 607(1) of the Employee Retirement 
        Income Security Act of 1974, a health maintenance 
        organization, and an entity offering a service benefit 
        plan.
  (g) Estate Recoveries and Liens Permitted.--A State may take 
such actions as it considers appropriate to adjust or recover 
from the individual or the individual's estate any amounts paid 
as medical assistance to or on behalf of the individual under 
the MediGrant plan, including through the imposition of liens 
against the property or estate of the individual.

SEC. 2136. ASSIGNMENT OF RIGHTS OF PAYMENT.

  (a) In General.--For the purpose of assisting in the 
collection of medical support payments and other payments for 
medical care owed to recipients of medical assistance under the 
MediGrant plan, each MediGrant plan shall--
          (1) provide that, as a condition of eligibility for 
        medical assistance under the plan to an individual who 
        has the legal capacity to execute an assignment for 
        himself, the individual is required--
                  (A) to assign the State any rights, of the 
                individual or of any other person who is 
                eligible for medical assistance under the plan 
                and on whose behalf the individual has the 
                legal authority to execute an assignment of 
                such rights, to support (specified as support 
                for the purpose of medical care by a court or 
                administrative order) and to payment for 
                medical care from any third party,
                  (B) to cooperate with the State (i) in 
                establishing the paternity of such person 
                (referred to in subparagraph (A)) if the person 
                is a child born out of wedlock, and (ii) in 
                obtaining support and payments (described in 
                subparagraph (A)) for himself and for such 
                person, unless (in either case) the individual 
                is pregnant woman or the individual is found to 
                have good cause for refusing to cooperate as 
                determined by the State, and
                  (C) to cooperate with the State in 
                identifying, and providing information to 
                assist the State in pursuing, any third party 
                who may be liable to pay for care and services 
                available under the plan, unless such 
                individual has good cause for refusing to 
                cooperate as determined by the State; and
          (2) provide for entering into cooperative 
        arrangements (including financial arrangements), with 
        any appropriate agency of any State (including, with 
        respect to the enforcement and collection of rights of 
        payment for medical care by or through a parent, with a 
        State's agency established or designated under section 
        454(3)) and with appropriate courts and law enforcement 
        officials, to assist the agency or agencies 
        administering the plan with respect to--
                  (A) the enforcement and collection of rights 
                to support or payment assigned under this 
                section, and
                  (B) any other matters of common concern.
  (b) Use of Amounts Collected.--Such part of any amount 
collected by the State under an assignment made under the 
provisions of this section shall be retained by the State as is 
necessary to reimburse it for medical assistance payments made 
on behalf of an individual with respect to whom such assignment 
was executed (with appropriate reimbursement of the Federal 
Government to the extent of its participation in the financing 
of such medical assistance), and the remainder of such amount 
collected shall be paid to such individual.

SEC. 2137. QUALITY ASSURANCE STANDARDS FOR NURSING FACILITIES.

  (a) Standards for and Certification of Certain Facilities.--
          (1) Standards for facilities.--
                  (A) In general.--Each MediGrant plan shall 
                provide for the establishment and maintenance 
                of standards consistent with the contents 
                described in subparagraph (B) for nursing 
                facilities which furnish services under the 
                plan.
                  (B) Contents of standards.--The standards 
                established for facilities under this paragraph 
                shall contain provisions relating to the 
                following items:
                          (i) The treatment of resident medical 
                        records.
                          (ii) Policies, procedures, and bylaws 
                        for operation.
                          (iii) Quality assurance systems.
                          (iv) Resident assessment procedures, 
                        including care planning and outcome 
                        evaluation.
                          (vi) The assurance of a safe and 
                        adequate physical plant for the 
                        facility.
                          (vii) Qualifications for staff 
                        sufficient to provide adequate care, as 
                        defined by the State.
                          (viii) Utilization review.
                          (ix) The protection and enforcement 
                        of resident rights described in 
                        subparagraph (C).
                  (C) Resident rights described.--The resident 
                rights described in this subparagraph are the 
                rights of residents to the following:
                          (i) To exercise the individual's 
                        rights as a resident of the facility 
                        and as a citizen or resident of the 
                        United States.
                          (ii) To receive notice of rights and 
                        services.
                          (iii) To be protected against the 
                        misuse of resident funds.
                          (iv) To be provided privacy and 
                        confidentiality.
                          (v) To voice grievances.
                          (vi) To examine the results of State 
                        certification program inspections.
                          (vii) To refuse to perform services 
                        for the facility.
                          (viii) To be provided privacy in 
                        communications and to receive mail.
                          (ix) To have the facility provide 
                        immediate access to any resident by any 
                        representative of the certification 
                        program, the resident's individual 
                        physician, the State long term care 
                        ombudsman, and any person the resident 
                        has designated as a visitor.
                          (x) To retain and use personal 
                        property.
                          (xi) To be free from abuse, including 
                        verbal, sexual, physical and mental 
                        abuse, corporal punishment, and 
                        involuntary seclusion.
                          (xii) To be provided with prior 
                        written notice of a pending transfer or 
                        discharge.
                  (D) Process for establishment.--The standards 
                established by the State for facilities under 
                this paragraph shall be promulgated either 
                through the State's legislative, regulatory, or 
                other process, and may only take effect after 
                the State has provided the public with notice 
                and an opportunity for comment.
          (2) Certification program.--
                  (A) In general.--Each MediGrant plan shall 
                provide for the establishment and operation of 
                a program consistent with the requirements of 
                subparagraph (B) for the certification of 
                nursing facilities which meet the standards 
                established under paragraph (1) and the 
                decertification of facilities which fail to 
                meet such standards.
                  (B) Requirements for program.--In addition to 
                any other requirements the State may impose, in 
                establishing and operating the certification 
                program under subparagraph (A), the State shall 
                ensure the following:
                          (i) The State shall ensure public 
                        access (as defined by the State) to the 
                        certification program's evaluations of 
                        participating facilities, including 
                        compliance records and enforcement 
                        actions and other reports by the State 
                        regarding the ownership, compliance 
                        histories, and services provided by 
                        certified facilities.
                          (ii) Not less often than every 4 
                        years, the State shall audit its 
                        expenditures under the program, through 
                        an entity designated by the State which 
                        is not affiliated with the program, as 
                        designated by the State.
  (b) Intermediate Sanction Authority.--
          (1) Authority.--In addition to any other authority 
        under State law, where a State determines that a 
        nursing facility which is certified for participation 
        under the MediGrant plan no longer substantially meets 
        the requirements for such a facility under this title 
        and further determines that the facility's 
        deficiencies--
                  (A) immediately jeopardize the health and 
                safety of its residents, the State shall at 
                least provide for the termination of the 
                facility's certification for participation 
                under the plan, or
                  (B) do not immediately jeopardize the health 
                and safety of its residents, the State may, in 
                lieu of providing for terminating the 
                facility's certification for participation 
                under the plan, provide lesser sanctions 
                including one that provides that no payment 
                will be made under the plan with respect to any 
                individual admitted to such facility after a 
                date specified by the State.
          (2) Notice.--The State shall not make such a decision 
        with respect to a facility until the facility has had a 
        reasonable opportunity, following the initial 
        determination that it no longer substantially meets the 
        requirements for such a facility under the plan, to 
        correct its deficiencies, and, following this period, 
        has been given reasonable notice and opportunity for a 
        hearing.
          (3) Effectiveness.--The State's decision to deny 
        payment may be made effective only after such notice to 
        the public and to the facility as may be provided for 
        by the State, and its effectiveness shall terminate (A) 
        when the State finds that the facility is in 
        substantial compliance (or is making good faith efforts 
        to achieve substantial compliance) with the 
        requirements for such a facility under this title, or 
        (B) in the case described in paragraph (1)(B), with the 
        end of the eleventh month following the month such 
        decision is made effective, whichever occurs first. If 
        a facility to which clause (B) of the previous sentence 
        applies still fails to substantially meet the 
        provisions of the respective section on the date 
        specified in such clause, the State shall terminate 
        such facility's certification for participation under 
        the MediGrant plan effective with the first day of the 
        first month following the month specified in such 
        clause.

SEC. 2138. OTHER PROVISIONS PROMOTING PROGRAM INTEGRITY.

  (a) Public Access to Survey Results.--Each MediGrant plan 
shall provide that upon completion of a survey of any health 
care facility or organization by a State agency to carry out 
the plan, the agency shall make public in readily available 
form and place the pertinent findings of the survey relating to 
the compliance of the facility or organization with 
requirements of law.
  (b) Record Keeping.--Each MediGrant plan shall provide for 
agreements with persons or institutions providing services 
under the plan under which the person or institution agrees--
          (1) to keep such records (including ledgers, books, 
        and original evidence of costs) as are necessary to 
        fully  deg.disclose the extent of the services 
        provided to individuals receiving assistance under the 
        plan; and
          (2) to furnish the State agency with such information 
        regarding any payments claimed by such person or 
        institution for providing services under the plan, as 
        the State agency may from time to time request.

         Part E--Establishment and Amendment of MediGrant Plans

SEC. 2151. SUBMITTAL AND APPROVAL OF MEDIGRANT PLANS.

  (a) Submittal.--As a condition of receiving funding under 
part C, each State shall submit to the Secretary a MediGrant 
plan that meets the applicable requirements of this title.
  (b) Approval.--Except as the Secretary may provide under 
section 2154, a MediGrant plan submitted under subsection (a)--
          (1) shall be approved for purposes of this title, and
          (2) shall be effective beginning with a calendar 
        quarter that is specified in the plan, but in no case 
        earlier than the first calendar quarter that begins at 
        least 60 days after the date the plan is submitted.
  (c) Approval of Legislature for Submittal.--In the case of a 
State which has a State allotment under section 2121(c)(1) for 
fiscal year 1996 of more than $10 billion, the State may not 
submit a MediGrant plan under this section unless the State 
legislature, by law, has specifically authorized such 
submittal.

SEC. 2152. SUBMITTAL AND APPROVAL OF PLAN AMENDMENTS.

  (a) Submittal of Amendments.--A State may amend, in whole or 
in part, its MediGrant plan at any time through transmittal of 
a plan amendment under this section.
  (b) Approval.--Except as the Secretary may provide under 
section 2154, an amendment to a MediGrant plan submitted under 
subsection (a)--
          (1) shall be approved for purposes of this title, and
          (2) shall be effective as provided in subsection (c).
  (c) Effective Dates for Amendments.--
          (1) In general.--Subject to the succeeding provisions 
        of this subsection, an amendment to MediGrant plan 
        shall take effect on one or more effective dates 
        specified in the amendment.
          (2) Amendments relating to eligibility or benefits.--
        Except as provided in paragraph (4)--
                  (A) Notice requirement.--Any plan amendment 
                that eliminates or restricts eligibility or 
                benefits under the plan may not take effect 
                unless the State certifies that it has provided 
                prior or contemporaneous public notice of the 
                change, in a form and manner provided under 
                applicable State law.
                  (B) Timely transmittal.--Any plan amendment 
                that eliminates or restricts eligibility or 
                benefits under the plan shall not be effective 
                for longer than a 60 day period unless the 
                amendment has been transmitted to the Secretary 
                before the end of such period.
          (3) Other amendments.--Subject to paragraph (4), any 
        plan amendment that is not described in paragraph (2) 
        becomes effective in a State fiscal year may not remain 
        in effect after the end of such fiscal year (or, if 
        later, the end of the 90-day period on which it becomes 
        effective) unless the amendment has been transmitted to 
        the Secretary.
          (4) Exception.--The requirements of paragraphs (2) 
        and (3) shall not apply to a plan amendment that is 
        submitted on a timely basis pursuant to a court order 
        or an order of the Secretary.

SEC. 2153. PROCESS FOR STATE WITHDRAWAL FROM PROGRAM.

  (a) In General.--A State may rescind its MediGrant plan and 
discontinue participation in the program under this title at 
any time after providing--
          (1) the public with 90 days prior notice in a 
        publication in one or more daily newspapers of general 
        circulation in the State or in any publication used by 
        the State to publish State statutes or rules, and
          (2) the Secretary with 90 days prior written notice.
  (b) Effective Date.--Such discontinuation shall not apply to 
payments under part C for expenditures made for items and 
services furnished under the MediGrant plan before the 
effective date of the discontinuation.
  (c) Proration of Allotments.--In the case of any withdrawal 
under this section other than at the end of a Federal fiscal 
year, notwithstanding any provision of section 2121 to the 
contrary, the Secretary shall provide for such appropriate 
proration of the application of allotments under section 2121 
as is appropriate.

SEC. 2154. SANCTIONS FOR SUBSTANTIAL NONCOMPLIANCE.

  (a) Prompt Review of Plan Submittals.--The Secretary shall 
promptly review MediGrant plans and plan amendments submitted 
under this part to determine if they substantially comply with 
the requirements of this title.
  (b) Determinations of Substantial Noncompliance.--
          (1) At time of plan or amendment submittal.--
                  (A) In general.--If the Secretary, during the 
                30-day period beginning on the date of 
                submittal of a MediGrant plan or plan 
                amendment--
                          (i) determines that the plan or 
                        amendment substantially violates 
                        (within the meaning of subsection (c)) 
                        a requirement of this title, and
                          (ii) provides written notice of such 
                        determination to the State,
                the Secretary shall issue an order specifying 
                that the plan or amendment, insofar as it is in 
                substantial violation of such a requirement, 
                shall not be effective, except as provided in 
                subsection (c), beginning at the end of a 
                period of not less than 30 days, or 120 days in 
                the case of the initial submission of the 
                MediGrant plan) specified in the order 
                beginning on the date of the notice of the 
                determination.
                  (B) Extension of time periods.--The time 
                periods specified in subparagraph (A) may be 
                extended by written agreement of the Secretary 
                and the State involved.
          (2) Violations in administration of plan.--
                  (A) In general.--If the Secretary determines, 
                after reasonable notice and opportunity for a 
                hearing for the State, that in the 
                administration of a MediGrant plan there is a 
                substantial violation of a requirement of this 
                title, the Secretary shall provide the State 
                with written notice of the determination and 
                with an order to remedy such violation. Such an 
                order shall become effective prospectively, as 
                specified in the order, after the date of 
                receipt of such written notice. Such an order 
                may include the withholding of funds, 
                consistent with subsection (f), for parts of 
                the MediGrant plan affected by such violation, 
                until the Secretary is satisfied that the 
                violation has been corrected.
                  (B) Effectiveness.--If the Secretary issues 
                an deg. order under paragraph (1), the 
                order shall become effective, except as 
                provided in subsection (c), beginning at the 
                end of a period (of not less than 30 days) 
                specified in the order beginning on the date of 
                the notice of the determination to the State.
                  (C) Timeliness of determinations relating to 
                report-based compliance.--The Secretary shall 
                make determinations under this paragraph 
                respecting violations relating to information 
                contained in an annual report under section 
                2102, an independent evaluation under section 
                2103, or an audit report under section 2131 not 
                later than 30 days after the date of 
                transmittal of the report or evaluation to the 
                Secretary.
          (3) Consultation with state.--Before making a 
        determination adverse to a State under this section, 
        the Secretary shall (within any time periods provided 
        under this section)--
                  (A) reasonably consult with the State 
                involved,
                  (B) offer the State a reasonable opportunity 
                to clarify the submission and submit further 
                information to substantiate compliance with the 
                requirements of this title, and
                  (C) reasonably consider any such 
                clarifications and information submitted.
          (4) Justification of any inconsistencies in 
        determinations.--If the Secretary makes a determination 
        under this section that is, in whole or in part, 
        inconsistent with any previous determination issued by 
        the Secretary under this title, the Secretary shall 
        include in the determination a detailed explanation and 
        justification for any such difference.
          (5) Substantial violation defined.--For purposes of 
        this title, a MediGrant plan (or amendment to such a 
        plan) or the administration of the MediGrant plan is 
        considered to ``substantially violate'' a requirement 
        of this title if a provision of the plan or amendment 
        (or an omission from the plan or amendment) or the 
        administration of the plan--
                  (A) is material and substantial in nature and 
                effect, and
                  (B) is inconsistent with an express 
                requirement of this title.
        A failure to meet a strategic objective or performance 
        goal (as described in section 2101) shall not be 
        considered to substantially violate a requirement of 
        this title.
  (c) State Response to Orders.--
          (1) State response by revising plan.--
                  (A) In general.--Insofar as an order under 
                subsection (b)(1) relates to a substantial 
                violation by a MediGrant plan or plan 
                amendment, a State may respond (before the date 
                the order becomes effective) to such an order 
                by submitting a written revision of the plan or 
                plan amendment to substantially comply with the 
                requirements of this part.
                  (B) Review of revision.--In the case of 
                submission of such a revision, the Secretary 
                shall promptly review the submission and shall 
                withhold any action on the order during the 
                period of such review.
                  (C) Secretarial response.--The revision shall 
                be considered to have corrected the deficiency 
                (and the order rescinded insofar as it relates 
                to such deficiency) unless the Secretary 
                determines and notifies the State in writing, 
                within 15 days after the date the Secretary 
                receives the revision, that the plan or 
                amendment, as proposed to be revised, still 
                substantially violates a requirement of this 
                title. In such case the State may respond by 
                seeking reconsideration or a hearing under 
                paragraph (2).
                  (D) Revision retroactive.--If the revision 
                provides for substantial compliance, the 
                revision may be treated, at the option of the 
                State, as being effective either as of the 
                effective date of the provision to which it 
                relates or such later date as the State and 
                Secretary may agree.
          (2) State response by seeking reconsideration or an 
        administrative hearing.--A State may respond to an 
        order under subsection (b) by filing a request with the 
        Secretary for--
                  (A) a reconsideration of the determination, 
                pursuant to subsection (d)(1), or
                  (B) a review of the determination through an 
                administrative hearing, pursuant to subsection 
                (d)(2).
        In such case, the order shall not take effect before 
        the completion of the reconsideration or hearing.
          (3) State response by corrective action plan.--
                  (A) In general.--In the case of an order 
                described in subsection (b)(2) that relates to 
                a substantial violation in the administration 
                of the MediGrant plan, a State may respond to 
                such an order by submitting a corrective action 
                plan with the Secretary to correct deficiencies 
                in the administration of the plan which are the 
                subject of the order.
                  (B) Review of corrective action plan.--In 
                such case, the Secretary shall withhold any 
                action on the order for a period (not to exceed 
                30 days) during which the Secretary reviews the 
                corrective action plan.
                  (C) Secretarial response.--The corrective 
                action plan shall be considered to have 
                corrected the deficiency (and the order 
                rescinded insofar as it relates to such 
                deficiency) unless the Secretary determines and 
                notifies the State in writing, within 15 days 
                after the date the Secretary receives the 
                corrective action plan, that the State's 
                administration of the MediGrant plan, as 
                proposed to be corrected in the plan, will 
                still substantially violate a requirement of 
                this title. In such case the State may respond 
                by seeking reconsideration or a hearing under 
                paragraph (2).
          (4) State response by withdrawal of plan amendment; 
        failure to respond.--Insofar as an order relates to a 
        substantial violation in a plan amendment submitted, a 
        State may respond to such an order by withdrawing the 
        plan amendment and the MediGrant plan shall be treated 
        as though the amendment had not been made.
  (d) Administrative Review and Hearing.--
          (1) Reconsideration.--Within 30 days after the date 
        of receipt of a request under subsection (b)(2)(A), the 
        Secretary shall notify the State of the time and place 
        at which a hearing will be held for the purpose of 
        reconsidering the Secretary's determination. The 
        hearing shall be held not less than 20 days nor more 
        than 60 days after the date notice of the hearing is 
        furnished to the State, unless the Secretary and the 
        State agree in writing to holding the hearing at 
        another time. The Secretary shall affirm, modify, or 
        reverse the original determination within 60 days of 
        the conclusion of the hearing.
          (2) Administrative hearing.--Within 30 days after the 
        date of receipt of a request under subsection 
        (b)(2)(B), an administrative law judge shall schedule a 
        hearing for the purpose of reviewing the Secretary's 
        determination. The hearing shall be held not less than 
        20 days nor more than 60 days after the date notice of 
        the hearing is furnished to the State, unless the 
        Secretary and the State agree in writing to holding the 
        hearing at another time. The administrative law judge 
        shall affirm, modify, or reverse the determination 
        within 60 days of the conclusion of the hearing.
  (e) Judicial Review.--
          (1) In general.--A State which is dissatisfied with a 
        final determination made by the Secretary under 
        subsection (d)(1) or a final determination of an 
        administrative law judge under subsection (d)(2) may, 
        within 60 days after it has been notified of such 
        determination, file with the United States court of 
        appeals for the circuit in which the State is located a 
        petition for review of such determination. A copy of 
        the petition shall be forthwith transmitted by the 
        clerk of the court to the Secretary and, in the case of 
        a determination under subsection (d)(2), to the 
        administrative law judge involved. The Secretary (or 
        judge involved) thereupon shall file in the court the 
        record of the proceedings on which the final 
        determination was based, as provided in section 2112 of 
        title 28, United States Code.
          (2) Standard for review.--The findings of fact by the 
        Secretary or administrative law judge, if supported by 
        substantial evidence, shall be conclusive, but the 
        court, for good cause shown, may remand the case to the 
        Secretary or judge to take further evidence, and the 
        Secretary or judge may thereupon make new or modified 
        findings of fact and may modify a previous 
        determination, and shall certify to the court the 
        transcript and record of the further proceedings. Such 
        new or modified findings of fact shall likewise be 
        conclusive if supported by substantial evidence.
          (3) Jurisdiction of appellate court.--The court shall 
        have jurisdiction to affirm the action of the Secretary 
        or judge or to set it aside, in whole or in part. The 
        judgment of the court shall be subject to review by the 
        Supreme Court of the United States upon certiorari or 
        certification as provided in section 1254 of title 28, 
        United States Code.
  (f) Withholding of Funds.--
          (1) In general.--Any order under this section 
        relating to deg. the withholding of funds 
        shall be effective not earlier than the effective date 
        of the order and shall only relate to the portions of a 
        MediGrant plan or administration thereof which 
        substantially violate a requirement of this title. In 
        the case of a failure to meet a set-aside requirement 
        under section 2112, any withholding shall only apply to 
        the extent of such failure.
          (2) Suspension of withholding.--The Secretary may 
        suspend withholding of funds under paragraph (1) during 
        the period reconsideration or administrative and 
        judicial review is pending under subsection (d) or (e).
          (3) Restoration of funds.--Any funds withheld under 
        this subsection under an order shall be immediately 
        restored to a State--
                  (A) to the extent and at the time the order 
                is--
                          (i) modified or withdrawn by the 
                        Secretary upon reconsideration,
                          (ii) modified or reversed by an 
                        administrative law judge, or
                          (iii) set aside (in whole or in part) 
                        by an appellate court; or
                  (B) when the Secretary determines that the 
                deficiency which was the basis for the order is 
                corrected;
                  (C) when the Secretary determines that 
                violation which was the basis for the order is 
                resolved or the amendment which was the basis 
                for the order is withdrawn; or
                  (D) at any time upon the initiative of the 
                Secretary.

SEC. 2155. SECRETARIAL AUTHORITY.

  (a) Negotiated Agreement and Dispute Resolution.--
          (1) Negotiations.--Nothing in this part shall be 
        construed as preventing the Secretary and a State from 
        at any time negotiating a satisfactory resolution to 
        any dispute concerning the approval of a MediGrant plan 
        (or amendments to a MediGrant plan) or the compliance 
        of a MediGrant plan (including its administration) with 
        requirements of this title.
          (2) Cooperation.--The Secretary shall act in a 
        cooperative manner with the States in carrying out this 
        title. In the event of a dispute between a State and 
        the Secretary, the Secretary shall, whenever 
        practicable, engage in informal dispute resolution 
        activities in lieu of formal enforcement or sanctions 
        under section 2154.
  (b) Limitations on Delegation of Decision-making Authority.--
The Secretary may not delegate (other than to the Administrator 
of the Health Care Financing Administration) the authority to 
make determinations or reconsiderations respecting the approval 
of MediGrant plans (or amendments to such plans) or the 
compliance of a MediGrant plan (including its administration) 
with requirements of this title. Such Administrator may not 
further delegate such authority to any individual, including 
any regional official of such Administration.
  (c) Requiring Formal Rulemaking for Changes in Secretarial 
Administration.--The Secretary shall carry out the 
administration of the program under this title only through a 
prospective formal rulemaking process, including issuing 
notices of proposed rule making, publishing proposed rules or 
modifications to rules in the Federal Register, and soliciting 
public comment.

                       Part F--General Provisions

SEC. 2171. DEFINITIONS.

  (a) Medical Assistance.--
          (1) In general.--For purposes of this title, except 
        as provided in paragraph (2), the term ``medical 
        assistance'' means payment of part or all the cost of 
        any of the following for eligible low-income 
        individuals (as defined in subsection (b)) as specified 
        under the MediGrant plan:
                  (A) Inpatient hospital services.
                  (B) Outpatient hospital services.
                  (C) Physician services.
                  (D) Surgical services.
                  (E) Clinic services and other ambulatory 
                health care services.
                  (F) Nursing facility services.
                  (G) Intermediate care facility services for 
                the mentally retarded.
                  (H) Prescription drugs and biologicals.
                  (I) Over-the-counter medications.
                  (J) Laboratory and radiological services.
                  (K) Family planning services and supplies.
                  (L) Inpatient mental health services, 
                including services furnished in a State-
                operated mental hospital tech deg.and 
                including residential or other 24-hour 
                therapeutically planned structured services in 
                the case of a child.
                  (M) Outpatient mental health services, 
                including services furnished in a State-
                operated mental hospital and including 
                community-based services in the case of a 
                child.
                  (N) Durable medical equipment and other 
                medically-related or remedial devices (such as 
                prosthetic devices, implants, eyeglasses, 
                hearing aids, dental devices, and adaptive 
                devices).
                  (O) Disposable medical supplies.
                  (P) Home and community-based health care 
                services and related supportive services (such 
                as home health nursing services, home health 
                aide services, personal care, assistance with 
                activities of daily living, chore services, day 
                care services, respite care services, and 
                training for family members).
                  (Q) Community supported living arrangements.
                  (R) Nursing care services (such as private 
                duty nursing care, nurse midwife services, 
                respiratory care services, pediatric nurse 
                services, and advanced practice nurse services) 
                in a home, school, or other setting.
                  (S) Dental services.
                  (T) Inpatient substance abuse treatment 
                services and residential substance abuse 
                treatment services.
                  (U) Outpatient substance abuse treatment 
                services.
                  (V) Case management services.
                  (W) Care coordination services.
                  tech deg.(X) Physical therapy, 
                occupational therapy, and services for 
                individuals with speech, hearing, and language 
                disorders.
                  (Y) Hospice care.
                  (Z) Any other medical, diagnostic, screening, 
                preventive, restorative, remedial, therapeutic, 
                or rehabilitative services (whether in a 
                facility, home, school, or other setting) if 
                recognized by State law and if the service is--
                          (i) prescribed by or furnished by a 
                        physician or other licensed or 
                        registered practitioner within the 
                        scope of practice as defined by State 
                        law,
                          (ii) performed under the general 
                        supervision or at the direction of a 
                        physician, or
                          (iii) furnished by a health care 
                        facility that is operated by a State or 
                        local government or is licensed under 
                        State law and operating within the 
                        scope of the license.
                  (AA) Premiums for private health care 
                insurance coverage, including private long-term 
                care insurance coverage.
                  (BB) Medical transportation.
                  (CC) Medicare cost-sharing (as defined in 
                subsection (c)).
                  (DD) Enabling services (such as 
                transportation, translation, and outreach 
                services) designed to increase the 
                accessibility of primary and preventive health 
                care services for eligible low-income 
                individuals.
                  (EE) Any other health care services or items 
                specified by the Secretary.
          (2) Exclusion of certain payments.--Such term does 
        not include the payment with respect to care or 
        services for--
                  (A) any individual who is an inmate of a 
                public institution (except as a patient in a 
                State psychiatric hospital); and
                  (B) any individual who is not an eligible 
                low-income individual.
  (b) Eligible Low-Income Individual.--The term ``eligible low-
income individual'' means an individual tech deg.who 
has been determined eligible by the State for medical 
assistance under the MediGrant plan and whose family income (as 
determined under the plan) does not exceed a percentage 
(specified in the MediGrant plan and not to exceed 300 percent) 
of the poverty line for a family of the size involved. In 
determining the amount of income under the previous sentence, a 
State may exclude costs incurred for medical care or other 
types of remedial care recognized by the State.
  (c) Medicare Cost-Sharing.--For purposes of this title, the 
term ``medicare cost-sharing'' means any of the following:
          (1)(A) Premiums under section 1839.
          (B) Premiums under section 1818 or 1818A.
          (2) Coinsurance under title XVIII (including 
        coinsurance described in section 1813).
          (3) Deductibles established under title XVIII 
        (including those described in section 1813 and section 
        1833(b)).
          (4) The difference between the amount that is paid 
        under section 1833(a) and the amount that would be paid 
        under such section if any reference to ``80 percent'' 
        therein were deemed a reference to ``100 percent''.
          (5) Premiums for enrollment of an individual with an 
        eligible organization under section 1876 or with a 
        MedicarePlus organization under part C of title XVIII.
  (d) Additional Definitions.--For purposes of this title:
          (1) Child.--The term ``child'' means an individual 
        under 19 years of age.
          (2) Poverty line defined.--The term ``poverty line'' 
        means the income official poverty line (as defined by 
        the Office of Management and Budget and revised 
        annually in accordance with section 673(2) of the 
        Omnibus Budget Reconciliation Act of 1981).
          (3) Pregnant woman.--The term ``pregnant woman'' 
        includes a woman during the 60-day period beginning on 
        the last day of the pregnancy.

SEC. 2172. TREATMENT OF TERRITORIES.

  Notwithstanding any other requirement of this title, the 
Secretary may waive or modify any requirement of this title 
with respect to the medical assistance program a State other 
than the 50 States and the District of Columbia, other than a 
waiver of--
          (1) the applicable Federal medical assistance 
        percentage,
          (2) the limitation on total payments in a fiscal year 
        to the amount of the allotment under section 2121(c), 
        or
          (3) the requirement that payment may be made for 
        medical assistance only with respect to amounts 
        expended by the State for care and services described 
        in paragraph (1) of section 2171(a) and medically-
        related services (as defined in section 2112(e)(2)).

SEC. 2173. DESCRIPTION OF TREATMENT OF INDIAN HEALTH SERVICE 
                    FACILITIES.

  In the case of a State in which one or more facilities of the 
Indian Health Service are located, the MediGrant plan shall 
include a description of--
          (1) what provision (if any) has been made for payment 
        for items and services furnished by such facilities, 
        and
          (2) the manner in which medical assistance for low-
        income eligible individuals who are Indians will be 
        provided, as determined by the State in consultation 
        with the appropriate Indian tribes and tribal 
        organizations.

SEC. 2174. APPLICATION OF CERTAIN GENERAL PROVISIONS.

  The following sections in part A of title XI shall apply to 
States under this title in the same manner as they applied to a 
State under title XIX:
          (1) Section 1101(a)(1) (relating to definition of 
        State).
          (2) Section 1116 (relating to administrative and 
        judicial review), but only insofar as consistent with 
        the provisions of part C.
          (3) Section 1124 (relating to disclosure of ownership 
        and related information).
          (4) Section 1126 (relating to disclosure of 
        information about certain convicted individuals).
          (5) Section 1132 (relating to periods within which 
        claims must be filed).

SEC. 2175. MEDIGRANT MASTER DRUG REBATE AGREEMENTS.

  (a) Requirement for Manufacturer to Enter Into Agreement.--
          (1) In general.--Pursuant to section 2123(f), in 
        order for payment to be made to a State under part C 
        for medical assistance for covered outpatient drugs of 
        a manufacturer, the manufacturer shall enter into and 
        have in effect a MediGrant master rebate agreement 
        described in subsection (b) with the Secretary on 
        behalf of States electing to participate in the 
        agreement.
          (2) State participation in master agreement 
        optional.--Nothing in this section shall be construed 
        to--
                  (A) require a State to participate in a 
                MediGrant master rebate agreement under this 
                section; or
                  (B) prohibit a State from entering into an 
                agreement with a manufacturer of covered 
                outpatient drugs (under such terms as the State 
                and manufacturer may agree upon) regarding the 
                amount of payment for such drugs under the 
                MediGrant plan.
          (3) Coverage of drugs not covered under rebate 
        agreements.--Nothing in this section shall be construed 
        to prohibit a State in its discretion from providing 
        coverage under its MediGrant plan of a covered 
        outpatient drug for which no rebate agreement is in 
        effect under this section.
          (4) Effect on existing agreements.--If a State has a 
        rebate agreement in effect with a manufacturer on the 
        date of the enactment of this section which provides 
        for a minimum aggregate rebate equal to or greater than 
        the minimum aggregate rebate which would otherwise be 
        paid under the MediGrant master agreement under this 
        section, at the option of the State--
                  (A) such agreement shall be considered to 
                meet the requirements of the MediGrant master 
                rebate agreement; and
                  (B) the State shall be considered to have 
                elected to participate in the MediGrant master 
                rebate agreement.
  (b) Terms of Rebate Agreement.--
          (1) Periodic rebates.--The MediGrant master rebate 
        agreement under this section shall require the 
        manufacturer to provide, to the MediGrant plan of each 
        State participating in the agreement, a rebate for a 
        rebate period in an amount specified in subsection (c) 
        for covered outpatient drugs of the manufacturer 
        dispensed after the effective date of the agreement, 
        for which payment was made under the plan for such 
        period. Such rebate shall be paid by the manufacturer 
        not later than 30 days after the date of receipt of the 
        information described in paragraph (2) for the period 
        involved.
          (2) State provision of information.--
                  (A) State responsibility.--Each State 
                participating in the MediGrant master rebate 
                agreement shall report to each manufacturer not 
                later than 60 days after the end of each rebate 
                period and in a form consistent with a standard 
                reporting format established by the Secretary, 
                information on the total number of units of 
                each dosage form and strength and package size 
                of each covered outpatient drug, for which 
                payment was made under the MediGrant plan for 
                the period, and shall promptly transmit a copy 
                of such report to the Secretary.
                  (B) Audits.--A manufacturer may audit the 
                information provided (or required to be 
                provided) under subparagraph (A). Adjustments 
                to rebates shall be made to the extent that 
                information indicates that utilization was 
                greater or less than the amount previously 
                specified.
          (3) Manufacturer provision of price information.--
                  (A) In general.--Each manufacturer which is 
                subject to the MediGrant master rebate 
                agreement under this section shall report to 
                the Secretary--
                          (i) not later than 30 days after the 
                        last day of each rebate period under 
                        the agreement (beginning on or after 
                        January 1, 1991), on the average 
                        manufacturer price (as defined in 
                        subsection (i)(1)) and, for single 
                        source drugs and innovator multiple 
                        source drugs, the manufacturer's best 
                        price (as defined in subsection 
                        (c)(1)(C)) for each covered outpatient 
                        drug for the rebate period under the 
                        agreement, and
                          (ii) not later than 30 days after the 
                        date of entering into an agreement 
                        under this section, on the average 
                        manufacturer price (as defined in 
                        subsection (i)(1)) as of October 1, 
                        1990, for each of the manufacturer's 
                        covered outpatient drugs.
                  (B) Verification surveys of average 
                manufacturer price.--The Secretary may survey 
                wholesalers and manufacturers that directly 
                distribute their covered outpatient drugs, when 
                necessary, to verify manufacturer prices 
                reported under subparagraph (A). The Secretary 
                may impose a civil monetary penalty in an 
                amount not to exceed $10,000 on a wholesaler, 
                manufacturer, or direct seller, if the 
                wholesaler, manufacturer, or direct seller of a 
                covered outpatient drug refuses a request for 
                information by the Secretary in connection with 
                a survey under this subparagraph. The 
                provisions of section 1128A (other than 
                subsections (a) (with respect to amounts of 
                penalties or additional assessments) and (b)) 
                shall apply to a civil money penalty under this 
                subparagraph in the same manner as such 
                provisions apply to a penalty or proceeding 
                under section 1128A(a).
                  (C) Penalties.--
                          (i) Failure to provide timely 
                        information.--In the case of a 
                        manufacturer which is subject to the 
                        MediGrant master rebate agreement that 
                        fails to provide information required 
                        under subparagraph (A) on a timely 
                        basis, the amount of the penalty shall 
                        be $10,000 for each day in which such 
                        information has not been provided and 
                        such amount shall be paid to the 
                        Treasury. If such information is not 
                        reported within 90 days of the deadline 
                        imposed, the agreement shall be 
                        suspended for services furnished after 
                        the end of such 90-day period and until 
                        the date such information is reported 
                        (but in no case shall such suspension 
                        be for a period of less than 30 days).
                          (ii) False information.--Any 
                        manufacturer which is subject to the 
                        MediGrant master rebate agreement, or a 
                        wholesaler or direct seller, that 
                        knowingly provides false information 
                        under subparagraph (A) or (B) is 
                        subject to a civil money penalty in an 
                        amount not to exceed $100,000 for each 
                        item of false information. Any such 
                        civil money penalty shall be in 
                        addition to other penalties as may be 
                        prescribed by law. The provisions of 
                        section 1128A (other than subsections 
                        (a) and (b)) shall apply to a civil 
                        money penalty under this subparagraph 
                        in the same manner as such provisions 
                        apply to a penalty or proceeding under 
                        section 1128A(a).
                  (D) Confidentiality of information.--
                Notwithstanding any other provision of law, 
                information disclosed by manufacturers or 
                wholesalers under this paragraph or under an 
                agreement with the Secretary of Veterans 
                Affairs described in section 2123(f) is 
                confidential and shall not be disclosed by the 
                Secretary or the Secretary of Veterans Affairs 
                or a State agency (or contractor therewith) in 
                a form which discloses the identity of a 
                specific manufacturer or wholesaler or the 
                prices charged for drugs by such manufacturer 
                or wholesaler, except--
                          (i) as the Secretary determines to be 
                        necessary to carry out this section,
                          (ii) to permit the Comptroller 
                        General to review the information 
                        provided, and
                          (iii) to permit the Director of the 
                        Congressional Budget Office to review 
                        the information provided.
          (4) Length of agreement.--
                  (A) In general.--The MediGrant master rebate 
                agreement under this section shall be effective 
                for an initial period of not less than 1 year 
                and shall be automatically renewed for a period 
                of not less than one year unless terminated 
                under subparagraph (B).
                  (B) Termination.--
                          (i) By the secretary.--The Secretary 
                        may provide for termination of the 
                        MediGrant master rebate agreement with 
                        respect to a manufacturer for violation 
                        of the requirements of the agreement or 
                        other good cause shown. Such 
                        termination shall not be effective 
                        earlier than 60 days after the date of 
                        notice of such termination. The 
                        Secretary shall provide, upon request, 
                        a manufacturer with a hearing 
                        concerning such a termination, but such 
                        hearing shall not delay the effective 
                        date of the termination. Failure of a 
                        State to provide any advance notice of 
                        such a termination as required by 
                        regulation shall not affect the State's 
                        right to terminate coverage of the 
                        drugs affected by such termination as 
                        of the effective date of such 
                        termination.
                          (ii) By a manufacturer.--A 
                        manufacturer may terminate its 
                        participation in the MediGrant master 
                        rebate agreement under this section for 
                        any reason. Any such termination shall 
                        not be effective until the calendar 
                        quarter beginning at least 60 days 
                        after the date the manufacturer 
                        provides notice to the Secretary.
                          (iii) Effectiveness of termination.--
                        Any termination under this subparagraph 
                        shall not affect rebates due under the 
                        agreement before the effective date of 
                        its termination.
                          (iv) Notice to states.--In the case 
                        of a termination under this 
                        subparagraph, the Secretary shall 
                        provide notice of such termination to 
                        the States within not less than 30 days 
                        before the effective date of such 
                        termination.
                          (v) Application to terminations of 
                        other agreements.--The provisions of 
                        this subparagraph shall apply to the 
                        terminations of master agreements 
                        described in section 8126(a) of title 
                        38, United States Code.
                  (C) Delay before reentry.--In the case of any 
                rebate agreement with a manufacturer under this 
                section which is terminated, another such 
                agreement with the manufacturer (or a successor 
                manufacturer) may not be entered into until a 
                period of 1 calendar quarter has elapsed since 
                the date of the termination, unless the 
                Secretary finds good cause for an earlier 
                reinstatement of such an agreement.
  (c) Determination of Amount of Rebate.--
          (1) Basic rebate for single source drugs and 
        innovator multiple source drugs.--
                  (A) In general.--Except as provided in 
                paragraph (2), the amount of the rebate 
                specified in this subsection with respect to a 
                State participating in the MediGrant master 
                rebate agreement for a rebate period (as 
                defined in subsection (i)(8)) with respect to 
                each dosage form and strength of a single 
                source drug or an innovator multiple source 
                drug shall be equal to the product of--
                          (i) the total number of units of each 
                        dosage form and strength paid for under 
                        the State plan in the rebate period (as 
                        reported by the State); and
                          (ii) the greater of--
                                  (I) the difference between 
                                the average manufacturer price 
                                and the best price (as defined 
                                in subparagraph (C)) for the 
                                dosage form and strength of the 
                                drug, or
                                  (II) the minimum rebate 
                                percentage (specified in 
                                subparagraph (B)) of such 
                                average manufacturer price,
                        for the rebate period.
                  (B) Minimum rebate percentage.--For purposes 
                of subparagraph (A)(ii)(II), the ``minimum 
                rebate percentage'' is 15.1 percent.
                  (C) Best price defined.--For purposes of this 
                section--
                          (i) In general.--The term ``best 
                        price'' means, with respect to a single 
                        source drug or innovator multiple 
                        source drug of a manufacturer, the 
                        lowest price available from the 
                        manufacturer during the rebate period 
                        to any wholesaler, retailer, provider, 
                        health maintenance organization, 
                        nonprofit entity, or governmental 
                        entity within the United States, 
                        excluding--
                                  (I) any prices charged on or 
                                after October 1, 1992, to the 
                                Indian Health Service, the 
                                Department of Veterans Affairs, 
                                a State home receiving funds 
                                under section 1741 of title 38, 
                                United States Code, the 
                                Department of Defense, the 
                                Public Health Service, or a 
                                covered entity described in 
                                section 340B(a)(4) of the 
                                Public Health Service Act;
                                  (II) any prices charged under 
                                the Federal Supply Schedule of 
                                the General Services 
                                Administration;
                                  (III) any prices used under a 
                                State pharmaceutical assistance 
                                program; and
                                  (IV) any depot prices and 
                                single award contract prices, 
                                as defined by the Secretary, of 
                                any agency of the Federal 
                                Government.
                          (ii) Special rules.--The term ``best 
                        price''--
                                  (I) shall be inclusive of 
                                cash discounts, free goods that 
                                are contingent on any purchase 
                                requirement, volume discounts, 
                                and rebates (other than rebates 
                                under this section);
                                  (II) shall be determined 
                                without regard to special 
                                packaging, labeling, or 
                                identifiers on the dosage form 
                                or product or package;
                                  (III) shall not take into 
                                account prices that are merely 
                                nominal in amount; and
                                  (IV) shall exclude rebates 
                                paid under this section 
                                tech deg.or any other 
                                rebates paid to a State 
                                participating in the MediGrant 
                                master rebate agreement.
          (2) Additional rebate for single source and innovator 
        multiple source drugs.--
                  (A) In general.--The amount of the rebate 
                specified in this subsection with respect to a 
                State participating in the MediGrant master 
                rebate agreement for a rebate period, with 
                respect to each dosage form and strength of a 
                single source drug or an innovator multiple 
                source drug, shall be increased by an amount 
                equal to the product of--
                          (i) the total number of units of such 
                        dosage form and strength dispensed 
                        after December 31, 1990, for which 
                        payment was made under the MediGrant 
                        plan for the rebate period; and
                          (ii) the amount (if any) by which--
                                  (I) the average manufacturer 
                                price for the dosage form and 
                                strength of the drug for the 
                                period, exceeds
                                  (II) the average manufacturer 
                                price for such dosage form and 
                                strength for the calendar 
                                quarter beginning July 1, 1990 
                                (without regard to whether or 
                                not the drug has been sold or 
                                transferred to an entity, 
                                including a division or 
                                subsidiary of the manufacturer, 
                                after the first day of such 
                                quarter), increased by the 
                                percentage by which the 
                                consumer price index for all 
                                urban consumers (United States 
                                city average) for the month 
                                before the month in which the 
                                rebate period begins exceeds 
                                such index for September 1990.
                  (B) Treatment of subsequently approved 
                drugs.--In the case of a covered outpatient 
                drug approved by the Food and Drug 
                Administration after October 1, 1990, clause 
                (ii)(II) of subparagraph (A) shall be applied 
                by substituting ``the first full calendar 
                quarter after the day on which the drug was 
                first marketed'' for ``the calendar quarter 
                beginning July 1, 1990'' and ``the month prior 
                to the first month of the first full calendar 
                quarter after the day on which the drug was 
                first marketed'' for ``September 1990''.
          (3) Rebate for other drugs.--
                  (A) In general.--The amount of the rebate 
                paid to a State participating in the MediGrant 
                master rebate agreement for a rebate period 
                with respect to each dosage form and strength 
                of covered outpatient drugs (other than single 
                source drugs and innovator multiple source 
                drugs) shall be equal to the product of--
                          (i) the applicable percentage (as 
                        described in subparagraph (B)) of the 
                        average manufacturer price for the 
                        dosage form and strength for the rebate 
                        period, and
                          (ii) the total number of units of 
                        such dosage form and strength dispensed 
                        after December 31, 1990, for which 
                        payment was made under the MediGrant 
                        plan for the rebate period.
                  (B) Applicable percentage defined.--For 
                purposes of subparagraph (A)(i), the 
                ``applicable percentage'' is 11 percent.
          (4) Limitation on amount of rebate to amounts paid 
        for certain drugs.--Upon request of a manufacturer of a 
        covered outpatient drug for which a majority of the 
        estimated number of units of such dosage form and 
        strength that are subject to rebates under this section 
        were dispensed to inpatients of nursing facilities 
        tech deg.(including drugs which are exempt 
        from the requirements of the MediGrant master rebate 
        agreement under this section under subsection 
        (h)(1)(B)), the Secretary shall limit the amount of the 
        rebate under this subsection with respect to a dosage 
        form and strength of the drug for a rebate period to 
        the amount paid under the MediGrant plan with respect 
        to such dosage form and strength of the drug in the 
        rebate period (without consideration of any dispensing 
        fees paid).
  (d) Limitations on Coverage of Drugs by States Participating 
in Master Agreement.--
          (1) Permissible restrictions.--A State participating 
        in the MediGrant master rebate agreement under this 
        section may--
                  (A) subject to prior authorization under its 
                MediGrant plan any covered outpatient drug so 
                long as any such prior authorization program 
                complies with the requirements of paragraph 
                (5); and
                  (B) exclude or otherwise restrict coverage 
                under its plan of a covered outpatient drug 
                if--
                          (i) the prescribed use is not for a 
                        medically accepted indication (as 
                        defined in subsection (i)(5));
                          (ii) the drug is contained in the 
                        list referred to in paragraph (2);
                          (iii) the drug is subject to such 
                        restrictions pursuant to the MediGrant 
                        master rebate agreement 
                        tech deg.or any agreement 
                        described in subsection (a)(4); or
                          (iv) the State has excluded coverage 
                        of the drug from its formulary 
                        established in accordance with 
                        paragraph (4).
          (2) List of drugs subject to restriction.--The 
        following drugs or classes of drugs, or their medical 
        uses, may be excluded from coverage or otherwise 
        restricted by a State participating in the MediGrant 
        master rebate agreement:
                  (A) Agents when used for anorexia, weight 
                loss, or weight gain.
                  (B) Agents when used to promote fertility.
                  (C) Agents when used for cosmetic purposes or 
                hair growth.
                  (D) Agents when used for the symptomatic 
                relief of cough and colds.
                  (E) Agents when used to promote smoking 
                cessation.
                  (F) Prescription vitamins and mineral 
                products, except prenatal vitamins and fluoride 
                preparations.
                  (G) Nonprescription drugs.
                  (H) Covered outpatient drugs which the 
                manufacturer seeks to require as a condition of 
                sale that associated tests or monitoring 
                services be purchased exclusively from the 
                manufacturer or its designee.
                  (I) Barbiturates.
                  (J) Benzodiazepines.
          (3) Additions to drug listings.--The Secretary shall, 
        by regulation, periodically update the list of drugs or 
        classes of drugs described in paragraph (2), or their 
        medical uses, which the Secretary has determined to be 
        subject to clinical abuse or inappropriate use.
          (4) Requirements for formularies.--A State 
        participating in the MediGrant master rebate agreement 
        may establish a formulary if the formulary meets the 
        following requirements:
                  (A) The formulary is developed by a committee 
                consisting of physicians, pharmacists, and 
                other appropriate individuals appointed by the 
                Governor of the State.
                  (B) Except as provided in subparagraph (C), 
                the formulary includes the covered outpatient 
                drugs of any manufacturer which has entered 
                into and complies with the agreement under 
                subsection (a) (other than any drug excluded 
                from coverage or otherwise restricted under 
                paragraph (2)).
                  (C) A covered outpatient drug may be excluded 
                with respect to the treatment of a specific 
                disease or condition for an identified 
                population (if any) only if, based on the 
                drug's labeling (or, in the case of a drug the 
                prescribed use of which is not approved under 
                the Federal Food, Drug, and Cosmetic Act but is 
                a medically accepted indication, based on 
                information from the appropriate compendia 
                described in subsection (i)(5)), the excluded 
                drug does not have a significant, clinically 
                meaningful therapeutic advantage in terms of 
                safety, effectiveness, or clinical outcome of 
                such treatment for such population over other 
                drugs included in the formulary and there is a 
                written explanation (available to the public) 
                of the basis for the exclusion.
                  (D) The State plan permits coverage of a drug 
                excluded from the formulary (other than any 
                drug excluded from coverage or otherwise 
                restricted under paragraph (2)) pursuant to a 
                prior authorization program that is consistent 
                with paragraph (5).
                  (E) The formulary meets such other 
                requirements as the Secretary may impose in 
                order to achieve program savings consistent 
                with protecting the health of program 
                beneficiaries.
        A prior authorization program established by a State 
        under paragraph (5) is not a formulary subject to the 
        requirements of this paragraph.
          (5) Requirements of prior authorization programs.--
        The MediGrant plan of a State participating in the 
        MediGrant master rebate agreement may require, as a 
        condition of coverage or payment for a covered 
        outpatient drug for which Federal financial 
        participation is available in accordance with this 
        section the approval of the drug before its dispensing 
        for any medically accepted indication (as defined in 
        subsection (i)(5)) only if the system providing for 
        such approval--
                  (A) provides response by telephone or other 
                telecommunication device within 24 hours of a 
                request for prior authorization; and
                  (B) except with respect to the drugs on the 
                list referred to in paragraph (2), provides for 
                the dispensing of at least 72-hour supply of a 
                covered outpatient prescription drug in an 
                emergency situation (as defined by the 
                Secretary).
          (6) Other permissible restrictions.--A State 
        participating in the MediGrant master rebate agreement 
        may impose limitations, with respect to all such drugs 
        in a therapeutic class, on the minimum or maximum 
        quantities per prescription or on the number of 
        refills, if such limitations are necessary to 
        discourage waste, and may address instances of fraud or 
        abuse by individuals in any manner authorized under 
        this Act.
  (e) Drug Use Review.--
          (1) In general.--A State participating in the 
        MediGrant master rebate agreement may provide for a 
        drug use review program to educate physicians and 
        pharmacists to identify and reduce the frequency of 
        patterns of fraud, abuse, gross overuse, or 
        inappropriate or medically unnecessary care, among 
        physicians, pharmacists, and patients, or associated 
        with specific drugs or groups of drugs, as well as 
        potential and actual severe adverse reactions to drugs.
          (2) Application of state standards.--A State with a 
        drug use review program under this subsection shall 
        establish and operate the program under such standards 
        as it may establish.
  (f) Electronic Claims Management.--In accordance with chapter 
35 of title 44, United States Code (relating to coordination of 
Federal information policy), the Secretary shall encourage each 
State to establish, as its principal means of processing claims 
for covered outpatient drugs under its MediGrant plan, a point-
of-sale electronic claims management system, for the purpose of 
performing on-line, real time eligibility verifications, claims 
data capture, adjudication of claims, and assisting pharmacists 
(and other authorized persons) in applying for and receiving 
payment.
  (g) Annual Report.--
          (1) In general.--Not later than May 1 of each year, 
        the Secretary shall transmit to the Committee on 
        Finance of the Senate, the Committee on Commerce of the 
        House of Representatives, and the Committee on Aging of 
        the Senate a report on the operation of this section in 
        the preceding fiscal year.
          (2) Details.--Each report shall include information 
        on--
                  (A) ingredient costs paid under this title 
                for single source drugs, multiple source drugs, 
                and nonprescription covered outpatient drugs;
                  (B) the total value of rebates received and 
                number of manufacturers providing such rebates;
                  (C) the effect of inflation on the value of 
                rebates required under this section;
                  (D) trends in prices paid under this title 
                for covered outpatient drugs; and
                  (E) Federal and State administrative costs 
                associated with compliance with the provisions 
                of this title.
  (h) Exemption for Capitated Health Care Organizations, 
Hospitals, and Nursing Facilities.--
          (1) In general.--Except as provided in paragraph (2), 
        the requirements of the MediGrant master rebate 
        agreement under this section shall not apply with 
        respect to covered outpatient drugs dispensed by or 
        through--
                  (A) a capitated health care organization (as 
                defined in section 2114(c)(1)); or
                  (B) a hospital or nursing facility that 
                dispenses covered outpatient drugs using a drug 
                formulary system and bills the State no more 
                than the hospital's purchasing costs for 
                covered outpatient drugs.
          (2) Construction in determining best price.--Nothing 
        in paragraph (1) shall be construed as excluding 
        amounts paid by the entities described in such 
        paragraph for covered outpatient drugs from the 
        determination of the best price (as defined in 
        subsection (c)(1)(C)) for such drugs.
  (i) Definitions.--In the section--
          (1) Average manufacturer price.--The term ``average 
        manufacturer price'' means, with respect to a covered 
        outpatient drug of a manufacturer for a rebate period, 
        the average price paid to the manufacturer for the drug 
        in the United States by wholesalers for drugs 
        distributed to the retail pharmacy class of trade, 
        after deducting customary prompt pay discounts.
          (2) Covered outpatient drug.--Subject to the 
        exceptions in subparagraph (D), the term ``covered 
        outpatient drug'' means--
                  (A) of those drugs which are treated as 
                prescribed drugs for purposes of section 
                2171(a)(1)(H), a drug which may be dispensed 
                only upon prescription (except as provided in 
                paragraph (7)), and--
                          (i) which is approved as a 
                        prescription drug under section 505 or 
                        507 of the Federal Food, Drug, and 
                        Cosmetic Act;
                          (ii)(I) which was commercially used 
                        or sold in the United States before the 
                        date of the enactment of the Drug 
                        Amendments of 1962 or which is 
                        identical, similar, or related (within 
                        the meaning of section 310.6(b)(1) of 
                        title 21 of the Code of Federal 
                        Regulations) to such a drug, and (II) 
                        which has not been the subject of a 
                        final determination by the Secretary 
                        that it is a ``new drug'' (within the 
                        meaning of section 201(p) of the 
                        Federal Food, Drug, and Cosmetic Act) 
                        or an action brought by the Secretary 
                        under section 301, 302(a), or 304(a) of 
                        such Act to enforce section 502(f) or 
                        505(a) of such Act; or
                          (iii)(I) which is described in 
                        section 107(c)(3) of the Drug 
                        Amendments of 1962 and for which the 
                        Secretary has determined there is a 
                        compelling justification for its 
                        medical need, or is identical, similar, 
                        or related (within the meaning of 
                        section 310.6(b)(1) of title 21 of the 
                        Code of Federal Regulations) to such a 
                        drug, and (II) for which the Secretary 
                        has not issued a notice of an 
                        opportunity for a hearing under section 
                        505(e) of the Federal Food, Drug, and 
                        Cosmetic Act on a proposed order of the 
                        Secretary to withdraw approval of an 
                        application for such drug under such 
                        section because the Secretary has 
                        determined that the drug is less than 
                        effective for some or all conditions of 
                        use prescribed, recommended, or 
                        suggested in its labeling;
                  (B) a biological product, other than a 
                vaccine which--
                          (i) may only be dispensed upon 
                        prescription,
                          (ii) is licensed under section 351 of 
                        the Public Health Service Act, and
                          (iii) is produced at an establishment 
                        licensed under such section to produce 
                        such product;
                  (C) insulin certified under section 506 of 
                the Federal Food, Drug, and Cosmetic Act; and
                  (D) a drug which may be sold without a 
                prescription (commonly referred to as an 
                ``over-the-counter drug''), if the drug is 
                prescribed by a physician (or other person 
                authorized to prescribe under State law).
          (3) Limiting definition.--The term ``covered 
        outpatient drug'' does not include any drug, biological 
        product, or insulin provided as part of, or as incident 
        to and in the same setting as, any of the following 
        (and for which payment may be made under a MediGrant 
        plan as part of payment for the following and not as 
        direct reimbursement for the drug):
                  (A) Inpatient hospital services.
                  (B) Hospice services.
                  (C) Dental services, except that drugs for 
                which the MediGrant plan authorizes direct 
                reimbursement to the dispensing dentist are 
                covered outpatient drugs.
                  (D) Physicians' services.
                  (E) Outpatient hospital services.
                  (F) Nursing facility services and services 
                provided by an intermediate care facility for 
                the mentally retarded.
                  (G) Other laboratory and x-ray services.
                  (H) Renal dialysis services.
        Such term also does not include any such drug or 
        product for which a National Drug Code number is not 
        required by the Food and Drug Administration or a drug 
        or biological used for a medical indication which is 
        not a medically accepted indication. Any drug, 
        biological product, or insulin excluded from the 
        definition of such term as a result of this paragraph 
        shall be treated as a covered outpatient drug for 
        purposes of determining the best price (as defined in 
        subsection (c)(1)(C)) for such drug, biological 
        product, or insulin.
          (4) Manufacturer.--The term ``manufacturer'' means, 
        with respect to a covered outpatient drug, the entity 
        holding legal title to or possession of the National 
        Drug Code number for such drug.
          (5) Medically accepted indication.--The term 
        ``medically accepted indication'' means any use for a 
        covered outpatient drug which is approved under the 
        Federal Food, Drug, and Cosmetic Act, or the use of 
        which is supported by one or more citations included or 
        approved for inclusion in any of the following 
        compendia:
                  (A) American Hospital Formulary Service Drug 
                Information.
                  (B) United States Pharmacopeia-Drug 
                Information.
                  (C) American Medical Association Drug 
                Evaluations.
                  (D) The peer-reviewed medical literature.
          (6) Multiple source drug; innovator multiple source 
        drug; noninnovator multiple source drug; single source 
        drug.--
                  (A) Defined.--
                          (i) Multiple source drug.--The term 
                        ``multiple source drug'' means, with 
                        respect to a rebate period, a covered 
                        outpatient drug (not including any drug 
                        described in paragraph (2)(D)) for 
                        which there are 2 or more drug products 
                        which--
                                  (I) are rated as 
                                therapeutically equivalent 
                                (under the Food and Drug 
                                Administration's most recent 
                                publication of ``Approved Drug 
                                Products with Therapeutic 
                                Equivalence Evaluations''),
                                  (II) except as provided in 
                                subparagraph (B), are 
                                pharmaceutically equivalent and 
                                bioequivalent, as defined in 
                                subparagraph (C) and as 
                                determined by the Food and Drug 
                                Administration, and
                                  (III) are sold or marketed in 
                                the State during the period.
                          (ii) Innovator multiple source 
                        drug.--The term ``innovator multiple 
                        source drug'' means a multiple source 
                        drug that was originally marketed under 
                        an original new drug application or 
                        product licensing application approved 
                        by the Food and Drug Administration.
                          (iii) Noninnovator multiple source 
                        drug.--The term ``noninnovator multiple 
                        source drug'' means a multiple source 
                        drug that is not an innovator multiple 
                        source drug.
                          (iv) Single source drug.--The term 
                        ``single source drug'' means a covered 
                        outpatient drug which is produced or 
                        distributed under an original new drug 
                        application approved by the Food and 
                        Drug Administration, including a drug 
                        product marketed by any cross-licensed 
                        producers or distributors operating 
                        under the new drug application or 
                        product licensing application.
                  (B) Exception.--Subparagraph (A)(i)(II) shall 
                not apply if the Food and Drug Administration 
                changes by regulation the requirement that, for 
                purposes of the publication described in 
                subparagraph (A)(i)(I), in order for drug 
                products to be rated as therapeutically 
                equivalent, they must be pharmaceutically 
                equivalent and bioequivalent, as defined in 
                subparagraph (C).
                  (C) Definitions.--For purposes of this 
                paragraph--
                          (i) drug products are 
                        pharmaceutically equivalent if the 
                        products contain identical amounts of 
                        the same active drug ingredient in the 
                        same dosage form and meet compendial or 
                        other applicable standards of strength, 
                        quality, purity, and identity;
                          (ii) drugs are bioequivalent if they 
                        do not present a known or potential 
                        bioequivalence problem, or, if they do 
                        present such a problem, they are shown 
                        to meet an appropriate standard of 
                        bioequivalence; and
                          (iii) a drug product is considered to 
                        be sold or marketed in a State if it 
                        appears in a published national listing 
                        of average wholesale prices selected by 
                        the Secretary, if the listed product is 
                        generally available to the public 
                        through retail pharmacies in that 
                        State.
          (7) Nonprescription drugs.--If the MediGrant plan of 
        a State participating in the MediGrant master rebate 
        agreement under this section includes coverage of 
        prescribed drugs as described in section 2171(a)(1)(H) 
        and permits coverage of drugs which may be sold without 
        a prescription (commonly referred to as ``over-the-
        counter'' drugs), if they are prescribed by a physician 
        (or other person authorized to prescribe under State 
        law), such a drug shall be regarded as a covered 
        outpatient drug for purposes of the State's 
        participation in the agreement.
          (8) Rebate period.--The term ``rebate period'' means, 
        with respect to an agreement under subsection (a), a 
        calendar quarter or other period specified by the 
        Secretary with respect to the payment of rebates under 
        such agreement.
          * * * * * * *

               OMNIBUS BUDGET RECONCILIATION ACT OF 1989

          * * * * * * *

SEC. 6408. OTHER MEDICAID PROVISIONS.

  (a) Institutions for Mental Diseases.-- * * *
          * * * * * * *
          (3) Moratorium on treatment of certain facilities.--
        Any determination by the Secretary that Kent Community 
        Hospital Complex in Michigan or Saginaw Community 
        Hospital in Michigan is an institution for mental 
        diseases, for purposes of title XIX of the Social 
        Security Act shall not take effect until [December 31, 
        1995] the first day of the first quarter on which the 
        MediGrant plan for the State of Michigan is first 
        effective under title XXI of such Act.
          * * * * * * *

                  Congressional Budget Office Estimate

    Pursuant to clause 2(l)(3)(C) of rule XI of the Rules of 
the House of Representatives, following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
403 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                   Washington, DC, October 9, 1995.
Hon. Thomas J. Bliley, Jr.,
Chairman, Committee on Commerce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office [CBO] 
has prepared the enclosed cost estimate for the Medicaid 
reconciliation recommendations of the House Committee on 
Commerce, as approved on September 22, 1995.
    The estimate shows the budgetary effects of the committee's 
proposals over the 1996-2002 period. CBO understands that the 
Committee on the Budget will be responsible for interpreting 
how these proposals compare with the reconciliation 
instructions in the budget resolution. The estimate assumes 
that the reconciliation bill will be enacted by November 15 and 
could change if the bill is enacted later.
    If you wish further details on this estimate, we will be 
pleased to provide them.
            Sincerely,
                                         June E. O'Neill, Director.
    Enclosure.

                CONGRESIONAL BUDGET OFFICE COST ESTIMATE

    1. Bill number: Medicaid reconciliation recommendations of 
the House Committee on Commerce.
    2. Bill title: Medicaid Transformation Act of 1995.
    3. Bill status: As reported by the House Committee on 
Commerce on September 22, 1995.
    4. Bill purpose: To provide block grants to States to 
enable them to provide medical assistance to low-income 
individuals and families in a more effective, efficient, and 
responsive manner.
    5. Estimated cost to the Federal Government: The following 
table summarizes the budgetary impact of the committee's 
recommendations.

   BUDGETARY IMPACT OF THE MEDICAID RECONCILIATION RECOMMENDATIONS OF THE HOUSE COMMITTEE ON COMMERCE (DIRECT   
                                                    SPENDING)                                                   
                                [Outlays by fiscal years, in billions of dollars]                               
----------------------------------------------------------------------------------------------------------------
                                                     1996     1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
Project spending under current law:                                                                             
    Medicaid (title XIX).........................     99.3    110.0    122.1    134.8    148.1    162.6    177.8
Projected spending under proposal:                                                                              
    Medicaid.....................................     24.6        0        0        0        0        0        0
    MediGrant (title XXI)........................     71.0    102.1    106.2    110.5    114.9    119.5    124.3
                                                  --------------------------------------------------------------
      Total......................................     95.7    102.1    106.2    110.5    114.9    119.5    124.3
Proposed changes:                                                                                               
    Net reduction in outlays.....................     -3.6     -7.9    -15.8    -24.4    -33.2    -43.1    -53.5
----------------------------------------------------------------------------------------------------------------

    6. Basis of estimate: This estimate assumes the 
reconciliation bill will be enacted by November 15, 1995; the 
estimate could change if the bill is enacted later.
    The Medicaid Transformation Act would repeal title XIX of 
the Social Security Act (Grants to States for Medical 
Assistance) and replace it with title XXI (MediGrant Program 
for Low-Income Individuals and Families). The MediGrant Program 
would provide funds to States to pay for medical assistance for 
low-income individuals but, unlike Medicaid, it would not 
provide an entitlement to any individual or group of 
individuals eligible for benefits under the State programs. CBO 
estimates that the repeal of Medicaid and enactment of 
MediGrant would reduce projected Federal spending by $3.6 
billion in 1996 and $181.6 billion during the 1996-2002 period.
    The proposal would limit Federal MediGrant obligations in 
total and for each State, with the aim of achieving specified 
outlay targets (called ``pool amounts''). The proposal would 
authorize a pool of funds to be distributed among States for 
the purpose of providing medical assistance to low-income 
individuals. The bill specifies the pool amounts for 1996 
through 2002. After 2002, the pool amounts would be increased 
by the lesser of 4 percent or the annual percentage increase in 
the consumer price index. The bill also establishes a procedure 
for computing the obligation limitations for each year based on 
the specified pool amounts.
    Under the MediGrant Program States would continue to pay of 
medical assistance for eligible individuals and collect a 
Federal share of those payments from the Federal Government. 
The Federal Government would pay each State at the Federal 
matching rate for that State up to a limit determined by an 
allocation formula in the bill. The allocation formula would 
distribute the pool of funds by inflating 1994 Medicaid 
payments for each State, adjusting for case mix, medical costs, 
and the number of individuals in poverty in each State, and 
calibrating each State's amount so that the sums of all 50 
States allocations do not exceed the total in the pool.
    Although the MediGrant Program would become effective in 
1996, the Federal Government and the States would remain liable 
for claims resulting from Medicaid obligations incurred prior 
to the enactment of the proposal. The formula for allocating 
MediGrant obligations in 1996 would reflect the estimated 
payment of old Medicaid claims. The proposal specifies the 
total estimated amount of Medicaid outlays in 1996, and the 
Secretary of Health and Human Services [HHS] would allocate the 
total among the States. Providers and States would have until 
June 30, 1996, to submit claims incurred under Medicaid prior 
to enactment of the proposal, and the Federal Government would 
pay all valid claims submitted, whether they exceeded or fell 
short of the Secretary's estimate. Medicaid would cease to be 
an individual entitlement upon the enactment of the proposal, 
and its obligations after enactment would be included in the 
MediGrant obligation limit for 1996.
    Because the amounts allocated to the States would be 
significantly lower than projected spending on beneficiaries 
under current law, CBO assumes that all States would draw down 
their full allocation. As a result, estimated Federal spending 
under title XXI would equal the pool amounts specified in the 
bill. The estimated savings to the Federal budget would be the 
difference between projected Medicaid outlays and the outlays 
associated with the MediGrant pool amounts.
    7. Estimated costs to State and local governments: The 
costs of the MediGrant Program, like those of Medicaid, would 
be shared by the Federal and State and local governments, 
except that the Federal contribution would be capped; the 
Federal Government would match States spending up to limits 
determined by the allocation formula in the act. Although the 
States would gain considerable flexibility to design and manage 
their own programs, the MediGrant proposal--unlike an 
unrestricted block grant--would place important limitations on 
how States could spend their Federal Funds. The States 
responses to the proposed law would vary, as would the impacts 
of the proposal on State and local budgets and the provision of 
medical care to the targeted population groups. In addition, 
some States might have difficulties making the transition from 
Medicaid to the MediGrant Program, particularly in the short 
term.

                  Allocation of Funds Among the States

    The allocation of a limited pool of Federal funds for 
medical assistance among the States presents a complex problem 
when the Congress is seeking to transform a program such as 
Medicaid. Federal Medicaid spending per person in poverty 
varies widely among the States and bears little relationship to 
measurable criteria of need. That variation reflects the 
cumulative effects of the decisions of individual States over a 
30-year period. The MediGrant proposal, which would codify the 
allocation of the limited pool of Federal funds, has drawn 
attention to the current disparities among the States.
    The Commerce Committee's proposal reflects the desire to 
relate Federal spending more closely to variations in need 
among the States, while avoiding the major disruptions that 
would occur in some States if sudden dramatic changes were made 
in the distribution of Federal funds. The proposal incorporates 
a complicated allocation process, based on a measure of need 
that takes into account the size of a State's poverty 
population, case mix, and input costs. Because that formula, 
unadjusted, would produce large changes in the distribution of 
Federal payments among the States, the resulting allocation 
would be constrained in two ways. First, the allocation would 
start from a base of each State's actual spending in 1994, 
inflated by a uniform 14.8 percent to 1996. After that year, a 
State's needs-based allocation would be modified through the 
use of minimum and maximum growth rates for Federal 
expenditures. The annual allocations among the States would be 
calibrated to the amount available in the MediGrant pool for 
the year.
    Even with the constraints imposed by the floors and 
ceilings, States would experience significantly different 
growth rates in Federal contributions, both absolutely and 
relative to their projected Federal contributions under current 
law. Two features of the resulting allocation among the States 
are worthy of note. First, because the size of a State's 
poverty population is a component of the needs formula, States 
with rapidly growing poverty populations would probably 
increase their share of Federal MediGrant expenditures over 
time. Second, the 1994 base-year expenditures would incorporate 
payments to disproportionate share hospitals [DSH]. Because of 
current limitations on the growth of Federal Medicaid 
expenditures in States with high DSH payments, those States 
would generally face the least change from baseline Federal 
spending over the 1996-2002 period.

             Effects of the Proposal on States Flexibility

    States would gain flexibility to manage their medical 
assistance programs in several areas, including covered 
services, reimbursement levels, and service delivery 
mechanisms. In general, States could decide which services they 
wanted to pay for, which providers they wanted to reimburse, 
and the amounts they wanted to pay for services. They would no 
longer be constrained to provide the same level of medical 
assistance on a statewide basis, nor would comparability of 
coverage among beneficiaries be required. In addition, unlike 
current Medicaid policy, they would be able to determine 
(without a Federal waiver) the delivery mode of health care to 
beneficiaries--mandatory enrollment in risk-based managed care 
plans, for example.
    States would continue to face significant restrictions on 
their program operations, however, especially in the area of 
program eligibility. Each State would be required to submit 
detailed States medical assistance plans to the Secretary of 
HHS and to meet set-aside requirements. The set-asides would 
insure that minimum percentage of each State's block grant was 
used to cover low-income individuals in certain categories 
(disabled, elderly, and families). The set-asides for each 
State would be based on 85 percent of the portion of current-
law spending for each of those populations averaged over the 
1992-94 period. Although the set-aside amounts would generally 
be based on mandated expenditures for mandated populations, the 
required set-aside for the low-income elderly would include the 
expenditures of Medicaid's elderly nursing home population, 
many of whom are not covered by mandate. The set-aside 
provisions for the elderly would also require States to devote 
a minimum percentage of funds to pay for Medicare premiums.
    The set-aside provisions would restrict States abilities to 
shift resources among population groups to address specific 
State needs, and could make it difficult for States to reap the 
benefits of greater efficiency in service delivery for 
particular groups. If they wanted to reduce the minimum 
required expenditure for a particular beneficiary group, States 
would be required to have an approved plan amendment. in order 
to get an amendment approved, they would have to demonstrate to 
the Secretary of HHS that the health care needs of the 
particular beneficiary group could reasonably be met at a lower 
spending level.

                        responses by the states

    States' responses to reductions in the projected rate of 
growth of Federal spending for medical assistance are highly 
uncertain. How far the overall rate of growth of spending on 
medical assistance would be reduced as a result of the Federal 
cap would depend on whether States chose to expand or contract 
their own contributions. The effects on current Medicaid 
beneficiaries and providers would depend on the ways in which 
States restructured their Medicaid programs in response to the 
flexibility and limitations of the MediGrant Program. States 
could seek more efficient ways to delivery services by 
contracting with managed care providers and other alternative 
systems of care, or by developing new private insurance options 
for program beneficiaries. They might also respond by reducing 
payments to providers, offering fewer benefits, or limiting 
eligibility.
    Under the current Medicaid Program, every dollar that a 
State spends produces at least 50 cents in Federal support, 
providing a strong incentive for States to expand their 
programs. The MediGrant Program would reduce that incentive in 
two ways. Federal support would end once a State had reached 
its cap, eliminating at the margin the financial incentive for 
States to continue to spend their own funds. In addition, the 
MediGrant Program would raise the Federal matching rate for 
some States. With higher Federal matching rates, States would 
draw down Federal funds more quickly, and would reach their 
allocation caps with lower State expenditures.
    States could undoubtedly improve the efficiency of their 
Medicaid Programs and the proposal would increase their 
incentives to do so. Many States have already moved in that 
direction through enrolling beneficiaries in managed care. Thus 
far, the shift to managed care has focused primarily on low-
income families, who account for less than one-third of overall 
Medicaid spending. Few States have enrolled elderly and 
disabled beneficiaries--with their extensive acute and long-
term care needs--in managed care programs. Developing new, more 
cost-efficient, ways to provide services to those populations 
would be a major challenge for the States to address in a short 
span of time.
    Improvements in efficiency alone would probably be 
insufficient to reduce spending under current policy to the 
levels specified in the bill. States would, therefore, seek 
other ways to adapt to the new Federal spending limits. Several 
options would be available and many States might find that they 
needed to use combinations of all of them. Some States might 
choose to spend more of their own funds to expand their ability 
to provide medical assistance. Other options include: foregoing 
extensions of coverage to new groups of beneficiaries; 
curtailing expansions of benefits; and reducing payments to 
providers. If those measures did not achieve enough savings, 
States might turn to increasing cost-sharing for beneficiaries 
and scaling back eligibility and services below current levels. 
In addition, some States might reduce spending for such 
activities as quality assurance, database development, and 
program oversight, relative to their spending on medical 
assistance.
    The set-aside requirements of the proposal would place some 
constraints on the extent to which benefits and enrollment 
could be reduced, although many States offer a wide range of 
optional services and cover many optional groups in their 
Medicaid Programs. Reducing payments to providers might become 
a more viable option for States under the MediGrant proposal, 
which would repeal both the Boren amendment--relating to the 
adequacy of payments to hospitals and nursing homes--and the 
requirement that States pay community health centers on the 
basis of their costs. On the other hand, States would face a 
new restriction on payments to rural providers.

                           transition issues

    The proposal would require States to have their MediGrant 
Programs up and running by October 1, 1996. Prior to that date, 
new State plans would have to be developed and approved by the 
Secretary of HHS, and new systems for establishing eligibility, 
delivering medical services, reimbursing providers, and 
collecting program data might be necessary. Some States might 
have difficulty reconfiguring their programs within that 
timeframe.
    Because restraints on Federal funding would come into 
effect upon enactment of the legislation, States could face 
fiscal programs in 1996 with spending for medical assistance 
growing more rapidly than Federal payments under the new 
program. Although the termination of the Federal entitlement 
for individuals would also be effective immediately, some 
States might have to take legislative action to end the 
entitlement at the State level. Similarly, changes in contracts 
with providers would probably take time to become effective.
    8. Estimate comparison: None.
    9. Previous CBO estimate: None.
    10. Estimate prepared by: Jean Hearne, Robin Rudowitz, and 
Linda Bilheimer.
    11. Estimate approved by: Paul N. Van de Water, Assistant 
Director for Budget Analysis.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of 
the House of Representatives, the Subcommittee on Health and 
Environment held oversight and legislative hearings and made 
findings that are reflected in this report.

              Committee on Government Reform and Oversight

    Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of 
the House of Representatives, no oversight findings have been 
submitted to the committee by the Committee on Government 
Reform and Oversight.

                        Committee Cost Estimate

    The committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 403 of the Congressional Budget Act of 1974.

                     Inflationary Impact Statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the Committee finds that the bill 
would have no inflationary impact.
              TITLE XVII--DEPARTMENT OF COMMERCE ABOLITION

                          House of Representatives,
                                     Committee on Commerce,
                                   Washington, DC, October 6, 1995.
Hon. John R. Kasich,
Chairman, Committee on the Budget,
Washington, DC.
    Dear Mr. Chairman: I am transmitting herewith the 
recommendations of the Committee on Commerce for changes in 
laws within its jurisdiction, excluding recommendations for 
Medicare and Medicaid, pursuant to the provisions of section 
310 of the Congressional Budget Act of 1974 and section 
105(a)(2)(B)(iii) of House Concurrent Resolution 67, the 
Concurrent Resolution on the Budget--Fiscal Years 1996 to 2002. 
The committee's recommendations for Medicare and Medicaid will 
be transmitted to you separately.
    The enclosed recommendations were embodied in a series of 
committee prints adopted by the committee on September 13, 1995 
and September 19, 1995. Pursuant to your instructions, the 
legislative language of these committee prints has been 
incorporated into Title III as follows:
    Subtitle A: Communications; subtitle B: Nuclear Regulatory 
Commission Annual Charge; subtitle C: United States Enrichment 
Corporation; subtitle D: Waste Isolation Pilot Project; 
subtitle E: Naval Petroleum Reserves; and subtitle F: 
Department of Commerce Abolition. Also enclosed is the 
accompanying report language and a Ramseyer submission.
    Regrettably, as of this date, the committee has not yet 
received the official cost estimate for Title III from the 
Congressional Budget Office. Despite this fact, the Commerce 
Committee does not wish to delay your committee's consideration 
of the fiscal year 1996 Omnibus Budget Reconciliation Act. I 
am, therefore, transmitting the committee's recommendations at 
this time with the understanding that the Commerce Committee 
will be permitted to submit additional material with respect to 
the cost estimate if warranted after the Congressional Budget 
Office transmits their cost estimate.
    If you have any questions concerning the committee's 
recommendations, or if I can be of any further assistance to 
you as you proceed with the committee's deliberations, please 
do not hesitate to contact me.
            Sincerely,
                                     Thomas J. Bliley, Jr.,
                                                          Chairman.
    Enclosures.

    [Editor's note: References to subtitle F in the transmittal 
letter and report language submitted by the Committee on 
Commerce apply to title XVII in this document, the Department 
of Commerce Abolition.]

                           table of contents

                                                                   Page
Transmittal letter...............................................   743
Purpose and summary..............................................   744
Background and need for legislation..............................   746
Hearings.........................................................   751
Section-by-section analysis......................................   751
Committee consideration..........................................   764
Vote of the committee............................................   765
Changes in existing law..........................................   771
Committee cost estimate..........................................   933
Congressional Budget Office estimate.............................   935
Committee oversight findings.....................................   948
Committee on Government Reform and Oversight findings............   948
Inflationary impact statement....................................   948

                          Purpose and Summary

    The purpose of subtitle F is to reduce Federal spending and 
the size of the Federal Government by dismantling the 
Department of Commerce. Subtitle F terminates many of the 
Department's grantmaking programs, eliminates the Department's 
agencies for which authorization has expired, abolishes several 
of the Department's recently created superbureaucracies, and 
consolidates the remaining functions into other Departments or 
agencies. Except for the Bureau of the Census and the Patent 
and Trademark Office, a spending cap of 75 percent of fiscal 
year 1994 expenditures is imposed on all transferred agencies 
or functions. Listed below is a summary of the disposition 
under this legislation for each of the Department's function 
groups, in alphabetical order:
    Bureau of Export Administration [BXA].--See International 
Trade Administration [ITA].
    Economic Development Administration [EDA].--Abolished. All 
of the programs within EDA (Planning Grants; Technical 
Assistance Grants; Development Grants; Economic Adjustment 
Grants; Research, Evaluation and Demonstration Grants; Defense 
Economic Investment Grants; Trade Adjustment Assistance Grants; 
and Competitive Communities Grants) are terminated.
    Economics and Statistics Administration [ESA].--Abolished. 
The Bureau of Economic Analysis and the Bureau of the Census 
are merged into a new free-standing Federal Statistics 
Administration [FSA]. The Federal coordinating authority of the 
Office of Statistical Policy within the Office of Management 
and Budget is transferred to the head of the Federal Statistics 
Administration.
    International Trade Administration [ITA].--The critical 
trade functions of the Department of Commerce are transferred 
into a new United States Trade Administration [USTA]. The USTA 
will be the center of future Federal trade promotion 
activities, and shall include the U.S. Trade Representative 
[USTR], the International Trade Administration [ITA], the 
Bureau of Export Administration [BXA], and the headquarters and 
foreign component of the U.S. and Foreign Commercial Service 
(which shall be renamed the U.S. Trade Service). The USTA shall 
be responsible for carrying out any continuing responsibilities 
for the U.S. Travel and Tourism Administration [USTTA], which 
is abolished effective August 1996, and the Trade and 
Development Agency [TDA], which is abolished 6 months after 
enactment.
    Minority Business Development [MBDA].--A redundant and 
unauthorized agency, the MBDA is terminated.
    National Oceanic and Atmospheric Administration [NOAA].--
NOAA is transferred to the Department of Agriculture. The 
National Ocean Service [NOS] and the Office of Oceanic and 
Atmospheric Research [OAR] are abolished. The NOAA Corps is 
abolished on September 30, 1997. Specific NOAA-related programs 
that are eliminated include: the National Undersea Research 
Program; the Fleet Modernization, Shipbuilding, and 
Construction Account; the Charleston, SC, Special Management 
Plan; the Chesapeake Bay Observation Buoys; the Federal/State 
Weather Modification Grants; the Southeast Storm Research 
Account; the Southeast United States Caribbean Fisheries 
Oceanographic Coordinated Investigations Program; the National 
Institute for Environmental Renewal; the Lake Champlain Study; 
the Maine Marine Research Center; the South Carolina 
Cooperative Geodetic Survey Account; the Pacific Island 
Technical Assistance; the Sea Grant/Oyster Disease Account; the 
National Coastal Research and Development Institute Account; 
the VENTS Program; the NWS non-Federal, nonwildfire Fire 
Weather Service; the NWS Regional Climate Centers; the NWS 
Samoa Weather Forecast Office Repair and Upgrade Account; the 
Dissemination of Weather Charts (Marine Facsimile Service); the 
Global Climate Change Program; and the Global Learning and 
Observations to Benefit the Environment Program. NOAA fisheries 
program responsibilities are transferred to the Maritime 
Administration within the Department of Transportation, 
including the Operating Differential Subsidy Program, the Ship 
Mortgage Insurance Program, the Outer Continental Shelf 
Program, and the Fishermen's Protective Act of 1967. NOAA 
responsibilities for mapping, charting, geodesy, observation, 
and prediction of tides and sea level are transferred to the 
Director of the U.S. Geological Survey. The National Weather 
Service shall not compete with the private sector if a service 
is or can be provided by private enterprise.
    National Telecommunications Information Administration 
[NTIA].--All grantmaking programs within the NTIA are 
eliminated, including the construction assistance programs for 
public telecommunications facilities, Endowment for Children's 
Educational Television, and Telecommunications Demonstration 
grants. NTIA labs are to be privatized. The remaining NTIA 
functions (Federal spectrum management, standard setting, and 
international telecommunications policy) are transferred to the 
United States Trade Administration.
    Patent and Trademark Office [PTO].--The Patent and 
Trademark Office [PTO] is privatized as a wholly owned 
Government corporation, which shall be responsible for the 
granting and issuing of patents and registration of trademarks, 
conducting and authorizing studies on international patent and 
trademark law, and disseminating patent and trademark 
information to the public.
    Technology Administration [TA].--The policy and standard-
setting functions of the National Institute of Standards and 
Technology [NIST] are transferred to the United States Trade 
Administration to ensure a focus on maximizing American 
international competitiveness. NIST laboratories are to be 
privatized. The National Technical Information Service [NTIS], 
which collects and sells Federal research reports to the 
private sector, is already fee funded, and is therefore to be 
privatized. Other Federal agencies will be required to continue 
submitting information to the NTIS, although now in electronic 
form to facilitate access over the Internet and the World Wide 
Web. NIST's National Quality Program to recognize private 
sector achievements in quality attainment is terminated, but a 
sense of Congress expresses the desire to continue this program 
under private auspices. The remaining functions within the 
Technology Administration (the Office of Technology Policy, the 
Manufacturing Extension Partnership, and the advance Technology 
Program) are terminated.
    United States Travel and Tourism Administration [USTTA].--
See International Trade Administration [ITA].

                  Background and Need for Legislation

    The Department of Commerce was established in 1913 as an 
outgrowth of the Department of Commerce and Labor, and has 
grown into a $4 billion agency with over 36,000 employees. Its 
diverse functions include marine and atmospheric research, 
technology programs, development grants, statistics and 
information gathering, export controls and promotion, patents, 
and telecommunications.
    According to the December 1992 U.S. General Accounting 
Office [GAO] Transition Series, the Department of Commerce 
suffers the most complex web of divided authorities, sharing 
overlapping missions with over 71 different Federal agencies. 
In testimony received by the Commerce Committee on July 24, 
1995, from Ms. Robin Lanier, vice president for international 
trade and the environment at the International Mass Retail 
Association, ``It's clearly time to eliminate the extraneous 
parts of the Commerce Department * * * [it] has outlived its 
mission in many cases and Congress needs to revamp and 
restructure the remaining international trade programs.'' 
Former Commerce Department officials have testified that the 
Department performs relatively few unique functions, which 
often are burdened by layers of bureaucracy and political 
appointees. Dr. Murray Weidenbaum, director, Center for the 
Study of American Business, Washington University, testified 
that the latest U.S. Government Organization Manual ``lists, 
for the Commerce Department, an extensive array of 6 
undersecretaries, 7 deputy undersecretaries, 13 assistant 
secretaries, 32 deputy assistant secretaries, plus an 
assortment of counselors, special assistants, executive 
assistants, an associate deputy secretary, an assistant deputy 
secretary, and one associate under deputy secretary.'' Other 
critics, such as Mr. Wayne Berman, senior advisor to Lazard 
Freres, have noted that many of the Department's functions are 
in competition with the private sector, either directly or 
preemptively.
    The Concurrent Budget Resolution for fiscal year 1996 calls 
for the elimination of the Department of Commerce. In contrast, 
the administration's fiscal year 1996 budget proposed 
increasing the fund for the Department of Commerce by $561 
million from the previous fiscal year. Total spending would 
rise from $2.798 billion in fiscal year 1993 to $4.109 billion 
this year, thus attaining a level 46.9 percent higher than when 
the President took office. This skyrocketing of the Department 
of Commerce budget has proceeded apace, despite warnings from 
the Inspector General's September 30, 1994, ``Report to the 
Congress'' that there are ``serious problems with the 
reliability, efficiency, and internal controls of Commerce's 
financial practices and systems,'' and that the Department's 
managers have demonstrated ``little interest'' and a ``lack of 
commitment'' for proper financial controls, according to the 
Commerce Inspector General's March 31, 1994, ``Report to the 
Congress.''
    About half of the Department's budget is spent on the 
National Oceanic and Atmospheric Administration [NOAA], which 
includes commercial fisheries management, endangered species 
protection and marine habitat management, environmental 
research, ocean navigation mapping, and weather forecasting, 
NOAA research and operational activities are supported by the 
seventh uniformed service, the NOAA Corps--a 400-member special 
commissioned officer corps which performs scientific and 
administration functions, and operates NOAA's aging fleet. The 
Department of Commerce Inspector General has questioned whether 
NOAA needs its own uniformed service corps and fleet, at an 
expected modernization cost of over $2 billion. In his March 
1995 message to Congress, the Inspector General also criticized 
NOAA for maintaining laboratories which ``conduct research that 
appears to duplicate that of other facilities.''
    The Technology Administration [TA] programs of the existing 
Commerce Department are intended to promote commercial research 
and technological development. The rationale of the Technology 
Administration's expanding budget was to provide critical seed 
money to undercapitalized firms for the development of high-
risk technologies in a government-business partnership, but 
critics have scorned many of the programs as inefficient and 
ineffective Federal industrial policy tools. One of TA's 
primary components is the National Institute of Standards and 
Technology [NIST], which Dr. Weidenbaum singled out as ``a 
clear example of bureaucratic sprawl * * * The agency's outlays 
are budgeted to rise more than 300 percent just in the two-year 
period 1994-96.'' Other bureaus include the Office of 
Technology Policy [OTP] and the National Technical Information 
Service [NTIS]. The Inspector General criticized the TA for not 
having established meaningful performance goals, reliable 
reporting systems, or written procedures to avoid impropriety 
and favoritism. Recipients of TA's critical seed money have 
included such highly capitalized firms as IBM, Xerox, DuPont, 
General Electric, and 3M.
    The Economic Development Administration was established in 
1965 as part of President Lyndon Johnson's Great Society 
program, providing Federal funds to subsidize economic 
development in distressed communities. Dr. James C. Miller III, 
counselor, Citizens for a Second Economy, testified that, ``in 
the past, this organization, with spending approaching half-a-
billion dollars annually, has been entirely too wasteful of 
taxpayer's money and has been used more of political purposes 
than for economic.'' In the March 31, 1995, ``Report to the 
Congress,'' the Inspector General reported ``serious problems 
in financial management at EDA'' over the past several years, 
and has suggested terminating the agency. Vice President Al 
Gore in the ``Accompanying Report of the National Performance 
Review'' noted that at least seven Federal programs assist 
States and localities with economic and regional development, 
and all ``[t]hese economic and regional development efforts are 
characterized by fragmentation, poor quality, and excessive 
bureaucracy.'' Vice President Gore further stated that the 
EDA's offices ``now duplicate many state and local efforts * * 
* [and] EDA's uncertain political support has contributed to a 
variety of problems, including reduced morale, lower staff 
quality, poor operation and administration of programs. * * *'' 
Dr. Weidenbaum testified that ``EDA should not be cut back, it 
should be abolished * * * that overdue action would save 
taxpayers $427 million in 1996.''
    The Minority Business Development Agency [MBDA] was created 
by Executive order by President Nixon in 1971 to provide grants 
and loans to minority-owned businesses in the hopes of 
increasing employment and development. The MBDA has never been 
authorized by Congress. Critics of the MBDA argue that its 
functions are already duplicated by the programs of the Small 
Business Administration. Similarly, in the March 31, 1995, 
``Report to the Congress,'' the Inspector General recommended 
consolidation of the numerous Federal programs and agencies 
which provide assistance to minority-owned businesses. 
Furthermore, Dr. Miller of CSE pointed out that while ``the 
objective of increasing minority participation in business is 
laudable * * * direct preference programs such as this are very 
costly to taxpayers and constitute `reverse' discrimination.''
    The Economic Statistics Administration [ESA] provides 
economic forecasting through the Bureau of Economic Analysis 
[BEA] and the Bureau of the Census. According to the GAO report 
``Statistical Agencies: Adherence to Guidelines and 
Coordination of Budget,'' the total Federal statistical system 
is costing taxpayers $2.6 billion in Fiscal Year 1995, and 72 
Federal agencies spend over a half-million dollars each on 
statistical collection and analysis. Former Census Director 
Barbara Bryant and former Bureau of Labor Statistics Director 
Janet Norwood recommend consolidation of Federal statistical 
functions, preferably as an independent statistical agency. 
Similarly, Commerce Secretary Ronald Brown has recommended 
consideration of consolidating the Federal statistical systems. 
Statistical consolidation potentially would result in 
significant cost savings and increased methodological 
uniformity.
    The Department of Commerce's trade functions comprise 
approximately 7 percent of its total budget, and approximately 
only 10 percent of the total Federal trade budget. Trade 
programs are currently divided amount 19 different Federal 
agencies, ostensibly coordinated by the Trade Promotion 
Coordinating Committee [TPCC]. The Export Enhancement Act of 
1992 requires the TPCC (chaired by the Secretary of Commerce) 
to establish program priorities and propose a unified budget 
for all Federal trade promotion. However, according to the GAO, 
this requirement has not yet been fulfilled--in large part due 
to a lack of interagency cooperation.
    The Department's trade policy is conducted primarily 
through the International Trade Administration [ITA], which is 
made up of the U.S. & Foreign Commercial Service [USFCS], the 
International Economic Policy [IEP] unit, the Trade Development 
[TD] unit, the Office of Import Administration, and the Office 
of Textiles and Apparel. The testimony of Ms. Lanier indicated 
that ``trade development programs as they stand now in the 
Commerce Department are not effective * * * maintaining this 
outdated institutional framework is not helpful to many U.S. 
industries.'' She continued by expressing ``hope that your 
subcommittees will do more than just transfer offices from one 
agency to another.''
    Among the various units, the USFCS provides U.S. exporters 
with contacts and knowledge about foreign governments and local 
conditions and opportunities. In his written testimony, former 
Commerce Department official Wayne Berman pointed out the USFCS 
``has been one of the more effective--perhaps the most 
effective--part of Commerce in recent years.'' However, he also 
stated that it could ``be made better and more effective by 
eliminating its most marginal elements--namely, the U.S.-based 
trade promotion offices * * * [which] have become obsolete in 
the age of the fax and the Internet.''
    Another unit, the IEP, has responsibility for collecting 
and analyzing trade information on specific international 
regions. Mr. Berman singled out this department as ``both too 
big and currently underutilized in the formulation of trade 
policy.'' It performs a significant amount of support work for 
the USTR, sets up U.S. public/private groups to meet with 
foreign country representatives, maintains a computer 
information service, and answers questions for U.S. businesses 
on issues such as current tariff rates in various foreign 
locales.
    The TD collects and analyzes U.S. domestic industry 
statistics. Approximately one-third of the TD's staff time and 
resources are spent supporting the USTR. TD is also responsible 
for 17 Industry Sector Advisory Committees [ISAC's], 3 
functional [IFAC] committees, and Industry Policy Advisory 
Committee [IPAC], the President's Export Council, and 51 
District Export Councils. Referred to as `` counterproductive 
deadwood,'' Mr. Berman and others advocated the elimination of 
the TD. The Import Administration investigates antidumping and 
countervailing duty cases, and administers certain import 
programs such as the United States-Japan semiconductor 
agreements. Finally, the Office of Textiles and Apparel 
supports a 40-person staff to monitor textile imports and 
domestic production data and was referred to by Mr. Berman as 
``the perfect example of corporate welfare run amok.''
    The Department's Bureau of Export Administration [BXA] is 
responsible for implementing controls on U.S. exports for 
foreign policy, national security, and short supply objectives. 
It shares licensing authority with the Departments of State, 
Defense, Energy, and Treasury. Export licenses can often get 
delayed for months while the various agencies try to reach and 
agreement over the application. A report by the National 
Academies of Science and Engineering argue that export 
licensing would best be consolidated into BXA, which handles 
the wide majority of the applications, has a comprehensive 
regulatory scheme, and has already been tasked by Congress 
under the Export Administration Act as the appropriate 
implementing agency. Further reforms and consolidation of 
export control functions were urged by Mr. Edward S. Black, 
president, Computer & Communications Industry Association, who 
pointedly testified that ``the way the government has 
mishandled export controls for years is an embarrassment.''
    The Department's U.S. Travel and Tourism Administration 
[USTTA] was created in 1981 to conduct surveys, distribute 
promotional materials, and run marketing shows (such as ``Pow 
Wow Europe''). It also administers the Disaster Relief 
Financial Assistance Program to support tourism in disaster-
affected regions. Dr. Miller succinctly testified that ``this 
program does not have a compelling federal purpose.'' The House 
has already reduced USTTA's appropriations to $2 million this 
year in order to fund the agency only through the October 30 
and 31, 1995 White House Conference on Tourism and Travel.
    The Patent and Trademark Office [PTO] examines and approves 
applications for patents for claimed inventions and 
registration of trademarks. While the PTO is presently self-
funded, it is still subject to annual appropriations while 
Treasury collects its fees. In fact, Congress has siphoned away 
nearly $59 million in PTO fee income for other purposes over 
the last 3 years. The average wait for a patent approval is 18 
months, and the patent bar has indicated a willingness to 
support increased patent fees, but only if the money is 
restored to PTO for improving efficiency and timeliness. 
Reforming the PTO into a government-sponsored enterprise would 
enable it to hire and fire staff, purchase equipment, and 
adjust fee levels according to need.
    The National Telecommunications and Information 
Administration [NTIA] establishes grants for public television 
and radio, provides funds for development of computer 
telecommunications information networks, and manages the 
designated Federal portion of the electromagnetic spectrum. The 
Public Telecommunications Facilities Program has ``outlived its 
usefulness and should be severely curtailed or eliminated,'' 
according to the Department of Commerce Inspector General. 
Other grant-making NTIA programs have been similarly 
criticized.
    The Department of Commerce shares its missions with at 
least 71 Federal Departments, Agencies, and Offices, and in the 
words of Mr. Joe Cobb, John M. Olin Senior Fellow in Economic 
Policy, The Heritage Foundation, ``the Department of Commerce 
has grown into a `Department of Miscellaneous Affairs'.'' 
Former Commerce Secretary Robert Mosbacher and others have 
called for the Department to be ``privatized, consolidated, 
localized, or eliminated.'' The National Federation of 
Independent Business, which represents more than 600,000 small 
American businesses, has stated that its members would rather 
cut the Federal deficit than save the Commerce Department. The 
U.S. Chamber of Commerce indicated that it found a similar lack 
of support among its 200,000 members for retaining the 
Department. Other business and consumer groups such as the 
Business Leadership Council, the National Taxpayers Union, 
Citizens for a Sound Economy, Citizens Against Government 
Waste, and the International Mass Retail Association, have all 
called for dismantling the Department. This dismantling is 
necessary as one more step towards reducing the size of the 
Federal Government and reducing the Federal debt burden on 
American taxpayers. Even the GAO has stated that the 
``[Department of] Commerce lacks the prominence and resources 
to play a significant role in improving competitiveness.''
    In evaluating the effectiveness of the Department of 
Commerce, Dr. Miller testified that it comes down to a question 
of ``whether all of its programs are justified, and for those 
that are, whether other entities might carry on some of them 
more reasonably and more cost-effectively.'' Echoing Dr. 
Miller, Dr. Weidenbaum testified that ``American business, 
indeed the entire American economy, would be far better off if 
these Government expenditures were not made and the savings 
used instead to reduce the deficit or cut taxes--and thus 
increase the availability of investment capital of the private 
sector.''

                                Hearings

    On July 24, 1995, the Subcommittee on Commerce, Trade, and 
Hazardous Materials, and the Subcommittee on Telecommunications 
and Finance held a joint hearing on H.R. 1756, the Department 
of Commerce Dismantling Act of 1995, which included five panels 
of witnesses. Testimony was received from Representative 
Richard R. Chrysler; Representative John L. Mica; 
Representative Sander M. Levin; Representative David E. Skaggs; 
the Honorable Ron Brown, Secretary of Commerce, U.S. Department 
of Commerce; the Honorable Larry Irving, Assistant Secretary of 
Commerce for Communications and Information, U.S. Department of 
Commerce; Mr. Paul Huard, Sr. vice president of policy 
communications, Association of Manufacturers; the Honorable 
James C. Miller, III, counselor, Citizens for a Sound Economy; 
Dr. Murray Weidenbaum, director Center for the Study of 
American Business, Washington University; Mr. Stephen Collins, 
director of Economics and International Affairs Department, 
American Automobile Manufacturers Association; Mr. Joe Cobb, 
John M. Olin senior fellow in Economic Policy, The Heritage 
Foundation; Ms. Robin Lanier, vice president for International 
Trade & the Environment, International Mass Retail Association; 
Mr. Edward S. Black, president, Computer & Communications 
Industry Association; and Mr. E. Martin Duggan, president/CEO, 
Small Business Exporters Association. Additional written 
comments were submitted by Dr. Stephen S. Cohen, codirector, 
Berkeley Roundtable on the International Economy.
    On Thursday, September 7, 1995, the Subcommittee on 
Telecommunications and Finance held a hearing on the Federal 
management of the radio spectrum, which included testimony 
from: the Honorable Larry Irving, Assistant Secretary of 
Commerce for Communications and Information. U.S. Department of 
Commerce; Mr. James Gattuso, vice president for policy 
development, Citizens for a Sound Economy; Mr. Dale Hatfield, 
CEO Hatfield Associates, Inc.; and Dr. Charles L. Jackson, 
principal, Strategic Policy Research, Inc.

             Section-by-Section Analysis of the Legislation

    Section 3100 Sets forth the short title of subtitle F and 
the table of contents.

            Chapter 1--Abolishment of Department of Commerce

    Section 3101 establishes the Department of Commerce 
Programs Resolution Agency [the DCPRA] as a free-standing 
executive agency. The DCPRA is headed by an Administrator 
appointed by the President with the advice and consent of the 
Senate, who shall receive level II compensation, and shall 
administer the winding-up of all functions and outstanding 
affairs of the Department of Commerce, including any 
outstanding Federal obligations.
    Section 3102 authorizes the Administrator of the DCPRA to 
perform all functions deriving from the Department of Commerce 
that are not abolished or transferred.
    Section 3103 creates a Deputy Administrator appointed by 
and to assist the Administrator.
    Section 3104 allows the Secretary of Commerce to act as 
temporary Administrator and other officers to continue in their 
capacity at their current compensation rates for the earlier of 
up to 120 days or until a new Administrator is appointed.
    Section 3105 allows the Administrator to reallocate, 
consolidate, alter or discontinue any function or 
organizational entity in the Commerce Programs Resolution 
Agency.
    Section 3106 sets forth a 3-year termination date for the 
abolishment of the Commerce Programs Resolution Agency. Six 
months after the enactment of this Act, the President shall 
submit to the Congress a plan for winding up the Agency within 
the 3-year termination date.
    Section 3107 requires within 180 days of enactment the U.S. 
Comptroller General (Comptroller) to submit to Congress 
recommendations for the abolishment of the Department and the 
termination, transfer, or discontinuation of its functions.
    Section 3108 contains conforming amendments.
    Section 3109 makes Chapter 1 effective 6 months after the 
date of enactment, except for Sections 3101(b), 3106(c), and 
3107, which take effect immediately upon enactment.

              Chapter 2--Disposition of Commerce Functions

                                  EDA

    Section 3201 repeals the Public Works and Economic 
Development [PWED] Act of 1965, transfers all Federal financial 
obligations under this Act to the Secretary of the Treasury, 
and directs the Treasury Secretary to sell such obligations to 
the public to the maximum extent practicable. The Comptroller 
General (``Comptroller'') shall within 18 months after 
enactment audit and report to Congress on all grants made or 
issued for fiscal year 1995 under the PWED Act, as well as any 
remaining outstanding Federal rights or obligations.

                                TA/NIST

    Section 3202 terminates the Technology Administration and 
the Office of Technology Policy. The National Institute of 
Standards and Technology (the ``Institute'') is transferred to 
the United States Trade Administration. The Director of the 
Institute will assume all previous NIST related 
responsibilities of the Secretary and Under Secretary of 
Commerce. The Institute's labs and the National Technical 
Information Service [NTIS] are transferred to the DCPRA for 
sale within 18 months to a private entity intending to perform 
substantially the same functions; if no such offer is received, 
the DCPRA shall report to Congress on further disposal 
recommendations. No additional funds may be appropriated to 
NTIS after fiscal year 1995, and Federal research reports 
required to be submitted to NTIS shall be in electronic 
standardized format. The Malcolm Baldrige National Quality 
Award is terminated, and section 3202 expresses the sense of 
Congress that a private-sector entity should continue this 
program.

                          NTIA Grants and Labs

    Section 3203 repeals the assistance programs for public 
telecommunications facilities, Endowment for Children's 
Educational Television, and Telecommunications Demonstration 
grants. National Telecommunications and Information 
Administration labs are transferred to the DCPRA for sale 
within 18 months to a private entity intending to perform 
substantially the same functions; if no such offer is received, 
the DCPRA shall report to Congress on further disposal 
recommendations.

                             NTIA Functions

    Section 3204 transfers the remainder of the National 
Telecommunications and Information Administration to the United 
States Trade Administration. The new NTIA within the USTA shall 
be headed by the NTIA Administrator who shall be appointed by 
the President with the advice and consent of the Senate.

                                  NOAA

    Section 3205 transfers the National Oceanic and Atmospheric 
Administration [NOAA] to the Department of Agriculture. It 
allows the Secretary of Agriculture to contract for data or 
days-at-sea, or to use excess capacity of University National 
Oceanographic Laboratory System vessels with operator 
agreement, to fulfill NOAA missions of mapping and charting 
services, as well as research related to marine, climate, 
fisheries, and hurricane tracking. The National Ocean Service 
[NOS] and the Office of Oceanic and Atmospheric Research [OAR] 
are abolished. No commissioned NOAA Corps officers are 
authorized after fiscal year 1996, and the Commerce Secretary 
may separate commissioned officers from the NOAA active list 
without separation pay. The Department of Defense and the U.S. 
Coast Guard may accept approved transfers from the NOAA Corps, 
and subject to the approval of the Administrator, certain corps 
who on the date of enactment have been assigned for a period of 
a year or more may transfer to the Administration as members of 
the civil service. The NOAA Corps and Personnel Center are 
abolished on September 30, 1997.

                       NOAA Program Terminations

    Several NOAA programs are terminated, including the 
National Undersea Research Program; the Fleet Modernization, 
Shipbuilding, and Construction Account; the Charleston, SC, 
Special Management Plan; the Chesapeake Bay Observation Buoys; 
the Federal/State Weather Modification Grants; the Southeast 
Storm Research Account; the Southeast United States Caribbean 
Fisheries Oceanographic Coordinated Investigations Program; the 
National Institute for Environmental Renewal; the Lake 
Champlain Study; the Maine Marine Research Center; the South 
Carolina Cooperative Geodetic Survey Account; the Pacific 
Island Technical Assistance; the Sea Grant/Oyster Disease 
Account; the National Coastal Research and Development 
Institute Account; the VENTS program; the NWS no-Federal non-
wildfire Fire Weather Service; the NWS Regional Climate 
Centers; the NWS Samoa Weather Forecast Office Repair and 
Upgrade Account; the Dissemination of Weather Charts (Marine 
Facsimile Service); the Global Climate Change Program; and the 
Global Learning and Observations to Benefit the Environment 
Program. Any unobligated balances appropriated for these 
programs are transferred to the Treasury's general fund. 
Several corresponding Acts are repealed. Within 60 days of 
enactment, the Agriculture Secretary shall report to the House 
and Senate Science Committees on activities which do not 
conform to these requirements, with an outline timetable of 
their elimination.
    NOAA fisheries program responsibilities are transferred to 
the Department of Transportation, including the operating 
differential subsidy program, the ship mortgage insurance 
program, the outer continental shelf program, and the 
Fishermen's Protective Act of 1967. NOAA responsibilities for 
mapping, charting, geodesy, observation, and prediction of 
tides and sea level are transferred to the Director of the US 
Geological Survey. The National Weather Service [NWS] shall not 
become involved in competition with the private sector where an 
activity can be performed by a commercial enterprise, unless 
the Secretary determines that the private sector is unwilling 
or unable to provide such services, or the service provides 
vital weather warnings and forecasts for the protection of 
lives and property of the general public. Within 60 days of 
enactment, the Agriculture Secretary shall report to the House 
and Senate Science Committees on NWS activities which do not 
conform to these requirements, with an outline timetable of 
their elimination.
    No funds available under section 3205 shall be used to 
influence Congressional legislation, except for requests by 
Congressional Members for legislative suggestions. Within 120 
days after enactment, the Agriculture Secretary shall report to 
the House and Senate Science Committees on the NOAA 
laboratories, including the potential savings which could be 
achieved through closing or consolidation, and a review of all 
missions, activities, resources, assets, and management. NOAA 
expenditures are capped at 75 percent of fiscal year 1994 
expenditure levels.

                       Miscellaneous Terminations

    Section 3206 abolishes the Economic Development 
Administration [EDA], the Minority Business Development 
Administration [MBDA], the National Telecommunications and 
Information Administration [NTIA], the Advanced Technology 
Program [ATP], and the Manufacturing Extension Programs. This 
section expresses the sense of Congress that the Congress 
should explore private sector prospects to assume the former 
responsibilities of the MBDA.

                 U.S. Travel and Tourism Administration

    Section 3207 abolishes the United States Travel and Tourism 
Administration [USTTA] effective August 1, 1996. The 
Administrator shall submit a prior recommendation to Congress 
for the privatization of USTAA's functions.

                             Effective Date

    Section 3208 sets an effective date for Chapter 2 of 6 
months after enactment, except for sections 3201 and 3206.

                               User Fees

    Section 3209 expresses the sense of Congress that the head 
of each agency performing a function vested by chapter 2 
should, wherever feasible, implement appropriate user fees to 
offset operating costs.

           Chapter 3--Consolidation of Statistical Functions

    Section 3301 designates the short title of the ``Federal 
Statistics Agency Establishment Act.''
    Section 3302 sets forth definitions.
            Subchapter A--Establishment of Federal Statistics Agency
    Section 3311 establishes a free-standing Federal Statistics 
Agency [FSA] in the executive branch.
    Section 3312 allows the President to appoint, with the 
advice and consent of the Senate, an Administrator and Deputy 
Administrator to supervise the FSA, a Director of the Census 
and a Director of the Bureau of Economic Analysis, and a 
General Counsel to administer the Office of General Counsel of 
the Agency, who shall receive compensation at levels II, III, 
IV, V and V of the Executive Schedule, respectively.
    Section 3313 transfers to the FSA the Bureau of the Census, 
the Bureau of Economic Analysis, and the statistical policy and 
coordination functions of the Director of the Office of 
Management and Budget (OMB). These transfers shall be effective 
90 days after enactment of this Act.
            Subchapter B--Administrative Provisions
    Section 3321 allows the Administrator to appoint and 
compensate officers and employees in accordance with the civil 
service laws, and to obtain the services of experts and 
consultants and voluntary services.
    Section 3322 allows the Administrator to exercise any 
authority related to a function which would have been available 
to the corresponding official responsible for such function 
before the transfer. The Administrator may delegate further 
authority as necessary, and may reallocate, consolidate, or 
abolish agency offices or positions not established by law.
    Section 3323 allows the Administrator to enter into 
contracts with public agencies and private organizations, and 
to make such payments as necessary, with the exception that any 
contracting or payment amounts must be provided in advance 
under appropriation Acts.
    Section 3324 authorizes the Administrator to prescribe 
appropriate rules and regulations.
    Section 3325 allows the Administrator to make a seal of 
office for the FSA.
    Section 3326 requires the Administrator after the close of 
each fiscal year to report to the President for submission to 
Congress on the activities of the FSA.
            Subchapter C--Transitional, Savings, and Conforming 
                    Provisions
    Section 3331 transfers appropriations and personnel with 
the statistical functions to the FSA.
    Section 3332 provides that compensation and pay grades 
shall be preserved for 1 year for transferred employees, with 
executive appointees being compensation at not less than their 
previous compensation for the duration of their service in the 
new position.
    Section 3333 allows the Director of the OMB, in conjunction 
with the Administrator, to carry out incidental transfers, 
dispositions, and terminations as necessary. The Director may 
also determine the appropriate transfer of Senior Executive 
Service positions as necessary.
    Section 3334 continues the effect of all legal operations 
(contracts, licenses, regulations, etc.) of any functions 
transferred, including any pending proceedings as if the 
transfer had not taken effect, with the new appropriate FSA 
official substituted where necessary.
    Section 3335 substitutes appropriate references to any 
officer or agency transferred to the new officer or agency 
within the FSA.
    Section 3336 contains conforming amendments.
    Section 3337 allows transferred funds to be used to pay for 
appropriate expenses with the approval of the Director of the 
OMB, and transferred personnel to be utilized with the consent 
of the appropriate agency head as reasonably needed, until new 
funds and personnel are available.
    Section 3338 allows the President to designate a temporary 
officer for up to 120 days to fill an appointed position that 
requires the advice and consent of the Senate, if such consent 
has not yet been granted for an officer required under this 
chapter for a transferred function; compensation for the 
temporary officer shall be at the normal rate for the position.

             Chapter 4--United States Trade Administration

            Subchapter A--General Provisions
    Section 3401 sets forth Congressional findings regarding 
American trade.
    Section 3402 sets forth definitions.
            Subchapter B--United States Trade Administration
    Section 3411 creates a United States Trade Administration 
[USTA] as a free-standing executive branch establishment. The 
USTA Administrator shall be the United States Trade 
Representative, who shall have Ambassador status and represent 
the U.S. in all trade negotiations, and shall be appointed by 
the President with the advice and consent of the Senate. The 
USTA shall succeed the Department of Commerce for all trade-
related protocol matters.
    Section 3412 tasks the USTR, in addition to the functions 
transferred to it under this chapter, with responsibility for: 
serving as the President's principal trade advisor; 
coordinating interagency trade policy; leading international 
trade negotiations; establishing a national export strategy; 
general operational responsibility for nonagricultural trade 
functions; promoting new competitive international trading 
opportunities; assisting small business exports; enforcing US 
trade laws; analyzing trade trends; reporting to Congress on 
trade matters; reporting annual recommendations to Congress on 
international intellectual property rights enforcement; 
advising US official advisor delegations; consulting with local 
governments in trade matters; advising the President on Federal 
Government policies which might adversely affect US trade 
competitiveness; and pursuing the international enforcement of 
intellectual property rights. The USTR shall chair the 
interagency organizations under the Trade Expansion Act, be a 
member of the National Security Council, be the Deputy Chair of 
the National Advisory Council on International Monetary and 
Financial Policies, consult with the Agriculture Secretary on 
trade involving agriculture with any such trade negotiations 
chaired by the USTR and Vice Chaired by the Agriculture 
Secretary, be chair of the Trade Promotion Coordinating 
Committee, and be a member of the National Economic Council. 
The USTR may assign any of its responsibilities for a specific 
negotiation or meeting to another agency where appropriate.
    Section 3413 creates a Deputy Administrator of the USTA 
appointed by the President, with the advice and consent of the 
Senate.
    Section 3414 creates a Deputy USTR for Negotiations and a 
Deputy USTR to the World Trade Organization, appointed by the 
President with the advice and consent of the Senate, who shall 
have ambassador rank.
    Section 3415 creates, appointed by the President with the 
advice and consent of the Senate, an Assistant Administrator 
for Export Administration, an Assistant Administrator for 
Import Administration, and an Assistant Administrator for Trade 
and Policy Analysis. Each Assistant Administrator shall have 
authority for the transferred Commerce functions in their area, 
and shall report to the Deputy Administrator.
    Section 3416 creates a USTA General Counsel.
    Section 3417 creates a USTA Inspector General.
    Section 3418 creates a USTA Chief Financial Officer.
            Subchapter C--Transfers to the Administration
    Section 3431 transfers all functions of the USTR and the 
Office of the USTR to the USTR of the USTA.
    Section 3432 transfers to the USTR all related functions of 
the Commerce Under Secretary for International Trade, Assistant 
Secretary for International Economic Policy, Assistant 
Secretary for Trade Development, Under Secretary for Export 
Administration, Assistant Secretary for Import Administration, 
Secretary relating to the National Trade Data Bank and all 
trade-related acts for which responsibility is not otherwise 
assigned.
    The U.S. Foreign and Commercial Service [US&FCS] is renamed 
the United States Trade Service [USTS]. All domestic operations 
except its headquarters are abolished. All other functions are 
transferred to the USTR. The USTS shall be headed by a Director 
General of Trade who shall be appointed by the President with 
the advice and consent of the Senate, and shall have the rank 
of Ambassador. The Director General of Trade shall be 
responsible for all trade promotion functions of the USTA, and 
shall report directly to the USTR. Transferred US&FCS officers 
shall not have their rank or compensation reduced.
    Section 3433 abolishes the Trade and Development Agency 
[TDA].
    Section 3434 abolishes the Committee for the Implementation 
of Textile Agreements [CITA], and transfers all of its 
responsibilities to the USTR, except for domestic impact 
determinations which are transferred to the International Trade 
Commission.
    Section 3435 requires the USTR within 6 months of enactment 
to report to Congress a comprehensive plan to consolidate 
Federal trade programs and activities, including: a summary of 
current programs, activities, related staff, and resource 
allocations; and unified budget for reallocating Federal trade 
priorities; identification and recommendations for eliminating 
overlapping and duplicative Federal trade missions and 
functions; and identification of present public/private trade 
programs along with opportunities for developing and increasing 
such cooperation.
            Subchapter D--Administrative Provisions
    Section 3441 allows the USTR to appoint and compensate 
employees as necessary, and in accordance with civil service 
laws. The Director of the Office of Personnel Management [OPM] 
shall, at the request of the USTR, provide for positions above 
GS-15, although not to exceed the previous number of such 
positions connected to such functions transferred. The USTR may 
hire experts and consultants at rates not to exceed GS-15, and 
may accept voluntary services and provide for incidental 
expenses. The Secretary of State may classify certain Foreign 
Service posts as commercial minister positions, upon 
consultation with the USTR.
    Section 3442 allows the USTR to delegate its 
responsibilities as necessary.
    Section 3443 allows the USTR to prescribe the order for top 
officers to act during an officer's or USTR's absence, 
disability, or vacancy.
    Section 3444 allows the USTR to allocate functions among 
USTA officers, and to consolidate, alter, or discontinue any 
organizational entities as appropriate where not inconsistent 
with a specific provision of this chapter.
    Section 3445 allows the USTR to prescribe necessary or 
appropriate rules and regulations.
    Section 3446 allows the USTR to transfer funds within the 
USTA, so long as such transfer does not alter any appropriation 
by more than 10 percent, and does not increase any 
appropriation beyond the authorized levels.
    Section 3447 allows the USTR to enter into contracts with 
other private/public organizations and to make payments as 
appropriate, so long as any contractual expenditures are within 
the amounts provided by appropriations acts.
    Section 3448 allows the USTR to use, with consent, the 
resources of an individual or organization in carrying out its 
functions. The USTR may also allow other entities to use its 
resources in a manner and at rates in the public interest.
    Section 3449 allows the USTR to accept and utilize gifts 
and bequests to aid the work of the Administration. Such 
receipts shall be deposited in a separate US Treasury fund, to 
be disbursed according to the USTR as appropriate, and may be 
invested in any security guaranteed by the United States.
    Section 3450 allows the USTR to establish a working capital 
fund without fiscal year limitations for necessary expenses for 
administrative services such as stationery, etc.
    Section 3451 allows the USTR to charge fees for processes 
administered by the Administration, so long as any changes are 
first submitted to Congress.
    Section 3452 requires the USTR to create a seal for the 
USTA, of which judicial notice shall be taken.
            Subchapter E--Related Agencies
    Section 3461 reconfigures the Interagency Trade 
Organization.
    Section 3462 reconfigures the National Security Council.
    Section 3463 amends the International Monetary Fund with 
respect to trade consultation directives between the Fund's 
executive director and the USTR.
            Subchapter F--Conforming Amendments
    Section 3471 makes conforming changes, including regarding 
Presidential succession, transfer of trade related functions 
performed by the Inspector General, and references under trade 
acts.
    Section 3472 repeals certain provisions relating to the 
Under Secretary of Commerce.
    Section 3473 sets compensation rates for: the USTR at level 
I; the Deputy Administrators and Director General of Trade at 
level II; the Assistant Administrators at level III; and the 
General Counsel, Inspector General, and Chief Financial Officer 
at level IV.
            Subchapter G--Transitional, Savings, and Conforming 
                    Provisions
    Section 3481 transfers any functions of the Department or 
Secretary of Commerce which is not otherwise transferred and is 
related to a transferred function to the head of the agency to 
which the related function is transferred.
    Section 3482 allows the Director of the OMB, after 
consultations with the Director of the OPM, to make any 
necessary transfers of positions within the Senior Executive 
Service as necessary.
    Section 3483 provides that, except as otherwise provided by 
this chapter, personnel shall not be, because of a transfer, 
separated or reduced in compensation for 1 year from such 
transfer date. Executive officers transferred shall continue at 
compensation at least as provided before such transfer, for the 
duration of their service in the new position. Except for 
members of the Foreign Service, positions whose incumbents are 
appointed by the President (with the Senate's advice and 
consent) and whose functions are transferred shall terminate.
    Section 3484 establishes savings provisions, allowing 
actions, rules, suits, et cetera, to continue in effect as 
before any transfers.
    Section 3485 changes any reference in law to the Secretary 
of Commerce, USTR, Department of Commerce, or Office of USTR, 
to the appropriate agency where the related functions were 
transferred.
    Section 3486 provides that with the consent of the USTR or 
Secretary of Commerce, as appropriate, the head of each agency 
receiving transferred functions may utilize the personnel and 
funds related to such functions as needed for the orderly 
implementation of the chapter.
            Subchapter H--Miscellaneous
    Section 3491 sets an effective date for the chapter of 6 
months after the date of enactment, except that at any time 
after enactment, the officers under subchapter B may be 
nominated and appointed. With approval of the Director of the 
OMB, funds available to the Department of Commerce and the USTR 
may be used for the compensation of such personnel.
    Section 3492 allows the President, where an officer 
required to be appointed with the advice and consent of the 
Senate under this chapter has not entered office, to designate 
any officer so approved to act in such required office until it 
is otherwise filled, with compensation allowed at the rate for 
that office.
    Section 3493 establishes that expenditures for this chapter 
for the fiscal year after enactment shall not exceed 75 percent 
of expenditures for related functions in fiscal year 1994. 
Within 90 days of enactment, the Director of the OMB shall 
consult with the USTR and report to Congress on a plan to 
implement this funding reduction, and any legislative 
recommendations for additional authorities useful to implement 
such reductions.

           Chapter 5--Patent and Trademark Office Corporation

    Section 3501 sets forth the title.
            Subchapter A--Patent and Trademark Office
    Section 3511 establishes the Patent and Trademark Office 
[PTO] as a wholly owned Government corporation with an office 
in the District of Columbia area for service of process and 
legal residency.
    Section 3512 provides that the PTO shall be responsible for 
the granting and issuing of patents and registration of 
trademarks, conducting and authorizing studies on international 
patent and trademark law, and disseminating patent and 
trademark information to the public. The PTO shall have 
perpetual succession, shall create and use a corporate seal, 
may sue and be sued in its own name, may indemnify its officers 
and employees for liabilities within the scope of their 
employment, may promulgate regulatory changes governing the 
manner in which its business is conducted and its powers 
exercised, may transact property as necessary to carry out its 
functions, may contract after advertising with open bids where 
practicable, may use with consent the resources of other 
Federal agencies on a reimbursable basis, may obtain from the 
General Services Administrator such services as other agencies 
are provided, may use with consent the resources of State or 
local or foreign governments or organizations, may retain its 
own revenues and receipts and control its own expenses, retain 
payment priority in legal proceedings, accepts gifts to carry 
out its functions, execute appropriate instruments as 
necessary, provide for insurance for liability and property, 
and pay from its funds any judgments entered against it.
    Section 3513 allows the President, with the advice and 
consent of the Senate, to appoint a Commissioner of Patents and 
Trademarks, who must be a U.S. citizen especially qualified by 
professional background and experience to manage the PTO. The 
Commissioner shall be responsible for managing and directing 
the PTO, and shall advise the President of all activities of 
the PTO undertaken in response to obligations of the United 
States under treaties, executive agreements, or foreign 
cooperative programs. The Commissioner shall also recommend 
changes in laws to improve the ability of U.S. citizens to 
secure or enforce globally patents and trademarks. The 
Commissioner shall consult with the Management Advisory Board 
on a regular basis, and before submitting budgetary proposals 
to the OMB or proposing fee or regulation changes. The 
Commissioner shall serve a term of 6 years, with reappointment 
possible, and may continue to serve beyond a term until a 
successor is appointed and assumes office. The Commissioner 
shall take an oath to faithfully perform all duties, shall be 
compensated at level II, may be removed from office by the 
President only for cause, and shall designate an officer to act 
in his absence or incapacity. The Commissioner shall appoint a 
Deputy Commissioner for Patents and a Deputy Commissioner for 
Trademarks for terms expiring with the Commissioner's, who 
shall have demonstrated experience in such fields, and shall be 
principal policy advisors to the Commissioner. The Commissioner 
shall also appoint an Inspector General and such other officers 
as necessary, and shall fix the authority and duties of such 
officers, without being subject to any administrative or 
statutory limitation on positions or personnel except where 
specifically referring to the PTO. No officer may receive 
compensation in excess of level III, and the Commissioner shall 
establish a limit on total compensation. All PTO personnel 
shall be carried over without break in service upon the 
transfer, with the Commissioner of Patents and Trademarks, the 
Assistant Commissioner for Patents, and the Assistant 
Commissioner for Trademarks before this Act allowed to serve 
for 1 year until the new appointments for such positions are 
made.
    The PTO will adopt existing labor agreements for the 
shorter of their duration or 2 years after the effective date, 
and no individual during such 2-year period shall be subject to 
separation or reduction in compensation by reason of the 
transfer. All accrued leave shall be continued obligations of 
the PTO, at least one life insurance and three health insurance 
programs comparable to the Federal program shall be made 
available, and employees' termination rights and retirement 
rights shall be continued during such 2-year period as before. 
One year after the effective date, the PTO shall pay into the 
U.S. Treasury appropriate amounts for retired and retiring 
employees, based on the future cost of benefits payable and 
employee contributions made. All orders, rules, compensation 
agreements, etc, not otherwise specifically addressed shall 
remain in operation until modified by the PTO or operation of 
law.
    Section 3514 creates a Patent and Trademark Office 
Management Advisory Board, consisting of 18 members: 6 
appointed by the President, 6 by the Speaker of the House, and 
6 by the President pro tempore of the Senate. Not more than 
four of the six members by each appointing authority shall be 
members of the same political party. Members terms shall be 6 
years each, except for the first appointees whose terms shall 
be staggered. The President shall designate the Chair of the 
Board, who shall serve in such capacity for 3 years. 
Appointments shall be made within 3 months of the effective 
date, with vacancies filled within 3 months of occurring to 
fulfill the remainder of a term. A member may serve after an 
expired term until a successor is appointed. Members shall be 
citizens of the United States who shall be chosen to represent 
the PTO's diverse users, and shall include individuals with 
corporate finance and management background. Board members 
shall be special Government employees for purposes of certain 
ethics laws, and shall meet at the call of the chair, and shall 
review the policies, goals, performance, budget and fees of the 
PTO, and shall advise the Commissioner on these matters, and 
report within 60 days after each fiscal year on these matters 
to the President and the Congressional Judiciary Committees. 
The Board shall employ a staff as necessary to carry out its 
functions, who shall be employed and compensated under sole 
direction of the Board. Board members may receive reimbursement 
and compensation not to exceed $1,000 per day for each day in 
attendance in Board meetings. Members shall be provided access 
to all PTO records, except for personnel, privileged, and 
confidential patent information. The Federal Advisory Committee 
Act shall not apply to Board meetings, although such meetings 
shall be announced in the Federal Register at least 30 days in 
advance and open to the public unless closed for good cause.
    Section 3515 removes the PTO from the Department of 
Commerce.
    Section 3516 conforms the Trademark and Appeal Board under 
the Trademark Act of 1946.
    Section 3517 creates a Board of Patent and Trademark 
Appeals and Interferences, made up of the Commissioner, Deputy 
Commissioners for Patent and Trademarks, the officers 
principally responsible for the examination of patents and 
trademarks, and the examiners-in-chief. This Board shall, on 
written appeal of an applicant, review adverse examiner 
decisions to determine priority and patentability of invention, 
with at least three members of the Board designated by the 
Commissioner to review each appeal and interference. Only the 
Board may grant rehearings.
    Section 3518 allows for suits by and against the PTO, with 
exclusive jurisdiction in the Federal courts, with certain 
normal Federal limitations. The PTO may, without prior 
authorization by the Attorney General, exercise certain legal 
authority on behalf of its employees acting within the scope of 
their employment. In certain uncovered cases, the PTO must 
obtain authorization from the Attorney General before 
representing interested parties. Where the PTO is a named party 
to a suit, the Attorney General may file an appearance on 
behalf of the PTO or its employees without the consent of the 
PTO and have exclusive authority in the conduct of such suit. 
The Attorney General shall provide advice and assistance to the 
PTO, including representation where requested, and in all cases 
before the Supreme Court.
    Section 3519 requires the Commissioner to report to 
Congress within 90 days after each fiscal year regarding the 
PTO's accounts and activities.
    Section 3520 allows the Commissioner to designate any PTO 
employee to conduct a hearing on a suspension of license.
    Section 3521 makes all fees for services or materials 
provided by the PTO directly payable to the PTO. PTO moneys not 
expended shall be kept in deposit or other lawful investments 
for fiduciary public funds. Fees relating to patents or 
trademarks shall be used exclusively for PTO activities related 
to patent or trademark matters, respectively. The PTO may issue 
for purchase by the Secretary of the Treasury various 
obligations not to exceed $2,000,000 in total to assist in 
financing its activities, such obligations pegged at market 
rates of comparable U.S. instruments.
    Section 3522 directs PTO financial statements to be 
prepared annually by an independent certified public accountant 
chosen by the Secretary of the Treasury, conducted consistently 
with standards by the Comptroller and private sector. The 
Comptroller may review PTO's annual audit, and may perform an 
audit in lieu of the annual audit, with reimbursement by the 
PTO. The Comptroller shall have access to all office records 
necessary for such audit.
    Section 3523 transfers to the PTO all functions vested in 
the Department and Secretary of Commerce relating to patent and 
trademark authority. The Commerce Secretary shall transfer to 
the PTO all of the Commerce Department's accounts related to 
the functions transferred to the PTO. Any residual and 
unappropriated balances remaining on the effective date within 
the Patent and Trademark Office Surcharge Fund established by 
the Omnibus Budget Reconciliation Act of 1990 are transferred 
to the PTO.
            Subchapter B--Effective Date; Technical Amendments
    Section 3531 establishes an effective date of 6 months 
after enactment.
    Section 3532 contains conforming amendments.

                  Chapter 6--Miscellaneous Provisions

    Section 3601 establishes that any references to an officer 
or office from which a function is transferred under subtitle F 
is deemed to refer to the head of the office or the agency to 
which such function is transferred.
    Section 3602 provides that, except as otherwise specified 
by law, an official to whom a function is transferred shall 
exercise all legal authorities that were available to the 
official responsible for such function before the transfer.
    Section 3603 sets forth savings provisions, continuing the 
effect of all proceedings, orders, obligations, privileges, 
etc., related to the performance of any functions transferred 
until altered by an authorized official or operation of law.
    Section 3604 allows the Director of the OMB to transfer 
assets in connection with a transferred function.
    Section 3605 allows an official to whom functions are 
transferred to delegate any functions, although such 
delegations will not relieve the official from responsibility 
for the administration of such functions.
    Section 3606 allows the DCPRA Administrator to determine 
the transfer of functions, including any necessary incidental 
transfers of functions or assets. The Administrator shall 
further provide for the disposition of any affairs of all 
terminated entities.
    Section 3607 requires the Director of the OMB to submit to 
Congress within 1 year of enactment a description of any 
changes in Federal law necessary to reflect the transfers and 
terminations of this subtitle.
    Section 3608 deems the vesting of a function pursuant to 
the reestablishment of an office to be the transfer of such 
function.
    Section 3609 sets forth definitions.
    Section 3610 sets forth a 75-percent limit on annual 
expenditures for performance of transferred functions, based on 
fiscal year 1994 expenditures, excluding the Bureau of the 
Census and the Patent and Trademark Office.
    Section 3611 requires the head of each agency to which a 
function is transferred to report to Congress within 6 months 
its recommendations for implementing user fees to offset 
operating costs for the provision of that function.
    Section 3612 transfers any unobligated appropriations for 
functions transferred under this act to be returned to the 
general fund of the Treasury.
    Section 3613 requires the Comptroller to report annually on 
any resulting costs to U.S. exporters of the transfer of BXA to 
the USTA and the 75-percent expenditure limitation. If the 
Comptroller finds that such costs have occurred, then the 
expenditure limit shall cease to apply to the transferred 
functions of the BXA.

                        Committee Consideration

    On September 14, 1995, the committee met in open session 
and began consideration of subtitle F, Department of Commerce 
Abolition. On September 19, 1995, the committee again met in 
open session and ordered subtitle F, as amended, transmitted to 
the House Committee on the Budget for inclusion in the fiscal 
year 1996 Omnibus Budget Reconciliation Act, by a rollcall vote 
of 25 yeas to 19 nays.

                             Rollcall Votes

    Pursuant to clause 2(l)(2)(B) of rule XI of the Rules of 
the House of Representatives, following are listed the recorded 
votes on the motion to order subtitle F transmitted to the 
House Committee on the Budget, and on amendments thereto, 
including the names of those members voting for and against.

                          ROLLCALL VOTE No. 69

    Bill: Committee print entitled `'Department of Commerce 
Abolition.''
    Amendment: amendment to the Oxley amendment in the nature 
of a substitute by Mr. Klink re: eliminate the Economic 
Development Administration and create an Office of Economic 
Development and an economic development commission system.
    Disposition: Not agreed to, by a rollcall vote of 16 yeas 
to 20 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
 Mr. Bliley....................  ........  ........  .........  Mr. Dingel.......        X   ........  .........
 Mr. Moorhead..................  ........  ........  .........  Mr. Waxman.......        X   ........  .........
 Mr. Tauzin....................  ........  ........  .........  Mr. Markey.......  ........  ........  .........
 Mr. Fields....................  ........  ........  .........  Mr. Wyden........  ........  ........  .........
 Mr. Oxley.....................  ........        X   .........  Mr. Hall.........        X   ........  .........
 Mr. Bilirakis.................  ........  ........  .........  Mr. Bryant.......        X   ........  .........
 Mr. Schaefer..................  ........        X   .........  Mr. Boucher......        X   ........  .........
 Mr. Barton....................  ........        X   .........  Mr. Manton.......        X   ........  .........
 Mr. Hastert...................  ........        X   .........  Mr. Towns........        X   ........  .........
 Mr. Upton.....................  ........        X   .........  Mr. Studds.......  ........  ........  .........
 Mr. Stearns...................  ........  ........  .........  Mr. Pallone......  ........  ........  .........
 Mr. Paxon.....................  ........        X   .........  Mr. Brown........        X   ........  .........
 Mr. Gillmor...................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
 Mr. Klug......................  ........  ........  .........  Mr. Gordon.......        X   ........  .........
 Mr. Franks....................  ........        X   .........  Ms. Fuse.........        X   ........  .........
 Mr. Greenwood.................  ........        X   .........  Mr. Deutsch......        X   ........  .........
 Mr. Crapo.....................  ........        X   .........  Mr. Rush.........        X   ........  .........
 Mr. Cox.......................  ........        X   .........  Ms. Eshoo........        X   ........  .........
 Mr. Deal......................  ........        X   .........  Mr. Klink........        X   ........  .........
 Mr. Burr......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
 Mr. Bilbray...................  ........        X   .........                                                  
 Mr. Whitfield.................  ........        X   .........                                                  
 Mr. Ganske....................  ........        X   .........                                                  
 Mr. Frisa.....................  ........        X   .........                                                  
 Mr. Norwood...................  ........        X   .........                                                  
 Mr. White.....................  ........        X   .........  .................                               
 Mr. Coburn....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 70

    Bill: Committee print entitled ``Department of Commerce 
Abolition.''
    Amendment: Amendment to the Oxley amendment in the nature 
of a substitute by Mrs. Lincoln re: transfer the functions of 
the U.S. Travel and Tourism Administration to another entity.
    Disposition: Not agreed to, by a rollcall vote of 21 yeas 
to 21 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........  ........  .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................        X   ........  .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........  ........  .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......  ........  ........  .........
Mr. Stearns....................        X   ........  .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........  ........  .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......  ........  ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........        X   ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................        X   ........  .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 71

    Bill: Committee print entitled ``Department of Commerce 
Abolition.''
    Amendment: Amendment, as amended by unanimous consent, to 
the Oxley amendment in the nature of a substitute by Mr. 
Bilbray re: retain the Global Change Program.
    Disposition: Not agreed to, by a rollcall vote of 14 yeas 
to 25 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......  ........        X   .........
Mr. Moorhead...................        X   ........  .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........  ........  .........  Mr. Markey.......  ........        X   .........
Mr. Fields.....................  ........  ........  .........  Mr. Wyden........  ........  ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........  ........  ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......  ........        X   .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......  ........        X   .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......  ........        X   .........
Mr. Hastert....................  ........  ........  .........  Mr. Towns........  ........        X   .........
Mr. Upton......................        X   ........  .........  Mr. Studds.......  ........  ........  .........
Mr. Stearns....................        X   ........  .........  Mr. Pallone......  ........  ........  .........
Mr. Paxon......................  ........  ........  .........  Mr. Brown........  ........        X   .........
Mr. Gillmor....................        X   ........  .........  Mrs. Lincoln.....  ........        X   .........
Mr. Klug.......................        X   ........  .........  Mr. Gordon.......  ........        X   .........
Mr. Franks.....................        X   ........  .........  Ms. Furse........  ........        X   .........
Mr. Greenwood..................        X   ........  .........  Mr. Deutsch......  ........        X   .........
Mr. Crapo......................        X   ........  .........  Mr. Rush.........  ........        X   .........
Mr. Cox........................        X   ........  .........  Ms. Eshoo........  ........        X   .........
Mr. Deal.......................        X   ........  .........  Mr. Klink........  ........        X   .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......  ........        X   .........
Mr. Bilbray....................        X   ........  .........  .................                               
Mr. Whitfield..................        X   ........  .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................        X   ........  .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote No. 72

    Bill: Committee print entitled ``Department of Commerce 
Abolition.''
    Amendment: Amendment to the Oxley amendment in the nature 
of a substitute by Mr. Markey re: preserve the Public 
Telecommunications Facilities Program and the Endowment for 
Children's Educational Television.
    Disposition: Not agreed to, by a rollcall vote of 19 yeas 
to 20 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......        X   ........  .........
Mr. Tauzin.....................  ........  ........  .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........  ........  .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........  ........  .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......  ........  ........  .........
Mr. Stearns....................  ........  ........  .........  Mr. Pallone......  ........  ........  .........
Mr. Paxon......................  ........  ........  .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........  ........  .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................        X   ........  .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........        X   ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          Rollcall Vote No. 73

    Bill: Committee print entitled ``Department of Commerce 
Abolition.''
    Amendment: Amendment to the Oxley amendment in the nature 
of substitute by Mr. Dingell re: retain the USTR intact.
    Disposition: Not agreed to, by a rollcall vote of 17 yeas 
to 24 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......  ........  ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........  ........  .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........        X   .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......  ........  ........  .........
Mr. Stearns....................  ........  ........  .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........  ........  .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........        X   .........  Mr. Deutsch......  ........  ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........        X   ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 74

    Bill: Committee print entitled ``Department of Commerce 
Abolition.''
    Amendment: Amendment to the Oxley amendment in the nature 
of a substitute by Mr. Brown re: retain the domestic field 
offices of the U.S. and Foreign Commercial Service of the 
Department of Commerce.
    Disposition: Not agreed to, by a rollcall vote of 14 yeas 
to 24 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......  ........  ........  .........
Mr. Tauzin.....................  ........  ........  .........  Mr. Markey.......  ........  ........  .........
Mr. Fields.....................  ........  ........  .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........  ........  ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......  ........  ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......        X   ........  .........
Mr. Hastert....................  ........        X   .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......  ........  ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......  ........  ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........  ........  .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........        X   ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 75

    Bill: Committee print entitled ``Department of Commerce 
Abolition.''
    Amendment: Amendment to the Oxley amendment in the nature 
of a substitute by Mr. Dingell re: strike the provisions 
relating to limitations on annual expenditures.
    Disposition: Not agreed to, by a rollcall vote of 18 yeas 
to 25 nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................  ........        X   .........  Mr. Dingell......        X   ........  .........
Mr. Moorhead...................  ........        X   .........  Mr. Waxman.......  ........  ........  .........
Mr. Tauzin.....................  ........        X   .........  Mr. Markey.......        X   ........  .........
Mr. Fields.....................  ........  ........  .........  Mr. Wyden........        X   ........  .........
Mr. Oxley......................  ........        X   .........  Mr. Hall.........        X   ........  .........
Mr. Bilirakis..................  ........        X   .........  Mr. Bryant.......        X   ........  .........
Mr. Schaefer...................  ........        X   .........  Mr. Boucher......        X   ........  .........
Mr. Barton.....................  ........        X   .........  Mr. Manton.......  ........  ........  .........
Mr. Hastert....................  ........        X   .........  Mr. Towns........        X   ........  .........
Mr. Upton......................  ........        X   .........  Mr. Studds.......        X   ........  .........
Mr. Stearns....................  ........        X   .........  Mr. Pallone......        X   ........  .........
Mr. Paxon......................  ........        X   .........  Mr. Brown........        X   ........  .........
Mr. Gillmor....................  ........        X   .........  Mrs. Lincoln.....        X   ........  .........
Mr. Klug.......................  ........        X   .........  Mr. Gordon.......        X   ........  .........
Mr. Franks.....................  ........        X   .........  Ms. Furse........        X   ........  .........
Mr. Greenwood..................  ........  ........  .........  Mr. Deutsch......        X   ........  .........
Mr. Crapo......................  ........        X   .........  Mr. Rush.........        X   ........  .........
Mr. Cox........................  ........        X   .........  Ms. Eshoo........        X   ........  .........
Mr. Deal.......................  ........        X   .........  Mr. Klink........        X   ........  .........
Mr. Burr.......................  ........        X   .........  Mr. Stupak.......        X   ........  .........
Mr. Bilbray....................  ........        X   .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................  ........        X   .........                                                  
Mr. Frisa......................  ........        X   .........                                                  
Mr. Norwood....................  ........        X   .........                                                  
Mr. White......................  ........        X   .........                                                  
Mr. Coburn.....................  ........        X   .........                                                  
----------------------------------------------------------------------------------------------------------------

                          rollcall vote no. 76

    Bill: Committee print entitled ``Department of Commerce 
Abolition.''
    Motion: Motion by Mr. Bliley to order the committee print 
entitled ``Department of Commerce Abolition'' transmitted to 
the Committee on the Budget for inclusion in the fiscal year 
1996 Omnibus Budget Reconciliation Act.
    Disposition: Agreed to, by a rollcall vote of 25 yeas to 19 
nays.

----------------------------------------------------------------------------------------------------------------
         Representative            Yeas      Nays     Present     Representative     Yeas      Nays     Present 
----------------------------------------------------------------------------------------------------------------
Mr. Bliley.....................        X   ........  .........  Mr. Dingell......  ........        X   .........
Mr. Moorhead...................        X   ........  .........  Mr. Waxman.......  ........  ........  .........
Mr. Tauzin.....................        X   ........  .........  Mr. Markey.......  ........        X   .........
Mr. Fields.....................  ........  ........  .........  Mr. Wyden........  ........        X   .........
Mr. Oxley......................        X   ........  .........  Mr. Hall.........  ........  ........  .........
Mr. Bilirakis..................        X   ........  .........  Mr. Bryant.......  ........        X   .........
Mr. Schaefer...................        X   ........  .........  Mr. Boucher......  ........        X   .........
Mr. Barton.....................        X   ........  .........  Mr. Manton.......  ........        X   .........
Mr. Hastert....................        X   ........  .........  Mr. Towns........  ........        X   .........
Mr. Upton......................        X   ........  .........  Mr. Studds.......  ........        X   .........
Mr. Stearns....................        X   ........  .........  Mr. Pallone......  ........        X   .........
Mr. Paxon......................        X   ........  .........  Mr. Brown........  ........        X   .........
Mr. Gillmor....................        X   ........  .........  Mrs. Lincoln.....  ........        X   .........
Mr. Klug.......................        X   ........  .........  Mr. Gordon.......  ........        X   .........
Mr. Franks.....................        X   ........  .........  Mrs. Furse.......  ........        X   .........
Mr. Greenwood..................        X   ........  .........  Mr. Deutsch......  ........        X   .........
Mr. Crapo......................        X   ........  .........  Mr. Rush.........  ........        X   .........
Mr. Cox........................        X   ........  .........  Ms. Eshoo........  ........        X   .........
Mr. Deal.......................        X   ........  .........  Mr. Klink........  ........        X   .........
Mr. Burr.......................        X   ........  .........  Mr. Stupak.......  ........        X   .........
Mr. Bilbray....................        X   ........  .........                                                  
Mr. Whitfield..................  ........        X   .........                                                  
Mr. Ganske.....................        X   ........  .........                                                  
Mr. Frisa......................        X   ........  .........                                                  
Mr. Norwood....................        X   ........  .........                                                  
Mr. White......................        X   ........  .........                                                  
Mr. Coburn.....................        X   ........  .........                                                  
----------------------------------------------------------------------------------------------------------------

           Committee on Commerce--104th Congress--Voice Votes

    Bill: Committee print entitled ``Department of Commerce 
Abolition.''
    Amendment: Amendment to the Oxley amendment in the nature 
of a substitute by Mr. Bilirakis re: to include hurricane 
tracking in the list of NOAA missions for which the Secretary 
of Agriculture is authorized to enter into contracts.
    Disposition: Agreed to, by a voice vote.
    Amendment: En bloc amendment to the Oxley amendment in the 
nature of a substitute by Mr. Gillmor re: technical 
corrections.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Oxley amendment in the nature 
of a substitute by Ms. Eshoo re: require GAO to submit an 
annual report on the losses incurred by U.S. exporters 
resulting from the transfer of functions of the Bureau of 
Export Administration and provide that if GAO finds that losses 
occurred, the annual expenditure limitation on the Bureau of 
Export Administration will be lifted.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Oxley amendment in the nature 
of a substitute by Mr. Franks re: sense of Congress that 
Congress should continue to explore the prospects for the 
private sector to assume responsibility for the functions and 
responsibilities of the Minority Business Development 
Administration.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Oxley amendment in the nature 
of a substitute by Mr. Markey re: transfer of all nonabolished 
NTIA functions to the U.S. Trade Administration.
    Disposition: Agreed to, by a voice vote.
    Amendment: En bloc amendment to the Oxley amendment in the 
nature of a substitute by Mr. White re: protection of 
international intellectual property rights.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Oxley amendment in the nature 
of a substitute by Mr. Stupak re: retain Great Lakes programs 
(Sea Grant Zebra Mussel Account and the Mussel Watch).
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Oxley amendment in the nature 
of a substitute by Mr. Cox re: clarify that Commerce Programs 
Resolution Agency, the Federal Statistics Agency, and the U.S. 
Trade Representative as an executive branch agency are to be 
considered as free-standing agencies.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Oxley amendment in the nature 
of a substitute by Mrs. Lincoln re: abolish the U.S. Travel and 
Tourism Administration on August 1, 1996, with report to 
Congress on privatizing its functions.
    Disposition: Agreed to, by a voice vote.
    Amendment: Amendment to the Oxley amendment in the nature 
of a substitute by Mr. Markey re: add a new section to amend 
the Rules of the House of Representatives.
    Disposition: Withdrawn, by unanimous consent.
    Amendment: Amendment in the nature of a substitute by Mr. 
Oxley, as amended.
    Disposition: Agreed to, by a voice vote.

               Changes in Existing Law Made by Subtitle F

           Subtitle B--Patent and Trademark Office User Fees

SEC. 10101. PATENT AND TRADEMARK OFFICE USER FEES.

  (a) * * *
  (b) Use of Surcharges.--Notwithstanding section 3302 of title 
31, United States Code, beginning in fiscal year 1991, all 
surcharges collected by the Patent and Trademark Office--
          (1) * * *
          (2) in fiscal years 1992 through 1998--
                  (A) shall be credited to a separate account 
                established in the Treasury and ascribed to the 
                Patent and Trademark Office activities in the 
                Department of Commerce as offsetting receipts, 
                and
                  (B) shall be available only to the Patent and 
                Trademark Office[, to the extent provided in 
                appropriation Acts] without appropriation, for 
                all authorized activities and operations of the 
                office, including all direct and indirect costs 
                of services provided by the office, and
          (3) shall remain available until expended.
          * * * * * * *
                              ----------                              


               SECTION 19 OF TITLE 3, UNITED STATES CODE

          * * * * * * *

Sec. 19. Vacancy in offices of both President and Vice President; 
                    officers eligible to act

  (a) * * *
          * * * * * * *
  (d)(1) If, by reason of death, resignation, removal from 
office, inability, or failure to qualify, there is no President 
pro tempore to act as President under subsection (b) of this 
section, then the officer of the United States who is highest 
on the following list, and who is not under disability to 
discharge the powers and duties of the office of President 
shall act as President: Secretary of State, Secretary of the 
Treasury, Secretary of Defense, Attorney General, Secretary of 
the Interior, Secretary of Agriculture, [Secretary of 
Commerce,]  the United States Trade Representative, Secretary 
of Labor, Secretary of Health and Human Services, Secretary of 
Housing and Urban Development, Secretary of Transportation, 
Secretary of Energy, Secretary of Education, Secretary of 
Veterans Affairs.
          * * * * * * *
                              ----------                              


                      TITLE 5, UNITED STATES CODE

          * * * * * * *

                     PART I--THE AGENCIES GENERALLY

                        CHAPTER 1--ORGANIZATION

Sec. 101. Executive departments

  The Executive departments are:
          The Department of State.
          * * * * * * *
          [The Department of Commerce.]
          * * * * * * *

                  CHAPTER 5--ADMINISTRATIVE PROCEDURE

          * * * * * * *

                    SUBCHAPTER I--GENERAL PROVISIONS

Sec. 500. Administrative practice; general provisions

  (a) * * *
          * * * * * * *
  (e) Subsections (b)-(d) of this section do not apply to 
practice before the [Patent Office] Patent and Trademark Office 
with respect to patent matters that continue to be covered by 
chapter 3 (sections 31-33) of title 35.
          * * * * * * *

                          PART III--EMPLOYEES

          * * * * * * *

                     Subpart D--Pay and Allowances

                       CHAPTER 51--CLASSIFICATION

          * * * * * * *

Sec. 5102. Definitions; application

  (a) * * *
          * * * * * * *
  (c) This chapter does not apply to--
          (2) * * *
          * * * * * * *
          (23) examiners-in-chief and designated examiners-in-
        chief in the Patent and Trademark Office[, Department 
        of Commerce];
          * * * * * * *

                   CHAPTER 53--PAY RATES AND SYSTEMS

          * * * * * * *

              SUBCHAPTER II--EXECUTIVE SCHEDULE PAY RATES

          * * * * * * *

Sec. 5312. Positions at level I

  Level I of the Executive Schedule applies to the following 
positions for which the annual rate of basic pay shall be the 
rate determined with respect to such level under chapter 11 of 
title 2, as adjusted by section 5318 of this title:
          Secretary of State.
          * * * * * * *
          [Secretary of Commerce.]
          * * * * * * *
          [United States Trade Representative.]
          United States Trade Representative, United States 
        Trade Administration.
          * * * * * * *

Sec. 5313. Positions at level II

  Level II of the Executive Schedule applies to the following 
positions, for which the annual rate of basic pay shall be the 
rate determined with respect to such level under chapter 11 of 
title 2, as adjusted by section 5318 of this title:
          Deputy Secretary of Defense.
          * * * * * * *
          Deputy Administrator of the United States Trade 
        Administration.
          Deputy United States Trade Representatives, United 
        States Trade Administration (2).
          Director General of Trade, United States Trade 
        Administration (2).

Sec. 5314. Positions at level III

  Level III of the Executive Schedule applies to the following 
positions, for which the annual rate of basic pay shall be the 
rate determined with respect to such level under chapter 11 of 
title 2, as adjusted by section 5318 of this title:
          Solicitor General of the United States.
          [Under Secretary of Commerce, Under Secretary of 
        Commerce for Economic Affairs, Under Secretary of 
        Commerce for Export Administration and Under Secretary 
        of Commerce for Travel and Tourism.]
          * * * * * * *
          [Under Secretary of Commerce for Oceans and 
        Atmosphere, the incumbent of which also serves as 
        Administrator of the National Oceanic and Atmospheric 
        Administration.]
          * * * * * * *
          [Under Secretary of Commerce for Technology.]
          * * * * * * *
          Assistant Administrators, United States Trade 
        Administration (3).

Sec. 5315. Positions at level IV

  Level IV of the Executive Schedule applies to the following 
positions, for which the annual rate of basic pay shall be the 
rate determined with respect to such level under chapter 11 of 
title 2, as adjusted by section 5318 of this title:
          Deputy Administrator of General Services.
          * * * * * * *
          [Assistant Secretaries of Commerce (11).]
          * * * * * * *
          [General Counsel of the Department of Commerce.]
          * * * * * * *
          [Assistant Secretary of Commerce for Oceans and 
        Atmosphere, the incumbent of which also serves as 
        Deputy Administrator of the National Oceanic and 
        Atmospheric Administration.]
          * * * * * * *
          [Director, National Institute of Standards and 
        Technology, Department of Commerce.]
          * * * * * * *
          [Assistant Secretary of Commerce and Director General 
        of the United States and Foreign Commercial Service.]
          [Inspector General, Department of Commerce.]
          * * * * * * *
          [Chief Financial Officer, Department of Commerce.]
          * * * * * * *
          [Director, Bureau of the Census, Department of 
        Commerce.]
          * * * * * * *
          General Counsel, United States Trade Administration.
          Inspector General, United States Trade 
        Administration.
          Chief Financial Officer, United States Trade 
        Administration.
          * * * * * * *

Sec. 5316. Positions at level V

  Level V of the Executive Schedule applies to the following 
positions, for which the annual rate of basic pay shall be the 
rate determined with respect to such level under chapter 11 of 
title 2, as adjusted by section 5318 of this title:
          Administrator, Bonneville Power Administration, 
        Department of the Interior.
          * * * * * * *
          [Commissioner of Patents, Department of Commerce.]
          * * * * * * *
          [Director, United States Travel Service, Department 
        of Commerce.]
          * * * * * * *
          [National Export Expansion Coordinator, Department of 
        Commerce.]
          * * * * * * *
          [Deputy Commissioner of Patents and Trademarks.
          [Assistant Commissioner of Patents.
          [Assistant Commissioner for Trademarks.]
          * * * * * * *
                              ----------                              


                     INSPECTOR GENERAL ACT OF 1978

          * * * * * * *

   requirements for federal entities and designated federal entities

  Sec. 8G. (a) Notwithstanding section 11 of this Act, as used 
in this section--
          (1) * * *
          (2) the term ``designated Federal entity'' means 
        Amtrak, the Appalachian Regional Commission, the Board 
        of Governors of the Federal Reserve System, the Board 
        for International Broadcasting, the Commodity Futures 
        Trading Commission, the Consumer Product Safety 
        Commission, the Corporation for Public Broadcasting, 
        the Equal Employment Opportunity Commission, the Farm 
        Credit Administration, the Federal Communications 
        Commission, the Federal Deposit Insurance Corporation, 
        the Federal Election Commission, the Federal Housing 
        Finance Board, the Federal Labor Relations Authority, 
        the Federal Maritime Commission, the Federal Trade 
        Commission, the Interstate Commerce Commission, the 
        Legal Services Corporation, the National Archives and 
        Records Administration, the National Credit Union 
        Administration, the National Endowment for the Arts, 
        the National Endowment for the Humanities, the National 
        Labor Relations Board, the National Science Foundation, 
        the Panama Canal Commission, the Patent and Trademark 
        Office, the Peace Corps, the Pension Benefit Guaranty 
        Corporation, the Securities and Exchange Commission, 
        the Smithsonian Institution, the Tennessee Valley 
        Authority, the United States International Trade 
        Commission, and the United States Postal Service;
          * * * * * * *

                         transfer of functions

  Sec. 9. (a) There shall be transferred--
          (1) to the Office of Inspector General--
                  (A) of the Department of Agriculture, the 
                offices of that department referred to as the 
                ``Office of Investigation'' and the ``Office of 
                Audit'';
                  [(B) of the Department of Commerce, the 
                offices of that department referred to as the 
                ``Office of Audits'' and the ``Investigations 
                and Inspections Staff'' and that portion of the 
                office referred to as the ``Office of 
                Investigations and Security'' which has 
                responsibility for investigation of alleged 
                criminal violations and program abuse;]
          * * * * * * *
                  (X) of the United States Trade 
                Representative, all functions of the Inspector 
                General of the Department of Commerce and the 
                Office of the Inspector General of the 
                Department of Commerce relating to the 
                functions transferred to the United States 
                Trade Representative by section 3432 of the 
                Department of Commerce Dismantling Act; and
          * * * * * * *

                              definitions

  Sec. 11. As used in this Act--
          (1) the term ``head of the establishment'' means the 
        Secretary of Agriculture, [Commerce,] Defense, 
        Education, Energy, Health and Human Services, Housing 
        and Urban Development, the Interior, Labor, State, 
        Transportation, or the Treasury; the Attorney General; 
        the United States Trade Representative; the 
        Administrator of the Agency for International 
        Development, Environmental Protection, General 
        Services, National Aeronautics and Space, or Small 
        Business, or Veterans' Affairs; the Director of the 
        Federal Emergency Management Agency, the Office of 
        Personnel Management or the United States Information 
        Agency; the Chairman of the Nuclear Regulatory 
        Commission or the Railroad Retirement Board; the 
        Chairperson of the Thrift Depositor Protection 
        Oversight Board; the Chief Executive Officer of the 
        Corporation for National and Community Service; the 
        Administrator of the Community Development Financial 
        Institutions Fund; and the chief officer of the 
        Resolution Trust Corporation; or the Commissioner of 
        Social Security, Social Security Administration; as the 
        case may be;
          (2) the term ``establishment'' means the Department 
        of Agriculture, [Commerce,] Defense, Education, Energy, 
        Health and Human Services, Housing and Urban 
        Development, the Interior, Justice, Labor, State, 
        Transportation, or the Treasury; the United States 
        Trade Administration, the Agency for International 
        Development, the Community Development Financial 
        Institutions Fund, the Environmental Protection Agency, 
        the Federal Emergency Management Agency, the General 
        Services Administration, the National Aeronautics and 
        Space Administration, the Nuclear Regulatory 
        Commission, the Office of Personnel Management, the 
        Railroad Retirement Board, the Resolution Trust 
        Corporation, the Federal Deposit Insurance Corporation, 
        the Small Business Administration, the United States 
        Information Agency, the Corporation for National and 
        Community Service, or the Veterans' Administration, or 
        the Social Security Administration; as the case may be;
          * * * * * * *
                              ----------                              


           PUBLIC WORKS AND ECONOMIC DEVELOPMENT ACT OF 1965

[AN ACT To provide grants for public works and development facilities, 
other financial assistance and the planning and coordination needed to 
  alleviate conditions of substantial and persistent unemployment and 
      underemployment in economically distressed areas and regions

  [Be it enacted by the Senate and House of Representatives of 
the United States of America in Congress assembled, That this 
Act may be cited as the ``Public Works and Economic Development 
Act of 1965''.

                         [statement of purpose

  [Sec. 2. The Congress declares that the maintenance of the 
national economy at a high level is vital to the best interests 
of the United States, but that some of our regions, counties, 
and communities are suffering substantial and persistent 
unemployment cause hardship to many individuals and their 
families, and waste invaluable human resources; that to 
overcome this problem the Federal Government, in cooperation 
with the States, should help areas and regions of substantial 
and persistent unemployment and underemployment to take 
effective steps in planning and financing their public works 
and economic development; that Federal financial assistance, 
including grants for public works and development facilities to 
communities, industries, enterprises, and individuals in areas 
needing development should enable such areas to help themselves 
achieve lasting improvement and enhance the domestic prosperity 
by the establishment of stable and diversified local economies 
and improved local conditions, provided that such assistant is 
preceded by and consistent with sound, long-range economic 
planning; and that under the provisions of this Act new 
employment opportunities should be created by developing and 
expanding new and existing public works and other facilities 
and resources rather than by merely transferring jobs from one 
area of the United States to another. Congress further declares 
that, in furtherance of maintaining the national economy at a 
high level, the assistance authorized by this Act should be 
made available to both rural and urban areas; that such 
assistance be available for planning for economic development 
prior to the actual occurrences of economic distress in order 
to avoid such condition; and that such assistance be used for 
long-term economic rehabilitation in areas where long-term 
economic deterioration has occurred or is taking place.

      [TITLE I--GRANTS FOR PUBLIC WORKS AND DEVELOPMENT FACILITIES

  [Sec. 101. (a) Upon the application of any State, or 
political subdivision thereof, Indian tribe, or private or 
public nonprofit organization or association representing any 
redevelopment area or part thereof, the Secretary of Commerce 
(hereinafter referred to as the Secretary) is authorized--
          [(1) to make direct grants for the acquisition or 
        develoment of land and improvements for public works, 
        public service, or development facility usage, and the 
        acquisition, construction, rehabilitation, alteration, 
        expansion, or improvement of such facilities, including 
        related machinery and equipment, within a redevelopment 
        area, if he finds that--
                  [(A) the project for which financial 
                assistance is sought will directly or 
                indirectly (i) tend to improve the 
                opportunities, in the area where such project 
                is or will be located, for the successful 
                establishment or expansion of industrial or 
                commercial plants or facilities, (ii) otherwise 
                assist in the creation of additional long-term 
                employment opportunities for such area, or 
                (iii) primarily benefit the long-term 
                unemployed and members of low-income families 
                or otherwise substantially further the 
                objectives of the Economic Opportunity Act of 
                1964;
                  [(B) the project for which a grant is 
                requested will fulfill a pressing need of the 
                area, or part thereof, in which it is, or will 
                be, located;
                  [(C) the area for which a project is to be 
                undertaken has an approved overall economic 
                development program as provided in section 
                202(b)(10) and such project is consistent with 
                such program; and
                  [(D) in the case of a redevelopment area so 
                designated under section 401(a)(6), the project 
                to be undertaken will provide immediate useful 
                work to unemployed and underemployed persons in 
                that area.
          [(2) to make supplementary grants in order to enable 
        the States and other entities within redevelopment 
        areas to take maximum advantage of designated Federal 
        grant-in-aid programs (as here-inafter defined), direct 
        grants-in-aid authorized under this section, and 
        Federal grant-in-aid programs authorized by the 
        Watershed Protection and Flood Prevention Act (68 Stat. 
        666, as amended), and the eleven watersheds authorized 
        by the Flood Control Act of December 22, 1944, as 
        amended and supplemented (58 Stat. 887), for which they 
        are eligible but for which, because of their economic 
        situation, they cannot supply the required matching 
        share.
  [(b) Subject to subsection (c) hereof, the amount of any 
direct grant under this section for any project shall not 
exceed 50 per centum of the cost of such project.
  [(c) The amount of any supplementary grant under this section 
for any project shall not exceed the applicable percentage 
established by regulations promulgated by the Secretary, but in 
no event shall the non-Federal share of the aggregate cost of 
any such project (including assumptions of debt) be less than 
20 per centum of such cost, except that in the case of a grant 
to an Indian tribe, the Secretary may reduce the non-Federal 
share below such per centum or may waive the non-Federal share.
  [In the case of any State or political subdivision thereof 
which the Secretary determines has exhausted its effective 
taxing and borrowing capacity, the Secretary shall reduce the 
non-Federal share below such per centum or shall waive the non-
Federal share in the case of such a grant for a project in a 
redevelopment area designated as such under section 401(a)(6) 
of this Act.
  [In case of any community development corporation which the 
Secretary determines has exhausted its effective borrowing 
capacity, the Secretary may reduce the non-Federal share below 
such per centum or waive the non-Federal share in the case of 
such a grant for a project in a redevelopment area designated 
as such under section 401(a)(6) of this Act.
  [Supplementary grants shall be made by the Secretary, in 
accordance with such regulations as he shall prescribe, by 
increasing the amounts of direct grants authorized under this 
section or by the payment of funds appropriated under this Act 
to the heads of the departments, agencies, and 
instrumentalities of the Federal Government responsible for the 
administration of the applicable Federal programs.
  [Notwithstanding any requirement as to the amount or sources 
of non-Federal funds that may otherwise be applicable to the 
Federal program involved, funds provided under this subsection 
shall be used for the sole purpose of increasing the Federal 
contribution to specific projects in redevelopment areas under 
such programs above the fixed maximum portion of the cost of 
such project otherwise authorized by the applicable law.
  [The term ``designated Federal grant-in-aid programs,'' as 
used in this subsection, means such existing or future Federal 
grant-in-aid programs assisting in the construction or 
equipping of facilities as the Secretary may, in furtherance of 
the purposes of this Act, designate as eligible for allocation 
of funds under this section.
  [In determining the amount of any supplementary grant 
available to any project under this section, the Secretary 
shall take into consideration the relative needs of the area, 
the nature of the projects to be assisted, and the amount of 
such fair user charges or other revenues as the project may 
reasonably be expected to generate in excess of those which 
would amortize the local share of initial costs and provide for 
its successful operation and maintenance (including 
depreciation).
  [(d) The Secretary shall prescribe rules, regulations, and 
procedures to carry out this section which will assure that 
adequate consideration is given to the relative needs of 
eligible areas. In prescribing such rules, regulations, and 
procedures the Secretary shall consider among other relevant 
factors (1) the severity of the rates of unemployment in the 
eligible areas and the duration of such unemployment and (2) 
the income levels of families and the extent of underemployment 
in eligible areas.
  [(f) The Secretary shall prescribe regulations which will 
assure that appropriate local governmental authorities have 
been given a reasonable opportunity to review and comment upon 
proposed projects under this section.
  [Sec. 102. For each of the fiscal years ending June 30, 1975, 
June 30, 1976, September 30, 1977, September 30, 1978, 
September 30, 1979, September 30, 1980, September 30, 1981, and 
September 30, 1982, not to exceed $30,000,000 of the funds 
authorized to be appropriated under section 105 of this Act for 
each such fiscal year, and for the period beginning July 1, 
1976, and ending September 30, 1976, not to exceed $7,500,000 
of the funds authorized to be appropriated under such section 
105 for such period, shall be available for grants for 
operation of any health project funded under this title after 
the date of enactment of this section. Such grants may be made 
up to 100 per centum of the estimated cost of the first year of 
operation, and up to 100 per centum of the deficit in funds 
available for operation of the facility during the second 
fiscal year of operation. No grant shall be made for the second 
fiscal year of operation of any facility unless the agency 
operating such facility has adopted a plan satisfactory to the 
Secretary of Health, Education, and Welfare, providing for the 
funding of operations on a permanent basis. Any grant under 
this section shall be made upon the condition that the 
operation of the facility will be conducted under efficient 
management practices designed to obviate operating deficits, as 
determined by the Secretary of Health, Education, and Welfare.
  [Sec. 103. Not more than 15 per centum of the appropriations 
made pursuant to this title may be expended in any one State.
  [Sec. 105. There is hereby authorized to be appropriated to 
carry out this title not to exceed $500,000,000 for the fiscal 
year ending June 30, 1966, and for each fiscal year thereafter 
through fiscal year ending June 30, 1971, not to exceed 
$800,000,000 per fiscal year for the fiscal years ending June 
30, 1972, and June 30, 1973, not to exceed $200,000,000 for the 
fiscal year ending June 30, 1974, and not to exceed 
$200,000,000 for the fiscal year ending June 30, 1975, and not 
to exceed $250,000,000 for the fiscal year ending June 30, 
1976, not to exceed $62,500,000 for the period beginning July 
1, 1976, and ending September 30, 1976, and not to exceed 
$425,000,000 per fiscal year for the fiscal years ending 
September 30, 1977, September 30, 1978, September 30, 1979, 
September 30, 1980, and September 30, 1981, and not to exceed 
$150,000,000 for the fiscal year ending September 30, 1982. Any 
amounts authorized for the fiscal year ending June 30, 1972, 
under this section but not appropriated may be appropriated for 
the fiscal year ending June 30, 1973. Not less than 25 per 
centum nor more than 35 per centum of all appropriations made 
for the fiscal years ending June 30, 1972, June 30, 1973, and 
June 30, 1974, and not less than 15 per centum nor more than 35 
per centum of all appropriations made for the fiscal years 
ending June 30, 1975 and June 30, 1976, the period beginning 
July 1, 1976, and ending September 30, 1976, and the fiscal 
years ending September 30, 1977, September 30, 1978, September 
30, 1979, September 30, 1980, September 30, 1981, and September 
30, 1982, under authority of the preceding sentences shall be 
expended in redevelopment areas designated as such under 
section 401(a)(6) of this Act.

               [financial assistance for sewer facilities

  [Sec. 106. No financial assistance, through grants, loans, 
guarantees, or otherwise, shall be made under this Act to be 
used directly or indirectly for sewer or other waste disposal 
facilities unless the Secretary of Health, Education, and 
Welfare certifies to the Secretary that any waste material 
carried by such facilities will be adequately treated before it 
is discharged into any Public waterway so as to meet applicable 
Federal, State, interstate, or local water quality standards.

                      [construction cost increases

  [Sec. 107. In any case where a grant (including a 
supplemental grant) has been made under this title for a 
project and after such grant has been made but before 
completion of the project, the cost of such project based upon 
the designs and specifications which were the basis of the 
grant has been increased because of increases in costs, the 
amount of such grant may be increased by an amount equal to the 
percentage increase, as determined by the Secretary, in such 
costs, but in no event shall the percentage of the Federal 
share of such project exceed that originally provided for in 
such grant.

                 [TITLE II--OTHER FINANCIAL ASSISTANCE

              [public works and development facility loans

  [Sec. 201. (a) Upon the application of any State, or 
political subdivision thereof, Indian tribe, or private or 
public nonprofit organization or association representing any 
redevelopment area or part thereof, the Secretary is authorized 
to purchase evidence of indebtedness and to make loans to 
assist in financing the purchase or development of land and 
improvements for public works, public service, or development 
facility usage, including public works, public service, or 
development facility usage, to be provided by agencies of the 
Federal Government pursuant to legislation requiring that non-
Federal entities bear some part of the cost thereof, and the 
acquisition, construction, rehabilitation, alteration, 
expansion, or improvement of such facilities, including related 
machinery and equipment, within a redevelopment area, if he 
finds that--
          [(1) the project for which financial assistance 
        sought will directly or indirectly--
                  [(A) tend to improve the opportunities, in 
                the area where such project is or will be 
                located, for the successful establishment or 
                expansion of industrial or commercial plants or 
                facilities,
                  [(B) otherwise assist in the creation of 
                additional long-term employment opportunities 
                for such area, or
                  [(C) primarily benefit the long-term 
                unemployed and members of low-income families 
                or otherwise substantially further the 
                objectives of the Economic Opportunity Act of 
                1964;
          [(2) the funds requested for such project are not 
        otherwise available from private lenders or from other 
        Federal agencies on terms which in the opinion of the 
        Secretary will permit the accomplishment of the 
        project;
          [(3) the amount of the loan plus the amount of other 
        available funds for such project are adequate to insure 
        the completion thereof;
          [(4) there is a reasonable expectation of repayment; 
        and
          [(5) such area has an approved overall economic 
        development program as provided in section 202(b)(10) 
        and the project for which financial assistance is 
        sought is consistent with such program.
  [(b) Subject to section 710(5), no loan, including renewals 
or extensions thereof, shall be made under this section for a 
period exceeding forty years, and no evidence of indebtedness 
maturing more than forty years from the date of purchase shall 
be purchased under this section. Such loans shall bear interest 
at a rate not less than a rate determined by the Secretary of 
the Treasury taking into consideration the current average 
market yield on outstanding marketable obligations of the 
United States with remaining periods to maturity comparable to 
the average maturities of such loans, adjusted to the nearest 
one-eight of 1 per centum, less not exceed one-half of 1 per 
centum per annum.
  [(c) There are hereby authorized to be appropriated such sums 
as may be necessary to carry out the provisions of this section 
and section 202, except that annual appropriations for the 
purposes of purchasing evidence of indebtedness, paying 
interest supplement to or on behalf of private entities making 
and participating in loans, and guaranteeing loans, shall not 
exceed $170,000,000 for the fiscal year ending June 30, 1966, 
and for each fiscal year thereafter through the fiscal year 
ending June 30, 1973, and shall not exceed $55,000,000 for the 
fiscal year ending June 30, 1974, and shall not exceed 
$75,000,000 for the fiscal years ending June 30, 1975, and June 
30, 1976, and shall not exceed $18,750,000 for the period 
beginning July 1, 1976, and ending September 30, 1976, and 
shall not exceed $200,000,000 per fiscal year for the fiscal 
years ending September 30, 1977, September 30, 1978, September 
30, 1979, September 30, 1980, and September 30, 1981, and not 
to exceed $46,500,000 for the fiscal year ending September 30, 
1982.
  [(e) The Secretary shall prescribe regulations which will 
assure that appropriate local governmental authorities have 
been given a reasonable opportunity to review and comment upon 
proposed projects under this section.

                         [loans and guarantees

  [Sec. 202. (a)(1) The Secretary is authorized to aid in 
financing, within a redevelopment area, the purchase or 
development of land and facilities (including machinery and 
equipment) for industrial or commercial usage, including the 
construction of new buildings, the rehabilitation of abandoned 
or unoccupied buildings, and the alteration, conversion, or 
enlargement of existing buildings by (A) purchasing evidences 
of indebtedness, (B) making loans (which for purposes of this 
section shall include participation in loans). (C) guaranteeing 
loans made to private borrowers by private lending 
institutions, for any of the purposes referred to in this 
paragraph upon application of such institution and upon such 
terms and conditions as the Secretary may prescribe, except 
that no such guarantee shall at any time exceed 90 per centum 
of the amount of the outstanding unpaid balance of such loan.
  [(2) In addition to any other financial assistance under this 
title, the Secretary is authorized, in the case of any loan 
guarantee under authority of paragraph (1) of this section, to 
pay to or on behalf of the private borrower an amount 
sufficient to reduce up to 4 percentage points the interest 
paid by such borrower on such guaranteed loans. No payment 
under this paragraph shall result in the interest rate being 
paid by a borrower on such a guaranteed loan being less than 
the rate of interest for such a loan if it were made under 
section 201 of this Act. Payment made to or on behalf of such 
borrower shall be made no less often than annually.
  [(3) The Secretary is authorized to aid in financing any 
industrial or commercial activity within a redevelopment area 
by (A) making working capital loans, (B) guaranteeing working 
capital loans made to private borrowers by private lending 
institutions upon application of such institution and upon such 
terms and conditions as the Secretary may prescribe, except 
that no such guarantee shall at any time exceed 90 per centum 
of the amount of the outstanding unpaid balance of such loan, 
(C) guaranteeing rental payment of leases for buildings and 
equipment, except that no such guarantee shall exceed 90 per 
centum of the remaining rental payments required by the lease, 
(D) paying those debts with respect to which a lien against 
property has been legally obtained (including the refinancing 
of any such debt) in any case where the Secretary determines 
that it is essential to do so in order to save employment in a 
designated area, to avoid a significant rise in unemployment, 
or to create new or increased employment.
  [(b) Financial assistance under this section shall be on such 
terms and conditions as the Secretary determines, subject, 
however, to the following restrictions and limitations:
  [(1) Such financial assistance shall not be extended to 
assist establishments relocating from one area to another or to 
assist subcontractors whose purpose is to divest, or whose 
economic success is dependent upon divesting, other contractors 
or subcontractors of contracts theretofore customarily 
performed by them: Provided, however, That such limitations 
shall not be construed to prohibit assistance for the expansion 
of an existing business entity through the establishment of a 
new branch, affiliate, or subsidiary of such entity if the 
Secretary finds that the establishment of such branch, 
affiliate, or subsidiary will not result in increase in 
unemployment of the area of original location or in any other 
area where such entity conducts business operations, unless the 
Secretary has reason to believe that such branch, affiliate, or 
subsidiary is being established with the intention of closing 
down the operations of the existing business entity in the area 
of its original location or in any other area where it conducts 
such operations.
  [(2) Such assistance shall be extended only to applicants, 
both private and public (including Indian tribes), which have 
been approved for such assistance by an agency or 
instrumentality of the State or political subdivision thereof 
in which the project to be financed is located, and which 
agency or instrumentality is directly concerned with problems 
of economic development in such State or subdivision.
  [(3) The project for which financial assistance is sought 
must be reasonably calculated to provide more than a temporary 
alleviation of unemployment or underemployment within the 
redevelopment area wherein it is or will be located.
  [(4) No loan or guarantee shall be extended hereunder unless 
the financial assistance applied for is not otherwise available 
from private lenders or from other Federal agencies on terms 
which in the opinion of the Secretary will permit the 
accomplishment of the project.
  [(5) The Secretary shall not make any loan without a 
participation unless he determines that the loan cannot be made 
on a participation basis.
  [(6) No evidence of indebtedness shall be purchased and no 
loans shall be made or guaranteed unless it is determined that 
there is reasonable assurance of repayment.
  [(7) Subject to section 701(5) of this Act, no loan or 
guarantee, including renewals or extension thereof, may be made 
hereunder for a period exceeding twenty-five years and no 
evidences of indebtedness maturing more than twenty-five years 
from date of purchase may be purchased hereunder: Provided, 
That the foregoing restrictions on maturities shall not apply 
to securities or obligations received by the Secretary as a 
claimant in bankruptcy or equitable reorganization or as a 
creditor in other proceedings attendant upon insolvency of the 
obligor.
  [(8) Loans made and evidences if indebtedness purchased under 
this section shall bear interest at a rate not less than a rate 
determined by the Secretary of the Treasury taking into 
consideration the current average market yield on outstanding 
marketable obligations of the United States with remaining 
periods to maturity comparable to the average maturities of 
such loans, adjusted to the nearest one-eighth of 1 per centum, 
plus additional charge, if any, toward covering other costs of 
the program as the Secretary may determine to be consistent 
with its purpose.
  [(9) Loan assistance (other than for a working capital loan) 
shall not exceed 65 per centum of the aggregate cost to the 
applicant (excluding all other Federal aid in connection with 
the undertaking) of acquiring or developing land and facilities 
(including machinery and equipment), and of constructing, 
altering, converting, rehabilitating, or enlarging the building 
or buildings of the particular project, and shall, among 
others, be on the condition that--
          [(A) other funds are available in an amount which 
        together with the assistance provided hereunder, shall 
        be sufficient to pay such aggregate cost;
          [(B) not less than 15 per centum of such aggregate 
        cost be supplied as equity capital or as a loan 
        repayable in no shorter period of time and at no faster 
        an amortization rate than the Federal financial 
        assistance extended under this section is being repaid, 
        and if such a loan is secured, its security shall be 
        subordinate and inferior to the lien or liens securing 
        such Federal financial assistance: Provided, however, 
        That, except in projects involving financial 
        participation by Indian tribes, not less than 5 per 
        centum of such aggregate cost shall be supplied by the 
        State or any agency, instrumentality, or political 
        subdivision thereof, or by a community or area 
        organization which is nongovernmental in character, 
        unless the Secretary shall determine in accordance with 
        the objective standards promulgated by regulation that 
        all or part of such funds are not reasonably available 
        to the project because of the economic distress of the 
        area or for other good cause, in which case he may 
        waive the requirement of this provision to the extent 
        of such unavailability, and allow the funds required by 
        this subsection to be supplied by the applicant or by 
        such other non-Federal source as may reasonably be 
        available to the project;
          [(C) to the extent the Secretary finds such action 
        necessary to encourage financial participation in a 
        particular project by other lenders and investors, and 
        except as otherwise provided in subparagraph (B), any 
        Federal financial assistance extended under this 
        section may be repayable only after other loans made in 
        connection with such project have been repaid in full, 
        and the security, if any, for such Federal financial 
        assistance may be subordinate and inferior to the lien 
        or liens securing other loans made in connection with 
        the same project.
  [(10) No such assistance shall be extended unless there shall 
be submitted to and approval of the Secretary an overall 
program for the economic development of the area and a finding 
by the State, or any agency, instrumentality, or local 
political subdivision thereof, that the project for which 
financial assistance is sought is consistent with such program: 
Provided, That nothing in this Act shall authorize financial 
assistance for any project prohibited by laws of the State or 
local political subdivision in which the project would be 
located, nor prevent the Secretary from requiring such periodic 
revisions of previously approved overall economic development 
programs as he may deem appropriate.

                      [economic development funds

  [Sec. 203. Funds obtained by the Secretary under section 201; 
loan funds obtained under section 403, and collections and 
repayments received under this Act, shall be deposited in an 
economic development revolving fund (hereunder referred to as 
the ``fund''), which is hereby established in the Treasury of 
the United States, and which shall be available to the 
Secretary for the purpose of extending financial assistance 
under sections 201, 202, and 403, and for the payment of all 
obligations and expenditures arising in connection therewith. 
There shall also be credited to the fund such funds as have 
been paid into the area development fund or may be received 
from obligations outstanding under the Area Redevelopment Act. 
The fund shall pay into miscellaneous receipts of the Treasury, 
following the close of each fiscal year, interest on the amount 
of loans outstanding under this Act computed in such manner and 
at such rate as may be determined by the Secretary of the 
Treasury taking into consideration the current average market 
yield on outstanding marketable obligations of the United 
States with remaining periods to maturity comparable to the 
average maturities of such loans, adjusted to the nearest one-
eighth of 1 per centum, during the month of September preceding 
the fiscal year in which the loans were made.

                    [redevelopment area loan program

  [Sec. 204. (a) If a redevelopment area prepares a plan for 
the redevelopment of the area or a part thereof and submits 
such plan to the Secretary for his approval and the Secretary 
approves such plan, the Secretary is authorized to make an 
interest free loan to such area for the purpose of carrying out 
such plan. Such plan may include industrial land assembly, land 
banking, acquisition of surplus government property, 
acquisition of industrial sites including acquisition of 
abandoned properties with redevelopment potential, real estate 
development including redevelopment and rehabilitation of 
historical buildings for industrial and commerical use, 
rehabilitation and renovation of usable empty factory buildings 
for industrial and commerical use, and other investments which 
will accelerate recycling of land and facilities for job 
creating economic activity. Any such interest free loan shall 
be made on condition (1) that the area will use such interest 
free loan to make loans to carry out such plan, (2) the 
repayment of any loan made by the area from such interest free 
loan shall be placed by such area in a revolving fund available 
solely for the making of other loans by the area, upon approval 
by the Secretary, for the economic redevelopment of the area. 
Any such interest free loan shall be repaid to the United 
States by a redevelopment area whenever such area has its 
designation as a redevelopment area terminated or modified 
under section 402 of this Act. This section shall not apply to 
any redevelopment area whose designation as a redevelopment 
area would be terminated or modified under section 402 of this 
Act except for the provisions of section 2 of the Act entitled 
``An Act to amend the Public Works and Economic Development Act 
of 1965 to extend the authorizations for title I through IV 
through fiscal year 1971'', approved July 6, 1970 (P.L. 91-
304).
  [(b)(1) Each eligible recipient which receives assistance 
under this section shall annually during the period such 
assistance continues make a full and complete report to the 
Secretary, in such manner as the Secretary shall prescribe, and 
such report shall contain an evaluation of the effectiveness of 
the economic assistance provided under this section in meeting 
the need it was designed to alleviate and the purposes of this 
section.
  [(2) The Secretary shall include in the annual report 
pursuant to section 707 of this Act a consolidated report with 
his recommendations, if any, on the assistance authorized under 
this section, in a form which he deems appropriate.
  [(c) There is authorized to be appropriated to carry out this 
section not to exceed $125,000,000 per fiscal year for the 
fiscal years ending September 30, 1977, and September 30, 1979, 
September 30, 1980, and September 30, 1981.

      [TITLE III--TECHNICAL ASSISTANCE, RESEARCH, AND INFORMATION

  [Sec. 301. (a) In carrying out his duties under this Act the 
Secretary is authorized to provide technical assistance which 
would be useful in alleviating or preventing conditions of 
excessive unemployment or underemployment (1) to areas which he 
has designated as redevelopment areas under this Act, and (2) 
to other areas which he finds have substantial need for such 
assistance. Such assistance shall include project planning and 
feasibility studies, management and operational assistance, and 
studies evaluating the needs of, and development potentialities 
for, economic growth of such areas. Such assistance may be 
provided by the Secretary through members of his staff, through 
the payment of funds authorized for this section to other 
departments or agencies of the Federal Government, through the 
employment of private individuals, partnerships, firms, 
corporations, or suitable institutions, under contracts entered 
into for such purposes, or through grants-in-aid to appropriate 
public or private nonprofit State, area, district, or local 
organizations. The Secretary, in his discretion, may require 
the repayment of assistance provided under this subsection and 
prescribe the terms and conditions of such repayment.
  [(b) The Secretary is authorized to make grants to defray not 
to exceed 75 per centum of the administrative expenses of 
organizations which he determines to be qualified to receive 
grants-in-aid under subsection (a) hereof, except that in the 
case of a grant under this subsection to an Indian tribe the 
Secretary is authorized to defray up to 100 per centum of such 
expenses. In determining the amount of the non-Federal share of 
such costs or expenses, the Secretary shall give due 
consideration to all contributions both in cash and in kind, 
fairly evaluated, including but not limited to space, 
equipment, and services. Where practicable grants-in-aid 
authorized under this subsection shall be used in conjunction 
with other available planning grants, such as urban planning 
grants, authorized under the Housing Act of 1954, as amended, 
and highway planning and research grants authorized under the 
Federal-aid Highway Act of 1962, to assure adequate and 
effective planning and economical use of funds.
  [(c) To assist in the long-range accomplishment of the 
purposes of this Act, the Secretary, in cooperation with other 
agencies having similar functions, shall establish and conduct 
a continuing program of study, training, and research to (A) 
assist in determining the causes of unemployment, 
underemployment, underdevelopment, and chronic depression in 
the various areas and regions of the Nation, (B) assist in the 
formulation and implementation of national, State, and local 
programs which will raise income levels and otherwise produce 
solutions to the problems resulting from these conditions, and 
(C) assist in providing the personnel needs to conduct such 
programs. The program of study, training, and research may be 
conducted by the Secretary through members of his staff, 
through payment of funds authorized for this section to other 
departments or agencies of the Federal Government, or through 
the employment of private individuals, partnerships, firms, 
corporations, or suitable institutions, under contracts entered 
into for such purposes, or through grants to such individuals, 
organizations, or institutions, or through conferences, and 
similar meetings organized for such purposes. The Secretary 
shall make available to interested individuals and 
organizations the results of such research. The Secretary shall 
include in his annual report under section 707 a detailed 
statement concerning the study and research conducted under 
this section together with his findings resulting therefrom and 
his recommendations for legislative and other action.
  [(d) The Secretary shall aid redevelopment areas and other 
areas by furnishing to interested individuals, communities, 
industries, and enterprises within such areas any assistance, 
technical information, market research, or other forms of 
assistance, information, or advice which would be useful in 
alleviating or preventing conditions of excessive unemployment 
or underemployment within such areas. The Secretary may furnish 
the procurement divisions of the various departments, agencies, 
and other instrumentalities of the Federal Government with a 
list containing the names and addresses of business firms which 
are located in redevelopment areas and which are desirous of 
obtaining Government contracts for the furnishing of supplies 
or services, and designating the supplies and services such 
firms are engaged in providing.
  [(e) The Secretary shall establish an independent study board 
consisting of governmental and on governmental experts to 
investigate the effects of Government procurement, scientific, 
technical, and other related policies, upon regional economic 
development. Any Federal officer or employee may, with the 
consent of the head of the department or agency in which he is 
employed, serve as a member of such board, but shall receive no 
additional compensation for such service. Other members of such 
board may be compensated in accordance with the provisions of 
section 701(10). The board shall report its findings, together 
with recommendations for the better coordination of such 
policies, to the Secretary, who shall transmit the report to 
the Congress not later than two years after the enactment of 
this Act.
  [(f) The Secretary is authorized to make grants, enter into 
contracts or otherwise provide funds for any demonstration 
project within a redevelopment area or areas which he 
determines is designed to foster regional productivity and 
growth, prevent out migration, and otherwise carry out the 
purposes of this Act.
  [Sec. 302. (a) The Secretary is authorized, upon application 
of any State, or city, or other political subdivision of a 
State, or sub-State planning and development organization 
(including a redevelopment area or an economic development 
district), to make direct grants to such State, city, or other 
political subdivision, or organization to pay up to 80 per 
centum of the cost for economic development planning. The 
planning for cities, other political subdivisions, and sub-
State planning and development organizations (including 
redevelopment areas and economic development districts) 
assisted under this section shall include systematic efforts to 
reduce unemployment and increase incomes. Such planning shall 
be a continuous process involving public officials and private 
citizens in analyzing local economics, defining development 
goals, determining project opportunities, and formulating and 
implementing a development program. Any overall State economic 
development plan prepared with assistance under this section 
shall be prepared cooperatively by the State, its political 
subdivisions, and the economic development districts located in 
whole or in part within such State. Upon completion of any such 
plan, the State shall certify to the Secretary (1) that in the 
preparation of such State plan, the local and economic 
development district plans were considered and, to the fullest 
extent possible, such State plan is consistent with such local 
and economic development district plans, and (2) that such 
State plan is consistent, with such local and economic 
development district plans, or, if such State plan is not 
consistent with such local and economic development district 
plans, all of the inconsistencies of the State plan with the 
local and economic development district plans, and the 
justification for each of these inconsistencies. Any overall 
State economic development planning shall be a part of a 
comprehensive planning process that shall consider the 
provision of public works to stimulate and channel development, 
economic opportunities and choices for individuals; to support 
sound land use, to enhance and protect the environment 
including the conservation and preservation of open spaces and 
environmental quality, to provide public services, and to 
balance physical and human resources through the management and 
control of physical development. The assistance available under 
this section may be provided in addition to assistance 
available under section 301(b) of this Act but shall not 
supplant such assistance and shall be available to develop an 
annual inventory of specific recommendations for assistance 
under section 304 of this Act. Each State receiving assistance 
under this subsection shall submit to the Secretary an annual 
report on the planning process assisted under this subsection.
  [(b) In addition, the Secretary is authorized to assist 
economic development districts in--
          [(1) providing technical assistance (other than by 
        grant) to local governments within the district; and
          [(2) carrying out any review procedure required 
        pursuant to title IV of the Intergovernmental 
        Cooperation Act of 1968, if such district has been 
        designated as the agency to conduct such review.
  [(c) The planning assistance authorized under this title 
shall be used in accordance with the review procedure required 
pursuant to title IV of the Intergovernmental Cooperation Act 
of 1968 and shall be used in conjunction with any other 
available Federal planning assistance to assure adequate and 
effective planning and economical use of funds.
  [Sec. 303. (a) There is hereby authorized to be appropriated 
$25,000,000 annually for the purposes of Sections 301 and 302 
of this Act, for the fiscal year ending June 30, 1966, and for 
each fiscal year thereafter through the fiscal year ending June 
30, 1969, $50,000,000 per fiscal year for the fiscal years 
ending June 30, 1970, June 30, 1971, June 30, 1972, and June 
30, 1973, and $35,000,000 for the fiscal year ending June 30, 
1974 and $75,000,000 per fiscal year for the fiscal years 
ending June 30, 1975, and June 30, 1976, $18,750,000 for the 
period beginning July 1, 1976, and ending September 30, 1976, 
and $75,000,000 per fiscal year for the fiscal years ending 
September 30, 1977, September 30, 1978, September 30, 1979, 
September 30, 1980, and September 30, 1981, and not to exceed 
$35,500,000 for the fiscal year ending September 30, 1982.
  [(b) Not to exceed $15,000,000 in each of the fiscal years 
ending June 30, 1975, and June 30, 1976. September 30, 1977, 
September 30, 1978, September 30, 1979, September 30, 1980, 
September 30, 1981, and September 30, 1982, of the sums 
authorized to be appropriated under subsection (a) of this 
section, shall be available to make grants to States.

                     [supplemental and basic grants

  [Sec. 304. (a) There are hereby authorized to be appropriated 
$35,000,000 for the fiscal year ending June 30, 1975, and 
$75,000,000 for the fiscal year ending June 30, 1976, 
$18,750,000 for the period beginning July 1, 1976, and ending 
September 30, 1976, and $75,000,000 per fiscal year for the 
fiscal year ending September 30, 1977, September 30, 1978, 
September 30, 1979, September 30, 1980, and September 30, 1981, 
for apportionment by the Secretary among the States for the 
purpose of supplementing or making grants and loans authorized 
under titles I, II, III (other than planning grants authorized 
under sections 301(b) and 302), IV, and IX of this Act. Such 
funds shall be apportioned among the States in the ratio which 
all grants made under title I of this Act since August 26, 
1965, in each State bear to the total of all such grants made 
in all the States since August 26, 1965.
  [(b) Funds apportioned to a State pursuant to subsection (a) 
shall be available for supplementing or making such grants or 
loans if the State makes a contribution of at least 25 per 
centum of the amount of such grant or loan in each case. Funds 
apportioned to a State under subsection (a) shall remain 
available to such State until obligated or expended by it.
  [(c) Funds apportioned to a State pursuant to this section 
may be used by the Governor in supplementing grants or loans 
with respect to any project or assistance authorized under 
title I, II, III (other than planning grants authorized under 
sections 301(b) and 302), IV, or IX of this Act, and approved 
by the Secretary after July 1, 1974. Such grants may be used to 
reduce or waive the non-Federal share otherwise required by 
this Act, subject to the requirements of subsection (b) of this 
section.
  [(d) In the case of any grant or loan for which all or any 
portion of the basic Federal contribution to the project under 
this Act is proposed to be made with funds available under this 
section, no such Federal contribution shall be made until the 
Secretary of Commerce certifies that such project meets all of 
the requirements of this Act and could be approved for Federal 
contributions under this Act if funds were available under this 
Act (other than section 509) for such project. Funds may be 
provided for projects in a State under this section only if the 
Secretary determines that the level of Federal and State 
financial assistance under this Act (other than section 509) 
and under Acts other than this Act, for the same type of 
projects in the State, will not be diminished in order to 
substitute funds authorized by this section.
  [(e) After June 30, 1975, funds apportioned to a State 
pursuant to this section shall be used by the Governor in a 
manner which is consistent with the State planning process 
assisted under section 302 of this Act, if such planning 
process has been established in such State.

                [TITLE IV--AREA AND DISTRICT ELIGIBILITY

                      [Part A--Redevelopment Areas

                           [area eligibility

  [Sec. 401. (a) The Secretary shall designate as 
``redevelopment areas''--
  [(1) those areas in which he determines, upon the basis of 
standards generally comparable with those set forth in 
paragraphs (A) and (B), that there has existed substantial and 
persistent unemployment for an extended period of time and 
those areas in which he determines there has been a substantial 
loss of population due to lack of employment opportunity. There 
shall be included among the areas so designated any area--
                  [(A) where the Secretary of Labor finds that 
                the current rate of unemployment, as determined 
                by appropriate annual statistics for the most 
                recent twelve consecutive months, is 6 per 
                centum or more and has averaged at least 6 per 
                centum for the qualifying time periods 
                specified in paragraph (B); and
                  [(B) where the Secretary of Labor finds that 
                the annual average rate of unemployment has 
                been at least--
                          [(i) 50 per centum above the national 
                        average for three of the preceding four 
                        calendar years, or
                          [(ii) 75 per centum above the 
                        national average for two of the 
                        preceding three calendar years, or
                          [(iii) 100 per centum above the 
                        national average for one of the 
                        preceding two calendar years.
        The Secretary of Labor shall find the facts and provide 
        the data to be used by the Secretary in making the 
        determinations required by this subsection;
          [(2) those additional areas which have a median 
        family income not in excess of 50 per centum of the 
        national median, as determined by the most recent 
        available statistics for such areas;
          [(3) those additional Federal or State Indian 
        reservations or trust or restricted Indian-owned land 
        areas which the Secretary, after consultation with the 
        Secretary of the Interior or an appropriate State 
        agency, determines manifest the greatest degree of 
        economic distress on the basis of unemployment and 
        income statistics and other appropriate evidence of 
        economic underdevelopment; Provided, however, That 
        uninhabited Federal or State Indian reservations or 
        trust or restricted Indian-owned land areas may be 
        designated where such designation would permit 
        assistance to Indian tribes, with a direct beneficial 
        effect on the economic well-being of Indians;
          [(4) upon request of such areas, those additional 
        areas in which the Secretary detemines that the loss, 
        removal, curtailment, or closing of a major source of 
        employment has caused within three years prior to, or 
        threatens to cause within three years after, the date 
        of the request an unusual and abrupt rise in 
        unemployment of such magnitude that the unemployment 
        rate for the area at the time of the request exceeds 
        the national average, or can reasonably be expected to 
        exceed the national average, by 50 per centum or more 
        unless assistance is provided. Notwithstanding any 
        provision of subsection 401(b) to the contrary, an area 
        designated under the authority of this paragraph may be 
        given a reasonable time after designation in which to 
        submit the overall economic development program 
        required by subsection 202(b)(10) of this Act;
          [(5) notwithstanding any provision of this section to 
        the contrary, those additional areas which were 
        designated redevelopment areas under the Area 
        Redevelopment Act on or after March 1, 1965; Provided, 
        however, That the continued eligibility of such areas 
        after the first annual review of eligibility conducted 
        in accordance with section 402 of this Act shall be 
        dependent on their qualification for designation under 
        the standards of economic need set forth in subsections 
        (a)(1) through (a)(4) of this section;
          [(6) those communities or neighborhoods (defined 
        without regard to political or other subdivisions or 
        boundaries) which the Secretary determines have one of 
        the following conditions:
                  [(A) a large concentration of low-income 
                persons;
                  [(B) rural areas having substantial 
                outmigration;
                  [(C) substantial unemployment; or
                  [(D) an actual or threatened abrupt rise of 
                unemployment due to the closing or curtailment 
                of a major source of employment.
        No redevelopment area established under this paragraph 
        shall be subject to the requirements of subparagrphs 
        (A) and (C) of paragraph (1) of subsection (a) of 
        section 101 of this Act. No redevelopment area 
        established under this paragraph shall be eligible to 
        meet the requirements of section 403(a)(1)(B) of this 
        Act;
          [(7) those areas where per capita employment has 
        declined significantly during the next preceding ten-
        year period for which appropriate statistics are 
        available;
          [(8) those areas which the Secretary of Labor 
        determines, on the basis of average annual available 
        unemployment statistics, to have experienced 
        unemployment which is both substantial and above the 
        national average for the preceding twenty-four months;
          [(9) those areas which the Secretary determines have 
        demonstrated long-term economic deterioration.
        (b) The size and boundaries of redevelopment areas 
        shall be as determined by the Secretary: Provided, 
        however, That--
          [(1) no area shall be designated until it has an 
        approved overall economic development program in 
        accordance with subsection 202(b)(10) of this Act;
          [(2) any area which does not submit an acceptable 
        overall economic development program in accordance with 
        subsection 202(b)(10) of this Act within the reasonable 
        time after notification of eligibility for designation, 
        shall not thereafter be designated prior to the next 
        annual review of elibility in accordance with section 
        402 of this Act;
          [(3) no area shall be designated which does not have 
        a population of at least one thousand five hundred 
        persons, except that this limitation shall not apply to 
        any area designated under section 401 (a)(3) or (a)(6); 
        and.
          [(4) except for areas designated under subsections 
        (a)(3), (a)(4) and (a)(6) hereof, no area shall be 
        designated which is smaller than a ``labor area'' (as 
        defined by the Secretary of Labor), a country, or 
        municipality with a population of over twenty-five 
        thousand, whichever in the opinion of the Secretary is 
        appropriate. Nothing in this subsection shall prevent 
        any municipality, designated as a redevelopment area or 
        eligible to be designated as a redevelopment area, from 
        combining with any other community having mutual 
        economic interests and transportation and marketing 
        patterns for the purposes of such designation.
  [(c) Upon the request of the Secretary, the Secretary of 
Labor, the Secretary of Agriculture, the Secretary of the 
Interior, and such other heads of agencies as may be 
appropriate are authorized to conduct such special studies, 
obtain such information,and compile and furnish to the 
Secretary such data as the Secretary may deem necessary or 
proper to enable him to make the determinations provided for in 
this section. The Secretary shall reimburse when appropriate, 
out of any funds appropriated to carry out the purposes of this 
Act, the foregoing officers for any expenditures incurred by 
them under this section.
  [(d) If a State has no area designated under the preceding 
subsections of this section as a redevelopment area, the 
Secretary shall designate as a redevelopment area that area in 
such State which in his opinion most nearly qualifies under 
such preceding subsections. An area so designated shall have 
its eligibility terminated in accordance with the provisions of 
section 402 if any other area within the same State 
subsequently has become qualified or been designated under any 
other subsection of this section other than subsection (a)(6) 
as of the time of the annual review prescribed by section 402: 
Provided, That the Secretary shall not terminate any 
designation of an area in a State as a redevelopment area if to 
do so would result in such State having no redevelopment area.
  [(e) As used in this Act, the term ``redevelopment area'' 
refers to any area within the United States which has been 
designated by the Secretary as a redevelopment area.

                   [annual review of area eligibility

  [Sec. 402. The Secretary shall conduct an annual review of 
all areas designated in accordance with section 401 of this 
Act, and on the basis of such reviews shall terminate or modify 
such designation whenever such an area no longer satisfies the 
designation requirements of section 401, but in no event shall 
such designation of an area be terminated prior to the 
expiration of the third year after the date such area was so 
designated. No area previously designated shall retain its 
designated status unless it maintains a currently approved 
overall economic development program in accordance with 
subsection 202(b)(10). No termination of eligibility shall (1) 
be made without thirty days' prior notification to the area 
concerned, (2) affect the validity of any application filed, or 
contract or undertaking entered into, with respect to such area 
pursuant to this Act prior to such termination, (3) prevent any 
such area from again being designated a redevelopment area 
under section 401 of this Act if the Secretary determines it to 
be eligible under such section, or (4) be made in the case of 
any designated area where the Secretary determines that an 
improvement in the unemployment rate of a designated area is 
primarily the result of increased employment in occupations not 
likely to be permanent, The Secretary shall keep the 
departments and agencies of the Federal Government, and 
interested State or local agencies, advised at all times of any 
changes made hereunder with respect to the classification of 
any area.

                [Part B--Economic Development Districts

  [Sec. 403. (a) In order that economic development projects of 
broader geographic significance may be planned and carried out, 
the Secretary is authorized--
          [(1) to designate appropriate ``economic development 
        districts'' within the United States with the 
        concurrence of the States in which such districts will 
        be wholly or partially located, if--
                  [(A) the proposed district is of sufficient 
                size or population, and contains sufficient 
                resources, to foster economic development on a 
                scale involving more than a single 
                redevelopment area;
                  [(B) the proposed district contains at least 
                one redevelopment area;
                  [(C) the proposed district contains one or 
                more redevelopment areas or economic 
                development centers identified in an approved 
                district overall economic development program 
                as having sufficient size and potential to 
                foster the economic growth activities necessary 
                to alleviate the distress of the redevelopment 
                areas within the district; and
                  [(D) the proposed district has a district 
                overall economic development program which 
                includes adequate land use and transportation 
                planning and contains a specific program for 
                district cooperation, self-help, and public 
                investment and is approved by the State or 
                States affected and by the Secretary;
          [(2) to designate as ``economic development 
        centers,'' in accordance with such regulations as he 
        shall prescribe, such areas as he may deem appropriate, 
        if--
                  [(A) the proposed center has been identified 
                and included in an approved district overall 
                economic development program and recommended by 
                the State or States affected for such special 
                designation:
                  [(B) the proposed center is geographically 
                and economically so related to the district 
                that its economic growth may reasonably be 
                expected to contribute significantly to the 
                alleviation of distress in the redevelopment 
                areas of the district; and
                  [(C) the proposed center does not have a 
                population in excess of two hundred and fifty 
                thousand according to the last preceding 
                Federal census.
          [(3) to provide financial assistance in accordance 
        with the criteria of sections 101, 201, and 202 of this 
        Act, except as may be herein otherwise provided, for 
        projects in economic development centers designed under 
        subsection (a)(2) above, if--
                  [(A) the project will further the objectives 
                of the overall economic development program of 
                the district in which it is to be located:
                  [(B) the project will enhance the economic 
                growth potential of the district or result in 
                additional long-term employment opportunities 
                commensurate with the amount of Federal 
                financial assistance requested; and
                  [(C) the amount of Federal financial 
                assistance requested is reasonably related to 
                the size, population, and economic needs of the 
                district;
          [(4) subject to the 20 per centum non-Federal share 
        required for any project by subsection 101(c) of this 
        Act, to increase the amount of grant assistance 
        authorized by section 101 for projects within 
        redevelopment areas (designated under section 401), by 
        an amount not to exceed 10 per centum of the aggregate 
        cost of any such project, in accordance with such 
        regulations as he shall prescribe if--
                  [(A) the redevelopment area is situated 
                within a designated economic development 
                district and is actively participating in the 
                economic development activities of the 
                district; and
                  [(B) the project is consistent with an 
                approved district overall economic development 
                program.
  [(b) In designating economic development districts and 
approving district overall economic development programs under 
subsection (a) of this section, the Secretary is authorized, 
under regulations prescribed by him--
          [(1) to invite the several States to draw up proposed 
        district boundaries and to identify potential economic 
        development centers;
          [(2) to cooperate with the several States--
                  [(A) in sponsoring and assisting district 
                economic planning and development groups, and
                  [(B) in assisting such district groups to 
                formulate district overall economic development 
                programs;
          [(3) to encourage participation by appropriate local 
        governmental authorities in such economic development 
        districts.
  [(c) The Secretary shall by regulation prescribe standards 
for the termination or modification of economic development 
districts and economic development centers designated under the 
authority of this section.
  [(d) As used in this Act, the term ``economic development 
district'' refers to any area within the United States composed 
of cooperating redevelopment areas and, where appropriate, 
designated economic development centers and neighboring 
counties or communities, which has been designated by the 
Secretary as an economic development district.
  [(e) As used in this Act, the term ``economic development 
center'' refers to any area within the United States which has 
been identified as an economic development center in an 
approved district overall economic development program and 
which has been designated by the Secretary as eligible for 
financial assistance under sections 101, 201, and 202 of this 
Act in accordance with the provisions of this section.
  [(f) For the purpose of this Act the term ``local 
government'' means any city, county, town, parish, village, or 
other general-purpose political subdivision of a State.
  [(g) There is hereby authorized to be appropriated not to 
exceed $50,000,000 for the fiscal year ending June 30, 1967, 
and for each fiscal year thereafter through the fiscal year 
ending June 30, 1973, and not to exceed $45,000,000 per fiscal 
year for the fiscal years ending June 30, 1974, June 30, 1975, 
and June 30, 1976, not to exceed $11,250,000 for the period 
beginning July 1, 1976, and ending September 30, 1976, and not 
to exceed $45,000,000 per fiscal year for the fiscal years 
ending September 30, 1977, September 30, 1978, September 30, 
1979, September 30, 1980, September 30, 1981, for financial 
assistance extended under the provisions of subsection (a)(3) 
and (A)(4) hereof.
  [(h) In order to allow time for adequate and careful district 
planning, subsection (g) of this section shall not be effective 
until one year from the date of enactment.
  [(i) Each economic development district designated by the 
Secretary under this section shall as soon as practicable after 
the date of enactment of this section or after its designation 
provide that a copy of the district overall economic 
development program be furnished to the appropriate regional 
commission established under title V of this Act, if any part 
of such proposed district is within such a region or to the 
Appalachian Regional Commission established under the 
Appalachian Regional Development Act of 1965, if any part of 
such proposed district is within the Appalachian region.
  [(j) The Secretary is authorized to provide the financial 
assistance which is available to a redevelopment area under 
this Act to those parts of an economic development district 
which are not within a redevelopment area, when such assistance 
will be of a substantial direct benefit to a redevelopment area 
within such district. Such financial assistance shall be 
provided in the same manner and to the same extent as is 
provided in this Act for a redevelopment area, except that 
nothing in this subsection shall be construed to permit such 
parts to receive the increase in the amount of grant assistance 
authorized in paragraph (4) of subsection (a) of this section.

                  [Part C--Indian Economic Development

  [Sec. 404. In order to assure a minimum Federal commitment to 
alleviate economic distress of Indians, in addition to their 
eligibility for assistance with funds authorized under other 
parts of this Act, there are authorized to be appropriated not 
to exceed $25,000,000 per fiscal year for the fiscal years 
ending June 30, 1975, and June 30, 1976, not to exceed 
$6,250,000 for the period beginning July 1, 1976, and ending 
September 30, 1976, and not to exceed $25,000,000 per fiscal 
year for the fiscal years ending September 30, 1977, September 
30, 1978, September 30, 1979, September 30, 1980, September 30, 
1981, for the purpose of providing assistance under this Act to 
Indian tribes. Such sums shall be in addition to all other 
funds made available to Indian tribes under this Act.

               [Part D--Unemployment Rate Determinations

  [Sec. 405. Whenever any provision of this Act requires the 
Secretary of Labor, or the Secretary, to make any determination 
or other finding relating to the unemployment rate of any area, 
information regarding such unemployment rate may be furnished 
either by the Federal Government or by a State. Unemployment 
rates furnished by a State shall be accepted by the Secretary 
unless he determines that such rates are inaccurate. The 
Secretary shall provide technical assistance to State and local 
governments in the calculation of unemployment rates to insure 
their validity and standardization.

                       [TITLE VI--ADMINISTRATION

  [Sec. 601. (a) The Secretary shall administer this Act and, 
with the assistance of an Assistant Secretary of Commerce, in 
addition to those already provided for, shall supervise and 
direct the Administrator created herein, and coordinate the 
Federal cochairmen appointed heretofore or subsequent to this 
Act. The Assistant Secretary created by this section shall be 
appointed by the President by and with the advice and consent 
of the Senate. Such Assistant Secretary shall perform such 
functions as the Secretary may prescribe. There shall be 
appointed by the President, by and with the advice and consent 
of the Senate, an Administrator for Economic Development who 
shall be compensated at the rate provided for level V of the 
Federal Executive Salary Schedule who shall perform such duties 
as are assigned by the Secretary.
  [(b) Paragraph (12) of subsection (d) of section 303 of the 
Federal Executive Salary Act of 1964 is amended by striking out 
``(4)'' and inserting in lieu thereof ``(5)''.
  [(c) Subsection (e) of section 303 of the Federal Executive 
Salary Act of 1964 is amended by adding at the end thereof the 
following new paragraph:
  [``(100) Administrator for Economic Development.''

          [advisory committee on regional economic development

  [Sec. 602. The Secretary shall appoint a National Public 
Advisory Committee on Regional Economic Development which shall 
consist of twenty-five members and shall be composed of 
representatives of labor, management, agriculture, State and 
local governments, and the public in general. From the members 
appointed to such committee the Secretary shall designate a 
Chairman. Such committee, or any duly established subcommittee 
thereof, shall from time to time make recommendations to the 
Secretary relative to the carrying out of his duties under this 
Act. Such committee shall hold not less than two meetings 
during each calendar year.

             [consultation with other persons and agencies

    [Sec. 603. (a) The Secretary is authorized from time to 
time to call together and confer with any persons, including 
representatives of labor, management, agriculture, and 
government, who can assist in meeting the problems of area and 
regional unemployment or underemployment.
  [(b) The Secretary may make provisions for such consultation 
with interested departments and agencies as he may deem 
appropriate in the performance of the functions vested in him 
by this Act.

              [administration, operation, and maintenance

  [Sec. 604. No Federal assistance shall be approved under this 
Act unless the Secretary is satisifed that the project for 
which Federal assistance is granted will be properly and 
efficiently administered, operated, and maintained.

                       [TITLE VII--MISCELLANEOUS

                          [powers of secretary

  [Sec. 701. In performing his duties under this Act, the 
Secretary is authorized to--
          [(1) adopt, alter, and use a seal, which shall be 
        judicially noticed;
          [(2) hold such hearings, sit and act at such times 
        and places, and take such testimony, as he may deem 
        advisable.
          [(3) request directly from any executive department, 
        bureau, agency, board, commission, office, independent 
        establishment, or instrumentality information, 
        suggestions, estimates, and statistics needed to carry 
        out the purposes of this Act; and each department, 
        bureau, agency, board, commission, office, 
        establishment or instrumentality is authorized to 
        furnish such information, suggestions, estimates, and 
        statistics directly to the Secretary;
          [(4) under regulations prescribed by him, assign or 
        sell at public or private sale, or otherwise dispose of 
        for cash or credit, in his discretion and upon such 
        terms and conditions and for such consideration as he 
        shall determine to be reasonable, any evidence of debt, 
        contract, claim, personal property, or security 
        assigned to or held by him in connection with loans 
        made or evidences of indebtedness purchased under this 
        Act, and collect or compromise all obligations assigned 
        to or held by him in connection with such loans or 
        evidences of indebtedness until such time as such 
        obligations may be referred to the Attorney General for 
        suit or collection;
          [(5) further extend the maturity of or renew any loan 
        made or evidence of indebtedness purchased under this 
        Act, beyond the periods stated in such loan or evidence 
        of indebtedness or in this Act, for additional periods 
        not to exceed ten years, if such extension or renewal 
        will aid in the orderly liquidation of such loan or 
        evidence of indebtedness;
          [(6) deal with, complete, renovate, improve, 
        modernize, insure, rent, or sell for cash or credit, 
        upon such terms and conditions and for such 
        consideration as he shall determine to be reasonable, 
        any real or personal property conveyed to, or otherwise 
        acquired by him in connection with loans made or 
        evidences of indebtedness purchased under this Act;
          [(7) pursue to final collection, by way of compromise 
        or other administrative action, prior to reference to 
        the Attorney General, all claims against third parties 
        assigned to him in connection with loans made or 
        evidences of indebtedness purchased under this Act. 
        This shall include authority to obtain deficiency 
        judgments or otherwise in the case of mortgages 
        assigned to the Secretary. Section 3709 of the Revised 
        Statutes, as amended (41 U.S.C. 5), shall not apply to 
        any contract of hazard insurance or to any purchase or 
        contract for services or supplies on account of 
        property obtained by the Secretary as a result of loans 
        made or evidences of indebtedness purchased under this 
        Act if the premium therefor or the amount thereof does 
        not exceed $1,000. The power to convey and to execute, 
        in the name of the Secretary, deeds of conveyance, 
        deeds of release, assignments and satisfactions of 
        mortgages, and any other written instrument relating to 
        real or personal property or any interest therein 
        acquired by the Secretary pursuant to the provisions of 
        this Act may be exercised by the Secretary or by any 
        officer or agent appointed by him for that purpose 
        without the execution of any express delegation of 
        power or power of attorney;
          [(8) acquire, in any lawful manner, any property 
        (real, personal, or mixed, tangible or intangible), 
        whenever deemed necessary or appropriate to the conduct 
        of the activities authorized in sections 201, 202, 301, 
        403, and 503 of this Act;
          [(9) in addition to any powers, functions, 
        privileges, and immunities otherwise vested in him, 
        take any and all actions, including the procurement of 
        the services of attorneys by contract, determined by 
        him to be necessary or desirable in making, purchasing, 
        servicing, compromising, modifying, liquidating, or 
        otherwise administratively dealing with or realizing on 
        loans made or evidences of indebtedness purchased under 
        this Act;
          [(10) employ experts and consultants or organizations 
        therefor as authorized by section 15 of the 
        Administrative Expenses Act of 1946 (5 U.S.C. 55a), 
        compensate individuals so employed at rates not in 
        excess of $100 per diem, including travel time, and 
        allow them, while away from their homes or regular 
        places of business, travel expenses (including per diem 
        in lieu of subsistence) as authorized by section 5 of 
        such Act (5 U.S.C. 73b-2) for persons in the Government 
        service employed intermittently, while so employed: 
        Provided, however, That contracts for such employment 
        may be renewed annually;
          [(11) sue and be sued in any court of record of a 
        State having general jurisdiction or in any United 
        States district court, and jurisdiction is conferred 
        upon such district court to determine such 
        controversies without regard to the amount in 
        controversy; but no attachment, injunction, 
        garnishment, or other similar process, mesne or final, 
        shall be issued against the Secretary or his property. 
        Nothing herein shall be construed to except the 
        activities under this Act from the application of 
        sections 507(b) and 2679 of title 28, United States 
        Code, and of section 367 of the Revised Statutes (5 
        U.S.C. 316); and
          [(12) establish such rules, regulations and 
        procedures as he may deem appropriate in carrying out 
        the provisions of this Act.

                   [prevention of unfair competition

  [Sec. 702. No financial assistance under this Act shall be 
extended to any project when the result would be to increase 
the production of goods, materials, or commodities, or the 
availability of services or facilities, when there is not 
sufficient demand for such goods, materials, commodities, 
services, or facilities, to employ the efficient capacity of 
existing competitive commercial or industrial enterprises.

                          [savings provisions

  [Sec. 703. (a) No suit, action, or other proceedings lawfully 
commenced by or against the Administrator or any other officer 
of the Area Redevelopment Administration in his official 
capacity or in relation to the discharge of his official duties 
under the Area Redevelopment Act, shall abate by reason of the 
taking effect of the provisions of this Act, but the court may, 
on motion or supplemental petition filed at any time within 
twelve months after such taking effect, showing a necessity for 
the survival of such suit, action, or other proceeding to 
obtain a settlement of the questions involved, allow the same 
to be maintained by or against the Secretary or the 
Administrator or such other officer of the Department of 
Commerce as may be appropriate.
  [(b) Except as may be otherwise expressly provided in this 
Act, all powers and authorities conferred by this Act shall be 
cumulative and additional to and not in derogation of any 
powers and authorities otherwise existing. All rules, 
regulations, orders, authorizations, delegations, or other 
actions duly issued, made, or taken by or pursuant to 
applicable law, prior to the effective date of this Act, by any 
agency, officer, or office pertaining to any functions, powers, 
and duties under the Area Redevelopment Act shall continue in 
full force and effect after the effective date of this Act 
until modified or rescinded by the Secretary or such other 
officer of the Department of Commerce as, in accordance with 
applicable law, may be appropriate.

 [transfer of functions, effective date, and limitations on assistance

  [Sec. 704. (a) The functions, powers, duties, and authorities 
and the assets, funds, contracts, loans, liabilities, 
commitments, authorizations, allocations, and records which are 
vested in or authorized to be transferred to the Secretary of 
the Treasury under section 29(b) of the Area Redevelopment Act, 
and all functions, powers, duties, and authorities under 
section 29(c) of the Area Redevelopment Act are hereby vested 
in the Secretary.
  [(b) The President may designate a person to act as 
Administrator under this Act until the office is filled as 
provided in this Act or until the expiration of the first 
period of sixty days following the effective date of this Act, 
which shall first occur. While so acting such person shall 
receive compensation at the rate provided by this Act for such 
office.
  [(c) The provisions of this Act shall take effect upon 
enactment unless herein explicitly otherwise provided.
  [(d) Notwithstanding any requirements of this Act relating to 
the eligibility of areas, projects for which applications are 
pending before the Area Redevelopment Administration on the 
effective date of this Act shall for a period of one year 
thereafter be eligible for consideration by the Secretary for 
such assistance under the provisions of this Act as he may 
determine to be appropriate.
  [(e) No financial assistance authorized under this Act shall 
be used to finance the cost of facilities for the generation, 
transmission, or distribution of electrical energy, or to 
finance the cost of facilities for the production or 
transmission of gas (natural, manufactured, or mixed), except 
(1) for projects specifically authorized by Congress, and (2) 
for local projects for industrial parks and industrial or 
commercial areas in communities where the electrical energy or 
gas supply is, or is threatened to be interrupted or curtailed 
resulting in a loss of jobs, or where the purpose is to save 
jobs, or create new jobs, on condition that (A) the Secretary 
finds that project financing is not available from private 
lenders or other Federal agencies on terms which, in the 
opinion of the Secretary, will permit accomplishment of the 
project, and (B) the State or Federal regulatory body 
regulating such service determines that the facility to be 
financed will not compete with an existing public utility 
rendering such a service to the public at rates or charges 
subject to regulation by such State or Federal regulatory body, 
or if there is a determination of competition, the State or 
Federal regulatory body must make a determination that in the 
area to be served by the facility for which the financial 
assistance is to be extended there is a need for an increase in 
such service (taking into consideration reasonably forseeable 
future needs) which the existing public utility is not able to 
meet through its existing facilities or through an expansion 
which it agrees to undertake. Not more than $7,000,000 
approximated to carry out titles I and II of this Act may be 
expended annually for such projects.

                             [separability

  [Sec. 705. Notwithstanding any other evidence of the intent 
of Congress, it is hereby declared to be the intent of Congress 
that if any provision of this Act or the application thereof to 
any persons or circumstances shall be adjudged by any court of 
competent jurisdiction to be invalid such judgment shall not 
affect, impair, or invalidate the remainder of this Act or its 
application to other persons and circumstances, but shall be 
confined in its operation to the provision of this Act or the 
application thereof to the persons and circumstances directly 
involved in the controversy in which such judgment shall have 
been rendered.

                          [application of act

  [Sec. 706. As used in this Act, the terms ``State'', 
``States'', and ``United States'' include the several States, 
the District of Columbia, the Commonwealth of Puerto Rico, the 
Virgin Islands, Guam, and American Samoa.

                             [annual report

  [Sec. 707. The Secretary shall make a comprehensive and 
detailed annual report to the Congress of his operations under 
this Act for each fiscal year beginning with the fiscal year 
ending June 30, 1966. Such report shall be printed and shall be 
transmitted to the Congress not later than April 1 of the year 
following the fiscal year with respect to which such report is 
made.

                        [use of other facilities

  [Sec. 708. (a) The Secretary is authorized to delegate to the 
heads of other departments and agencies of the Federal 
Government any of the Secretary's functions, powers, and duties 
this Act as he may deem appropriate, and to authorize the 
redelegation of such functions, powers, and duties by the heads 
of such departments and agencies.
  [(b) Departments and agencies of the Federal Government shall 
exercise their powers, duties, and functions in such manner as 
will assist in carrying out the objectives of this Act.
  [(c) Funds authorized to be appropriated under this Act may 
be transferred between departments and agencies of the 
Government, if such funds are used for the purposes for which 
they are specifically authorized and appropriated.

                             [appropriation

  [Sec. 709. There are hereby authorized to be appropriated 
such sums as may be necessary to carry out those provisions of 
the Act for which specific authority for appropriations is not 
otherwise provided in this Act, except that there are hereby 
authorized to be appropriated to carry out those provisions of 
the Act for which specific authority for appropriations is not 
otherwise provided in this Act not to exceed $25,000,000 for 
the fiscal year ending September 30, 1982. Appropriations 
authorized under this Act shall remain available until expended 
unless otherwise provided by appropriations Acts.

                               [penalties

  [Sec. 710. (a) Whoever makes any statement knowing it to be 
false, or whoever willfully overvalues any security, for the 
purpose of obtaining for himself or for any applicant any 
financial assistance under section 101, 201, or 403 or any 
extension thereof by renewal, deferment or action, or 
otherwise, or the acceptance, release, or substitution of 
security therefor, or for the purpose of influencing in any way 
the action of the Secretary or for the purpose of obtaining 
money, property, or anything of value, under this Act, shall be 
punished by a fine of not more than $10,000 or by imprisonment 
for not more than five years, or both.
  [(b) Whoever, being connected in any capacity with the 
Secretary, in the administration of this Act (1) embezzles, 
abstracts, purloins, or willfully misapplies any moneys, funds, 
securities, or other things of value, whether belonging to him 
or pledged or otherwise entrusted to him, or (2) with intent to 
defraud the Secretary or any other body politic or corporate, 
or any individual, or to deceive any officer, auditor, or 
examiner, makes any false entry in any book, report or 
statement of or to the Secretary, or without being duly 
authorized draws any orders of issues, puts forth, or assigns 
any note, debenture, bond, or other obligation, or draft, bill 
of exchange, mortgage, judgment, or decree thereof, or (3) with 
intent to defraud participates or shares in or receives 
directly or indirectly any money, profit, property, or benefit 
through any transaction, loan, grant, commission, contract, or 
any other act of the Secretary, or (4) gives any unauthorized 
information concerning any future action of plan of the 
Secretary which might affect the value of securities, or having 
such knowledge invests or speculates, directly or indirectly, 
in the securities or property of any company or corporation 
receiving loans, grants, or other assistance from the 
Secretary, shall be punished by a fine of not more than $10,000 
or by imprisonment for not more than five years, or both.

         [employment of expediters and administrative employees

  [Sec. 711. No financial assistance shall be extended by the 
Secretary under section 101, 201, 202, or 403 to any business 
enterprise unless the owners, partners, or officers of such 
business enterprise (1) certify to the Secretary the names of 
any attorneys, agents, and other persons engaged by or on 
behalf of such business enterprise for the purpose of 
expediting applications made to the Secretary for assistance of 
any sort, under this Act, and the fees paid or to be paid to 
any such person; and (2) execute an agreement binding such 
business enterprise, for a period of two years after such 
assistance is rendered by the Secretary to such business 
enterprise, to refrain from employing tendering any office or 
employment to, or retaining for professional services, any 
person who, on the date such assistance or any part thereof was 
rendered, or within one year prior thereto, shall have served 
as an officer, attorney, agent, or employee, occupying a 
position or engaging in activities which the Secretary shall 
have determined involve discretion with respect to the granting 
of assistance under this Act.

             [prevailing rate of wage and fourth-hour week

  [Sec. 712. All laborers and mechanics employed by contractors 
or subcontractors on projects assisted by the Secretary under 
this Act shall be paid wages at rates not less than those 
prevailing on smiliar construction in the locality as 
determined by the Secretary of Labor in accordance with the 
Davis-Bacon Act, as amended (40 U.S.C. 276a-276a-5). The 
Secretary shall not extend any financial assistance under 
sections 101, 201, 202, 403, 903, and 1003, for such project 
without first obtaining adequate assurance that these labor 
standards will be maintained upon the construction work. The 
Secretary of Labor shall have, with respect to the labor 
standards specified in this provision, the authority and 
functions set forth in Reorganization Plan Numbered 14 of 1950 
(15 FR 3176; 64 Stat. 1267; 5 U.S.C. 133z-15), and section 2 of 
the Act of June 13, 1934, as amended (40 U.S.C. 276c).

                        [record of applications

  [Sec. 713. The Secretary shall maintain as a permanent part 
of the records of the Department of Commerce a list of 
applications approved for financial assistance under section 
101, 201, 202, or 403, which shall be kept available for public 
inspection during the regular business hours of the Department 
of Commerce. The following information shall be posted in such 
list as soon as each application is approved: (1) the name of 
the applicant and, in the case of corporate applications, the 
names of the officers and directors thereof, (2) the amount and 
duration of the loan or grant for which application is made, 
(3) the purposes for which the proceeds of the loan or grant 
are to be used, and (4) a general description of the security 
offered in the case of a loan.

                           [records and audit

  [Sec. 714. (a) Each recipient of assistance under this Act 
shall keep such records as the Secretary shall prescribe, 
including records which fully disclose the amount and the 
disposition by such recipient of the proceeds of such 
assistance the total cost of the project or undertaking in 
connection with which such assistance is given or used, and the 
amount and nature of that portion of the cost of the project or 
undertaking supplied by other sources, and such other records 
as will facilitate an effective audit.
  [(b) The Secretary and the Comptroller General of the United 
States, or any of their duly authorized representatives, shall 
have access for the purpose of audit and examination to any 
books, documents, papers, and records of the recipient that are 
pertinent to assistance received under this Act.

                         [conforming amendment

  [Sec. 715. All benefits heretofore specially made available 
(and not subsequently revoked) under other Federal programs to 
persons or to public or private organizations, corporations, or 
entities in areas designated by the Secretry as ``redevelopment 
areas'' under section 5 of the Area Redevelopment Act, are 
hereby also extended, insofar as practicable, to such areas as 
may be designated as ``redevelopment areas'' or ``economic 
development centers'' under the authority of section 401 or 403 
of this Act: Provided, however, That this section shall not be 
construed as limiting such administrative discretion as may 
have been conferred under any other law.
  [Sec. 716. All financial and technical assistance authorized 
under this Act shall be in addition to any Federal assistance 
previously authorized, and no provision hereof shall be 
construed as authorizing or permitting any reduction or 
diminution in the proportional amount of Federal assistance to 
which any State or other entity eligible under this Act would 
otherwise be entitled under the provisions of any other Act.

           [TITLE VIII--ECONOMIC RECOVERY FOR DISASTER AREAS

                           [purpose of title

  [Sec. 801. (a) It is the purpose of this title to provide 
assistance for the economic recovery, after the period of 
emergency aid and replacement of essential facilities and 
services, of any major disaster area which has suffered a 
dislocation of its economy of sufficient severity to require 
(1) assistance in planning for development to replace that lost 
in the major disaster; (2) continued coordination of assistance 
available under Federal-aid programs; and (3) continued 
assistance toward the restoration of the employment base.
  [(b) As used in this title, the term ``major disaster'' means 
a major disaster declared by the President in accordance with 
the Disaster Relief and Emergency Assistance Act.

                      [disaster recovery planning

  [Sec. 802. (a)(1) In the case of any area affected by a major 
disaster the Governor may request the President for assistance 
under this title. The Governor, within thirty days after 
authorization of such assistance by the President, shall 
designate a Recovery Planning Council for such area or for each 
part thereof.
  [(2) Such Recovery Planning Council shall be composed of not 
less than five members, a majority of whom shall be local 
elected officials of political subdivisions within the affected 
areas, at least one representative of the State, and a 
representative of the Federal Government appointed by the 
President in accordance with paragraph (3) of this subsection. 
During the major disaster, the Federal coordinating officer 
shall also serve on the Recovery Planning Council.
  [(3) The Federal representative on such Recovery Planning 
Council may be the Chairman of the Federal Regional Council for 
the affected area, or a member of the Federal Regional Council 
designated by the Chairman of such Regional Council. The 
Federal representative on such Recovery Planning Council may be 
the Federal Cochairman of the Regional Commission established 
pursuant to title V of this Act, or the Appalachian Regional 
Development Act of 1965, or his designee, where all of the area 
affected by a major disaster is within the boundaries of such 
Commission.
  [(4) The Governor may designate an existing 
multijurisdictional organization as the Recovery Planning 
Council where such organization complies with paragraph (2) of 
this subsection with the addition of State and Federal 
representatives except that if all or part of an area affected 
by a major disaster is within the jurisdiction of an existing 
multijurisdictional organization established under title VI of 
this Act or title III of the Appalachian Regional Development 
Act of 1965, such organization, with the addition of State and 
Federal representatives in accordance with paragraph (2) of 
this subsection, shall be designated by the Governor as the 
Recovery Planning Council. In any case in which such title III 
or IV organizations is designated as the Recovery Planning 
Council under this paragraph, some local elected officials of 
political subdivisions within the affected areas must be 
appointed to serve on such Recovery Planning Council. Where 
possible, the organization designated as the Recovery Planning 
Council shall be or shall be subsequently designated as the 
appropriate agency required by section 204 of the Demonstration 
Cities and Metropolitan Development Act of 1966 (42 U.S.C. 
3334) and by the Intergovernmental Cooperation Act of 1968 
(Public Law 90-577; 82 Stat. 1098).
  [(5) The Recovery Planning Council shall include private 
citizens as members to the extent feasible, and shall provide 
for and encourage public participation in its deliberations and 
decisions.
  [(b) The Recovery Planning Council (1) shall review existing 
plans for the affected area; and (2) may recommend to the 
Governor and responsible local governments such revisions as it 
determines necessary for the economic recovery of the area, 
including the development of new plans and the preparation of a 
recovery investment plan for the 5-year period following the 
declaration of the major disaster. The Recovery Planning 
Council shall accept as one element of the recovery investment 
plans determinations made under section 406(c) of the Disaster 
Relief and Emergency Assistance Act.
  [(c)(1) A recovery investment plan prepared by a Recovery 
Planning Council may recommend the revision, deletion, 
reprogramming, or additional approval of Federal-aid projects 
and programs within the area--
          [(A) for which application has been made but approval 
        not yet granted;
          [(B) for which funds have been obligated or approval 
        granted but construction not yet begun;
          [(C) for which funds have been or are scheduled to be 
        apportioned within the five years after the declaration 
        of the disaster;
          [(D) which may otherwise be available to the area 
        under any State schedule or revised State schedule of 
        priorities; or
          [(E) which may reasonably be anticipated as becoming 
        available under existing programs.
  [(2) Upon the recommendation of the Recovery Planning Council 
and the request for the Governor, any funds for projects or 
programs identified pursuant to paragraph (1) of this 
subsection may, to any extent consistent with appropriation 
Acts, be placed in reserve by the responsible Federal agency 
for use in accordance with such recommendations. Upon the 
request of the Governor and with the concurrence of affected 
local governments, such funds may be transferred to the 
Recovery Planning Council to be expended in the implementation 
of the recovery investment plan, except that no such transfer 
may be made unless such expenditure is for a project or program 
for which such funds originally were made available by an 
appropriation Act.

       [public works and development facilities grants and loans

  [Sec. 803. (a) The President is authorized to provide funds 
to any Recovery Planning Council for the implementation of a 
recovery investment plan by public bodies. Such funds may be 
used--
          [(1) to make loans for the acquisition or development 
        of land and improvements for public works, public 
        service, or development facility usage, including the 
        acquisition or development of parks or open spaces, and 
        the acquisition, construction, rehabilitation, 
        alteration, expansion, or improvement of such 
        facilities, including related machinery and equipment, 
        and
          [(2) to make supplementary grants to increase the 
        Federal share for projects for which funds are reserved 
        pursuant to subsection (c)(2) of section 802 of this 
        Act, or other Federal-aid projects in the affected 
        area.
  [(b) Grants and loans under this section may be made to any 
State, local government, or private or public nonprofit 
organization representing any area or part thereof affected by 
a major disaster.
  [(c) No supplementary grant shall increase the Federal share 
of the cost of any project to greater than 90 per centum, 
except in the case of a grant for the benefit of Indians or 
Alaska Natives, or in the case of any State or local government 
which the President determines has exhausted its effective 
taxing and borrowing capacity.
  [(d) Loans under this section shall bear interest at a rate 
determined by the Secretary of the Treasury taking into 
consideration the current average market yield on outstanding 
marketable obligations of the United States with remaining 
periods to maturity comparable to the average maturities of 
such loans, adjusted to the nearest one-eighth of 1 per centum 
per annum.
  [(e) Financial assistance under this title shall not be 
extended to assist establishments relocating from one area to 
another or to assist subcontractors whose purpose is to divest, 
or whose economic success is dependent upon divesting, other 
contractors or subcontractors of contracts therefore 
customarily performed by them. Such limitations shall not be 
construed to prohibit assistance for the expansion of an 
existing business entity through the establishment of a new 
branch, affiliate, or subsidiary of such entity if the 
Secretary of Commerce finds that the establishment of such 
branch, affiliate, or subsidiary will not result in an increase 
in unemployment of the area of original location or in any 
other area where such entity conducts business operations, 
unless the Secretary has reason to believe that such branch, 
affiliate, or subsidiary is being established with the 
intention of closing down the operations of the existing 
business entity in the area of its original location or in any 
other area where it conducts such operations.

                            [loan guarantees

  [Sec. 804. The President is authorized to provide funds to 
Recovery Planning Councils to guarantee loans made to private 
borrowers by private lending institutions (1) to aid in 
financing any project within any area affected by a major 
disaster for the purchase or development of land and facilities 
(including machinery and equipment) for industrial or 
commercial usage including the construction of new buildings, 
and rehabilitation of abandoned or unoccupied buildings, and 
the alteration, conversion or enlargement of existing 
buildIngs; and (2) for working capital in connection with 
projects in areas assisted under paragraph (1), upon 
application of such institution and upon such terms and 
conditions as the President may prescribe. No such gurantee 
shall at any time exceed 90 per centum of the amount of the 
outstanding unpaid balance of such loan.

                         [technical assistance

  [Sec. 805. (a) In carrying out the purposes of this title the 
President is authorized to provide technical assistance which 
would be useful in facilitating economic recovery in areas 
affected by major disasters. Such assistance shall include 
project planning and feasibility studies, management and 
operational assistance, and studies evaluating the needs of, 
and developing potentialities for, economic recovery of such 
areas. Such assistance may be provided by the President 
directly, through the payment of funds authorized for this 
title to other departments or agencies of the Federal 
Government, through the employment of private individuals, 
partnerships, firms, corporations or suitable institutions, 
under contracts entered into for such purposes, or through 
grants-in-aid to appropriate public or private non-profit 
State, area, district, or local organization.
  [(b) The President is authorized to make grants to defray not 
to exceed 75 per centum of the administrative expenses of 
Recovery Planning Councils designated pursuant to section 802 
of this Act. In determining the amount of the non-Federal share 
of such costs or expenses, the President shall give due 
consideration to all contributions both in cash and in kind, 
fairly evaluated including but not limited to space, equipment, 
and services. Where practicable, grants-in-aid authorized under 
this subsection shall be used in conjunction with other 
available planning grants, to assure adequate and effective 
planning and economical use of funds.

   [TITLE IX--SPECIAL ECONOMIC DEVELOPMENT AND ADJUSTMENT ASSISTANCE

                                [purpose

  [Sec. 901. It is the purpose of this title to provide special 
economic development and adjustment assistance programs to help 
State and local areas meet special needs arising from actual or 
threatened severe unemployment arising from economic 
dislocation, including unemployment arising from actions of the 
Federal Government and from compliance with environmental 
requirements which remove economic activities from a locality, 
and economic adjustment problems resulting from severe changes 
in economic conditions (including long-term economic 
deterioration), and to encourage cooperative intergovernmental 
action to prevent or solve economic adjustment problems. 
Nothing in this title is intended to replace the efforts of the 
economic adjustment program of the Department of Defense.

                              [definition

  [Sec. 902. As used in this title, the term ``eligible 
recipient'' means a redevelopment area or economic development 
district established under title IV of this Act, an Indian 
tribe, a State, a city or other political subdivision of a 
State, or consortium of such political subdivisions.

                          [grants by secretary

  [Sec. 903. (a)(1) The Secretary is authorized to make grants 
directly to any eligible recipient in an area (A) which the 
Secretary has determined has experienced, or may reasonably be 
foreseen to be about to experience, a special need to meet an 
expected rise in unemployment, or other economic adjustment 
problems (including those caused by any action or decision of 
the Federal Government), or (B) which the Secretary determines 
has demonstrated long-term economic deterioration, to carry out 
or develop a plan which meets the requirements of subsection 
(b) of this section and which is approved by the Secretary, to 
use such grants for any of the following: public facilities, 
public services, business development, planning, unemployment 
compensation (in accordance with subsection (d) of this 
section), rent supplements, mortgage payment assistance, 
research, technical assistance, training, relocation of 
individuals and businesses, and other assistance which 
demonstrably furthers the economic adjustment objectives of 
this title.
  [(2)(A) Such grants may be used in direct expenditures by the 
eligible recipient or through redistribution by it to public 
and private entities in grants, loans, loan guarantees, 
payments to reduce interest on loan guarantees, or other 
appropriate assistance, but no grant shall be made by an 
eligible recipient to a private profitmaking entity.
  [(B) Grants for unemployment compensation shall be made to 
the State. Grants for any other purpose shall be made to any 
appropriate eligible recipient capable of carrying out such 
purpose.
  [(b) No plan shall be approved by the Secretary under this 
section unless such plan shall--
          [(1) identify each economic development and 
        adjustment need of the area for which assistance is 
        sought under this title;
          [(2) describe each activity planned to meet each such 
        need;
          [(3) explain the details of the method of carrying 
        out each such planned activity;
          [(4) contain assurances satisfactory to the Secretary 
        that the proceeds from the repayment of loans made by 
        the eligible recipient with funds granted under this 
        title will be used for economic adjustment; and
          [(5) be in such form and contain such additional 
        information as the Secretary shall prescribe.
  [(c) The Secretary to the extent practicable shall coordinate 
his activities in requiring plans and making grants and loans 
under this title with regional commissions, States, economic 
development districts and other appropriate planning and 
development organizations.
  [(d) In each case in which the Secretary determines a need 
for assistance under subsection (a) of this section due to an 
increase in unemployment and makes a grant under this section, 
the Secretary may transfer funds available for such grant to 
the Secretary of Labor and the Secretary of Labor is authorized 
to provide to any individual unemployed as a result of the 
dislocation for which such grant is made, such assistance as he 
deems appropriate while the individual is unemployed. Such 
assistance as the Secretary of labor may provide shall be 
available to an individual not otherwise disqualified under 
State law for unemployment compensaton benefits, as long as the 
individual's unemployment caused by the dislocation continues 
or until the individual is reemployed in a suitable position, 
but no longer than one year after the unemployment commences. 
Such assistance for a week of employment shall not exceed the 
maximum weekly amount authorized under the unemployment 
compensation law of the State in which the dislocation 
occurred, and the amount of assistance under this subsection 
shall be reduced by any amount of unemployment compensation or 
of private income protection insurance compensation available 
to such individual for such week of employment. The Secretary 
of Labor is directed to provide such assistance through 
agreements with States which, in his judgment, have an adequate 
system for administering such assistance through existing State 
agencies.

                        [reports and evaluation

  [Sec. 904. (a) Each eligible recipient which receives 
assistance under this title shall annually during the period 
such assistance continues make a full and complete report to 
the Secretary, in such manner as the Secretary shall prescribe, 
and such report shall contain an evaluation of the 
effectiveness of the economic assistance provided under this 
title in meeting the need it was designed to alleviate and the 
purposes of this title.
  [(b) The Secretary shall include in the annual report 
pursuant to section 707 of this Act a consolidated report with 
his recommendations, if any, on the assistance authorized under 
this title, in a form which he deems appropriate.

                    [authorization of appropriations

  [Sec. 905. There is authorized to be appropriated to carry 
out this title not to exceed $75,000,000 for the fiscal year 
ending June 30, 1975, and $100,000,000 for the fiscal year 
ending June 30, 1976, not to exceed $25,000,000 for the 
transition quarter ending September 30, 1976, and not to exceed 
$100,000,000 per fiscal year for the fiscal years ending 
September 30, 1977, September 30, 1978, September 30, 1979, 
September 30, 1980, and September 30, 1981, and not to exceed 
$33,000,000 for the fiscal year ending September 30, 1982.

                  [TITLE X--JOB OPPORTUNITIES PROGRAM

                         [statement of purpose

  [Sec. 1001. It is the purpose of this title to provide 
emergency financial assistance to stimulate, maintain or expand 
job creating activities in areas, both urban and rural, which 
are suffering from unusually high levels of unemployment.

                              [definitions

  [Sec. 1002. For the purpose of this title the term ``eligible 
area'' means any area, which the Secretary of Labor designates 
as an area which has a rate of unemployment equal to or in 
excess of 7 per centum for the most recent calendar quarter or 
any area designated pursuant to section 204(c) of the 
Comprehensive Employment and Training Act of 1973 which has 
unemployment equal to or in excess of 7 per centum with special 
consideration given to areas with unemployment rates above the 
national average.

                          [program authorized

  [Sec. 1003. (a) To carry out the purposes of this title, the 
Secretary of Commerce, in accordance with the provisions of 
this title, is authorized from funds appropriated and made 
available under section 1007 of this title to provide financial 
assistance to programs and projects identified through the 
review process described in section 1004 to expand or 
accelerate the job creating impact of such programs or projects 
for unemployed persons in eligible areas. Programs and projects 
for which funds are made available under this title shall not 
be approved until the officials of the appropriate units of 
general government in the affected areas have an adequate 
opportunity to comment on the specific proposal.
  [(b) Whenever funds are made available by the Secretary of 
Commerce under this title for any program or project, the head 
of the department, agency, or instrumentality of the Federal 
Government administering the law authorizing such assistance 
shall, except as otherwise provided in this subsection, 
administer the law authorizing such assistance in accordance 
with all applicable provisions of that law, except provisions 
relating to--
          [(1) requiring allocation of funds among the States,
          [(2) limits upon the total amount of such grants for 
        any period, and
          [(3) the Federal contribution to any State or local 
        government, whenever the President or head of such 
        department, agency, or instrumentality of the Federal 
        Government determines that any non-Federal contribution 
        cannot reasonably be obtained by the State or local 
        government concerned.
  [(c) Where necessary to effectively carry out the purposes of 
this title, the Secretary of Commerce is authorized to assist 
eligible areas in making applications for grants under this 
title.
  [(d) Notwithstanding any other provisions of this title, 
funds allocated by the Secretary of Commerce shall be available 
only for a program or project which the Secretary indentifies 
and selects pursuant to this subsection, and which can be 
initiated or implemented promptly and substantially completed 
within twelve months after allocation is made. In identifying 
and selecting programs and projects pursuant to this 
subsection, the Secretary shall (1) give priority to programs 
and projects which are most effective in creating and 
maintaining productive employment, including permanent and 
skilled employment measured as the amount of such direct and 
indirect employment generated or supported by the additional 
expenditures of Federal funds under this title, and (2) 
consider the appropriations of the proposed activity to the 
number and needs of unemployed persons in the eligible area.
  [(e)(1) The Secretary, if the national unemployment rate is 
equal to or exceeds 7 per centum for the most recent calendar 
quarter, shall expedite and give priority to grant applications 
submitted for such areas having unemployment in excess of the 
national average rate of unemployment for the most recent 
calendar quarter. Seventy per centum of the funds appropriated 
pursuant to this title shall be available only for grants in 
areas as defined in the first sentence of this subsection.
  [(2) Not more than 15 per centum of all amounts appropriated 
to carry out this title shall be available under this title for 
projects or programs within any one State, except that in the 
case of Guam, Virgin Islands, and American Samoa, not less than 
one-half of 1 per centum in the aggregate shall be available 
for such projects or programs.

                            [program review

  [Sec. 1004. (a) Within forty-five days after any funds are 
appropriated to the Secretary to carry out the purposes of this 
title, after the date of enactment of the Public Works and 
Economic Development Act Amendments of 1976, each department, 
agency, or instrumentality of the Federal Government, each 
regional commission established by section 101 of the 
Appalachian Regional Development Act of 1965 or pursuant to 
section 502 of this Act, shall (1) complete a review of its 
budget, plans, and programs and including State, substate, and 
local development plans filed with such department, agency or 
commission; (2) evaluate the job creation effectiveness of 
programs and projects for which funds are proposed to be 
obligated in the calendar year and additional programs and 
projects (including new or revised programs and projects 
submitted under subsection (b) for which funds could be 
obligated in such year with Federal financial assistance under 
this title; and (3) submit to the Secretary of Commerce 
recommendations for programs and projects which have the 
greatest potential to stimulate the creation of jobs for 
unemployed persons in eligible areas. Within forty-five days of 
the receipt of such recommendations the Secretary of Commerce 
shall review such recommendations, and after consultation with 
such department, agency, instrumentality, regional commission, 
State, or local government make allocations of funds in 
accordance with section 1003(d) of this title.
  [(b) States and political subdivisions in any eligible area 
may, pursuant to subsection (a), submit to the appropriate 
department, agency, or instrumentality of the Federal 
Government (or regional commission) program and project 
applications for Federal financial assistance provided under 
this title.
  [(c) The Secretary, in reviewing programs and projects 
recommended for any eligible area shall give priority to 
programs and projects originally sponsored by States and 
political subdivisions, including, but not limited to, new or 
revised programs and projects submitted in accordance with this 
section.

                         [rules and regulations

  [Sec. 1005. The Secretary of Commerce shall prescribe such 
rules, regulations, and procedures to carry out the provisions 
of this title as will assure that adequate consideration is 
given to the relative needs of applicants for assistance in 
rural eligible areas and the relative needs of applicants for 
assistance in urban eligible areas and to any equitable 
distribution of funds authorized under this title between rural 
and urban eligible applicants unless this would require project 
grants to be made in areas which do not meet the criteria of 
this title.

                    [authorization of appropriations

  [Sec. 1006. (a) There are hereby authorized to be 
appropriated to carry out the provisions of this title 
$81,250,000 for each calendar quarter of a fiscal year during 
which the national average unemployment is equal to or exceeds 
7 per centum on the average. No further appropriations of funds 
is authorized under this section if a determination is made 
that the national average rate of unemployment has receded 
below an average of 7 per centum for the most recent calendar 
quarter as determined by the Secretary of Labor.
  [(b) Funds authorized by subsecton (a) are available for 
grants by the Secretary when the national average unemployment 
is equal to or in excess of an average of 7 per centum for the 
most recent calendar quarter. If the national average 
unemployment rate recedes below an average of 7 per centum for 
the most recent calendar quarter, the authority of the 
Secretary to make grants or obligate funds under this title is 
terminated. Grants may not be made until the national average 
unemployment has equalled or exceeded an average of 7 per 
centum for the most recent calendar quarter.
  [(c) Funds authorized to carry out this title shall be in 
addition to, and not in lieu of, any amounts authorized by 
other provisions of law.

                           [termination date

  [Sec. 1007. Notwithstanding any other provision of this 
title, no further obligations of funds appropriated under this 
title shall be made by the Secretary of Commerce after 
September 30, 1981.

                          [construction costs

  [Sec. 1008. No program or project originally approved for 
funds under an existing program shall be determined to be 
ineligible for Federal financial assistance under this title 
solely because of increased construction costs.]
                              ----------                              


           NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY ACT

          * * * * * * *

                establishment, functions, and activities

  Sec. 2. (a) There is established within the Department of 
Commerce a science, engineering, technology, and measurement 
laboratory to be known as the National Institute of Standards 
and Technology (hereafter in this Act referred to as the 
``Institute'').
  (b) The Secretary of Commerce (hereafter in this Act referred 
to as the ``Secretary'') acting through the Director of the 
Institute (hereafter in this Act referred to as the 
``Director'') and, if appropriate, through other officials, is 
authorized to take all actions necessary and appropriate to 
accomplish the purposes of this Act, including the following 
functions of the Institute--
          [(1) to assist industry in the development of 
        technology and procedures needed to improve quality, to 
        modernize manufacturing processes, to ensure product 
        reliability, manufacturability, functionality, and 
        cost-effectiveness, and to facilitate the more rapid 
        commercialization, especially by small- and medium-
        sized companies throughout the United States, of 
        products based on new scientific discoveries in fields 
        such as automation, electronics, advanced materials, 
        biotechnology, and optical technologies;]
          [(2)] (1) to develop, maintain, and retain custody of 
        the national standards of measurement, and provide the 
        means and methods for making measurements consistent 
        with those standards, including comparing standards 
        used in scientific investigations, engineering, 
        manufacturing, commerce, industry, and educational 
        institutions with the standards adopted or recognized 
        by the Federal Government;
          [(3)] (2) to enter into contracts, including 
        cooperative research and development arrangements, in 
        furtherance of the purposes of this Act;
          [(4)] (3) to provide United States industry, 
        Government, and educational institutions with a 
        national clearinghouse of current information, 
        techniques, and advice for the achievement of higher 
        quality and productivity based on current domestic and 
        international scientific and technical development;
          [(5)] (4) to assist industry in the development of 
        measurements, measurement methods, and basic 
        measurement technology;
          [(6)] (5) to determine, compile, evaluate, and 
        disseminate physical constants and the properties and 
        performance of conventional and advanced materials when 
        they are important to science, engineering, 
        manufacturing, education, commerce, and industry and 
        are not available with sufficient accuracy elsewhere;
          [(7)] (6) to develop a fundamental basis and methods 
        for testing materials, mechanisms, structures, 
        equipment, and systems, including those used by the 
        Federal Government;
          [(8)] (7) to assure the compatibility of United 
        States national measurement standards with those of 
        other nations;
          [(9)] (8) to cooperate with other departments and 
        agencies of the Federal Government, with industry, with 
        State and local governments, with the governments of 
        other nations and international organizations, and with 
        private organizations in establishing standard 
        practices, codes, specifications, and voluntary 
        consensus standards;
          [(10)] (9) to advise government and industry on 
        scientific and technical problems; and
          [(11)] (10) to invent, develop, and (when 
        appropriate) promote transfer to the private sector of 
        measurement devices to serve special national needs.
          * * * * * * *
  (d) In carrying out the extramural funding programs of the 
Institute[, including the programs established under sections 
25, 26, and 28 of this Act], the Secretary may retain 
reasonable amounts of any funds appropriated pursuant to 
authorizations for these programs in order to pay for the 
Institute's management of these programs.
          * * * * * * *

       visiting committee on [advanced] standards and technology

  Sec. 10. (a) There is established within the Institute a 
Visiting Committee on [Advanced] Standards and Technology 
(hereafter in this Act referred to as the ``Committee''). The 
Committee shall consist of nine members appointed by the 
Director, at least five of whom shall be from United States 
industry. The Director shall appoint as original members of the 
Committee any final members of the National Bureau of Standards 
Visiting Committee who wish to serve in such capacity. In 
addition to any powers and functions otherwise granted to it by 
this Act, the Committee shall review and make recommendations 
regarding general policy for the Institute, its organization, 
its budget, and its programs within the framework of applicable 
national policies as set forth by the President and the 
Congress.
          * * * * * * *

               [studies by the national research council

  [Sec. 24. The Director may periodically contract with the 
National Research Council for advice and studies to assist the 
Institute to serve United States industry and science. The 
subjects of such advice and studies may include--
          [(1) the competitive position of the United States in 
        key areas of manufacturing and emerging technologies 
        and research activities which would enhance that 
        competitiveness;
          [(2) potential activities of the Institute, in 
        cooperation with industry and the States, to assist in 
        the transfer and dissemination of new technologies for 
        manufacturing and quality assurance; and
          [(3) identification and assessment of likely barriers 
        to widespread use of advanced manufacturing technology 
        by the United States workforce, including training and 
        other initiatives which could lead to a higher 
        percentage of manufacturing jobs of United States 
        companies being located within the borders of our 
        country.

     [regional centers for the transfer of manufacturing technology

  [Sec. 25. (a) The Secretary, through the Director and, if 
appropriate, through other officials, shall provide assistance 
for the creation and support of Regional Centers for the 
Transfer of Manufacturing Technology (hereafter in this Act 
referred to as the ``Centers''). Such centers shall be 
affiliated with any United States-based nonprofit institution 
or organization, or group thereof, that applies for and is 
awarded financial assistance under this section in accordance 
with the description published by the Secretary in the Federal 
Register under subsection (c)(2). Individual awards shall be 
decided on the basis of merit review. The objective of the 
Centers is to enhance productivity and technological 
performance in United States manufacturing through--
          [(1) the transfer of manufacturing technology and 
        techniques developed at the Institute to Centers and, 
        through them, to manufacturing companies throughout the 
        United States;
          [(2) the participation of individuals from industry, 
        universities, State governments, other Federal 
        agencies, and, when appropriate, the Institute in 
        cooperative technology transfer activities;
          [(3) efforts to make new manufacturing technology and 
        processes usable by United States-based small- and 
        medium-sized companies;
          [(4) the active dissemination of scientific, 
        engineering, technical, and management information 
        about manufacturing to industrial firms, including 
        small- and medium-sized manufacturing companies; and
          [(5) the utilization, when appropriate, of the 
        expertise and capability that exists in Federal 
        laboratories other than the Institute.
  [(b) The activities of the Centers shall include--
          [(1) the establishment of automated manufacturing 
        systems and other advanced production technologies, 
        based on research by the Institute, for the purpose of 
        demonstrations and technology transfer;
          [(2) the active transfer and dissemination of 
        research findings and Center expertise to a wide range 
        of companies and enterprises, particularly small- and 
        medium-sized manufacturers; and
          [(3) loans, on a selective, short-term basis, of 
        items of advanced manufacturing equipment to small 
        manufacturing firms with less than 100 employees.
  [(c)(1) The Secretary may provide financial support to any 
Center created under subsection (a) for a period not to exceed 
six years. The Secretary may not provide to a Center more than 
50 percent of the capital and annual operating and maintenance 
funds required to create and maintain such Center.
  [(2) The Secretary shall publish in the Federal Register, 
within 90 days after the date of the enactment of this section, 
a draft description of a program for establishing Centers, 
including--
          [(A) a description of the program;
          [(B) procedures to be followed by applicants;
          [(C) criteria for determining qualified applicants;
          [(D) criteria, including those listed under paragraph 
        (4), for choosing recipients of financial assistance 
        under this section from among the qualified applicants; 
        and
          [(E) maximum support levels expected to be available 
        to Centers under the program in the fourth through 
        sixth years of assistance under this section.
The Secretary shall publish a final description under this 
paragraph after the expiration of a 30-day comment period.
  [(3) Any nonprofit institution, or group thereof, or 
consortia of nonprofit institutions, including entities 
existing on the date of the enactment of this section, may 
submit to the Secretary an application for financial support 
under this subsection, in accordance with the procedures 
established by the Secretary and published in the Federal 
Register under paragraph (2). In order to receive assistance 
under this section, an applicant shall provide adequate 
assurances that it will contribute 50 percent or more of the 
proposed Center's capital and annual operating and maintenance 
costs for the first three years and an increasing share for 
each of the last three years. Each applicant shall also submit 
a proposal for the allocation of the legal rights associated 
with any invention which may result from the proposed Center's 
activities.
  [(4) The Secretary shall subject each such application to 
merit review. In making a decision whether to approve such 
application and provide financial support under this 
subsection, the Secretary shall consider at a minimum (A) the 
merits of the application, particularly those portions of the 
application regarding technology transfer, training and 
education, and adaptation of manufacturing technologies to the 
needs of particular industrial sectors, (B) the quality of 
service to be provided, (C) geographical diversity and extent 
of service area, and (D) the percentage of funding and amount 
of in-kind commitment from other sources.
  [(5) Each Center which receives financial assistance under 
this section shall be evaluated during its third year of 
operation by an evaluation panel appointed by the Secretary. 
Each such evaluation panel shall be composed of private 
experts, none of whom shall be connected with the involved 
Center, and Federal officials. An official of the Institute 
shall chair the panel. Each evaluation panel shall measure the 
involved Center's performance against the objectives specified 
in this section. The Secretary shall not provide funding for 
the fourth through the sixth years of such Center's operation 
unless the evaluation is positive. If the evaluation is 
positive, the Secretary may provide continued funding through 
the sixth year at declining levels, which are designed to 
ensure that the Center no longer needs financial support from 
the Institute by the seventh year. In no event shall funding 
for a Center be provided by the Department of Commerce after 
the sixth year of the operation of a Center.
  [(6) The provisions of chapter 18 of title 35, United States 
Code, shall (to the extent not inconsistent with this section) 
apply to the promotion of technology from research by Centers 
under this section except for contracts for such specific 
technology extension or transfer services as may be specified 
by statute or by the Director.
  [(d) In addition to such sums as may be authorized and 
appropriated to the Secretary and Director to operate the 
Centers program, the Secretary and Director also may accept 
funds from other Federal departments and agencies for the 
purpose of providing Federal funds to support Centers. Any 
Center which is supported with funds which originally came from 
other Federal departments and agencies shall be selected and 
operated according to the provisions of this section.

                [assistance to state technology programs

  [Sec. 26. (a) In addition to the Centers program created 
under section 25, the Secretary, through the Director and, if 
appropriate, through other officials, shall provide technical 
assistance to State technology programs throughout the United 
States, in order to help those programs help businesses, 
particularly small- and medium-sized businesses, to enhance 
their competitiveness through the application of science and 
technology.
  [(b) Such assistance from the Institute to State technology 
programs shall include, but not be limited to--
          [(1) technical information and advice from Institute 
        personnel;
          [(2) workshops and seminars for State officials 
        interested in transferring Federal technology to 
        businesses; and
          [(3) entering into cooperative agreements when 
        authorized to do so under this or any other Act.]
          * * * * * * *

                      [advanced technology program

  [Sec. 28. (a) There is established in the Institute an 
Advanced Technology Program (hereafter in this Act referred to 
as the ``Program'') for the purpose of assisting United States 
businesses in creating and applying the generic technology and 
research results necessary to--
          [(1) commercialize significant new scientific 
        discoveries and technologies rapidly; and
          [(2) refine manufacturing technologies.
The Secretary, acting through the Director, shall assure that 
the Program focuses on improving the competitive position of 
the United States and its businesses, gives preference to 
discoveries and to technologies that have great economic 
potential, and avoids providing undue advantage to specific 
companies. In operating the Program, the Secretary and Director 
shall, as appropriate, be guided by the findings and 
recommendations of the Biennial National Critical Technology 
Reports prepared pursuant to section 603 of the National 
Science and Technology Policy, Organization, and Priorities Act 
of 1976 (42 U.S.C. 6683).
  [(b) Under the Program established in subsection (a), and 
consistent with the mission and policies of the Institute, the 
Secretary, acting through the Director, and subject to 
subsections (c) and (d), may--
          [(1) aid industry-led United States joint research 
        and development ventures (hereafter in this section 
        referred to as ``joint ventures'') (which may also 
        include universities and independent research 
        organizations), including those involving collaborative 
        technology demonstration projects which develop and 
        test prototype equipment and processes, through--
                  [(A) provision of organizational and 
                technical advice; and
                  [(B) participation in such joint ventures by 
                means of grants, cooperative agreements, or 
                contracts, if the Secretary, acting through the 
                Director, determines participation to be 
                appropriate, which may include (i) partial 
                start-up funding, (ii) provision of a minority 
                share of the cost of such joint ventures for up 
                to 5 years, and (iii) making available 
                equipment, facilities, and personnel,
        provided that emphasis is placed on areas where the 
        Institute has scientific or technological expertise, on 
        solving generic problems of specific industries, and on 
        making those industries more competitive in world 
        markets;
          [(2) provide grants to and enter into contracts and 
        cooperative agreements with United States businesses 
        (especially small businesses), provided that emphasis 
        is placed on applying the Institute's research, 
        research techniques, and expertise to those 
        organizations' research programs;
          [(3) involve the Federal laboratories in the Program, 
        where appropriate, using among other authorities the 
        cooperative research and development agreements 
        provided for under section 12 of the Stevenson-Wydler 
        Technology Innovation Act of 1980; and
          [(4) carry out, in a manner consistent with the 
        provisions of this section, such other cooperative 
        research activities with joint ventures as may be 
        authorized by law or assigned to the Program by the 
        Secretary.
  [(c) The Secretary, acting through the Director, is 
authorized to take all actions necessary and appropriate to 
establish and operate the Program, including--
          [(1) publishing in the Federal Register draft 
        criteria and, no later than six months after the date 
        of the enactment of this section, following a public 
        comment period, final criteria, for the selection of 
        recipients of assistance under subsection (b) (1) and 
        (2);
          [(2) monitoring how technologies developed in its 
        research program are used, and reporting annually to 
        the Congress on the extent of any overseas transfer of 
        these technologies;
          [(3) establishing procedures regarding financial 
        reporting and auditing to ensure that contracts and 
        awards are used for the purposes specified in this 
        section, are in accordance with sound accounting 
        practices, and are not funding existing or planned 
        research programs that would be conducted in the same 
        time period in the absence of financial assistance 
        under the Program;
          [(4) assuring that the advice of the Committee 
        established under section 10 is considered routinely in 
        carrying out the responsibilities of the Institute; and
          [(5) providing for appropriate dissemination of 
        Program research results.
  [(d) When entering into contracts or making awards under 
subsection (b), the following shall apply:
          [(1) No contract or award may be made until the 
        research project in question has been subject to a 
        merit review, and has, in the opinion of the reviewers 
        appointed by the Director and the Secretary, acting 
        through the Director, been shown to have scientific and 
        technical merit.
          [(2) In the case of joint ventures, the Program shall 
        not make an award unless the award will facilitate the 
        formation of a joint venture or the initiation of a new 
        research and development project by an existing joint 
        venture.
          [(3) No Federal contract or cooperative agreement 
        under subsection (b)(2) shall exceed $2,000,000 over 3 
        years, or be for more than 3 years unless a full and 
        complete explanation of such proposed award, including 
        reasons for exceeding these limits, is submitted in 
        writing by the Secretary to the Committee on Commerce, 
        Science, and Transportation of the Senate and the 
        Committee on Science, Space, and Technology of the 
        House of Representatives. The proposed contract or 
        cooperative agreement may be executed only after 30 
        calendar days on which both Houses of Congress are in 
        session have elapsed since such submission. Federal 
        funds made available under subsection (b)(2) shall be 
        used only for direct costs and not for indirect costs, 
        profits, or management fees of the contractor.
          [(4) In determining whether to make an award to a 
        particular joint venture, the Program shall consider 
        whether the members of the joint venture have made 
        provisions for the appropriate participation of small 
        United States businesses in such joint venture.
          [(5) Section 552 of title 5, United States Code, 
        shall not apply to the following information obtained 
        by the Federal Government on a confidential basis in 
        connection with the activities of any business or any 
        joint venture receiving funding under the Program--
                  [(A) information on the business operation of 
                any member of the business or joint venture; 
                and
                  [(B) trade secrets possessed by any business 
                or any member of the joint venture.
          [(6) Intellectual property owned and developed by any 
        business or joint venture receiving funding or by any 
        member of such a joint venture may not be disclosed by 
        any officer or employee of the Federal Government 
        except in accordance with a written agreement between 
        the owner or developer and the Program.
          [(7) If a business or joint venture fails before the 
        completion of the period for which a contract or award 
        has been made, after all allowable costs have been paid 
        and appropriate audits conducted, the unspent balance 
        of the Federal funds shall be returned by the recipient 
        to the Program.
          [(8) Upon dissolution of any joint venture or at the 
        time otherwise agreed upon, the Federal Government 
        shall be entitled to a share of the residual assets of 
        the joint venture proportional to the Federal share of 
        the costs of the joint venture as determined by 
        independent audit.
          [(9) A company shall be eligible to receive financial 
        assistance under this section only if--
                  [(A) the Secretary finds that the company's 
                participation in the Program would be in the 
                economic interest of the United States, as 
                evidenced by investments in the United States 
                in research, development, and manufacturing 
                (including, for example, the manufacture of 
                major components or subassemblies in the United 
                States); significant contributions to 
                employment in the United States; and agreement 
                with respect to any technology arising from 
                assistance provided under this section to 
                promote the manufacture within the United 
                States of products resulting from that 
                technology (taking into account the goals of 
                promoting the competitiveness of United States 
                industry), and to procure parts and materials 
                from competitive suppliers; and
                  [(B) either--
                          [(i) the company is a United States-
                        owned company; or
                          [(ii) the Secretary finds that the 
                        company is incorporated in the United 
                        States and has a parent company which 
                        is incorporated in a country which 
                        affords to United States-owned 
                        companies opportunities, comparable to 
                        those afforded to any other company, to 
                        participate in any joint venture 
                        similar to those authorized under this 
                        Act; affords to United States-owned 
                        companies local investment 
                        opportunities comparable to those 
                        afforded to any other company; and 
                        affords adequate and effective 
                        protection for the intellectual 
                        property rights of United States-owned 
                        companies.
          [(10) Grants, contracts, and cooperative assignments 
        under this section shall be designed to support 
        projects which are high risk and which have the 
        potential for eventual substantial widespread 
        commercial application. In order to receive a grant, 
        contract, or cooperative agreement under this section, 
        a research and development entity shall demonstrate to 
        the Secretary the requisite ability in research and 
        technology development and management in the project 
        area in which the grant, contract, or cooperative 
        agreement is being sought.
          [(11)(A) Title to any intellectual property arising 
        from assistance provided under this section shall vest 
        in a company or companies incorporated in the United 
        States. The United States may reserve a nonexclusive, 
        nontransferable, irrevocable paid-up license, to have 
        practiced for or on behalf of the United States, in 
        connection with any such intellectual property, but 
        shall not, in the exercise of such license, publicly 
        disclose proprietary information related to the 
        license. Title to any such intellectual property shall 
        not be transferred or passed, except to a company 
        incorporated in the United States, until the expiration 
        of the first patent obtained in connection with such 
        intellectual property.
          [(B) For purposes of this paragraph, the term 
        ``intellectual property'' means an invention patentable 
        under title 35, United States Code, or any patent on 
        such an invention.
          [(C) Nothing in this paragraph shall be construed to 
        prohibit the licensing to any company of intellectual 
        property rights arising from assistance provided under 
        this section.
  [(e) The Secretary may, within 30 days after notice to 
Congress, suspend a company or joint venture from continued 
assistance under this section if the Secretary determines that 
the company, the country of incorporation of the company or a 
parent company, or the joint venture has failed to satisfy any 
of the criteria set forth in subsection (d)(9), and that it is 
in the national interest of the United States to do so.
  [(f) When reviewing private sector requests for awards under 
the Program, and when monitoring the progress of assisted 
research projects, the Secretary and the Director shall, as 
appropriate, coordinate with the Secretary of Defense and other 
senior Federal officials to ensure cooperation and coordination 
in Federal technology programs and to avoid unnecessary 
duplication of effort. The Secretary and the Director are 
authorized to work with the Director of the Office of Science 
and Technology Policy, the Secretary of Defense, and other 
appropriate Federal officials to form interagency working 
groups or special project offices to coordinate Federal 
technology activities.
  [(g) In order to analyze the need for the value of joint 
ventures and other research projects in specific technical 
fields, to evaluate any proposal made by a joint venture or 
company requesting the Secretary's assistance, or to monitor 
the progress of any joint venture or any company research 
project which receives Federal funds under the Program, the 
Secretary, the Under Secretary of Commerce for Technology, and 
the Director may, notwithstanding any other provision of law, 
meet with such industry sources as they consider useful and 
appropriate.
  [(h) Up to 10 percent of the funds appropriated for carrying 
out this section may be used for standards development and 
technical activities by the Institute in support of the 
purposes of this section.
  [(i) In addition to such sums as may be authorized and 
appropriated to the Secretary and Director to operate the 
Program, the Secretary and Director also may accept funds from 
other Federal departments and agencies for the purpose of 
providing Federal funds to support awards under the Program. 
Any Program award which is supported with funds which 
originally came from other Federal departments and agencies 
shall be selected and carried out according to the provisions 
of this section.
  [(j) As used in this section--
          [(1) the term ``joint venture'' means any group of 
        activities, including attempting to make, making, or 
        performing a contract, by two or more persons for the 
        purpose of--
                  [(A) theoretical analysis, experimentation, 
                or systematic study of phenomena or observable 
                facts;
                  [(B) the development or testing of basic 
                engineering techniques;
                  [(C) the extension of investigative finding 
                or theory of a scientific or technical nature 
                into practical application for experimental and 
                demonstration purposes, including the 
                experimental production and testing of models, 
                prototypes, equipment, materials, and 
                processes;
                  [(D) the collection, exchange, and analysis 
                of research information;
                  [(E) the production of any product, process, 
                or service; or
                  [(F) any combination of the purposes 
                specified in subparagraphs (A), (B), (C), (D), 
                and (E),
        and may include the establishment and operation of 
        facilities for the conducting of research, the 
        conducting of such venture on a protected and 
        proprietary basis, and the prosecuting of applications 
        for patents and the granting of licenses for the 
        results of such venture; and
          [(2) the term ``United States-owned company'' means a 
        company that has majority ownership or control by 
        individuals who are citizens of the United States.]
          * * * * * * *
                              ----------                              


           STEVENSON-WYDLER TECHNOLOGY INNOVATION ACT OF 1980

          * * * * * * *

SEC. 3. PURPOSE.

  It is the purpose of this Act to improve the economic, 
environmental, and social well-being of the United States by--
          (1) establishing organizations in the executive 
        branch to study and stimulate technology;
          [(2) promoting technology development through the 
        establishment of cooperative research centers;]
          [(3)] (2) stimulating improved utilization of 
        federally funded technology developments, including 
        inventions, software, and training technologies, by 
        State and local governments and the private sector;
          [(4)] (3) providing encouragement for the development 
        of technology through the recognition of individuals 
        and companies which have made outstanding contributions 
        in technology; and
          [(5)] (4) encouraging the exchange of scientific and 
        technical personnel among academia, industry, and 
        Federal laboratories.

SEC. 4. DEFINITIONS.

  As used in this Act, unless the context otherwise requires, 
the term--
          [(1) ``Office'' means the Office of Technology Policy 
        established under section 5 of this Act.]
          [(2)] (1) ``Secretary'' means the Secretary of 
        Commerce.
          [(3)] (2) ``Under Secretary'' means the Under 
        Secretary of Commerce for Technology appointed under 
        section 5(b)(1).
          [(4) ``Centers'' means Cooperative Research Centers 
        established under section 6 or section 8 of this Act.]
          [(5)] (3) ``Nonprofit institution'' means an 
        organization owned and operated exclusively for 
        scientific or educational purposes, no part of the net 
        earnings of which inures to the benefit of any private 
        shareholder or individual.
          [(6)] (4) ``Federal laboratory'' means any 
        laboratory, any federally funded research and 
        development center, or any center established under 
        section 6 or section 8 of this Act that is owned, 
        leased, or otherwise used by a Federal agency and 
        funded by the Federal Government, whether operated by 
        the Government or by a contractor.
          [(7)] (5) ``Supporting agency'' means either the 
        Department of Commerce or the National Science 
        Foundation, as appropriate.
          [(8)] (6) ``Federal agency'' means any executive 
        agency as defined in section 105 of title 5, United 
        States Code, and the military departments as defined in 
        section 102 of such title, as well as any agency of the 
        legislative branch of the Federal Government.
          [(9)] (7) ``Invention'' means any invention or 
        discovery which is or may be patentable or otherwise 
        protected under title 35, United States Code, or any 
        novel variety of plant which is or may be protectable 
        under the Plant Variety Protection Act (7 U.S.C. 2321 
        et seq.).
          [(10)] (8) ``Made'' when used in conjunction with any 
        invention means the conception or first actual 
        reduction to practice of such invention.
          [(11)] (9) ``Small business firm'' means a small 
        business concern as defined in section 2 of Public Law 
        85-536 (15 U.S.C. 632) and implementing regulations of 
        the Administrator of the Small Business Administration.
          [(12)] (10) ``Training technology'' means computer 
        software and related materials which are developed by a 
        Federal agency to train employees of such agency, 
        including but not limited to software for computer-
        based instructional systems and for interactive video 
        disc systems.
          [(13) ``Clearinghouse'' means the Clearinghouse for 
        State and Local Initiatives on Productivity, 
        Technology, and Innovation established by section 6.]

[SEC. 5. COMMERCE AND TECHNOLOGICAL INNOVATION.

  [(a) Establishment.--There is established in the Department 
of Commerce a Technology Administration, which shall operate in 
accordance with the provisions, findings, and purposes of this 
Act. The Technology Administration shall include--
          [(1) the National Institute of Standards and 
        Technology;
          [(2) the National Technical Information Service; and
          [(3) a policy analysis office, which shall be known 
        as the Office of Technology Policy.
  [(b) Under Secretary and Assistant Secretary.--The President 
shall appoint, by and with the advice and consent of the 
Senate, to the extent provided for in appropriations Acts--
          [(1) an Under Secretary of Commerce for Technology, 
        who shall be compensated at the rate provided for level 
        III of the Executive Schedule in section 5314 of title 
        5, United States Code; and
          [(2) an Assistant Secretary of Commerce for 
        Technology Policy, who shall serve as policy analyst 
        for the Under Secretary.
  [(c) Duties.--The Secretary, through the Under Secretary, as 
appropriate, shall--
          [(1) manage the Technology Administration and 
        supervise its agencies, programs, and activities;
          [(2) conduct technology policy analyses to improve 
        United States industrial productivity, technology, and 
        innovation, and cooperate with United States industry 
        in the improvement of its productivity, technology, and 
        ability to compete successfully in world markets;
          [(3) carry out any functions formerly assigned to the 
        Office of Productivity, Technology, and Innovation;
          [(4) assist in the implementation of the Metric 
        Conversion Act of 1975;
          [(5) determine the relationships of technological 
        developments and international technology transfers to 
        the output, employment, productivity, and world trade 
        performance of United States and foreign industrial 
        sectors;
          [(6) determine the influence of economic, labor and 
        other conditions, industrial structure and management, 
        and government policies on technological developments 
        is particular industrial sectors worldwide;
          [(7) identify technological needs, problems, and 
        opportunities within and across industrial sectors 
        that, if addressed, could make a significant 
        contribution to the economy of the United States;
          [(8) assess whether the capital, technical and other 
        resources being allocated to domestic industrial 
        sectors which are likely to generate new technologies 
        are adequate to meet private and social demands for 
        goods and services and to promote productivity and 
        economic growth;
          [(9) propose and support studies and policy 
        experiments, in cooperation with other Federal 
        agencies, to determine the effectiveness of measures 
        with the potential of advancing United States 
        technological innovation;
          [(10) provide that cooperative efforts to stimulate 
        industrial innovation be undertaken between the 
        Secretary and other officials in the Department of 
        Commerce responsible for such areas as trade and 
        economic assistance;
          [(11) encourage and assist the creation of centers 
        and other joint initiatives by State of local 
        governments, regional organizations, private 
        businesses, institutions of higher education, nonprofit 
        organizations, or Federal laboratories to encourage 
        technology transfer, to stimulate innovation, and to 
        promote an appropriate climate for investment in 
        technology-related industries;
          [(12) propose and encourage cooperative research 
        involving appropriate Federal entities, State or local 
        governments, regional organizations, colleges or 
        universities, nonprofit organizations, or private 
        industry to promote the common use of resources, to 
        improve training programs and curricula, to stimulate 
        interest in high technology careers, and to encourage 
        the effective dissemination of technology skills within 
        the winder community;
          [(13) serve as a focal point for discussions among 
        United States companies on topics of interest to 
        industry and labor, including discussions regarding 
        manufacturing and discussions regarding emerging 
        technologies;
          [(14) consider government measures with the potential 
        of advancing United States technological innovation and 
        exploiting innovations of foreign origin; and
          [(15) publish the results of studies and policy 
        experiments.
  [(d) Japanese Technical Literature.--(1) In addition to the 
duties specified in subsection (c), the Secretary and the Under 
Secretary shall establish, and through the National Technical 
Information Service and with the cooperation of such other 
offices within the Department of Commerce as the Secretary 
considers appropriate, maintain a program (including an office 
in Japan) which shall, on a continuing basis--
          [(A) monitor Japanese technical activities and 
        developments;
          [(B) consult with businesses, professional societies, 
        and libraries in the United States regarding their 
        needs for information on Japanese developments in 
        technology and engineering;
          [(C) acquire and translate selected Japanese 
        technical reports and documents that may be of value to 
        agencies and departments of the Federal Government, and 
        to businesses and researchers in the United States; and
          [(D) coordinate with other agencies and departments 
        of the Federal Government to identify significant gaps 
        and avoid duplication in efforts by the Federal 
        Government to acquire, translate, index, and 
        disseminate Japanese technical information.
Activities undertaken pursuant to subparagraph (C) of this 
paragraph shall only be performed on a cost-reimbursable basis. 
Translations referred to in such subparagraph shall be 
performed only to the extent that they are not otherwise 
available from sources within the private sector in the United 
States.
  [(2) Beginning in 1986, the Secretary shall prepare annual 
reports regarding important Japanese scientific discoveries and 
technical innovations in such areas as computers, 
semiconductors, biotechnology, and robotics and manufacturing. 
In preparing such reports, the Secretary shall consult with 
professional societies and businesses in the United States. The 
Secretary may, to the extent provided in advance by 
appropriation Acts, contract with private organizations to 
acquire and translate Japanese scientific and technical 
information relevant to the preparation of such reports.
  [(3) The Secretary also shall encourage professional 
societies and private businesses in the United States to 
increase their efforts to acquire, screen, translate, and 
disseminate Japanese technical literature.
  [(4) In addition, the Secretary shall compile, publish, and 
disseminate an annual directory which lists--
          [(A) all programs and services in the United States 
        that collect, abstract, translate, and distribute 
        Japanese scientific and technical information; and
          [(B) all translations of Japanese technical documents 
        performed by agencies and departments of the Federal 
        Government in the preceding 12 months that are 
        available to the public.
  [(5) The Secretary shall transmit to the Congress, within 1 
year after the date of enactment of the Japanese Technical 
Literature Act of 1986, a report on the activities of the 
Federal Government to collect, abstract, translate, and 
distribute declassified Japanese scientific and technical 
information.
  [(e) Report.--The Secretary shall prepare and submit to the 
President and Congress, within 3 years after the date of 
enactment of this Act, a report on the progress, findings, and 
conclusions of activities conducted pursuant to sections 5, 6, 
8, 11, 12, and 13 of this Act (as then in effect) and 
recommendations for possible modifications thereof.

[SEC. 6. CLEARINGHOUSE FOR STATE AND LOCAL INITIATIVES ON PRODUCTIVITY, 
                    TECHNOLOGY, AND INNOVATION.

  [(a) Establishment.--There is established within the Office 
of Productivity, Technology, and Innovation a Clearinghouse for 
State and Local Initiatives on Productivity, Technology, and 
Innovation. The Clearinghouse shall serve as a central 
repository of information on initiatives by State and local 
governments to enhance the competitiveness of American business 
through the stimulation of productivity, technology, and 
innovation and Federal efforts to assist State and local 
governments to enhance competitiveness.
  [(b) Responsibilities.--The Clearinghouse may--
          [(1) establish relationships with State and local 
        governments, and regional and multistate organizations 
        of such governments, which carry out such initiatives;
          [(2) collect information on the nature, extent, and 
        effects of such initiatives, particularly information 
        useful to the Congress, Federal agencies, State and 
        local governments, regional and multistate 
        organizations of such governments, businesses, and the 
        public throughout the United States;
          [(3) disseminate information collected under 
        paragraph (2) through reports, directories, handbooks, 
        conferences, and seminars;
          [(4) provide technical assistance and advice to such 
        governments with respect to such initiatives, including 
        assistance in determining sources of assistance from 
        Federal agencies which may be available to support such 
        initiatives;
          [(5) study ways in which Federal agencies, including 
        Federal laboratories, are able to use their existing 
        policies and programs to assist State and local 
        governments, and regional and multistate organizations 
        of such governments, to enhance the competitiveness of 
        American business;
          [(6) make periodic recommendations to the Secretary, 
        and to other Federal agencies upon their request, 
        concerning modifications in Federal policies and 
        programs which would improve Federal assistance to 
        State and local technology and business assistance 
        programs;
          [(7) develop methodologies to evaluate State and 
        local programs, and, when requested, advise State and 
        local governments, and regional and multistate 
        organizations of such governments, as to which programs 
        are most effective in enhancing the competitiveness of 
        American business through the stimulation of 
        productivity, technology, and innovation; and
          [(8) make use of, and disseminate, the nationwide 
        study of State industrial extension programs conducted 
        by the Secretary.
  [(c) Contracts.--In carrying out subsection (b), the 
Secretary may enter into contracts for the purpose of 
collecting information on the nature, extent, and effects of 
initiatives.
  [(d) Triennial Report.--The Secretary shall prepare and 
transmit to the Congress once each 3 years a report on 
initiatives by State and local governments to enhance the 
competitiveness of American businesses through the stimulation 
of productivity, technology, and innovation. The report shall 
include recommendations to the President, the Congress, and to 
Federal agencies on the appropriate Federal role in stimulating 
State and local efforts in this area. The first of these 
reports shall be transmitted to the Congress before January 1, 
1989.

[SEC. 7. COOPERATIVE RESEARCH CENTERS.

  [(a) Establishment.--The Secretary shall provide assistance 
for the establishment of Cooperative Research Centers. Such 
Centers shall be affiliated with any university, or other 
nonprofit institution, or group thereof, that applies for and 
is awarded a grant or enters into a cooperative agreement under 
this section. The objective of the Centers is to enhance 
technological innovation through--
          [(1) the participation of individuals from industry 
        and universities in cooperative technological 
        innovation activities;
          [(2) the development of the generic research base, 
        important for technological advance and innovative 
        activity, in which individual firms have little 
        incentive to invest, but which may have significant 
        economic or strategic importance, such as manufacturing 
        technology;
          [(3) the education and training of individuals in the 
        technological innovation process;
          [(4) the improvement of mechanisms for the 
        dissemination of scientific, engineering, and technical 
        information among universities and industry;
          [(5) the utilization of the capability and expertise, 
        where appropriate, that exists in Federal laboratories; 
        and
          [(6) the development of continuing financial support 
        from other mission agencies, from State and local 
        government, and from industry and universities through, 
        among other means, fees, licenses, and royalties.
  [(b) Activities.--The activities of the Centers shall 
include, but need not be limited to--
          [(1) research supportive of technological and 
        industrial innovation including cooperative industry-
        university research;
          [(2) assistance to individuals and small business in 
        the generation, evaluation and development of 
        technological ideas supportive of industrial innovation 
        and new business ventures;
          [(3) technical assistance and advisory services to 
        industry, particularly small businesses; and
          [(4) curriculum development, training, and 
        instruction in invention, entrepreneurship, and 
        industrial innovation.
Each Center need not undertake all of the activities under this 
subsection.
  [(c) Requirements.--Prior to establishing a Center, the 
Secretary shall find that--
          [(1) consideration has been given to the potential 
        contribution of the activities proposed under the 
        Center to productivity, employment, and economic 
        competitiveness of the United States;
          [(2) a high likelihood exists of continuing 
        participation, advice, financial support, and other 
        contributions from the private sector;
          [(3) the host university or other nonprofit 
        institution has a plan for the management and 
        evaluation of the activities proposed within the 
        particular Center, including:
                  [(A) the agreement between the parties as to 
                the allocation of patent rights on a 
                nonexclusive, partially exclusive, or exclusive 
                license basis to and inventions conceived or 
                made under the auspices of the Center; and
                  [(B) the consideration of means to place the 
                Center, to the maximum extent feasible, on a 
                self-sustaining basis;
          [(4) suitable consideration has been given to the 
        university's or other nonprofit institution's 
        capabilities and geographical location; and
          [(5) consideration has been given to any effects upon 
        completion of the activities proposed under the Center.
  [(d) Planning Grants.--The Secretary is authorized to make 
available nonrenewable planning grants to universities or 
nonprofit institutions for the purpose of developing a plan 
required under subsection (c)(3).
  [(e) Research and Development Utilization.--In the promotion 
of technology from research and development efforts by Centers 
under this section, chapter 18 of title 35, United States Code, 
shall apply to the extent not inconsistent with this section.

[SEC. 8. GRANTS AND COOPERATIVE AGREEMENTS.

  [(a) In General.--The Secretary may make grants and enter 
into cooperative agreements according to the provisions of this 
section in order to assist any activity consistent with this 
Act, including activities performed by individuals. The total 
amount of any such grant or cooperative agreement may not 
exceed 75 percent of the total cost of the program.
  [(b) Eligibility and Procedure.--Any person or institution 
may apply to the Secretary for a grant or cooperative agreement 
available under this section. Application shall be made in such 
form and manner, and with such content and other submissions, 
as the Assistant Secretary shall prescribe. The Secretary shall 
act upon each such application within 90 days after the date on 
which all required information is received.
  [(c) Terms and Conditions.--
          [(1) Any grant made, or cooperative agreement entered 
        into, under this section shall be subject to the 
        limitations and provisions set forth in paragraph (2) 
        of this subsection, and to such other terms, 
        conditions, and requirements as the Secretary deems 
        necessary or appropriate.
          [(2) Any person who receives or utilizes any proceeds 
        of any grant made or cooperative agreement entered into 
        under this section shall keep such records as the 
        Secretary shall by regulation prescribe as being 
        necessary and appropriate to facilitate effective audit 
        and evaluation, including records which fully disclose 
        the amount and disposition by such recipient of such 
        proceeds, the total cost of the program or project in 
        connection with which such proceeds were used, and the 
        amount, if any, of such costs which was provided 
        through other sources.

[SEC. 9. NATIONAL SCIENCE FOUNDATION COOPERATIVE RESEARCH CENTERS.

  [(a) Establishment and Provisions.--The National Science 
Foundation shall provide assistance for the establishment of 
Cooperative Research Centers. Such Centers shall be affiliated 
with a university or other nonprofit institution, or a group 
thereof. The objective of the Centers is to enhance 
technological innovation as provided in section 6(a) through 
the conduct of activities as provided in section 6(b).
  [(b) Planning Grants.--The National Science Foundation is 
authorized to make available nonrenewable planning grants to 
universities or nonprofit institutions for the purpose of 
developing the plan as described under section 6(c)(3).
  [(c) Terms and Conditions.--Grants, contracts, and 
cooperative agreements entered into by the National Science 
Foundation in execution of the powers and duties of the 
National Science Foundation under this Act shall be governed by 
the National Science Foundation Act of 1950 and other pertinent 
Acts.

[SEC. 10. ADMINISTRATIVE ARRANGEMENTS.

  [(a) Coordination.--The Secretary and the National Science 
Foundation shall, on a continuing basis, obtain the advice and 
cooperation of departments and agencies whose missions 
contribute to or are affected by the programs established under 
this Act, including the development of an agenda for research 
and policy experimentation. These departments and agencies 
shall include but not be limited to the Departments of Defense, 
Energy, Education, Health and Human Services, Housing and Urban 
Development and Space Administration, Small Business 
Administration, Council of Economic Advisers, Council on 
Environmental Quality, and Office of Science and Technology 
Policy.
  [(b) Cooperation.--It is the sense of the Congress that 
departments and agencies, including the Federal laboratories, 
whose missions are affected by, or could contribute to, the 
programs established under this Act, should, within the limits 
of budgetary authorizations and appropriations, support or 
participate in activities or projects authorized by this Act.
  [(c) Administrative Authorization.--
          [(1) Departments and agencies described in subsection 
        (b) are authorized to participate in, contribute to, 
        and serve as resources for the Centers and for any 
        other activities authorized under this Act.
          [(2) The Secretary and the National Science 
        Foundation are authorized to receive moneys and to 
        receive other forms of assistance from other 
        departments or agencies to support activities of the 
        Centers and any other activities authorized under this 
        Act.
  [(d) Cooperative Efforts.--The Secretary and the National 
Science Foundation shall, on a continuing basis, provide each 
other the opportunity to comment on any proposed program of 
activity under section 7, 9, 11, 15, 17, or 20 of this Act 
before funds are committed to such program in order to mount 
complementary efforts and avoid duplication.]
          * * * * * * *

SEC. 11. UTILIZATION OF FEDERAL TECHNOLOGY.

  (a) * * *
          * * * * * * *
  (c) Functions of Research and Technology Applications 
Office.--It shall be the function of each Office of Research 
and Technology Applications--
          (1) * * *
          * * * * * * *
          (3) to cooperate with and assist the National 
        Technical Information Service[, the Federal Laboratory 
        Consortium for Technology Transfer,] and other 
        organizations which link the research and development 
        resources of that laboratory and the Federal Government 
        as a whole to potential users in State and local 
        government and private industry;
          * * * * * * *
  (d) Dissemination of Technical Information.--The National 
Technical Information Service shall--
          (1) * * *
          (2) utilize the expertise and services of the 
        National Science Foundation [and the Federal Laboratory 
        Consortium for Technology Transfer]; particularly in 
        dealing with State and local governments;
          (3) receive requests for technical assistance from 
        State and local governments, respond to such requests 
        with published information available to the Service[, 
        and refer such requests to the Federal Laboratory 
        Consortium for Technology Transfer to the extent that 
        such requests require a response involving more than 
        the published information available to the Service];
          * * * * * * *
  [(e) Establishment of Federal Laboratory Consortium for 
Technology Transfer.--(1) There is hereby established the 
Federal Laboratory Consortium for Technology Transfer 
(hereinafter referred to as the ``Consortium'') which, in 
cooperation with Federal Laboratories and the private sector, 
shall--
          [(A) develop and (with the consent of the Federal 
        laboratory concerned) administer techniques, training 
        courses, and materials concerning technology transfer 
        to increase the awareness of Federal laboratory 
        employees regarding the commercial potential of 
        laboratory technology and innovations;
          [(B) furnish advice and assistance requested by 
        Federal agencies and laboratories for use in their 
        technology transfer programs (including the planning of 
        seminars for small business and other industry);
          [(C) provide a clearinghouse for requests, received 
        at the laboratory level, for technical assistance from 
        States and units of local governments, businesses, 
        industrial development organizations, not-for-profit 
        organizations including universities, Federal agencies 
        and laboratories, and other persons, and--
                  [(i) to the extent that such requests can be 
                responded to with published information 
                available to the National Technical Information 
                Service, refer such requests to that Service, 
                and
                  [(ii) otherwise refer these requests to the 
                appropriate Federal laboratories and agencies;
          [(D) facilitate communication and coordination 
        between Offices of Research and Technology Applications 
        of Federal laboratories;
          [(E) utilize (with the consent of the agency 
        involved) the expertise and services of the National 
        Science Foundation, the Department of Commerce, the 
        National Aeronautics and Space Administration, and 
        other Federal agencies, as necessary;
          [(F) with the consent of any Federal laboratory, 
        facilitate the use by such laboratory of appropriate 
        technology transfer mechanisms such as personnel 
        exchanges and computer-based systems;
          [(G) with the consent of any Federal laboratory, 
        assist such laboratory to establish programs using 
        technical volunteers to provide technical assistance to 
        communities related to such laboratory;
          [(H) facilitate communication and cooperation between 
        Offices of Research and Technology Applications of 
        Federal laboratories and regional, State, and local 
        technology transfer organizations;
          [(I) when requested, assist colleges or universities, 
        businesses, nonprofit organizations, State or local 
        governments, or regional organizations to establish 
        programs to stimulate research and to encourage 
        technology transfer in such areas as technology program 
        development, curriculum design, long-term research 
        planning, personnel needs projections, and productivity 
        assessments; and
          [(J) seek advice in each Federal laboratory 
        consortium region from representatives of State and 
        local governments, large and small business, 
        universities, and other appropriate persons on the 
        effectiveness of the program (and any such advice shall 
        be provided at no expense to the Government).
  [(2) The membership of the Consortium shall consist of the 
Federal laboratories described in clause (1) of subsection (b) 
and such other laboratories as may choose to join the 
Consortium. The representatives to the Consortium shall include 
a senior staff member of each Federal laboratory which is a 
member of the Consortium and a senior representative appointed 
from each Federal agency with one or more member laboratories.
  [(3) The representatives to the Consortium shall elect a 
Chairman of the Consortium.
  [(4) The Director of the National Institute of Standards and 
Technology shall provide the Consortium, on a reimbursable 
basis, with administrative services, such as office space, 
personnel, and support services of the Institute, as requested 
by the Consortium and approved by such Director.
  [(5) Each Federal laboratory or agency shall transfer 
technology directly to users or representatives of users, and 
shall not transfer technology directly to the Consortium. Each 
Federal laboratory shall conduct and transfer technology only 
in accordance with the practices and policies of the Federal 
agency which owns, leases, or otherwise uses such Federal 
laboratory.
  [(6) Not later than one year after the date of the enactment 
of this subsection, and every year thereafter, the Chairman of 
the Consortium shall submit a report to the President, to the 
appropriate authorization and appropriation committees of both 
Houses of the Congress, and to each agency with respect to 
which a transfer of funding is made (for the fiscal year or 
years involved) under paragraph (7), concerning the activities 
of the Consortium and the expenditures made by it under this 
subsection during the year for which the report is made. Such 
report shall include an annual independent audit of the 
financial statements of the Consortium, conducted in accordance 
with generally accepted accounting principles.
  [(7)(A) Subject to subparagraph (B), an amount equal to 0.008 
percent of the budget of each Federal agency from any Federal 
source, including related overhead, that is to be utilized by 
or on behalf of the laboratories of such agency for a fiscal 
year referred to in subparagraph (B)(ii) shall be transferred 
by such agency to the National Institute of Standards at the 
beginning of the fiscal year involved. Amounts so transferred 
shall be provided by the Institute to the Consortium for the 
purpose of carrying out activities of the Consortium under this 
subsection.
  [(B) A transfer shall be made by any Federal agency under 
subparagraph (A), for any fiscal year, only if--
          [(i) the amount so transferred by that agency (as 
        determined under such subparagraph) would exceed 
        $10,000; and
          [(ii) such transfer is made with respect to the 
        fiscal year 1987, 1988, 1989, 1990, 1991, 1992, 1993, 
        1994, 1995, or 1996.
  [(C) The heads of Federal agencies and their designees, and 
the directors of Federal laboratories, may provide such 
additional support for operations of the Consortium as they 
deem appropriate.]
          * * * * * * *

[SEC. 17. MALCOLM BALDRIGE NATIONAL QUALITY AWARD.

  [(a) Establishment.--There is hereby established the Malcolm 
Baldrige National Quality Award, which shall be evidenced by a 
medal bearing the inscriptions ``Malcolm Baldrige National 
Quality Award'' and ``The Quest for Excellence''. The medal 
shall be of such design and materials and bear such additional 
inscriptions as the Secretary may prescribe.
  [(b) Making and Presentation of Award.--(1) The President (on 
the basis of recommendations received from the Secretary), or 
the Secretary, shall periodically make the award to companies 
and other organizations which in the judgment of the President 
or the Secretary have substantially benefited the economic or 
social well-being of the United States through improvements in 
the quality of their goods or services resulting from the 
effective practice of quality management, and which as a 
consequence are deserving of special recognition.
  [(2) The presentation of the award shall be made by the 
President or the Secretary with such ceremonies as the 
President or the Secretary may deem proper.
  [(3) An organization to which an award is made under this 
section, and which agrees to help other American organizations 
improve their quality management, may publicize its receipt of 
such award and use the award in its advertising, but it shall 
be ineligible to receive another such award in the same 
category for a period of 5 years.
  [(c) Categories in Which Award May be Given.--(1) Subject to 
paragraph (2), separate awards shall be made to qualifying 
organizations in each of the following categories--
          [(A) Small businesses.
          [(B) Companies or their subsidiaries.
          [(C) Companies which primarily provide services.
  [(2) The Secretary may at any time expand, subdivide, or 
otherwise modify the list of categories within which awards may 
be made as initially in effect under paragraph (1), and may 
establish separate awards for other organizations including 
units of government, upon a determination that the objectives 
of this section would be better served thereby; except that any 
such expansion, subdivision, modification, or establishment 
shall not be effective unless and until the Secretary has 
submitted a detailed description thereof to the Congress and a 
period of 30 days has elapsed since that submission.
  [(3) Not more than two awards may be made within any 
subcategory in any year (and no award shall be made within any 
category or subcategory if there are no qualifying enterprises 
in that category or subcategory).
  [(d) Criteria for Qualification.--(1) An organization may 
qualify for an award under this section only if it--
          [(A) applies to the Director of the National 
        Institute of Standards and Technology in writing, for 
        the award,
          [(B) permits a rigorous evaluation of the way in 
        which its business and other operations have 
        contributed to improvements in the quality of goods and 
        services, and
          [(C) meets such requirements and specifications as 
        the Secretary, after receiving recommendations from the 
        Board of Overseers established under paragraph (2)(B) 
        and the Director of the National Institute of Standards 
        and Technology, determines to be appropriate to achieve 
        the objectives of this section.
In applying the provisions of subparagraph (C) with respect to 
any organization, the Director of the National Institute of 
Standards and Technology shall rely upon an intensive 
evaluation by a competent board of examiners which shall review 
the evidence submitted by the organization and, through a site 
visit, verify the accuracy of the quality improvements claimed. 
The examination should encompass all aspects of the 
organization's current practice of quality management, as well 
as the organization's provision for quality management in its 
future goals. The award shall be given only to organizations 
which have made outstanding improvements in the quality of 
their goods or services (or both) and which demonstrate 
effective quality management through the training and 
involvement of all levels of personnel in quality improvement.
  [(2)(A) The Director of the National Institute of Standards 
and Technology shall, under appropriate contractual 
arrangements, carry out the Director's responsibilities under 
subparagraphs (A) and (B) of paragraph (1) through one or more 
broad-based nonprofit entities which are leaders in the field 
of quality management and which have a history of service to 
society.
  [(B) The Secretary shall appoint a board of overseers for the 
award, consisting of at least five persons selected for their 
preeminence in the field of quality management. This board 
shall meet annually to review the work of the contractor or 
contractors and make such suggestions for the improvement of 
the award process as they deem necessary. The board shall 
report the results of the award activities to the Director of 
the National Institute of Standards and Technology each year, 
along with its recommendations for improvement of the process.
  [(e) Information and Technology Transfer Program.--The 
Director of the National Institute of Standards and Technology 
shall ensure that all program participants receive the complete 
results of their audits as well as detailed explanations of all 
suggestions for improvements. The Director shall also provide 
information about the awards and the successful quality 
improvement strategies and programs of the award-winning 
participants to all participants and other appropriate groups.
  [(f) Funding.--The Secretary is authorized to seek and accept 
gifts from public and private sources to carry out the program 
under this section. If additional sums are needed to cover the 
full cost of the program, the Secretary shall impose fees upon 
the organizations applying for the award in amounts sufficient 
to provide such additional sums. The Director is authorized to 
use appropriated funds to carry out responsibilities under this 
Act.
  [(g) Report.--The Secretary shall prepare and submit to the 
President and the Congress, within 3 years after the date of 
the enactment of this section, a report on the progress, 
findings, and conclusions of activities conducted pursuant to 
this section along with recommendations for possible 
modifications thereof.]
          * * * * * * *
                              ----------                              


      COAST AND GEODETIC SURVEY COMMISSIONED OFFICERS' ACT OF 1948

 [AN ACT] To provide for the distribution, promotion, separation, and 
 retirement of commissioned officers of the Coast and Geodetic Survey, 
                         and for other purposes

    [Be it enacted by the Senate and House of Representatives 
of the United States of America in Congress assembled,

                              [short title

    [Section 1. That this Act may be cited as the ``Coast and 
Geodetic Survey Commissioned Officers' Act of 1948''.

                     [authorized numbers in grades

    [Sec. 2. (a) Of the total authorized number of commissioned 
officer on the active list of the Coast and Geodetic Survey, 
there are authorized numbers in permanent grade, in relative 
rank with officers of the Navy, in the proportion of eight in 
the grade of captain, to fourteen in the grade of commander, to 
nineteen in the grade of lieutenant commander, to twenty-three 
in the grade of lieutenant, to eighteen in the grade of 
lieutenant (junior grade), to eighteen in the grade of ensign.
    [(b) Whenever a final fraction occurs in computing the 
authorized number of officers in any grade, the nearest whole 
number shall be taken, and if such fraction be one-half the 
next higher whole number shall be taken: Provided, That the 
total number of officers as authorized by law shall not be 
increased as the result of the computations prescribed herein, 
and if necessary the number of officers in the lowest grade 
shall be reduced accordingly.
    [(c) No officer shall be reduced in grade or pay or 
separated from the active list as the result of any 
computations made to determine the authorized number of 
officers in the various grades.
    [(d) Nothing in this section shall be construed as 
requiring the filling of any vacancy or as prohibiting 
additional numbers in any grade to compensate for vacancies 
existing in higher grades.
    [(e) The total number of officers on active duty as 
authorized by law may be temporarily exceeded provided that the 
average number on active duty for the fiscal year shall not 
exceed the authorized number.

                 [promotion and separation of officers

    [Sec. 3. Promotion to fill vacancies in all permanent 
grades about that of lieutenant (junior grade) shall be made by 
selection from the next lower respective grades upon 
recommendation of the personnel board hereinafter provided for.
    [Sec. 4. Irrespective of any vacancies, each officer in the 
permanent grade of lieutenant (junior grade) and lieutenant 
shall be considered by the personnel board for promotion to the 
grade of lieutenant and lieutenant commander in sufficient time 
so that, if found fully qualified, such officer may be promoted 
to and appointed in such grade upon completion of seven and 
fourteen years of service, respectively. All promotions under 
this section shall be made on the date on which the required 
service is completed, and the authorized number of officers in 
the grade of lieutenant and lieutenant commander shall be 
temporarily increased, if necessary, to authorize such 
appointments: Provided, That an officer found not fully 
qualified in accordance with this section may be promoted on 
such later date on which he may be found fully qualified.
    [Sec. 5. Irrespective of any vacancies, any officer in the 
permanent grade of lieutenant commander who has completed 
twenty-one years of service and any officer in the permanent 
grade of commander who has completed thirty years of service 
may be considered by the personnel board at any time for 
promotion to the grade of commander and captain, respectively. 
If selected, he may be promoted at any time and the authorized 
number of officers in the grade of commander and captain shall 
be temporarily increased, if necessary, to authorize such 
appointments.
    [Sec. 6. (a) Officers in the permanent grade of ensign 
shall be promoted to and appointed in the grade of lieutenant 
(junior grade) on completion of three years of service, and the 
authorized number of officers in the grade of lieutenant 
(junior grade) shall from time to time be temporarily increased 
as necessary to authorize such appointments.
    [(b) Ensigns who are found not fully qualified at any time 
shall have their commissions revoked and be separated from the 
commissioned service.
    [Sec. 7. Each officer shall be assumed to have, for 
promotion purposes, at least the same length of service as any 
officer below him on the lineal list, except that an officer 
who has lost numbers shall be assumed to have for promotion 
purposes no greater service than the officer next above him in 
his new position on the lineal list.
    [Sec. 8. (a) As recommended by the personnel board--
          [(1) an officer in the permanent grade of captain or 
        commander may be transferred to the retired list; and
          [(2) an officer in the permanent grade of lieutenant 
        commander, lieutenant, or lieutenant (junior grade) who 
        is not qualified for retirement may be separated from 
        the service.
    [(b) In any fiscal year, the total number of officers 
selected for retirement or separation under subsection (a) plus 
the number of officers retired for age may not exceed the whole 
number nearest four percent of the total number of officers 
authorized to be on the active list, except as otherwise 
provided by law.
    [(c) Any retirement of separation under subsection (a) 
shall take effect on the first day of the sixth month beginning 
after the date on which the Secretary of Commerce approves the 
retirement or separation, except that if the officer concerned 
requests earlier retirement or separation, the date shall be as 
determined by the Secretary.
    [Sec. 9. (a) An officer who is separated under section 8 
and who has completed more than three years of continuous 
active service immediately before that separation is entitled 
to separation pay computed under subsection (b) unless the 
Secretary of Commerce determines that the conditions under 
which the officer is separated do not warrant payment of that 
pay.
    [(b)(1) In the case of an officer who has completed five or 
more years of continuous active service immediately before that 
separation, the amount of separation pay which may be paid to 
the officer under this section is 10 percent of the product of 
(A) the years of active service creditable to the officer, and 
(B) twelve times the monthly basic pay to which the officer was 
entitled at the time of separation, or $30,000, whichever is 
less.
    [(2) In the case of an officer who has completed three but 
fewer than five years of continuous active service immediately 
before that separation, the amount of separation pay which may 
be paid to the officer under this section is one-half of the 
amount computed under paragraph (1), but in no event more than 
$15,000.
    [(c) In determining an officer's years of active service 
for the purpose of computing separation pay under this section, 
each full month of service that is in addition to the number of 
full years of service creditable to the officer is counted as 
one-twelfth of a year and any remaining fractional part of a 
month is disregarded.
    [(d)(1) A period for which an officer has previously 
received separation pay, severance pay, or readjustment pay 
under any other provision of law based on service is a 
uniformed service may not be included in determining the years 
of creditable service that may be counted in computing the 
separation pay of the officer under this section.
    [(2) The total amount that an officer may receive in 
separation pay under this section and separation pay, severance 
pay, and readjustment pay under any other provision of law 
based on service in a uniformed service may not exceed $30,000.
    [(e)(1) An officer who has received separation pay under 
this section, or separation pay, severance pay, or readjustment 
pay under any other provision of law, based on service in a 
uniformed service and who later qualifies for retired pay under 
this Act shall have deducted from each payment of retired pay 
so much of that pay as is based on the service for which the 
officer received that separation pay, severance pay, or 
readjustment pay until the total amount deducted is equal to 
the total amount of separation pay, severance pay, and 
readjustment pay received.
    [(2) An officer who has received separation pay under this 
section may not be deprived, by reason of receipt of that pay, 
of any disability compensation to which the officer is entitled 
under the laws administered by the Department of Veterans 
Affairs, but there shall be deducted from that disability 
compensation an amount equal to the total amount of separation 
pay received. Notwithstanding the preceding sentence, no 
deduction may be made from disability compensation for the 
amount of separation pay received because of an earlier 
discharge, separation, or release from a period of active duty 
if the disability which is the basis for that disability 
compensation was incurred or aggraved during a later period of 
active duty.
    [Sec. 10. (a) Appointments in and promotions to all 
permanent grades shall be made by the President, by and with 
the advice and consent of the Senate.
    [(b) In time of emergency declared by the President or by 
the Congress, and in time of war, the President is authorized, 
in his discretion, to suspend the operation of all or any part 
or parts of the several provisions of law pertaining to 
promotion.
    [Sec. 11. Nothing in this Act shall be construed to modify 
the provisions of existing law relating to examination of 
officers for promotion, and no officer shall be promoted until 
he shall have passed the prescribed examinations.
    [Sec. 12. (a) Temporary appointment in the grade of ensign 
may be made by the President alone, provided such temporary 
appointment will be terminated at the close of the next regular 
session of the Congress unless confirmed by the Senate.
    [(b) Officers in the permanent grade of ensign may be 
temporarily promoted to an appointed in the grade of lieutenant 
junior grade by the President alone whenever vacancies exist in 
higher grades.
    [(c) When determined by the Secretary of Commerce to be in 
the best interest of the service, officers in any permanent 
grade may be temporarily promoted one grade by the President 
alone. Any such temporary promotion terminates upon the 
transfer of the officer to a new assignment.
    [Sec. 13. (a) When any commissioned officer serving in a 
rank below that of rear admiral has attained the age of sixty 
years, he shall be placed on the retired list: Provided, That 
this subsection shall not become effective until a date six 
months subsequent to the enactment of this Act, and until such 
effective date the retirement age for officers serving in a 
rank below that of rear admiral shall be sixty-two years.
    [(b) When any officer serving in a rank above that of 
captain has attained the age of sixty-two years, he shall be 
placed on the retired list: Provided, That the President may, 
in his discretion, defer placing any such officer on the 
retired list for the length of time he deems advisable but not 
later than the date upon which such officer attains the age of 
sixty-four years.
    [Sec. 14. When any commissioned officer has completed 
twenty years of service, he may at any time thereafter, upon 
his own application, in the discretion of the President, be 
placed on the retired list.
          * * * * * * *
    [Sec. 16. (a) Each commissioned officer on the retired list 
who first became a member of a uniformed service (as defined in 
section 101 of title 10, United States Code) before September 
8, 1980, shall receive retired pay at the rate determined by 
multiplying--
          [(1) the retired pay base determined under section 
        1406(g) of title 10, United States Code; by
          [(2) 2\1/2\ percent of the number of years of service 
        that may be credited to the officer under section 1405 
        of such title as if the officer's service were service 
        as a member of the Armed Forces.
The retired pay so computed may not exceed 75 percent of the 
retired pay base.
    [(b) Each commissioned officer on the retired list who 
first became a member of a uniformed service (as defined in 
section 101 of title 10, United States Code) on or after 
September 8, 1980, shall receive retired pay at the rate 
determined by multiplying--
          [(1) the retired pay base determined under section 
        1407 of title 10, United States Code; by
          [(2) the retired pay multiplier determined under 
        section 1409 of such title for the number of years of 
        service that may be credited to the officer under 
        section 1405 of such title as if the officer's service 
        were service as a member of the Armed Forces.
    [(c)(1) In computing the number of years of service of an 
officer for the purposes of subsection (a)--
          [(A) each full month of service that is in addition 
        to the number of full years of service creditable to 
        the officer shall be credited as \1/12\ of a year; and
          [(B) any remaining fractional part of a month shall 
        be disregarded.
    [(2) Retired pay computed under this section, if not a 
multiple of $1, shall be rounded to the next lower multiple of 
$1.
    [Sec. 17. (a) Each commissioned officer heretofore or 
hereafter retired pursuant to any provision of law shall be 
placed on the retired list with the highest rank, permanent or 
temporary, held by him while on active duty, if his performance 
of duty, in the case of temporary rank, has been satisfactory 
as determined by the Secretary of the department or departments 
under whose jurisdiction the officer served, and shall receive 
retired pay based on such higher rank: Provided, That for the 
purposes of this section the words ``temporary rank'' shall 
mean temporary rank held prior to June 30, 1946.
    [(b) Officers on the retired list returned to an inactive 
status with higher rank pursuant to subsection (a) of this 
section shall receive retired pay based on such higher rank.
    [Sec. 18. Nothing in this Act shall prevent any officer 
from being placed on the retired list with the highest rank and 
with the highest retired pay to which he might be entitled 
under other provision of law.

                            [PERSONNEL BOARD

    [Sec. 19. At least once a year and at such other times as 
may be necessary, the Secretary of Commerce shall appoint a 
personnel board consisting of not less than five officers not 
below the permanent rank of commander on the active list, to 
recommend such changes in the lineal list as the board may 
determine and to make selections and recommendations for the 
promotion, separation, and retirement of officers as herein 
prescribed: Provided, That in case any recommendation by the 
board is not acceptable to the Secretary of Commerce or to the 
President, the board shall make such further recommendations as 
shall be acceptable.
          * * * * * * *

  [Amendments to and Repeal of Appointment, Promotion, and Retirement 
                                  Laws

    [Sec. 21. (a) Section 5 of the Act of February 16, 1929 (45 
Stat. 1186), as amended by the Act of March 18, 1936 (ch. 147, 
49 Stat. 1164), is hereby further amended by deleting the word 
``not'' in the third line.
    [(b) Section 8 of the Act of January 19, 1942 (59 Stat. 8), 
is hereby amended by deleting the word ``not'' in the fourth 
line, by changing the period at the end of the section to a 
colon, and by adding the words ``Provided further, That any 
officer, upon expiration of his appointment as Director or 
Assistant Director, shall, unless reappointed, revert to the 
grade and number that he would have occupied had he not served 
as Director or Assistant Director. Such officer shall be an 
extra number in his grade and the authorized number of ensigns 
shall be decreased accordingly.''
    [Sec. 22. (a) Sections, 1, 2 (except the second proviso of 
section 2 (b), 3, 4, 5, and 6 of the Act of January 19, 1942 
(59 Stat. 8), are hereby repealed.
    [(b) The word ``physical'' in the first line of section 7 
of the said Act of January 19, 1942, is hereby amended to read 
``physical''.
    [Sec. 23. (a) Original appointments may be made in grades 
up to and including lieutenant after passage of a mental and 
physical examination given in accordance with regulations 
prescribed by the Secretary of Commerce: Provided, That the 
President, under such regulations as he may prescribe, may 
revoke the commission of any officer appointed under this 
section during his first three years of service if he is found 
not qualified for the service.
    [(b) Any person appointed under authority of this section 
shall be placed on the lineal list of active duty officers in a 
position commensurate with his age, education, and experience 
in accordance with regulations prescribed by the Secretary of 
Commerce.
    [(c)(1) For the purposes of basic pay any person appointed 
under this section to the grade of lieutenant or lieutenant 
(junior grade) shall be considered as having, on date of 
appointment, three years or one and one-half years service 
respectively.
    [(2) If a person appointed under this section is entitled 
to credit for the purpose of basic pay under other provision of 
law which would exceed that authorized by subsection (c)(1) he 
shall be credited with that service in lieu of the credit 
provided by subsection (c)(1).
    [Sec. 24. (a) The Secretary may designate positions in the 
Administration as being positions of importance and 
responsibility for which it is appropriate that commissioned 
officers of the Administration, if serving in those positions, 
serve in the grade of vice admiral, rear admiral, or rear 
admiral (lower half) as designated by the Secretary for each 
position, and may assign officers to those positions. An 
officer assigned to any position under this section has the 
grade designated for that position if appointed to that grade 
by the President, by and with the advice and consent of the 
Senate.
    [(b) The number of officers serving on active duty under 
appointments under this section may not exceed--
          [(1) one in the grade of vice admiral;
          [(2) three in the grade of rear admiral; and
          [(3) three in the grade of rear admiral (lower half).
    [(c) An officer appointed to a grade under this section, 
while serving in that grade, shall have the pay and allowances 
of the grade to which appointed.
    [(d) An appointment of an officer under this section--
          [(1) does not vacate the permanent grade held by the 
        officer, and
          [(2) creates a vacancy on the active list.
    [(e) The provisions of section 2(g) of Reorganization Plan 
Numbered 4 of 1970 (84 Stat. 2090, 5 U.S.C. App.) apply to an 
officer who serves in a grade above captain under an 
appointment under this section in the same manner as if the 
officer served in that grade under section 2(d) or 2(f) of that 
Reorganization Plan.]
                              ----------                              


                        ACT OF FEBRUARY 16, 1929

 CHAP. 22I--An Act To amend the Act entitled ``An Act to readjust the 
 pay and allowances of the commissioned and enlisted personnel of the 
 Army, Navy, Marine Corps, Coast Guard, Coast and Geodetic Survey, and 
      Public Health Service,'' approved June 10, 1922, as amended

          * * * * * * *
    [``Sec. 5. That the Director of the Coast and Geodetic 
Survey shall be appointed and hold office as now authorized by 
law; his appointment shall create a vacancy, and while holding 
said office he shall have the rank, pay, and allowances of a 
Chief of Bureau of the Navy Department.'']
                              ----------                              


                        ACT OF JANUARY 19, 1942

  [AN ACT To regulate the distribution and promotion of commissioned 
   officers of the Coast and Geodetic Survey, and for other purposes

    [Be it enacted by the Senate and House of representatives 
of the United States of America in Congress assembled, That the 
total number of commissioned officers on the active list of the 
Coast and Geodetic Survey shall be distributed in rank relative 
with officers of the Navy in the proportion of five in the 
grade of captain to eight in the grade of commander, to eighty-
seven in the grades of lieutenant commander, lieutenant, 
lieutenant (junior grade) and ensign, inclusive: Provided, That 
the number of officers in the grade of lieutenant commander 
shall not exceed 35 per centum of the total authorized number 
of commissioned officers on the active list.

                         [PROMOTION OF OFFICERS

    [Sec. 2. (a) Promotions to the grades of captain and 
commander shall be made as vacancies occur and shall be by 
selection from the next lower respective grades upon 
recommendation of the Personnel Board hereinafter authorized.
    [(b) Except as otherwise provided in this Act, lieutenants, 
lieutenants (junior grade), and ensigns shall be promoted to 
the respective grades of lieutenant commander, lieutenant, and 
lieutenant (junior grade) in the order in which the names 
appear on the current lineal list hereinafter authorized as the 
officers become credited with seventeen years', ten years', and 
three years' service, respectively: Provided, That lieutenants 
with not less than fourteen years' accredited service and 
lieutenants (junior grade) with not less than seven years' 
accredited service may be promoted to the grades of lieutenant 
commander and lieutenant, respectively, at any time in such 
numbers as will not cause the resulting number of officers in 
each of the grades of lieutenant commander and lieutenant to 
exceed 28 per centum of the total authorized force of 
commissioned officers on the active list: Provided further, 
That for purposes of pay, longevity pay, allowances, promotion, 
or retirement, which are now or may hereafter be authorized for 
officers appointed after June 30, 1922, there shall be counted 
in addition to active commissioned service, service as deck 
officer and junior engineer in excess of one year.
    [(c) All promotions, when made, shall be effective from the 
date of the respective vacancies, and promotions to all grades 
shall be made by the President, by and with the advice and 
consent of the Senate.
    [(d) Each officer shall be assumed to have, for promotion 
purposes, at least the same length of service as any officer 
junior to him on the lineal list hereinafter authorized, except 
that an officer who has lost numbers on the lineal list shall 
be assumed to have for promotion purposes no greater service 
than the officer next above him in his new position on the 
lineal list.
    [(e) Whenever a final fraction occurs in computing the 
authorized number of officers of any grade, the nearest whole 
number shall be regarded as the authorized number: Provided, 
That the total number of officers as authorized by law shall 
not be increased as a result of the computations prescribed 
herein, and if necessary the number of officers in the lowest 
grade shall be reduced accordingly: Provided further, That no 
officer shall be reduced in grade or pay or separated from the 
active list as the result of any computations made to determine 
the authorized number of officers in the various grades.

                            [personnel board

    [Sec. 3. At least once a year and at such other times as 
may be necessary, the Secretary of Commerce shall appoint and 
convene a Personnel Board consisting of not less than five 
officers not below the rank of commander on the active list of 
the Coast and Geodetic Survey, to make the computations 
prescribed herein, to prepare and maintain a lineal list on 
which the names of all officers on the active list shall be 
arranged in such order as the board may determine, and to make 
selections and recommendations for the promotion and retirement 
of officers as herein prescribed.
    [Sec. 4. Each report of the Personnel Board shall be 
submitted to the President for approval or disapproval: 
Provided, That in case any recommendation by the board is not 
acceptable to the President, the board shall be so informed and 
shall make such further recommendations as shall be acceptable 
to the President and, if necessary, the board shall be 
reconvened for this purpose: Provided further, That when the 
report of the board shall have been approved, the 
recommendations therein shall be carried out in accordance with 
the provisions of this Act.

                        [retirement of officers

    [Sec. 5. The President may transfer to the retired list 
from the grades of captain, commander, lieutenant commander, 
and lieutenant such officers as have been recommended for 
retirement by the Personnel Board: Provided, That the total 
number of officers so retired in any fiscal year shall not 
exceed the whole number nearest 1 per centum of the total 
authorized number of commissioned officers on the active list, 
and, except as otherwise required by law, the number of 
officers so retired plus the number of officers retired for age 
in any fiscal year shall not exceed 3 per centum of the total 
authorized number of commissioned officers on the active list: 
Provided further, That all transfers to the retired list 
pursuant to this Act shall become effective on the next ensuing 
July 1 and the resulting vacancies may be filled as of that 
date.
    [Sec. 6. Officers retired pursuant to section 5 of this Act 
shall receive pay at the rate of 2\1/2\ per centum of their 
active-duty pay at the time of retirement multiplied by the 
number of years of service for which entitled to credit in the 
computation of their pay on the active list, not to exceed a 
total of 75 per centum of said active-duty pay: Provided, That 
a fractional year of six months or more shall be considered a 
full year in computing the number of years' service by which 
the rate of 2\1/2\ per centum is multiplied.
    [Sec. 7. Should an officer fail in his physical examination 
for promotion and be found incapacitated for service by reason 
of physical disability contracted in line of duty, he shall be 
retired with the rank to which he would otherwise be entitled 
to be promoted, with retired pay at the rate of 75 per centum 
of the active-duty pay of that grade.

                       [miscellaneous provisions

    [Sec. 8. The President is authorized to appoint, by and 
with the advice and consent of the Senate, an officer on the 
active list of the Coast and Geodetic Survey not below the rank 
of commander to serve as Assistant Director; his appointment 
shall not create a vacancy and while holding said office he 
shall have the rank, pay, and allowances of rear admiral (lower 
half): Provided, That any officer who may be retired while 
serving as Director or Assistant Director, or who has or shall 
have served four years as Director or Assistant Director and is 
retired after completion of such service while serving in a 
lower rank or grade, shall be retired with the rank, pay, and 
allowances authorized by law for the highest grade or rank held 
by him as Director or Assistant Director.
    [Sec. 9. The provisions of sections 1 to 5, inclusive, of 
the Act of April 20, 1940 (54 Stat. 144), relating to the 
burial expenses of Navy personnel, and the provisions of the 
Act of June 4, 1920 (41 Stat. 824), as amended by the Act of 
May 22, 1928 (45 Stat. 710), relating to the payment of a death 
gratuity to dependents of commissioned officers and other 
personnel of the Navy or Marine Corps, shall apply to 
commissioned officers of the Coast and Geodetic Survey, except 
that the duties and obligations imposed in said Acts upon the 
Secretary of the Navy are hereby imposed for the purposes of 
this Act upon the Secretary of Commerce who shall cause the 
necessary payments to be made from funds appropriated for the 
Coast and Geodetic Survey: Provided, That the provisions of 
this section shall be effective from December 8, 1941.
    [Sec. 10. Commissioned officers, ships' officers, and 
members of the crews of vessels of the Coast and Geodetic 
Survey shall be permitted to purchase commissary and 
quartermaster supplies as far as available from the Army, Navy, 
or Marine Corps at the prices charged officers and enlisted men 
of those services.
    [Sec. 11. All laws or parts of laws inconsistent with the 
provisions of this Act are hereby repealed, and the provisions 
of this Act shall be in effect in lieu thereof.]
                              ----------                              


                     SECTION 9 OF PUBLIC LAW 87-649

AN ACT To revise, codify, and enact title 37 of the United States Code, 
       entitled ``Pay and Allowances of the Uniformed Services''

          * * * * * * *

   AMENDMENTS TO CERTAIN LAWS APPLICABLE TO COAST AND GEODETIC SURVEY

    [Sec. 9. (a) Section 3(a) of the Act of August 10, 1956, 
ch. 1041, as amended (33 U.S.C. 857a(a)), is amended by adding 
the following new clause at the end thereof:
          [``(10) Chapter 40. Leave.''
    [(b) The Act of June 3, 1948, ch. 390, as amended, is 
further amended as follows:
          [(1) Section 9 (33 U.S.C. 853h) is amended by 
        striking out the words ``active-duty pay with longevity 
        credit'' wherever they appear and inserting the words 
        ``basic pay'' in place thereof.
          [(2) Section 16(a) (33 U.S.C. 853o(a)) is amended by 
        striking out the words ``active-duty pay with longevity 
        credit'' wherever they appear and inserting the words 
        ``basic pay'' in place thereof.
    [(c) Active service in the Coast and Geodetic Survey as a 
deck officer or junior engineer and active service counted on 
June 30, 1922, for longevity pay, shall be credited to 
commissioned officers as active commissioned service for 
purposes of retirement and retirement pay.]
                              ----------                              


                          ACT OF MAY 22, 1917

CHAP. 20.--An Act To temporarily increase the commissioned and warrant 
   and enlisted strength of the Navy and Marine Corps, and for other 
                                purposes

          * * * * * * *
    [Sec. 16. The President is authorized, whenever in his 
judgment a sufficient national emergency exists, to transfer to 
the service and jurisdiction of a military department such 
vessels, equipment, stations, and commissioned officers of the 
Environmental Science Services Administration as he may deem to 
the best interest of the country, and after such transfer all 
expenses connected therewith shall be defrayed out of the 
appropriations for the department to which transfer is made: 
Provided, That such vessels, equipment, stations, and 
commissioned officers shall be returned to the Environmental 
Science Services Administration when such national emergency 
ceases, in the opinion of the President, and nothing in this 
section shall be construed as transferring the Environmental 
Science Services Administration or any of its functions from 
the Department of Commerce except in time of national emergency 
and to the extent herein provided: Provided further, That any 
of the commissioned officers of the Environmental Science 
Services Administration who may be transferred as provided in 
this section, shall, while under the jurisdiction of a military 
department, have proper military status and shall be subject to 
the laws, regulations, and orders for the government of the 
Army, Navy, or Air Force, as the case may be, insofar as the 
same may be applicable to persons whose retention permanently 
in the military service of the United States is not 
contemplated by law.
    [Nothing in this Act shall reduce the total amount of pay 
and allowances they were receiving at the time of transfer. 
While actually employed in active service under direct orders 
of the War Department or of the Navy Department members of the 
Coast and Geodetic Survey shall receive the benefit of all 
provisions of laws relating to disability incurred in line of 
duty or loss of life.
    [When serving with the Army, Navy, or Air Force, 
commissioned officers of the Coast and Geodetic Survey shall 
rank with and after officers of corresponding grade in the 
Army, Navy, or Air Force of the same length of service in 
grade.
    [And nothing in this act shall be construed to affect or 
alter their rates of pay and allowances when not assigned to 
military duty as hereinbefore mentioned.
    [The Secretary of Defense and the Secretary of Commerce 
shall jointly prescribe regulations governing the duties to be 
performed by the Environmental Science Services Administration 
in time of war, and for the cooperation of that service with 
the military departments in time of peace in preparation for 
its duties in war, which regulations shall not be effective 
unless approved by each of those Secretaries, and included 
therein may be rules and regulations for making reports and 
communications between a military department and the 
Environmental Science Services Administration.]
                              ----------                              


                        ACT OF DECEMBER 3, 1942

    [AN ACT Authorizing the temporary appointment or advancement of 
 commissioned officers of the Coast and Geodetic Survey in time of war 
             or national emergency, and for other purposes

    [Be it enacted by the Senate and House of Representatives 
of the United States of America in Congress assembled, 
Personnel of the Environmental Science Services Administration 
shall be subject in like manner and to the same extent as 
personnel of the Navy to all laws authorizing temporary 
appointment or advancement of commissioned officers in time of 
war or national emergency subject to the following limitations:
          [(1) Commissioned officers in the service of a 
        military department, under the provisions of section 16 
        of the Act of May 22, 1917 (40 Stat. 87), as amended, 
        may, upon the recommendation of the Secretary of the 
        military department concerned, be temporarily promoted 
        to higher ranks or grades.
          [(2) Commissioned officers in the service of the 
        Environmental Science Services Administration may be 
        temporarily promoted to fill vacancies in ranks and 
        grades caused by the transfer of commissioned officers 
        to the service and jurisdiction of a military 
        department under the provisions of section 16 of the 
        Act of May 22, 1917 (40 Stat. 87), as amended.
          [(3) Temporary appointments may be made in all grades 
        to which original appointments in the Environmental 
        Science Services Administration are authorized: 
        Provided, That the number of officers holding temporary 
        appointments shall not exceed the number of officers 
        transferred to a military department under the 
        provisions of section 16 of the Act of May 22, 1917 (40 
        Stat. 87), as amended.
    [Sec. 3. Any commissioned officer of the Coast and Geodetic 
Survey promoted to a higher grade at any time after December 7, 
1941, shall be deemed for all purposes to have accepted his 
promotion to higher grade upon the date such promotion is made 
by the President, unless he shall expressly decline such 
promotion, and shall receive the pay and allowances of the 
higher grade from such date unless he is entitled under some 
other provision of law to receive the pay and allowances of the 
higher grade from an earlier date. No such officer who shall 
have subscribed to the oath of office required by section 1757, 
Revised Statutes, shall be required to renew such oath or to 
take a new oath upon his promotion to a higher grade, if his 
service after the taking of such an oath shall have been 
continuous.]
                              ----------                              


                           Public Law 91-621

 AN ACT To clarify the status and benefits of commissioned officers of 
  the National Oceanic and Atmospheric Administration, and for other 
                                purposes

    Be it enacted by the Senate and House of Representatives of 
the United States of America in Congress assembled,
    [Section 1. Definitions listed in section 101 of title 10, 
United States Code, apply to this Act, except as noted below:
          [(1) ``active duty'' means full-time duty in the 
        active service of a uniformed service;
          [(2) ``Administration'' means the National Oceanic 
        and Atmospheric Administration;
          [(3) ``grade'' means a step or degree, in a graduated 
        scale of office or rank, that is established and 
        designated as a grade by law or regulation;
          [(4) ``officer'' means a commissioned officer;
          [(5) ``Secretary'' means the Secretary of Commerce;
          [(6) ``Secretary concerned'' is defined in section 
        101 of title 37, United States Code;
          [(7) ``uniformed services'' is defined in section 101 
        of title 37, United States Code.
    [Sec. 2. Each officer retired pursuant to any provision of 
law shall be placed on the retired list with the highest grade 
satisfactorily held by him while on active duty including 
active duty pursuant to recall, under permanent or temporary 
appointment, and he shall receive retired pay based on such 
highest grade: Provided, That his performance of duty in such 
highest grade has been satisfactory, as determined by the 
Secretary of the department or departments under whose 
jurisdiction the officer served, and, unless retired for 
disability, his length of service in such highest grade is no 
less than that required by the Secretary of officers retiring 
under permanent appointment in that grade.
    [Sec. 3. (a) Active service of officers of the 
Administration shall be deemed to be active military service in 
the armed forces of the United States for the purposes of all 
rights, privileges, immunities, and benefits now or hereafter 
provided by--
          [(1) laws administered by the Secretary of Veterans 
        Affairs;
          [(2) laws administered by the Interstate Commerce 
        Commission; and
          [(3) the Soldiers' and Sailors' Civil Relief Act of 
        1940, as amended.
In the administration of these laws and regulations, with 
respect to the National Oceanic and Atmospheric Administration, 
the authority vested in the Secretary of Defense, the Secretary 
of the Army, the Secretary of the Navy and the Secretary of the 
Air Force and their respective departments shall be exercised 
by the Secretary of Commerce.
    [(b) The Secretary may provide medical and dental care, 
including care in private facilities, for personnel of the 
Administration entitled to that care by law or regulation.
    [Sec. 4. (a) Commissioned officers, ships' officers, and 
members of crews of vessels of the Administration shall be 
permitted to purchase commissary and quartermaster supplies as 
far as available from the armed forces at the prices charged 
officers and enlisted men of those services.
    [(b) The Secretary may purchase ration supplies for messes, 
stores, uniforms, accouterments, and related equipment for sale 
aboard ship and shore stations of the Administration to members 
of the uniformed services and to personnel assigned to such 
ships or shore stations. Sales shall be in accordance with 
regulations prescribed by the secretary, and proceeds therefrom 
shall, as far as is practicable, fully reimburse the 
appropriations charged without regard to fiscal year.
    [(c) Rights extended to members of the uniformed services 
in this section are extended to their widows and to such others 
as are designated by the Secretary concerned.
    [Sec. 5. (a) All statutes that applied to commissioned 
officers of the Coast and Geodetic Survey on July 12, 1965, 
shall apply to officers of the Environmental Science Services 
Administration on that date and subsequent thereto, unless 
amended or repealed, and service as a commissioned officer in 
the Coast and Geodetic Survey shall constitute service as a 
commissioned officer in the Environmental Science Services 
Administration.
    [(b) All statutes that applied to commissioned officers of 
the Coast and Geodetic Survey on July 12, 1965, and to 
commissioned officers of the Environmental Science Services 
Administration subsequent to that date shall apply to officers 
of the National Oceanic and Atmospheric Administration on 
October 3, 1970, and subsequent thereto, unless amended or 
repealed, and service as a commissioned officer in the Coast 
and Geodetic Survey or the Environmental Science Services 
Administration shall constitute service as a commissioned 
officer in the National Oceanic and Atmospheric Administration.
    [(c) The enactment of this Act does not increase or 
decrease the pay or allowances of any person.
    [(d) A reference to a law replaced by this Act, including a 
reference in a regulation, order, or other law, is deemed to 
refer to the corresponding provisions enacted by this Act.
    [(e) An order, rule, or regulation in effect under a law 
replaced by this Act continues in effect under the 
corresponding provisions enacted by this Act until repealed, 
amended, or superseded.
    [(f) An inference of a legislative construction is not to 
be drawn by reason of the location in the United States Code of 
a provision enacted by this Act or by reason of the caption or 
catchline thereof.
    [(g) If any provision of this Act or the application 
thereof to any person or circumstances is held invalid, the 
remainder of this Act and the application of such provision to 
other persons or circumstances shall not be affected thereby.]
                              ----------                              


                         ACT OF AUGUST 10, 1956

 AN ACT  To revise, codify, and enact into law, title 10 of the United 
  States Code, entitled ``Armed Forces'', and title 32 of the United 
                States Code, entitled ``National Guard''

          * * * * * * *

        [PARTS OF TITLE 10 ADOPTED FOR COAST AND GEODETIC SURVEY

    [Sec. 3. (a) The rules of law that apply to the Armed 
Forces under the following provisions of title 10, Armed 
Forces, United States Code, including changes in those rules 
made after the effective date of this Act, apply also to the 
Coast and Geodetic Survey:
          [(1) Section 1036, Escorts for dependents of members: 
        transportation and travel allowances.
          [(2) Chapter 61, Retirement or Separation for 
        Physical Disability.
          [(3) Chapter 69, Retired Grade, except sections 1370, 
        1374, 1375, and 1376(a).
          [(4) Chapter 71, Computation of Retired Pay, except 
        formula No. 3 of section 1401.
          [(5) Chapter 78, Retired Serviceman's Family 
        Protection Plan; Survivor Benefit Plan.
          [(6) Chapter 75, Death Benefits.;
          [(7) Section 2771, Final settlement of accounts: 
        deceased members.
          [(8) Sections 2731, 2732, and 2735, property loss 
        incident to service.
          [(9) Such other provisions of subtitle A as may be 
        adopted for applicability to the Coast and Geodetic 
        Survey by any other provision of law.
          [(10) Chapter 30. Leave.
          [(11) Section 2634, Motor vehicles: for members on 
        permanent change of station.
          [(12) Section 1035, Deposits of Savings.
          [(13) Section 716, Commissioned officers: transfers 
        among the Armed Forces, the National Oceanic and 
        Atmospheric Administration, and the Public Health 
        Service.
          [(14) Section 7572(b), Quarters: accommodations in 
        place of or for members on sea duty.
    [(b) The authority vested by title 10, United States Code, 
in the ``military departments'', ``Secretary concerned'', or 
``the Secretary of Defense'' with respect to the provisions of 
law referred to in subsection (a) shall be exercised, with 
respect to the Coast and Geodetic Survey, by the Secretary of 
Commerce or his designee.]
                              ----------                              


                          ACT OF MAY 18, 1920

 CHAP. 190.--An Act To increase the efficiency of the commissioned and 
enlisted personnel of the Army, Navy, Marine Corps, Coast Guard, Coast 
             and Geodetic Survey, and Public Health Service

          * * * * * * *
    [Sec. 11. That in lieu of compensation now prescribed by 
law, commissioned officers of the Coast and Geodetic Survey, 
shall receive the same pay and allowances as now are or 
hereafter may be prescribed for officers of the Navy with whom 
they hold relative rank as prescribed in the Act of May 22, 
1917, entitled ``An Act to temporarily increase the 
commissioned and warrant and enlisted strength of the Navy and 
Marine Corps, and for other purposes,'' including longevity; 
and all laws relating to the retirement of commissioned 
officers of the Navy shall hereafter apply to commissioned 
officers of the Coast and Geodetic Survey: Provided, That 
hereafter longevity pay for officers in the Army, Navy, Marine 
Corps, Coast Guard, Public Health Service, and Coast and 
Geodetic Survey shall be based on the total of all service in 
any or all of said services.]
                              ----------                              


                          ACT OF JULY 22, 1947

   [AN ACT To provide basic authority for the performance of certain 
  functions and activities of the Coast and Geodetic Survey, and for 
                             other purposes

    [Be it enacted by the Senate and House of Representatives 
of the United States of America in Congress assembled, That the 
Coast and Geodetic Survey is hereby authorized to provide, from 
appropriations now or hereafter made available to the Survey, 
for--
    [(a) Transportation (including packing, unpacking, crating, 
and uncrating) of personal and household effects of 
commissioned officers who die on active duty to the official 
residence of record for such officers, or, upon application by 
their dependents, to such other locations as may be determined 
by the Director of the Coast and Geodetic Survey or by such 
person as he may designate.
    [(b) Reimbursement, under regulations prescribed by the 
Secretary, of commissioned officers for food, clothing, 
medicines, and other supplies furnished by them for the 
temporary relief of distressed persons in remote localities and 
to shipwrecked persons temporarily provided for by them.
    [Sec. 2. The Secretary of Commerce is hereby authorized to 
pay extra compensation to members of crews of vessels when 
assigned duties as instrument observer or recorder, and to 
employees of other Federal agencies while observing tides or 
currents, or tending seismographs or magnetographs, at such 
rates as may be specified from time to time by him, and without 
regard to section 301 of the Dual Compensation Act.]
                              ----------                              


                         ACT OF AUGUST 3, 1956

AN ACT To authorize officers of the Coast and Geodetic Survey to act as 
              notaries in places outside the United States

    [Be it enacted by the Senate and House of Representatives 
of the United States of America in Congress assembled, That, in 
places where the Coast and Geodetic Survey is serving which are 
not within the jurisdiction of any one of the States of the 
continental United States, excluding Alaska, commanding 
officers of Coast and Geodetic Survey vessels, and such other 
officers of the Coast and Geodetic Survey as the Secretary of 
Commerce may designate, may exercise the general powers of the 
notary public in the administration of oaths for the execution, 
acknowledgment, and attestation of instruments and papers, and 
the performance of all other notarial acts. The powers hereby 
conferred shall be limited to acts performed in behalf of the 
personnel of the Coast and Geodetic Survey or in connection 
with the proper execution of the functions of that agency
    [Sec. 2. No fee of any kind shall be paid to any officer 
for the performance of any notarial act herein authorized. The 
signature without seal together with indication of grade of any 
officer performing any notarial act shall be prima facie 
evidence of his authority.]
                              ----------                              


                  OCEAN THERMAL CONVERSION ACT OF 1980

  [An Act To regulate commerce, promote energy self-sufficiency, and 
 protect the environment by establishing procedures for the location, 
    construction, and operation of ocean thermal energy conversion 
 facilities and plantships to produce electricity and energy-intensive 
  products off the coasts of the United States; to amend the Merchant 
 Marine Act, 1936, to make available certain financial assistance for 
 construction and operation of such facilities and plantships; and for 
                             other purposes

    [Be it enacted by the Senate and House of Representatives 
of the United States of America in Congress assembled, That 
this Act may be cited as the ``Ocean Thermal Energy Conversion 
Act of 1980''.

[SEC. 2. DECLARATION OF POLICY.

    [(a) It is declared to be the purposes of the Congress in 
this Act to--
          [(1) authorize and regulate the construction, 
        location, ownership, and operation of ocean thermal 
        energy conversion facilities connected to the United 
        States by pipeline or cable, or located in whole or in 
        part between the highwater mark and the seaward 
        boundary of the territorial sea of the United States 
        consistent with the Convention on the High Seas, and 
        general principles of international law;
          [(2) authorize and regulate the construction, 
        location, ownership, and operation of ocean thermal 
        energy conversion plantships documented under the laws 
        of the United States, consistent with the Convention on 
        the High Seas and general principles of international 
        law;
          [(3) authorize and regulate the construction, 
        location, ownership, and operation of ocean thermal 
        energy conversion plantships by United States citizens, 
        consistent with the Convention on the High Seas and 
        general principles of international law;
          [(4) establish a legal regime which will permit and 
        encourage the development of ocean thermal conversion 
        as a commercial energy technology;
          [(5) provide for the protection of the marine and 
        coastal environment, and consideration of the interests 
        of ocean users, to prevent or minimize any adverse 
        impact which might occur as a consequence of the 
        development of such ocean thermal energy conversion 
        facilities or plantships;
          [(6) make applicable certain provisions of the 
        Merchant Marine Act, 1936 (46 U.S.C. 1177 et seq.) to 
        assist in financing of ocean thermal energy conversion 
        facilities and plantships;
          [(7) protect the interests of the United States in 
        the location, construction, and operation of ocean 
        thermal energy conversion facilities and plantships; 
        and
          [(8) protect the rights and responsibilities of 
        adjacent coastal States in ensuring that Federal 
        actions are consistent with approved State coastal zone 
        management programs and other applicable State and 
        local laws.
    [(b) The Congress declares that nothing in this Act shall 
be construed to affect the legal status of the high seas, the 
superjacent airspace, or the sealed and subsoil, including the 
Continental Shelf.

[SEC. 3. DEFINITIONS.

    [As used in this Act, unless the context otherwise 
requires, the term--
          [(1) ``adjacent coastal State'' means any coastal 
        State which is required to be designated as such by 
        section 105(a)(1) of this Act or is designated as such 
        by the Administrator in accordance with section 
        105(a)(2) of this Act;
          [(2) ``Administrator'' means the Administrator of the 
        National Oceanic and Atmospheric Administration;
          [(3) ``antitrust laws'' includes the Act of July 2, 
        1890, as amended, the Act of October 15, 1914, as 
        amended, and sections 73 and 74 of the Act of August 
        27, 1894, as amended;
          [(4) ``application'' means any application submitted 
        under this Act (A) for issuance of a license for the 
        ownership, construction, and operation of an ocean 
        thermal energy conversion facility or plantship; (B) 
        for transfer or renewal of any such license; or (C) for 
        any substantial change in any of the conditions and 
        provisions of any such license;
          [(5) ``coastal State'' means a State in, or bordering 
        on, the Atlantic, Pacific, or Arctic Ocean, the Gulf of 
        Mexico, Long Island Sound, or one or more of the Great 
        Lakes;
          [(6) ``construction'' means any activities conducted 
        at sea to supervise, inspect, actually build, or 
        perform other functions incidental to the building, 
        repairing, or expanding of an ocean thermal energy 
        conversion facility or plantship or any of its 
        components, including but not limited to, piledriving, 
        emplacement of mooring devices, emplacement of cables 
        and pipelines, and deployment of the cold water pipe, 
        and alterations, modifications, or additions to an 
        ocean thermal energy conversion facility or plantship;
          [(7) ``facility'' means an ocean thermal energy 
        conversion facility;
          [(8) ``Governor'' means the Governor of a State or 
        the person designated by law to exercise the powers 
        granted to the Governor pursuant to this Act;
          [(9) ``high seas'' means that part of the oceans 
        lying seaward of the territorial sea of the United 
        States and outside the territorial sea, as recognized 
        by the United States, of any other nation;
          [(10) ``licensee'' means the holder of a valid 
        license for the ownership, construction, and operation 
        of an ocean thermal energy conversion facility or 
        plantship that was issued, transferred, or renewed 
        pursuant to this Act;
          [(11) ``ocean thermal energy conversion facility'' 
        means any facility which is standing, fixed or moored 
        in whole or in part seaward of the highwater mark and 
        which is designed to use temperature differences in 
        ocean water to produce electricity or another form of 
        energy capable of being used directly to perform work, 
        and includes any equipment installed on such facility 
        to use such electricity or other form of energy to 
        produce, process, refine, or manufacture a product, and 
        any cable or pipeline used to deliver such electricity, 
        fresh water, or product to shore, and all other 
        associated equipment and appurtenances of such 
        facility, to the extent they are located seaward of the 
        highwater mark;
          [(12) ``ocean thermal energy conversion plantship'' 
        means any vessel which is designed to use temperature 
        differences in ocean water while floating unmoored or 
        moving through such water, to produce electricity or 
        another form of energy capable of being used directly 
        to perform work, and includes any equipment installed 
        on such vessel to use such electricity or other form of 
        energy to produce, process, refine, or manufacture a 
        product, and any equipment used to transfer such 
        product to other vessels for transportation to users, 
        and all other associated equipment and apputenances of 
        such vessel;
          [(13) ``plantship'' means an ocean thermal energy 
        conversion plantship;
          [(14) ``person'' means any individual (whether or not 
        a citizen of the United States), any corporation, 
        partnership, association, or other entity organized or 
        existing under the laws of any nation, and any Federal, 
        State, local or foreign government or any entity of any 
        such government;
          [(15) ``State'' means each of the several States, the 
        District of Columbia, the Commonwealth of Puerto Rico, 
        American Samoa, the United States Virgin Islands, Guam, 
        the Commonwealth of the Northern Marianas, and any 
        other Commonwealth, territory, or possession over which 
        the United States has jurisdiction;
          [(16) ``test platform'' means any floating or moored 
        platform, barge, ship, or other vessel which is 
        designed for limited-scale, at sea operation in order 
        to test or evaluate the operation of components or all 
        of an ocean thermal energy conversion system and which 
        will not operate as an ocean thermal energy conversion 
        facility or plantship after the conclusion of such 
        tests or evaluation;
          [(17) ``thermal plume; means the area of the ocean in 
        which a significant difference in temperature, as 
        defined in regulations by the Administrator, occurs as 
        a result of the operation of an ocean thermal energy 
        conversion facility or plantship; and
          [(18) ``United States citizen'' means (A) any 
        individual who is a citizen of the United States by 
        law, birth, or naturalization; (B) any Federal, State, 
        or local government in the United States, or any entity 
        of any such government; or (C) any corporation, 
        partnership, association, or other entity, organized or 
        existing under the laws of the United States, or of any 
        State, which has as its president or other executive 
        officer and as its chairman of the board of directors, 
        or holder of similar office, an individual who is a 
        United States citizen and which has no more of its 
        directors who are not United States citizens than 
        constitute a minority of the number required for a 
        quorum necessary to conduct the business of the board.

[TITLE I--REGULATION OF OCEAN THERMAL ENERGY CONVERSION FACILITIES AND 
                               PLANTSHIPS

[Sec. 101. License for the ownership, construction, and operation of an 
         ocean thermal energy conversion facility or plantship.

    [(a) No person may engage in the ownership, construction, 
or operation of an ocean thermal energy conversion facility 
which is documented under the laws of the United States, which 
is located in whole or in part between the highwater mark and 
the seaward boundary of the territorial sea of the United 
States, or which is connected to the United States by pipeline 
or cable, except in accordance with a license issued pursuant 
to this Act. No citizen of the United States may engage in the 
ownership, construction or operation of an ocean thermal energy 
conversion plantship except in accordance with a license issued 
pursuant to this Act, or in accordance with a license issued by 
a foreign nation whose licensees are found by the 
Administrator, after consultation with the Secretary of State, 
to be compatible with licenses issued pursuant to this Act.
    [(b) The Administrator shall, upon application and in 
accordance with the provisions of this Act, issue, transfer, 
amend, or renew licenses for the ownership, construction, and 
operation of--
          [(1) ocean thermal energy conversion plantships 
        documented under the laws of the United States, and
          [(2) ocean thermal energy conversion facilities 
        documented under the laws of the United States, located 
        in whole or in part between the highwater mark and the 
        seaward boundary of the territorial sea of the United 
        States, or connected to the United States by pipeline 
        or cable
    [(c) The Administrator may issue a license to a citizen of 
the United States in accordance with the provisions of this Act 
unless--
          [(1) he determines that the applicant cannot or will 
        not comply with applicable laws, regulations, and 
        license conditions;
          [(2) he determines that the construction and 
        operation of the ocean thermal energy conversion 
        facility or plantship will not be in the national 
        interest and consistent with national security and 
        other national policy goals and objectives, including 
        energy self-sufficiency and environmental quality;
          [(3) he determines, after consultation with the 
        Secretary of the department in which the Coast Guard is 
        operating, that the ocean thermal energy conversion 
        facility or plantship will not be operated with 
        reasonable regard to the freedom of navigation or other 
        reasonable uses of the high seas and authorized uses of 
        the Continental Shelf, as defined by United States law, 
        treaty, convention, or customary international law;
          [(4) he has been informed, within 45 days after the 
        conclusion of public hearings on that application, or 
        on proposed licenses for the designated application 
        area, by the Administrator of the Environmental 
        Protection Agency that the ocean thermal energy 
        conversion facility of plantship will not conform with 
        all applicable provisions of any law for which he has 
        regulatory authority;
          [(5) he has received the opinion of the Attorney 
        General, pursuant to section 104 of this Act, stating 
        that issuance of the license would create a situation 
        not in violation of the antitrust laws, or the 90-day 
        period provided in section 104 has not expired;
          [(6) he has consulted with the Secretary of Energy, 
        the Secretary of Transportation, the Secretary of 
        State, the Secretary of the Interior, and the Secretary 
        of Defense, to determine their views on the adequacy of 
        the application, and its effect on programs within 
        their respective jurisdictions and determines on the 
        basis thereof, that the application for a license is 
        inadequate;
          [(7) the proposed ocean thermal energy conversion 
        facility or plantship will be documented under the laws 
        of a foreign nation;
          [(8) the applicant has not agreed to the condition 
        that no vessel may be used for the transportation to 
        the United States of things produced, processed, 
        refined, or manufactured at the ocean thermal energy 
        conversion facility or plantship unless such vessel is 
        documented under the laws of the United States;
          [(9) when the license is for an ocean thermal energy 
        conversion facility, he determines that the facility, 
        including any submarine electric transmission cables 
        and equipment or pipelines which are components of the 
        facility, will not be located and designed so as to 
        minimize interference with other uses of the high seas 
        or the Continental Shelf, including cable or pipelines 
        already in position on or in the seabed and the 
        possibility of their repair;
          [(10) the Governor of any adjacent coastal State with 
        an approved coastal zone management program in good 
        standing pursuant to the Coastal Zone Management Act of 
        1972 (16 U.S.C. 1451 et seq., determines that, in his 
        or her view, the application is inadequate or 
        inconsistent with respect to programs within his or her 
        jurisdiction;
          [(11) when the license is for an ocean thermal energy 
        conversion facility, he determines that the thermal 
        plume of the facility is expected to impinge on so as 
        to degrade the thermal gradient used by any other ocean 
        thermal energy conversion facility already licensed or 
        operating, without the consent of its owner;
          [(12) when the license is for an ocean thermal energy 
        conversion facility, he determines that the thermal 
        plume of the facility is expected to impinge on so as 
        to adversely affect the territorial sea or area of 
        national resource jurisdiction, as recognized by the 
        United States, of any other National, unless the 
        Secretary of State approves such impingement after 
        consultation with such Nation;
          [(13) when the license is for an ocean thermal energy 
        conversion plantship, he determines that the applicant 
        has not provided adequate assurance that the plantship 
        will be operated in such a way as to prevent its 
        thermal plume from impinging on so as to degrade the 
        thermal gradient used by other ocean thermal energy 
        conversion facility or plantship without the consent of 
        its owner, and from impinging on so as to adversely 
        affect the territorial sea or area of national resource 
        jurisdiction, as recognized by the United States, of 
        any other Nation unless the Secretary of State approves 
        such impingement after consultation with such Nation; 
        or
          [(14) if a regulation has been adopted which places 
        an upper limit on the number or total capacity of ocean 
        thermal energy conversion facilities or plantships to 
        be licensed under this Act for simultaneous operation, 
        either overall or within specific geographic areas, 
        pursuant to a determination under the provisions of 
        section 107(b)(4) of this Act, issuance of the license 
        will cause such upper limit to be exceeded.
    [(d)(1) In issuing a license for the ownership, 
construction, and operation of an ocean thermal energy 
conversion facility or plantship, the Administrator shall 
prescribe conditions which he deems necessary to carry out the 
provisions of this Act, or which are otherwise required by any 
Federal department or agency pursuant to the terms of this Act.
    [(2) No license shall be issued, transferred, or renewed 
under this Act unless the applicant, licensee, or transferee 
first agrees in writing that (A) there will be no substantial 
change from the plans, operational systems, and methods, 
procedures, and safeguards set forth in his application, as 
approved, without prior approval in writing from the 
Administrator, and (B) he will comply with conditions the 
Administrator may prescribe in accordance with the provisions 
of this Act.
    [(3) The Administrator shall establish such bonding 
requirements other assurances as he deems necessary to assure 
that, upon the revocation, termination, relinquishment, or 
surrender of a license, the licensee will dispose of or remove 
all components of the ocean thermal energy conversion facility 
or plantship as directed by the Administrator. In the case of 
components which another applicant or licensee desires to use, 
the Administrator may waive the disposal or removal 
requirements until he has reached a decision on the 
application. In the case of components lying on or below the 
sealed, the Administrator may waive the disposal or removal 
requirements if he finds that such removal is not otherwise 
necessary and that the remaining components do not constitute 
any threat to the environment, navigation, fishing, or other 
uses of the seabed.
    [(e) Upon application, a license issued under this Act may 
be transferred if the Administrator determines that such 
transfer is in the public interest and that the transferee 
meets the requirements of this Act and the prerequisites to 
issuance under subsection (c) of this section.
    [(f) Any United States citizen who otherwise qualifies 
under the terms of this Act shall be eligible to be issued a 
license for the ownership, construction, and operation or an 
ocean thermal energy conversion facility or plantship.
    [(g) Licenses issued under this Act shall be for a term of 
not to exceed 25 years. Each licensee shall have a preferential 
right to renew his license subject to the requirements of 
subsection (c) of this section, upon such conditions and for 
such terms, not to exceed an additional 10 years upon each 
renewal, as the Administrator determines to be reasonable and 
appropriate.

[SEC. 102. PROCEDURE.

    [(a) The Administrator shall, after consultation with the 
Secretary of Energy and the heads of other Federal agencies, 
issue regulations to carry out the purposes and provisions of 
this Act, in accordance with the provisions of section 553 of 
title 5, United States Code, without regard to subsection (a) 
thereof. Such regulations shall pertain to, but need not be 
limited to, application for issuance, transfer, renewal, 
suspension, and termination of licenses. Such regulations shall 
provide for full consultation and cooperation with all other 
interested Federal agencies and departments and with any 
potentially affected coastal State, and for consideration of 
the views of any interested members of the general public. The 
Administrator is further authorized, consistent with the 
purposes and provisions of this Act, to amend or rescind any 
such regulations. The Administrator shall complete issuance of 
final regulations to implement this Act within 1 year of the 
date of its enactment.
    [(b) The Administrator, in consultation with the Secretary 
of the Interior and the Secretary of the department in which 
the Coast Guard is operating may, if he determines it to be 
necessary, prescribe regulations consistent with the purposes 
of this Act, relating to those activities in site evaluation 
and preconstruction testing at potential ocean thermal energy 
conversion facility or plantship locations that may (1) 
adversely affect the environment; (2) interfere with other 
reasonable uses of the high seas or with authorized uses of the 
Outer Continental Shelf; or (3) pose a threat to human health 
and safety. If the Administrator prescribes regulations 
relating to such activities, such activities may not be 
undertaken after the effective date of such regulations except 
in accordance therewith.
    [(c) Not later than 60 days after the date of enactment of 
this Act, the Secretary of Energy, the Administrator of the 
Environmental Protection Agency, the Secretary of the 
department in which the Coast Guard is operating, the Secretary 
of the Interior, the Chief of Engineers of the United States 
Army Corps of Engineers, and the heads of any other Federal 
departments or agencies having expertise concerning, or 
jurisdiction over, any aspect of the construction or operation 
of ocean thermal energy conversion facilities or plantships, 
shall transmit to the Administrator written description of 
their expertise or statutory responsibilities pursuant to this 
Act or any other Federal law.
    [(d)(1) Within 21 days after the receipt of an application, 
the Administrator shall determine whether the application 
appears to contain all of the information required by paragraph 
(2) of this subsection. If the Administrator determines that 
such information appears to be contained in the application, 
the Administrator shall, no later than 5 days after making such 
a determination, publish notice of the application and a 
summary of the plans in the Federal Register. If the 
Administrator determines that all of the required information 
does not appear to be contained in the application, the 
Administrator shall notify the applicant and take no further 
action with respect to the application until such deficiencies 
have been remedied.
    [(2) Each application shall include such financial, 
technical, and other information as the Administrator 
determines by regulation to be necessary or appropriate to 
process the license pursuant to section 101.
    [(e)(1) At the time notice of an application for an ocean 
thermal energy conversion facility is published pursuant to 
subsection (d) of this section, the Administrator shall publish 
a description in the Federal Register of an application area 
encompassing the site proposed in the application for such 
facility and within which the thermal plume of one ocean 
thermal energy conversion facility might be expected to impinge 
on so as to degrade the thermal gradient used by another ocean 
thermal energy conversion facility, unless the application is 
for a license for an ocean thermal energy conversion facility 
to be located within an application area which has already been 
designated.
    [(2) The Administrator shall accompany such publication 
with a call for submission of any other applications for 
licenses for the ownership, construction, and operation of an 
ocean thermal energy conversion facility within the designated 
application area. Any person intending to file such an 
application shall submit a notice of intent to file an 
application to the Administrator not later than 60 days after 
the publication of notice pursuant to subsection (d) of this 
section, and shall submit the completed application no later 
than 90 days after publication of such notice. The 
Administrator shall publish notice of any such application 
received in accordance with subsection (d) of this section. No 
application for a license for the ownership, construction, and 
operation of an ocean thermal energy conversion facility within 
the designated application area for which a notice of intent to 
file was received after such 60-day period, or which is 
received after such 90-day period has elapsed, shall be 
considered until action has been completed on all timely filed 
applications pending with respect to such application area.
    [(f) An application filed with the Administrator shall 
constitute an application for all Federal authorizations 
required for ownership, construction, and operation of an ocean 
thermal energy conversion facility or plantship, except for 
authorizations required by documentation, inspection, 
certification, construction, and manning laws and regulations 
administered by the Secretary of the department in which the 
Coast Guard is operating. At the time notice of any application 
is published pursuant to subsection (d) of this section, the 
Administrator shall forward a copy of such application to those 
Federal agencies and departments with jurisdiction over any 
aspect of such ownership, construction, or operation for 
comment, review, or recommendation as to conditions and for 
such other action as may be required by law. Each agency or 
department involved shall review the application and, based 
upon legal considerations within its area of responsibility, 
recommend to the Administrator the approval or disapproval of 
the application not later than 45 days after public hearings 
are concluded pursuant to subsection (g) of this section. In 
any case in which an agency or department recommends 
disapproval, it shall set forth in detail the manner in which 
the application does not comply with any law or regulation 
within its area of responsibility and shall notify the 
Administrator of the manner in which the application may be 
amended or the license conditioned so as to bring it into 
compliance with the law or regulation involved.
    [(g) A license may be issued, transferred, or renewed only 
after public notice, opportunity for comment, and public 
hearings in accordance with this subsection. At least one such 
public hearing shall be held in the District of Columbia and in 
any adjacent coastal State to which a facility is proposed to 
be directly connected by pipeline or electric transmission 
cable. Any interested person may present relevant material at 
any such hearing. After the hearings required by this 
subsection are concluded, if the Administrator determines that 
there exist one or more specific and material factual issues 
which may be resolved by a formal evidentiary hearing, at least 
one adjudicatory hearing shall be held in the District of 
Columbia in accordance with the provisions of section 554 of 
title 5, United States Code. The record developed in any such 
adjudicatory hearing shall be part of the basis for the 
Administrator's decision to approve or deny a license. Hearings 
held pursuant to this subsection shall be consolidated insofar 
as practicable with hearings held by other agencies. All public 
hearings on all applications with respect to facilities for any 
designated application area shall be consolidated and shall be 
concluded not later than 240 days after notice of the initial 
application has been published pursuant to subsection (d) of 
this section. All public hearings on applications with respect 
to ocean thermal energy conversion plantships shall be 
concluded not later than 240 days after notice of the 
application has been published pursuant to subsection (d) of 
this section.
    [(h) The Administrator shall not take final action on any 
application unless the applicant has paid to the Administrator 
a reasonable administrative fee, which shall be deposited into 
miscellaneous receipts of the Treasury. The amount of the fee 
imposed by the Administrator on any applicant shall reflect the 
reasonable administrative costs incurred by the National 
Oceanic and Atmospheric Administration in reviewing and 
processing the application.
    [(i)(1) The Administrator shall approve or deny any timely 
filed application with respect to a facility for a designated 
application area submitted in accordance with the provision of 
this Act not later than 90 days after public hearings on 
proposed licenses for that area are concluded pursuant to 
subsection (g) of this section. The Administrator shall approve 
or deny an application for a license for ownership, 
construction, and operation of an ocean thermal energy 
conversion plantship submitted pursuant to this Act no later 
than 90 days after the public hearings on that application are 
concluded pursuant to subsection (g) of this section.
    [(2) In the event more than one application for a license 
for ownership, construction, and operation of an ocean thermal 
energy conversion facility is submitted pursuant to this Act 
for the same designated application area, the Administrator, 
unless one or a specific combination of the proposed facilities 
clearly best serves the national interest, shall make decisions 
on license applications in the order in which they were 
submitted to him.
    [(3) In determining whether any one or a specific 
combination of the proposed ocean thermal energy conversion 
facilities clearly best serves the national interest, the 
Administrator, in consultation with the Secretary of Energy, 
shall consider the following factors:
          [(A) the goal of making the greatest possible use of 
        ocean thermal energy conversion by installing the 
        largest capacity practicable in each application area;
          [(B) the amount of net energy impact of each of the 
        proposed ocean thermal energy conversion facilities;
          [(C) the degree to which the proposed ocean thermal 
        energy conversion facilities will affect the 
        environment;
          [(D) any significant differences between anticipated 
        dates and commencement of operation of the proposed 
        ocean thermal energy conversion facilities; and
          [(E) any differences in costs of construction and 
        operation of the proposed ocean thermal energy 
        conversion facilities, to the extent that such 
        differentials may significantly affect the ultimate 
        cost of energy or products to the consumer.

SEC. 103. PROTECTION OF SUBMARINE ELECTRIC TRANSMISSION CABLES AND 
                    EQUIPMENT.

    [(A) Any person who shall willfully and wrongfully break or 
injure, or attempt to break or injure, or who shall in any 
manner procure, counsel, aid, abet, or be accessory to such 
breaking or injury, or attempt to break or injure, any 
submarine electric transmission cable or equipment being 
constructed or operated under a license issued pursuant to this 
Act shall be guilty of a misdemeanor and, on conviction, 
thereof, shall be liable to imprisonment for a term not 
exceeding 2 years, or to a fine not exceeding $5,000, or to 
both fine and imprisonment, at the discretion of the court.
    [(b) Any person who by culpable negligence shall break or 
injure any submarine electric transmission cable or equipment 
being constructed or operated under a license issued pursuant 
to his Act shall be guilty of a misdemeanor and, on conviction 
thereof, shall be liable to imprisonment for a term not 
exceeding 3 months, or to a fine not exceeding $500, or to both 
fine and imprisonment, at the discretion of the court.
    [(c) The provisions of subsections (a) and (b) of this 
section shall not apply to any person who, after having taken 
all necessary precautions to avoid such breaking or injury, 
breaks or injures any submarine electric transmission cable or 
equipment in an effort to save the life or limb of himself or 
of any other person, or to save his own or any other vessel.
    [(d) The penalties provided in subsections (a) and (b) of 
this section for the breaking or injury of any submarine 
electric transmission cable or equipment shall not be a bar to 
a suit for damages on account of such breaking or injury.
    [(e) Whenever any vessel sacrifices any anchor, fishing 
net, or other fishing gear to avoid injuring any submarine 
electric transmission cable or equipment being constructed or 
operated under a license issued pursuant to this Act, the 
licensee shall indemnify the owner of such vessel for the items 
sacrificed: Provided, That the owner of the vessel had taken 
all reasonable precautionary measures beforehand.
    [(f) Any licensee who causes any break in or injury to any 
submarine cable or pipeline of any type shall bear the cost of 
the repairs.

[SEC. 104. ANTITRUST REVIEW.

    [(a) Whenever any application for issuance, transfer, or 
renewal of any license is received, the Administrator shall 
transmit promptly to the Attorney General a complete copy of 
such application. Within 90 days of the receipt of the 
application, the Attorney General shall conduct such antitrust 
review of the application as he deems appropriate, and submit 
to the Administrator any advice or recommendations he deems 
advisable to avoid any action upon such application by the 
Administrator which would create a situation inconsistent with 
the antitrust laws. If the Attorney General fails to file such 
views within the 90-day period, the Administrator shall proceed 
as if such views had been received. The Administrator shall not 
issue, transfer, or renew the license during the 90-day period, 
except upon written confirmation by the Attorney General that 
he does not intend to submit any further advice or 
recommendation on the application during such period.
    [(b) The issuance of a license under this Act shall not be 
admissible in any way as a defense to any civil or criminal 
action for violation of the antitrust laws of the United 
States, nor shall it in any way modify or abridge any private 
right of action under such laws. Nothing in this section shall 
be construed to bar the Attorney General or the Federal Trade 
Commission from challenging any anticompetitive situation 
involved in the ownership, construction, or operation of an 
ocean thermal energy conversion facility or plantship.

[SEC. 105. ADJACENT COASTAL STATES.

    [(a)(1) The Administrator, in issuing notice of application 
pursuant to section 102(d) of this title, shall designate as an 
``adjacent coastal State'' any coastal State which (A) would be 
directly connected by electric transmission cable or pipeline 
to an ocean thermal energy conversion facility as proposed in 
an application, or (B) in whose waters any part of such 
proposed ocean thermal energy conversion facility would be 
located, or (C) in whose waters an ocean thermal energy 
conversion plantship would be operated as proposed in an 
application.
    [(2) The Administrator shall, upon request of a State, 
designate such State as an ``adjacent coastal State'' if he 
determines (A) that there is a risk of damage to the coastal 
environment of such State equal to or greater than the risk 
posed to a State required to be designated as an ``adjacent 
coastal State'' by paragraph (1) of this subsection or (B) that 
the thermal plume of the proposed ocean thermal energy 
conversion facility or plantship is likely to impinge on so as 
to degrade the thermal gradient at possible locations for ocean 
thermal energy conversion facilities which would reasonably be 
expected to be directly connected by electric transmission 
cable or pipeline to such State. This paragraph shall apply 
only with respect to requests made by a State not later than 
the 14th day after the date of publication of notice of 
application for a proposed ocean thermal energy conversion 
facility in the Federal Register in accordance with section 
102(d) of this title. The Administrator shall make any 
designation required by this paragraph not later than the 45th 
day after the date he receives such a request from a State.
    [(b)(1) Not later than 5 days after the designation of an 
adjacent coastal State pursuant to this section, the 
Administrator shall transmit a complete copy of the application 
to the Governor of such State. The Administrator shall not 
issue a license without consultation with the Governor of each 
adjacent coastal State which has an approved coastal zone 
management program in good standing pursuant to the Coastal 
Zone Management Act of 1972 (16 U.S.C. 1451 et seq.). If the 
Governor of such a State has not transmitted his approval or 
disapproval to the Administrator by the 45th day after public 
hearings on the application are concluded pursuant to section 
102(g) of this title, such approval shall be conclusively 
presumed. If the Governor of such a State notifies the 
Administrator that an application which the Governor would 
otherwise approve pursuant to this paragraph is inconsistent in 
some respect with the State's coastal zone management program, 
the Administrator shall condition the license granted so as to 
make it consistent with such State program.
    [(2) Any adjacent coastal State which does not have an 
approved coastal zone management program in good standing, and 
any other interested State, shall have the opportunity to make 
its views known to, and to have them given full consideration 
by, the Administrator regarding the location, construction, and 
operation of an ocean thermal energy conversion facility or 
plantship.
    [(c) The consent of Congress is given to 2 or more States 
to negotiate and enter into agreements or compacts, not in 
conflict with any law or treaty of the United States, (1) to 
apply for a license for the ownership, construction, and 
operation of an ocean thermal energy conversion facility or 
plantship or for the transfer of such a license, and (2) to 
establish such agencies, joint or otherwise, as are deemed 
necessary or appropriate for implementing and carrying out the 
provisions of any such agreement or compact. Such agreement or 
compact shall be binding and obligatory upon any State or other 
party thereto without further approval by the Congress.

[SEC. 106. DILIGENCE REQUIREMENTS.

    [(a) The Administrator shall promulgate regulations 
requiring each licensee to pursue diligently the construction 
and operation of the ocean thermal energy conversion facility 
or plantship to which the license applies.
    [(b) If the Administrator determines that a licensee is not 
pursuing diligently the construction and operation of the ocean 
thermal energy conversion facility or plantship to which the 
license applies, or that the project has apparently been 
abandoned, the Administrator shall cause proceedings to be 
instituted under section 111 of this title to terminate the 
license.

[SEC. 107. PROTECTION OF THE ENVIRONMENT.

    [(a) The Administrator shall initiate a program to assess 
the effects on the environment of ocean thermal energy 
conversion facilities and plantships. The program shall include 
baseline studies of locations where ocean thermal energy 
conversion facilities or plantships are likely to be sited or 
operated; and research; and monitoring of the effects of ocean 
thermal energy conversion facilities and plantships in actual 
operation. The purpose of the program shall be to assess the 
environmental effects of individual ocean thermal energy 
facilities and plantships, and to assess the magnitude of any 
cumulative environmental effects of large numbers of ocean 
thermal energy facilities and plantships.
    [(b) The program shall be designed to determine, among 
other things--
          [(1) any short-term and long-term effects on the 
        environment which may occur as a result of the 
        operation of ocean thermal energy conversion facilities 
        and plantships;
          [(2) the nature and magnitude of any oceanographic, 
        atmospheric, weather, climatic, or biological changes 
        in the environment which may occur as a result of 
        deployment and operation of large numbers of ocean 
        thermal energy conversion facilities and plantships;
          [(3) the nature and magnitude of any oceanographic, 
        biological or other changes in the environment which 
        may occur as a result of the operation of electric 
        transmission cables and equipment located in the water 
        column or on or in the seabed, including the hazards of 
        accidentally severed transmission cables; and
          [(4) whether the magnitude of one or more of the 
        cumulative environmental effects of deployment and 
        operation of large numbers of ocean thermal energy 
        conversion facilities and plantships requires that an 
        upper limit be placed on the number or total capacity 
        of such facilities or plantships to be licensed under 
        this Act for simultaneous operation, either overall or 
        within specific geographic areas.
    [(c) Within 180 days after enactment of this Act, the 
Administrator shall prepare a plan to carry out the program 
described in subsections (a) and (b) of this section, including 
necessary funding levels for the next 5 fiscal years, and 
submit the plan to the Congress.
    [(d) The program established by subsections (a) and (b) of 
this section shall be reduced to the minimum necessary to 
perform baseline studies and to analyze monitoring data, when 
the Administrator determines that the program has resulted in 
sufficient knowledge to make the determinations enumerated in 
subsection (b) of this section with an acceptable level of 
confidence.
    [(e) The issuance of any license for ownership, 
construction, and operation of an ocean thermal energy 
conversion facility or plantship shall be deemed to be a major 
Federal action significantly affecting the quality of the human 
environment for purposes of section 102(2)(C) of the National 
Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). For 
all timely applications covering proposed facilities in a 
single application area, and for each application relating to a 
proposed plantship, the Administrator shall, pursuant to such 
section 102(2)(C) and in cooperation with other involved 
Federal agencies and departments, prepare a single 
environmental impact statement, which shall fulfill the 
requirement of all Federal agencies in carrying out their 
responsibilities pursuant to this Act to prepare an 
environmental impact statement. Each such draft environmental 
impact statement relating to proposed facilities shall be 
prepared and published within 180 days after notice of the 
initial application has been published pursuant to section 
102(d) of this title. Each such draft environmental impact 
statement relating to a proposed plantship shall be prepared 
and published within 180 days after notice of the application 
has been published pursuant to section 102(d) of this title. 
Each final environmental impact statement shall be published 
not later than 90 days following the date on which public 
hearings are concluded pursuant to section 102(g) of this 
title. The Administrator may extend the deadline for 
publication of a specific draft or final environmental impact 
statement to a later specified time for good cause shown in 
writing.
    [(f) An ocean thermal energy conversion facility or 
plantship licensed under this title shall be deemed not to be a 
``vessel or other floating craft'' for the purposes of section 
502(12)(B) of the Federal Water Pollution Control Act of 1972 
(33 U.S.C. 1362(12)(B)).

[SEC. 108. MARINE ENVIRONMENTAL PROTECTION AND SAFETY OF LIFE AND 
                    PROPERTY AT SEA.

    [(a) The Secretary of the department in which the Coast 
Guard is operating shall, subject to recognized principles of 
international law, prescribe by regulation and enforce 
procedures with respect to any ocean thermal energy conversion 
facility or plantship licensed under this Act, including, but 
not limited to, rules governing vessel movement, procedures for 
transfer of materials between such a facility or plantship and 
transport vessels, designation and marking of anchorage areas, 
maintenance, law enforcement, and the equipment, training, and 
maintenance required (1) to promote the safety of life and 
property at sea, (2) to prevent pollution of the marine 
environment, (3) to clean up any pollutants which may be 
discharged, and (4) to otherwise prevent or minimize any 
adverse impact from the construction and operation of such 
ocean thermal energy conversion facility or plantship.
    [(b) The Secretary of the department in which the Coast 
Guard is operating shall issue and enforce regulations, subject 
to recognized principles of international law, with respect to 
lights and other warning devices, safety equipment, and other 
matters relating to the promotion of safety of life and 
property on any ocean thermal energy conversion facility or 
plantship licensed under this Act.
    [(c) Whenever a licensee fails to mark any component of 
such an ocean thermal energy conversion facility or plantship 
in accordance with applicable regulations, the Secretary of the 
department in which the Coast Guard is operating shall mark 
such components for the protection of navigation, and the 
licensee shall pay the cost of such marking.
    [(d)(1) Subject to recognized principles of international 
law and after consultation with the Secretary of Commerce, the 
Secretary of the Interior, the Secretary of State, and the 
Secretary of Defense, the Secretary of the department in which 
the Coast Guard is operating shall designate a zone of 
appropriate size around and including any ocean thermal energy 
conversion facility licensed under this Act and may designate 
such a zone around and including any ocean thermal energy 
conversion plantship licensed under this Act for the purposes 
of navigational safety and protection of the facility or 
plantship. The Secretary of the department in which the Coast 
Guard is operating shall by regulation define permitted 
activities within such zone consistent with the purpose for 
which it was designated. The Secretary of the department in 
which the Coast Guard is operating shall, not later than 30 
days after publication of notice pursuant to section 102(d) of 
this title, designate such safety zone with respect to any 
proposed ocean thermal energy conversion facility or plantship.
    [(2) In addition to any other regulations, the Secretary of 
the department in which the Coast Guard is operating is 
authorized, in accordance with this subsection, to establish a 
safety zone to be effective during the period of construction 
of an ocean thermal energy conversion facility or plantship 
licensed under this Act, and to issue rules and regulations 
relating thereto.
    [(3) Except in a situation involving force majeure, a 
licensee of an ocean thermal energy conversion facility or 
plantship shall not permit a vessel, registered in or flying 
the flag of a foreign state, to call at, load or unload cargo 
at, or otherwise utilize such a facility or plantship licensed 
under this Act unless (A) the foreign state involved has 
agreed, by specific agreement with the United States, to 
recognize the jurisdiction of the United States over the vessel 
and its personnel, in accordance with the provisions of this 
Act, while the vessel is located within the safety zone, and 
(B) the vessel owner or operator has designated an agent in the 
United States for receipt of service of process in the event of 
any claim or legal proceeding resulting from activities of the 
vessel or its personnel while located within such a safety 
zone.
    [(e)(1) The Secretary of the department in which the Coast 
Guard is operating shall promulgate and enforce regulations 
specified in paragraph (2) of this subsection and such other 
regulations as he deems necessary concerning the documentation, 
design, construction, alteration, equipment, maintenance, 
repair, inspection, certification, and manning of ocean thermal 
energy conversion facilities and plantships. In addition to 
other requirements prescribed under those regulations, the 
Secretary of the department in which the Coast Guard is 
operating may require compliance with those vessel 
documentation, inspection, and manning laws which he determines 
to be appropriate.
    [(2) Within 1 year after the date of enactment of this Act, 
the Secretary of the department in which the Coast Guard is 
operating shall promulgate regulations under paragraph (1) of 
this subsection which require that any ocean thermal energy 
conversion facility or plantship--
          [(A) be documented;
          [(B) comply with minimum standards of design, 
        construction, alteration, and repair, and
          [(C) be manned or crewed by United States citizens or 
        aliens lawfully admitted to the United States for 
        permanent residence, unless--
                  [(i) there is not a sufficient number of 
                United States citizens, or aliens lawfully 
                admitted to the United States for permanent 
                residence, qualified and available for such 
                work, or
                  [(ii) the President makes a specific finding, 
                with respect to the particular vessel, 
                platform, or moored, fixed or standing 
                structure, that application of this requirement 
                would not be consistent with the national 
                interest.
    [(3) For the purposes of the documentation laws, for which 
compliance is required under paragraph (1) of this subsection, 
ocean thermal energy conversion facilities and plantships shall 
be deemed to be vessels and, if documented, vessels of the 
United States for the purposes of the Ship Mortgage Act, 1920 
(46 U.S.C. 911-984).
    [(4) For the purposes of this subsection the term ``ocean 
thermal energy conversion facility'' refers only to an ocean 
thermal energy conversion facility which has major components 
other than water intake or discharge pipes located seaward of 
the highwater mark.
    [(f) Subject to recognized principles of international law, 
the Secretary of the department in which the Coast Guard is 
operating shall promulgate and enforce such regulations as he 
deems necessary to protect navigation in the vicinity of a 
vessel engaged in the installation, repair, or maintenance of 
any submarine electric transmission cable or equipment, and to 
govern the markings and signals used by such a vessel.

SEC. 109. PREVENTION OF INTERFERENCE WITH OTHER USES OF THE HIGH SEAS.

    [(a) Each license shall include such conditions as may be 
necessary and appropriate to ensure that construction and 
operation of the ocean thermal energy conversion facility or 
plantship are conducted with reasonable regard for navigation, 
fishing, energy production, scientific research, or other uses 
of the high seas, either by citizens of the United States or by 
other Nations in their exercise of the freedoms of the high 
seas as recognized under the Convention of the High Seas and 
the general principles of international law.
    [(b) The Administrator shall promulgate regulations 
specifying under what conditions and in what circumstances the 
thermal plume of an ocean thermal energy conversion facility or 
plantship licensed under this Act will be deemed--
          [(1) to impinge on so as to degrade the thermal 
        gradient used by another ocean thermal energy 
        conversion facility or plantship, or
          [(2) to impinge on so as to adversely affect the 
        territorial sea or area of national resource 
        jurisdiction, as recognized by the United States, of 
        any other nation.
Such regulations shall also provide for the Administrator to 
mediate or arbitrate any disputes among licensees regarding the 
extent to which the thermal plume of one licensee's facility or 
plantship impinges on the operation of another licensee's 
facility or plantship.
    [(c) The Secretary of the department in which the Coast 
Guard is operating shall promulgate, after consultation with 
the Administer, and shall enforce, regulations governing the 
movement and navigation of ocean thermal energy conversion 
plantships licensed under this Act to ensure that the thermal 
plume of such an ocean thermal energy conversion plantship does 
not unreasonably impinge on so as to degrade the thermal 
gradient used by the operation of any other ocean thermal 
energy conversion plantship or facility except in case of force 
majeure or with the consent of owner of the other such 
plantship or facility, and to ensure that the thermal plum of 
such an ocean thermal energy conversion plantship does not 
impinge on so as to adversely affect the territorial sea or 
area of national resource jurisdiction, as recognized by the 
United States, of any other nation unless the Secretary of 
State has approved such impingement after consultation with 
such nation.

[SEC. 110. MONITORING OF LICENSEES' ACTIVITIES.

    [Each license shall require the licensee--
          [(1) to allow the Administrator to place appropriate 
        Federal officers or employees in or aboard the ocean 
        thermal energy conversion facility or plantship to 
        which the license applies, at such times and to such 
        extent as the Administrator deems reasonable and 
        necessary to assess compliance with any condition or 
        regulation applicable to the license, and to report to 
        the Administrator whenever such officers or employees 
        have reason to believe there is a failure to comply;
          [(2) to cooperate with such officers and employees in 
        the performance of monitoring functions; and
          [(3) to monitor the environmental effects, if any, of 
        the operation of the ocean thermal energy conversion 
        facility or plantship in accordance with regulations 
        issued by the Administrator, and to submit such 
        information as the Administrator finds to be necessary 
        and appropriate to assess environmental impacts and to 
        develop and evaluate mitigation methods and 
        possibilities.

[SEC. 111. SUSPENSION, REVOCATION, OR TERMINATION OF LICENSE.

    [(a) Whenever a licensee fails to comply with any 
applicable provision of this Act or any applicable rule, 
regulation, restriction, or condition issued or imposed by the 
Administrator under the authority of this Act, the Attorney 
General, at the request of the Administrator, shall file an 
action in the appropriate United States district court to--
          [(1) suspend the license; or
          [(2) if such failure is knowing and continues for a 
        period of 30 days after the Administrator mails 
        notification of such failure by registered letter to 
        the licensee at his record post office address, revoke 
        such license.
No proceeding under this section is necessary if the license, 
by its terms, provides for automatic suspension or termination 
upon the occurrence of a fixed or agreed upon condition, event, 
or time.
    [(b) If the Administrator determines that immediate 
suspension of the construction or operation of an ocean thermal 
energy conversion facility or plantship or any component 
thereof is necessary to protect public health and safety or to 
eliminate imminent and substantial danger to the environment 
the Administrator may order the licensee to cease or alter such 
construction or operation pending the completion of a judicial 
proceeding pursuant to subsection (a) of this section.

[SEC. 112. RECORDKEEPING AND PUBLIC ACCESS TO INFORMATION.

    [(a) Each licensee shall establish and maintain such 
records, make such reports, and provide such information as the 
Administrator, after consultation with other interested Federal 
departments and agencies, shall by regulation prescribe to 
carry out the provisions of this Act. Each licensee shall 
submit such reports and shall make available such records and 
information as the Administrator may request.
    [(b) Any information reported to or collected by the 
Administrator under this Act which is exempt from disclosure 
pursuant to section 552(b)(4) of title 5, United States Code 
(relating to trade secrets and commercial or financial 
information which is privileged or confidential); shall not--
          [(1) be publicly disclosed by the Administrator or by 
        any other officer or employee of the United States, 
        unless the Administrator has--
                  [(A) determined that the disclosure is 
                necessary to protect the public health or 
                safety or the environment against an 
                unreasonable risk of injury, and
                  [(B) notified the person who submitted the 
                information 10 days before the disclosure is to 
                be made, unless the delay resulting from such 
                notice would be detrimental to the public 
                health or safety or the environment, or
          [(2) be otherwise disclosed except--
                  [(A)(i) to other Federal and adjacent coastal 
                State government departments and agencies for 
                official use,
                  [(ii) to any committee of the congress of 
                appropriate jurisdiction, or
                  [(iii) pursuant to court order, and
                  [(B) when the Administrator has taken 
                appropriate steps to inform the recipient of 
                the confidential nature of the information.

[SEC. 113. RELINQUISHMENT OR SURRENDER OF LICENSE.

    [(a) Any licensee may at any time, without penalty, 
surrender to the Administrator a license issued to him, or 
relinquish to the Administrator, in whole or in part, any right 
to conduct construction or operation of an ocean thermal energy 
conversion facility or plantship, including part or all of any 
right of way which may have been granted in conjunction with 
such license: Provided, That such surrender or relinquishment 
shall not relieve the licensee of any obligation or liability 
established by this or any other Act, or of any obligation or 
liability for actions taken by him prior to such surrender or 
relinquishment, or during disposal or removal of any components 
required to be disposed of or removed pursuant to this Act.
    [(b) If part or all of a right of way which is 
relinquished, or for which the license is surrendered, to the 
Administrator pursuant to subsection (a) of this section 
contains an electric transmission cable or pipeline which is 
used in conjunction with another license for an ocean thermal 
energy conversion facility, the Administrator shall allow the 
other licenses an opportunity to add such right of way to his 
license before informing the Secretary of the Interior that the 
right of way has been vacated.

[SEC. 114. CIVIL ACTIONS.

    [(a) Except as provided in subsection (b) of this section, 
any person having a valid legal interest which is or may be 
adversely affected may commence a civil action for equitable 
relief on his own behalf in the United States District Court 
for the District of Columbia whenever such action constitutes a 
case or controversy--
          [(1) against any person who is alleged to be in 
        violation of any provision of this Act or any 
        regulation or condition of a license issued pursuant to 
        this Act; or
          [(2) against the Administrator where there is alleged 
        a failure of the Administrator to perform any act or 
        duty under this Act which is not discretionary.
In suits brought under this Act, the district courts of the 
United States shall have jurisdiction, without regard to the 
amount in controversy or the citizenship of the parties, to 
enforce any provision of this Act or any regulation or term or 
condition of a license issued pursuant to this Act, or to order 
the Administrator to perform such act or duty, as the case may 
be.
    [(b) No civil action may be commenced--
          [(1) under subsection (a)(1) of this section--
                  [(A) prior to 60 days after the plaintiff has 
                given notice of the violation to the 
                Administrator and to any alleged violator; or
                  [(B) if the Administrator or the Attorney 
                General has commenced and is diligently 
                prosecuting a civil or criminal action with 
                respect to such matters in a court of the 
                United States, but in any such action any 
                person may intervene as a matter of right; or
          [(2) under subsection (a)(2) of this section prior to 
        60 days after the plaintiff has given notice of such 
        action to the Administrator.
Notice under this subsection shall be given in such a manner as 
the Administrator shall prescribe by regulation.
    [(c) In any action under this section, the Administrator or 
the Attorney General, if not a party, may intervene as a matter 
of right.
    [(d) The court, in issuing any final order in any action 
brought pursuant to subsection (a) of this section, may award 
costs of litigation (including reasonable attorney and expert 
witness fees) to any party whenever the court determines that 
such an award is appropriate.
    [(e) Nothing in this section shall restrict any right which 
any person or class of persons may have under any statute or 
common law to seek enforcement or to seek any other relief.

[SEC. 115. JUDICIAL REVIEW.

    [Any person suffering legal wrong, or who is adversely 
affected or aggrieved by the Administrator's decision to issue, 
transfer, modify, renew, suspend, or terminate a license may, 
not later than 60 days after such decision is made, seek 
judicial review of such decision in the United States Court of 
Appeals for the District of Columbia. A person shall be deemed 
to be aggrieved by the Administrator's decision within the 
meaning of this Act if he--
          [(1) has participated in the administrative 
        proceedings before the Administrator (or if he did not 
        so participate, he can show that his failure to do so 
        was caused by the Administrator's failure to provide 
        the required notice); and
          [(2) is adversely affected by the Administrator's 
        action.

[SEC. 116. TEST PLATFORMS AND COMMERCIAL DEMONSTRATION OCEAN THERMAL 
                    ENERGY CONVERSION FACILITY OR PLANTSHIP.

    [(a) The provisions of this title shall not apply to any 
test platform which will not operate as an ocean thermal energy 
conversion facility or plantship after conclusion of the 
testing period.
    [(b) The provisions of this title shall not apply to 
ownership, construction, or operation of any ocean thermal 
energy conversion facility or plantship which the Secretary of 
Energy has designated in writing as a demonstration project for 
the development of alternative energy sources for the United 
States which is conducted by, participated in, or approved by 
the Department of Energy. The Secretary of Energy, after 
consultation with the Administrator, shall require such 
demonstration projects to abide by as many of the substantive 
requirements of this title as he deems to be practicable 
without damaging the nature of or unduly delaying such 
projects.

[SEC. 117. PERIODIC REVIEW AND REVISION OF REGULATIONS.

    [The Administrator and the Secretary of the department in 
which the Coast Guard is operating shall periodically, at 
intervals of not more than every 3 years, and in consultation 
with the Secretary of Energy, review any regulations 
promulgated pursuant to the provisions of this title to 
determine the status and impact of such regulations on the 
continued development, evolution, and commercialization of 
ocean thermal energy conversion technology. The results of each 
such review shall be included in the next annual report 
required by section 405. The Administrator and such Secretary 
are authorized and directed to promulgate any revisions to the 
then effective regulations as are deemed necessary and 
appropriate based on such review, to ensure that any 
regulations promulgated pursuant to the provisions of this 
title do not impede such development, evolution, and 
commercialization of such technology. Additionally, the 
Secretary of Energy is authorized to propose, based on such 
review, such revisions for the same purpose. The Administrator 
or such Secretary, as appropriate, shall have exclusive 
jurisdiction with respect to any such proposal by the Secretary 
of Energy and, pursuant to applicable procedures, shall 
consider and take final action on any such proposal in an 
expeditious manner. Such consideration shall include at least 
one informal hearing pursuant to the procedures in section 553 
of title 5, United States Code.

   [TITLE II--MARITIME FINANCING FOR OCEAN THERMAL ENERGY CONVERSION

[SEC. 201. DETERMINATIONS UNDER THE MERCHANT MARINE ACT, 1936.

    [(a)(1) For the purposes of section 607 of the Merchant 
Marine Act, 1936 (46 U.S.C. 1177), any ocean thermal energy 
conversion facility or plantship licensed pursuant to this Act, 
and any vessel providing shipping service to or from such an 
ocean thermal energy conversion facility or plantship, shall be 
deemed to be a vessel operated in the foreign commerce of the 
United States.
    [(2) The provisions of paragraph (1) of this subsection 
shall apply for taxable years beginning after December 31, 
1981.
    [(b) For the purposes of Merchant Marine Act, 1936 (46 
U.S.C. 1177 et seq.) any vessel documented under the laws of 
the United States and used in providing shipping service to or 
from any ocean thermal energy conversion facility or plantship 
licensed pursuant to the provisions of this Act shall be deemed 
to be used in, and used in an essential service in, the foreign 
commerce or foreign trade of the United States, as defined in 
section 905(a) of the Merchant Marine Act, 1936 (46 U.S.C. 
1244(a)).

[SEC. 202. AMENDMENTS TO TITLE XI OF THE MERCHANT MARINE ACT, 1936.

    [(a) Section 1101 of the Merchant Marine Act, 1936 (46 
U.S.C. 1271), is amended--
          [(1) in subsection (b) by striking ``and'' 
        immediately before ``dredges'' and inserting in lieu 
        thereof a comma, and by inserting immediately after 
        ``dredges'' the following: ``and ocean thermal energy 
        conversion facilities or plantships'',
          [(2) in subsection (g) by striking ``and'' after the 
        semicolon,
          [(3) in subsection (h) by striking ``equipping'' and 
        inserting in lieu thereof ``equipping and'', and
          [(4) by adding at the end thereof a new subsection 
        (i) to read as follows:
    [``(i) The term `ocean thermal energy conversion facility 
or plantship' means any at-sea facility or vessel, whether 
mobile, floating unmoored, moored, or standing on the seabed, 
which uses temperature differences in ocean water to produce 
electricity or another form of energy capable of being used 
directly to perform work, and includes any equipment installed 
on such facility or vessel to use such electricity or other 
form of energy to produce, process, refine, or manufacture a 
product, and any cable or pipeline used to deliver such 
electricity, freshwater, or product to shore, and all other 
associated equipment and appurtenances of such facility or 
vessel, to the extent they are located seaward of the highwater 
mark.''.
    [(b) Section 1104(a)(1) of the Merchant Marine Act, 1936 
(46 U.S.C. 1274(a)(1)), is amended by striking ``or (E)'' and 
inserting in lieu thereof ``(E) as an ocean thermal energy 
conversion facility or plantship; or (F)''.
    [(c) Section 1104(b)(2) of the Merchant Marine Act, 1936 
(46 U.S.C. 1274(b)(2)), is amended by striking ``vessel;'' and 
inserting in lieu thereof ``vessel: Provided further, That in 
the case of an ocean thermal energy conversion facility or 
plantship which is constructed without the aid of construction-
differential subsidy, such obligations may be in an aggregate 
principal amount which does not exceed 87\1/2\ percent of the 
actual cost or depreciated actual cost of the facility or 
plantship;''.

[SEC. 203. OTEC DEMONSTRATION FUND.

    [(a) Title XI of the Merchant Marine Act, 1936 (46 U.S.C. 
1271-1279b) is further amended by adding at the end thereof a 
new section 1110 to read as follows:
    [``Sec. 1110. (a) Pursuant to the authority granted under 
section 1103(a) of this title, the Secretary of Commerce, upon 
such terms as he shall prescribe, may guarantee or make a 
commitment to guarantee, payment of the principal of and 
interest on an obligation which aids in financing, including 
reimbursement of an obligor for expenditures previously made 
for, construction, reconstruction, or reconditioning of a 
commercial demonstration ocean thermal energy conversion 
facility or plantship owned by citizens of the United States. 
Guarantees or commitments to guarantee under this subsection 
shall be subject to all the provisos, requirements, 
regulations, and procedures which apply to guarantees or 
commitments to guarantee made pursuant to section 1104(a)(1) of 
this title, except that--
          [``(1) no guarantees or commitments to guarantee may 
        be made by the Secretary of Commerce under this 
        subsection before October 1, 1981;
          [``(2) the provisions of subsection (d) of section 
        1104 of this title shall apply to guarantees or 
        commitments to guarantee for that portion of a 
        commercial demonstration ocean thermal energy 
        conversion facility or plantship not to be supported 
        with appropriated Federal funds;
          [``(3) guarantees or commitments to guarantee made 
        pursuant to this section may be in an aggregate 
        principal amount which does not exceed 87\1/2\ percent 
        of the actual cost or depreciated actual cost of the 
        commercial demonstration ocean thermal energy 
        conversion facility or plantship: Provided, That, if 
        the commercial demonstration ocean thermal energy 
        conversion facility or plant ship is supported with 
        appropriated Federal funds, such guarantees or 
        commitments to guarantee may not exceed 87\1/2\ percent 
        of the aggregate principal amount of that portion of 
        the actual cost or depreciated actual cost for which 
        the obligor has an obligation to secure financing in 
        accordance with the terms of the agreement between the 
        obligor and the Department of Energy or other Federal 
        agency; and
          [``(4) the provisions of this section may be used to 
        guarantee obligations for a total of not more than 5 
        separate commercial demonstration ocean thermal energy 
        conversion facilities and plantships or a demonstrated 
        400 megawatt capacity, whichever comes first.
    [``(b) A guarantee or commitment to guarantee shall not be 
made under this section unless the Secretary of Energy, in 
consultation with the Secretary of Commerce, certifies to the 
Secretary of Commerce that, for the ocean thermal energy 
conversion facility or plantship for which the guarantee or 
commitment to guarantee is sought, there is sufficient 
guarantee of performance and payment to lower the risk to the 
Federal Government to a level which is reasonable. The 
Secretary of Energy must base his considerations on the 
following: (1) the successful demonstration of the technology 
to be used in such facility at a scale sufficient to establish 
the likelihood of technical and economic viability in the 
proposed market; and (2) the need of the United States to 
develop new and renewable sources of energy and the benefits to 
be realized from the construction and successful operation of 
such facility or plantship.
    [``(c) A special subaccount in the Federal Ship Financing 
Fund, to be known as the OTEC Demonstration Fund, shall be 
established on October 1, 1981. The OTEC Demonstration Fund 
shall be used for obligation guarantees authorized under this 
section which do not qualify under other sections of this 
title. Except as specified otherwise in this section, the 
operation of the OTEC Demonstration Fund shall be identical 
with that of the parent Federal Ship Financing Fund: except 
that, notwithstanding the provisions of section 1104(g), (1) 
all moneys received by the Secretary pursuant to sections 1101 
through 1107 of this title with respect to guarantees or 
commitments to guarantee made pursuant to this section shall be 
deposited only in the OTEC Demonstration Fund, and (2) whenever 
there shall be outstanding any notes or other obligations 
issued by the Secretary of Commerce pursuant to section 1105(d) 
of this title with respect to the OTEC Demonstration Fund, all 
moneys received by the Secretary of Commerce pursuant to 
sections 1101 through 1107 of this title with respect to ocean 
thermal energy conversional facilities or plantships shall be 
deposited in the OTEC Demonstration Fund. Assets in the OTEC 
Demonstration Fund may at any time be transferred to the parent 
fund whenever and to the extent that the balance thereof 
exceeds the total guarantees or commitments to guarantee made 
pursuant to this section then outstanding, plus any notes or 
other obligations issued by the Secretary of Commerce pursuant 
to section 1105(d) of this title with respect to the OTEC 
Demonstration Fund. The Federal Ship Financing Fund shall not 
be liable for any guarantees or commitments to guarantee issued 
pursuant to this section. The aggregate unpaid principal amount 
of the obligations guaranteed with the backing of the OTEC 
Demonstration Fund and outstanding at any one time shall not 
exceed $2,000,000,000.
    [``(d) The provisions of section 1105(d) of this title 
shall apply specifically to the OTEC Demonstration Fund as well 
as to the Fund: Provided however, That any notes or obligations 
issued by the Secretary of Commerce pursuant to section 1105(d) 
of this title with respect to the OTEC Demonstration Fund shall 
be payable solely from proceeds realized by the OTEC 
Demonstration Fund.
    [``(e) The interest on any obligation guaranteed under this 
section shall be included in gross income for purposes of 
chapter 1 of the Internal Revenue Code of 1954.''
    [(b)(1) Section 1103(f) of the Merchant Marine Act, 1936 
(46 U.S.C. 1273(f)) is amended by striking out 
``$10,000,000,000.'' and inserting in lieu thereof 
``$12,000,000,000, of which $2,000,000,000 shall be limited to 
obligations pertaining to commercial demonstration ocean 
thermal energy conversion facilities or plantships guaranteed 
pursuant to section 1110 of this title.''.
    [(2) The amendment made by paragraph (1) of this subsection 
shall take effect October 1, 1981.

                        [TITLE III--ENFORCEMENT

[SEC. 301. PROHIBITED ACTS.

    [It is unlawful for any person who is a United States 
citizen or national, or a foreign national in or on board an 
ocean thermal energy conversion facility or plantship or on 
board any vessel documented or numbered under the laws of the 
United States, or who is subject to the jurisdiction of the 
United States by an international agreement to which the United 
States is a party--
          [(1) to violate any provision of this Act, or any 
        rule, regulation, or order issued pursuant to this Act, 
        or any term or condition of any license issued to such 
        person pursuant to this Act;
          [(2) to refuse to permit any Federal officer or 
        employee authorized to monitor or enforce the 
        provisions of sections 110 and 303 of this Act to enter 
        or board an ocean thermal energy conversion facility or 
        plantship or any vessel documented or numbered under 
        the laws of the United States, for purposes of 
        conducting any search or inspection in connection with 
        the monitoring or enforcement of this Act or any rule, 
        regulation, order, term, or condition referred to in 
        paragraph (1) of this section;
          [(3) to forcibly assault, resist, oppose, impede, 
        intimidate, or interfere with any such authorized 
        officer or employee in the conduct of any search or 
        inspection described in paragraph (2) of this section;
          [(4) to resist a lawful arrest for any act prohibited 
        by this section; or
          [(5) to interfere with, delay, or prevent, by any 
        means, the apprehension or arrest of another person 
        subject to this section knowing that the other person 
        has committed any act prohibited by this section.

[SEC. 302. REMEDIES AND PENALTIES.

    [(a)(1) The Administrator or his delegate shall have the 
authority to issue and enforce orders during proceedings 
brought under this Act. Such authority shall include the 
authority to issue subpoenas, administer oaths, compel the 
attendance and testimony of witnesses and the production of 
books, papers, documents, and other evidence, to take 
depositions before any designated individual competent to 
administer oaths, and to examine witnesses.
    [(2) Whenever on the basis of any information available to 
him the Administrator finds that any person subject to section 
301 of this title is in violation of any provision of this Act 
or any rule, regulation, order, license, or term or condition 
thereof, or other requirements under this Act, he may issue an 
order requiring such person to comply with such provision or 
requirement, or bring a civil action in accordance with 
subsection (b) of this section.
    [(3) Any compliance order issued under this subsection 
shall state with reasonable specificity the nature of the 
violation and a time for compliance, not to exceed 30 days, 
which the Administrator determines is reasonable, taking into 
account the seriousness of the violation and any good faith 
efforts to comply with applicable requirements.
    [(b)(1) Upon a request by the Administrator, the Attorney 
General shall commence a civil action for appropriate relief, 
including a permanent or temporary injunction, to halt any 
violation for which the Administrator is authorized to issue a 
compliance order under subsection (a)(2) of this section.
    [(2) Upon a request by the Administrator, the Attorney 
General shall bring an action in an appropriate district court 
of the United States for equitable relief to redress a 
violation, by any person subject to section 301 of this title, 
or any provision of this Act, any regulation issued pursuant to 
this Act, or any license condition.
    [(c)(1) Any person who is found by the Administrator, after 
notice and an opportunity for a hearing in accordance with 
section 554 of title 5, United States Code, to have committed 
an act prohibited by section 301 of this title shall be liable 
to the United States for a civil penalty, not to exceed $25,000 
for each violation. Each day of a continuing violation shall 
constitute a separate violation. The amount of such civil 
penalty shall be assessed by the Administrator, or his 
designee, by written notice. In determining the amount of such 
penalty, the Administrator shall take into account the nature, 
circumstances, extent and gravity of the prohibited acts 
committed and, with respect to the violator, the degree of 
culpability, any history or prior offenses, ability to pay, and 
such other matters as justice may require.
    [(2) Any person against whom a civil penalty is assessed 
under paragraph (1) of this subsection may obtain a review 
thereof in the appropriate court of the United States by filing 
a notice of appeal in such court within 30 days from the date 
of such order and by simultaneously sending a copy of such 
notice by certified mail to the Administrator. The 
Administrator shall promptly file in such court a certified 
copy of the record upon which such violation was found or such 
penalty imposed, as provided in section 2112 of title 28, 
United States Code. The findings and order of the Administrator 
shall be set aside by such court if they are not found to be 
supported by substantial evidence, as provided in section 
706(2) of title 5, United States Code.
    [(3) If any person subject to section 301 fails to pay an 
assessment of a civil penalty against him after it has become 
final, or after the appropriate court has entered final 
judgment in favor of the Administrator, the Administrator shall 
refer the matter to the Attorney General of the United States, 
who shall recover the amount assessed in any appropriate court 
of the United States. In such action, the validity and 
appropriateness of the final order imposing the civil penalty 
shall not be subject to review.
    [(4) The Administrator may compromise, modify, or remit, 
with or without conditions, any civil penalty which is subject 
to imposition or which has been imposed under this subsection.
    [(d)(1) Any person subject to section 301 of this title is 
guilty of an offense if he willfully commits any act prohibited 
by such section.
    [(2) Any offense, other than an offense for which the 
punishment is prescribed by section 103 of this Act, is 
punishable by a fine of not more than $75,000 for each day 
during which the violation continues. Any offense described in 
paragraphs (2), (3), (4), and (5) of section 301 is punishable 
by the fine or imprisonment for not more than 6 months, or 
both. If in the commission of any offense, the person subject 
to section 301 uses a dangerous weapon, engages in conduct that 
causes bodily injury to any Federal officer or employee, or 
places any Federal officer or employee in fear of imminent 
bodily injury, the offense is punishable by a fine or not more 
than $100,000 or imprisonment for not more than 10 years, or 
both.
    [(e) Any ocean thermal energy conversion facility or 
plantship licensed pursuant to this Act and any other vessel 
documented or numbered under the laws of the United States, 
except a public vessel engaged in noncommercial activities, 
used in any violation of this Act or of any rule, regulation, 
order, license, or term or condition thereof, or other 
requirements of this Act, shall be liable in rem for any civil 
penalty assessed or criminal fine imposed and may be proceeded 
against in any district court of the United States having 
jurisdiction thereof, whenever it shall appear that one or more 
of the owners, or bareboat charterers, was at the time of the 
violation a consenting party or privy to such violation.

[SEC. 303. ENFORCEMENT.

    [(a) Except where a specific section of this Act designates 
enforcement responsibility, the provisions of this Act shall be 
enforced by the Administrator. The Secretary of the department 
in which the Coast Guard is operating shall have exclusive 
responsibility for enforcement measures which affect the safety 
of life and property at sea, shall exercise such other 
enforcement responsibilities with respect to vessels subject to 
the provisions of this Act as are authorized under other 
provisions of law, and may upon the specific request of the 
Administrator, assist the Administrator in the enforcement of 
any provision of this Act. The Administrator and the Secretary 
of the department in which the Coast Guard is operating may, by 
agreement, on a reimbursable basis or otherwise, utilize the 
personnel, services, equipment, including aircraft and vessels, 
and facilities of any other Federal agency or department, and 
may authorize officers or employees of other departments or 
agencies to provide assistance as necessary in carrying out 
subsection (b) of this section. The Administrator and the 
Secretary of the department in which the Coast Guard is 
operating may issue regulations jointly or severally as may be 
necessary and appropriate to carry out their duties under this 
section.
    [(b) To enforce the provisions of this Act in or on board 
any ocean thermal energy conversion facility or plantship or 
any vessel subject to the provisions of this Act, any officer 
who is authorized by the Administrator or the Secretary of the 
department in which the Coast Guard is operating may--
          [(1) enter or board, and inspect, any ocean thermal 
        energy conversion facility or plantship, or any vessel 
        which is subject to the provisions of this Act;
          [(2) search the vessel if the officer has reasonable 
        cause to believe that the vessel has been used or 
        employed in the violation of any provision of this Act;
          [(3) arrest any person subject to section 301 of this 
        title if the officer has reasonable cause to believe 
        that the person has committed a criminal act prohibited 
        by sections 301 and 302(d) of this title;
          [(4) seize the vessel together with its gear, 
        furniture, appurtenances, stores, and cargo, used or 
        employed in or, with respect to which it reasonably 
        appears that such vessel was used or employed in, the 
        violation of any provision of this Act if such seizure 
        is necessary to prevent evasion of the enforcement of 
        this Act;
          [(5) seize any evidence related to any violation of 
        any provision of this Act;
          [(6) execute any warrant or other process issued by 
        any court of competent jurisdiction; and
          [(7) exercise any other lawful authority.
    [(c) Except as otherwise specified in section 115 of this 
Act, the district courts of the United States shall have 
exclusive original jurisdiction over any case or controversy 
arising under the provisions of this Act. Except as otherwise 
specified in this Act, venue shall lie in any district wherein, 
or nearest, to which, the cause of action arose, or wherein any 
defendant resides, may be found, or has his principal office. 
In the case of Guam, and any Commonwealth, territory, or 
possession of the United States in the Pacific Ocean, the 
appropriate court is the United States District Court for the 
District of Guam, except that in the case of American Samoa, 
the appropriate court is the United States District Court for 
the District of Hawaii. Any such court may, at any time--
          [(1) enter restraining orders or prohibitions;
          [(2) issue warrants, process in rem, or other 
        process;
          [(3) prescribe and accept satisfactory bonds or other 
        security; and
          [(4) take such other actions as are in the interest 
        of justice.
    [(d) For the purposes of this section, the term ``vessel'' 
includes an ocean thermal energy conversion facility or 
plantship, and the term ``provisions of this Act'' or 
``provision of this Act'' includes any rule, regulation, or 
order issued pursuant to this Act and any term or condition of 
any license issued pursuant to this Act.

                  [TITLE IV--MISCELLANEOUS PROVISIONS

[SEC. 401. EFFECT OF LAW OF THE SEA TREATY.

    [If the United States ratifies a treaty, which includes 
provisions with respect to jurisdiction over ocean thermal 
energy conversion activities, resulting from any United Nations 
Conference on the Law of the Sea, the Administrator, after 
consultation with the Secretary of State, shall promulgate any 
amendment to the regulations promulgated under this Act which 
is necessary and appropriate to conform such regulations to the 
provisions of such treaty, in anticipation of the date when 
such treaty shall come into force and effect for, or otherwise 
be applicable to, the United States.

[SEC. 402. INTERNATIONAL NEGOTIATIONS.

    [The Secretary of State, in cooperation with the 
Administrator and the Secretary of the department in which the 
Coast Guard is operating, shall seek effective international 
action and cooperation in support of the policy and purposes of 
this Act and may initiate and conduct negotiations for the 
purpose of entering into international agreements designed to 
guarantee noninterference of ocean thermal energy conversion 
facilities and plantships with the thermal gradients used by 
other such facilities and plantships, to assure protection of 
such facilities and plantships and of navigational safety in 
the vicinity thereof, and to resolve such other matters 
relating to ocean thermal energy conversion facilities and 
plantships as need to be resolved in international agreements.

[SEC. 403. RELATIONSHIP TO OTHER LAWS.

    [(a)(1) The Constitution, laws, and treaties of the United 
States shall apply to an ocean thermal energy conversion 
facility or plantship licensed under this Act and all of which 
is located seaward of the highwater mark, and to activities 
connected, associated, or potentially interfering with the use 
or operation of any such facility or plantship, in the same 
manner as if such facility or plantship were an area of 
exclusive Federal jurisdiction located within a State. Nothing 
in this Act shall be construed to relieve, exempt, or immunize 
any person from any other requirement imposed by Federal law, 
regulation, or treaty.
    [(2) Ocean thermal energy conversion facilities and 
plantships licensed under this Act do not possess the status of 
islands and have no territorial seas of their own.
    [(b)(1) Except as may otherwise be provided by this Act, 
nothing in this Act shall in any way alter the responsibilities 
and authorities of a State or the United States within the 
territorial seas of the United States.
    [(2) The law of the nearest adjacent coastal State to which 
an ocean thermal energy conversion facility located beyond the 
territorial sea and licensed under this Act is connected by 
electric transmission cable or pipeline, now in effect or 
hereafter adopted, amended, or repealed, is declared to be the 
law of the United States, and shall apply to such facility, to 
the extent applicable and not inconsistent with any provision 
or regulation under this Act or other Federal laws and 
regulations now in effect or hereafter adopted, amended, or 
repealed: Provided, however, That the application of State 
taxation laws is not extended hereby outside the seaward 
boundary of any State. All such applicable laws shall be 
administered and enforced by the appropriate officers and 
courts of the United States outside the seaward boundary of any 
State.
    [(c)(1) For the purposes of the customs laws administered 
by the Secretary of the Treasury, ocean thermal energy 
conversion facilities and plantships documented under the laws 
of the United States and licensed under this Act shall be 
deemed to be vessels.
    [(2) Except insofar as they apply to vessels documented 
under the laws of the United States, the customs laws 
administered by the Secretary of the Treasury, including the 
provisions of the Tariff Act of 1930, as amended (19 U.S.C. 
1202), and other laws codified in title 19, United States Code, 
shall not apply to any ocean thermal energy conversion facility 
or plantship documented under the laws of the United States and 
licensed under the provisions of this Act, but all foreign 
articles to be used in the construction of any such facility or 
plantship, including any component thereof, shall first be made 
subject to all applicable duties and taxes which would be 
imposed upon or by reason of their importation if they were 
imported for consumption in the United States. Duties and taxes 
shall be paid thereon in accordance with laws applicable to 
merchandise imported into the customs territory of the United 
States.

[SEC. 404. SUBMARINE ELECTRIC TRANSMISSION CABLE AND EQUIPMENT SAFETY.

    [(a) The Secretary of Energy, in cooperation with other 
interested Federal agencies and departments, shall establish 
and enforce such standards and regulations as may be necessary 
to assure the safe construction and operation of submarine 
electric transmission cables and equipment subject to the 
jurisdiction of the United States. Such standards and 
regulations shall include, but not be limited to, requirements 
for the use of the safest and best available technology for 
submarine electric transmission cable shielding, and for the 
use of automatic switches to shut off electric current in the 
event of a break in such a cable.
    [(b) The Secretary of Energy, in cooperation with other 
interested Federal agencies and departments, is authorized and 
directed to report to the Congress within 60 days after the 
date of enactment of this Act on appropriations and staffing 
needed to monitor submarine electric transmission cables and 
equipment subject to the jurisdiction of the United States so 
as to assure that they meet all applicable standards for 
construction, operation, and maintenance.

[SEC. 405. ANNUAL REPORT.

    [Within 6 months after the end of each fiscal year after 
the date of enactment of this Act, the Administrator shall 
submit to the President of the Senate and the Speaker of the 
House of Representatives a report on the administration of this 
Act during such fiscal year. Such report shall include, with 
respect to the fiscal year covered by the report--
          [(1) a description of progress in implementing this 
        Act;
          [(2) a list of all licenses issued, suspended, 
        revoked, relinquished, surrendered, terminated, 
        renewed, or transferred; denials of issuance of 
        licenses, and required suspensions and modifications of 
        activities under licenses;
          [(3) a description of ocean thermal energy conversion 
        activities undertaken pursuant to licenses;
          [(4) the number and description of all civil and 
        criminal proceedings instituted under title III of this 
        Act, and the current status of such proceedings; and
          [(5) such recommendations as the Administrator deems 
        appropriate for amending this Act.

[SEC. 406. AUTHORIZATION OF APPROPRIATIONS.

    [There are authorized to be appropriated to the Secretary 
of Commerce, for the use of the Administrator in carrying out 
the provisions of this Act, not to exceed $3,000,000 for the 
fiscal year ending September 30, 1981, not to exceed $3,500,000 
for the fiscal year ending September 30, 1982, not to exceed 
$3,500,000 for the fiscal year ending September 30, 1983, not 
to exceed $480,000 for each of the fiscal years ending 
September 30, 1984 and September 30, 1985, and not to exceed 
$630,000 for each of the fiscal years ending September 30, 1986 
and September 30, 1987.

[SEC. 407. SEVERABILITY.

    [If any provision of this Act or any application thereof is 
held invalid, the validity of the remainder of the Act, or any 
other application, shall not be affected thereby.
    [SEC. 408. Within 18 months after the date of enactment of 
this provision, the Administrator shall submit to the President 
of the Senate and the Speaker of the House of Representatives a 
report detailing what steps the United States Government is 
taking and plans to take to promote and enhance the export 
potential of ocean thermal energy conversion components, 
facilities, and plantships manufactured by United States 
industry. Such report shall include--
          [(1) the relevant views of the National Oceanic and 
        Atmospheric Administration, International Trade 
        Administration, Maritime Administration, Department of 
        Energy, Small Business Administration, United States 
        International Development Cooperative Agency, the 
        Office of the Special Trade Representative, and other 
        relevant United States Government agencies;
          [(2) the findings of studies conducted by the 
        Administrator to fulfill the intent of this section;
          [(3) a summary of activities, including consultations 
        held with representatives of both the ocean thermal 
        energy conversion and financial industries conducted by 
        the Administrator to fulfill the intent of this 
        section; and
          [(4) such recommendations as the Administrator deems 
        appropriate for amending the Ocean Thermal Energy 
        Conversion Act of 1980 (Public Law 96-320) or other 
        relevant Acts to better promote and enhance the export 
        potential of ocean thermal energy conversion 
        components, facilities and plantships manufactured by 
        United States industry.]
                              ----------                              


        MARINE PROTECTION, RESEARCH, AND SANCTUARIES ACT OF 1972

          * * * * * * *

              [TITLE IV--REGIONAL MARINE RESEARCH PROGRAMS

                               [purposes

  [Sec. 401. The purpose of this title is to establish regional 
research programs, under effective Federal oversight, to--
          [(1) set priorities for regional marine and coastal 
        research in support of efforts to safeguard the water 
        quality and ecosystem health of each region; and
          [(2) carry out such research through grants and 
        improved coordination.

                              [definitions

  [Sec. 402. As used in this title, the term--
          [(1) ``Board'' means any Regional Marine Research 
        board established pursuant to section 403(a);
          [(2) ``Federal agency'' means any department, agency, 
        or other instrumentality of the Federal Government, 
        including any independent agency or establishment of 
        the Federal Government and any government corporation;
          [(3) ``local government'' means any city, town, 
        borough, county, parish, district, or other public body 
        which is a political subdivision of a State and which 
        is created pursuant to State law;
          [(4) ``marine and coastal waters'' means estuaries, 
        waters of the estuarine zone, including wetlands, any 
        other waters seaward of the historic height of tidal 
        influence, the territorial seas, the contiguous zone, 
        and the ocean;
          [(5) ``nonprofit organization'' means any 
        organization, association, or institution described in 
        section 501(c)(3) of the Internal Revenue Code of 1954 
        which is exempt from taxation pursuant to section 
        501(a) of such Code;
          [(6) ``region'' means 1 of the 9 regions described in 
        section 403(a); and
          [(7) ``State'' means a State, the District of 
        Columbia, the Commonwealth of Puerto Rico, the Virgin 
        Islands, Guam, American Samoa, and the Commonwealth of 
        the Northern Mariana Islands.

                    [regional marine research boards

  [Sec. 403. (a) Establishment.--A Regional Marine Research 
board shall be established for each of the following regions:
          [(1) the Gulf of Maine region, comprised of the 
        marine and coastal waters off the State of Maine, New 
        Hampshire, and Massachusetts (north of Cape Cod);
          [(2) the greater New York bight region, comprised of 
        the marine and coastal waters off the States of 
        Massachusetts (south of Cape Cod), Rhode Island, 
        Connecticut, New York, and New Jersey, from Cape Cod to 
        Cape May;
          [(3) the mid-Atlantic region, comprised of the marine 
        and coastal waters off the States of New Jersey, 
        Delaware, Maryland, Virginia, and North Carolina, from 
        Cape May to Cape Fear;
          [(4) the South Atlantic region, comprised of the 
        marine and coastal waters off the States of North 
        Carolina, South Carolina, Georgia, and Florida, from 
        Cape Fear to the Florida Keys, including the marine and 
        coastal waters off Puerto Rico and the United States 
        Virgin Islands;
          [(5) the Gulf of Mexico region, comprised of the 
        marine and coastal waters off the States of Florida, 
        Alabama, Mississippi, Louisiana, and Texas, along the 
        Gulf coast from the Florida Keys to the Mexican border;
          [(6) the California region, comprised of the marine 
        and coastal waters off the State of California, from 
        Point Reyes to the Mexican border;
          [(7) the North Pacific region, comprised of the 
        marine and coastal waters off the States of California, 
        Oregon, and Washington, from Point Reyes to the 
        Canadian border;
          [(8) the Alaska region, comprised of the marine and 
        coastal waters off the State of Alaska; and
          [(9) insular Pacific region, comprised of the marine 
        and coastal waters off the State of Hawaii, Guam, 
        American Samoa, and the Commonwealth of the Northern 
        Mariana Islands.
The Great Lakes Research Office authorized under section 118(d) 
of the Federal Water Pollution Control Act (33 U.S.C. 1268(d)) 
shall be responsible for research in the Great Lakes region and 
shall be considered the Great Lakes counterpart to the research 
program established pursuant to this title.
  [(b) Membership.--
          [(1) Composition.--Each Board shall be comprised of 
        11 members of which--
                  [(A) 3 members shall be appointed by the 
                Administrator of the National Oceanic and 
                Atmospheric Administration, including 1 member 
                who shall be a Sea Grant Program Director from 
                a State within such region, who shall serve as 
                chairman of the board;
                  [(B) 2 members shall be appointed by the 
                Administrator of the Environmental Protection 
                Agency; and
                  [(C) 6 members shall be appointed by 
                Governors of States located within the region.
          [(2) Qualifications.--Each individual appointed as a 
        member of a Board shall possess expertise, pertinent to 
        the region concerned, in scientific research, coastal 
        zone management, fishery management, water quality 
        management, State and local government, or any other 
        area which is directly relevant to the functions of the 
        Board. A majority of the members of each Board shall be 
        trained in a field of marine or aquatic science and 
        shall be currently engaged in research or research 
        administration.
          [(3) Terms.--Each appointed member of a Board shall 
        serve for a term of 4 years.
          [(4) Vacancies.--In the event of a vacancy, a 
        replacement member shall be appointed in the same 
        manner and in accordance with the same requirements as 
        the member being replaced and shall serve the remainder 
        of the term of the replaced member.
          [(5) Reimbursement of expenses.--Each appointed 
        member of a Board may be paid actual travel expenses, 
        and per diem in lieu of subsistence expenses when away 
        from the member's usual place of residence, in 
        accordance with section 5703 of title 5, United States 
        Code, when engaged in the actual performance of Board 
        duties.
  [(c) Functions.--Each Board shall, in accordance with the 
provisions of this title--
          [(1) develop and submit to the Administrators of the 
        National Oceanic and Atmospheric Administration and the 
        Environmental Protection Agency a marine research plan, 
        including periodic amendments thereto, that meets the 
        requirements of section 404;
          [(2) provide a forum for coordinating research among 
        research institutions and agencies;
          [(3) provide for review and comment on research plans 
        by affected users and interests, such as the commercial 
        and recreational fishing industries, other marine 
        industries, State and local government entities, and 
        environmental organizations;
          [(4) ensure that the highest quality of research 
        projects will be conducted to carry out the 
        comprehensive plan; and
          [(5) prepare, for submission to Congress, a periodic 
        report on the marine environmental research issues and 
        activities within the region in accordance with section 
        406 of this title.
  [(d) Powers.--Each Board shall be authorized to--
          [(1) cooperate with Federal agencies, with States and 
        with local government entities, interstate and regional 
        agencies, other public agencies and authorities, 
        nonprofit institutions, laboratories, and 
        organizations, or other appropriate persons, in the 
        preparation and support of marine research in the 
        region;
          [(2) enter into contracts, cooperative agreements or 
        grants to State and local governmental entities, other 
        public agencies or institutions, and non-profit 
        institutions and organizations for purposes of carrying 
        out the provisions of this title;
          [(3) collect and make available through publications 
        and other appropriate means, the results of, and other 
        information pertaining to, the research conducted in 
        the region;
          [(4) call conferences on regional marine research and 
        assessment issues, giving opportunity for interested 
        persons to be heard and present papers at such 
        conferences;
          [(5) develop and stimulate, in consultation with the 
        Department of State, joint marine research projects 
        with foreign nations;
          [(6) utilize facilities and personnel of existing 
        Federal agencies, including scientific laboratories and 
        research facilities;
          [(7) accept, and for all general purposes of this 
        Act, utilize funds from other sources, including but 
        not limited to State and local funds, university funds, 
        and donations; and
          [(8) acquire secret processes, inventions, patent 
        applications, patents, licenses, and property rights, 
        by purchase, license, lease, or donation.
  [(e) Administration.--
          [(1) Practices and procedures.--Each Board shall 
        determine its organization, and prescribe its practices 
        and procedures for carrying out its functions under 
        this title. Each Board should use existing research 
        administrative capability to the extent practicable.
          [(2) Committees and subcommittees.--Each Board shall 
        establish such committees and subcommittees as are 
        appropriate in the performance of its functions.
          [(3) Staff and support.--Each Board is authorized to 
        hire such staff as are necessary to carry out the 
        functions of the Board.
  [(f) Termination.--Each Board shall cease to exist on October 
1, 1999, unless extended by Congress.

                        [regional research plans

  [Sec. 404. (a) Development and Amendment of Regional Plans.--
          [(1) In general.--Each Board shall develop a 
        comprehensive 4-year marine research plan for the 
        region for which the Board is responsible, and shall 
        amend the plan at such times as the Board considers 
        necessary to reflect changing conditions, but no less 
        frequently than once every 4 years.
          [(2) Review and consideration of national plan.--In 
        the development and amendment of its research plan, the 
        Board shall consider findings and recommendations of 
        the national plan developed pursuant to the National 
        Ocean Pollution Planning Act of 1978 (33 U.S.C. 1701 et 
        seq.).
  [(b) Contents of Plan.--Such marine research plan shall 
include--
          [(1) an overview of the environmental quality 
        conditions in the coastal and marine waters of the 
        region and expected trends in these conditions;
          [(2) a comprehensive inventory and description of all 
        marine research related to water quality and ecosystem 
        health expected to be conducted in the region during 
        the 4-year term of the research plan;
          [(3) a statement and explanation of the marine 
        research needs and priorities applicable to the marine 
        and coastal waters of the region over the upcoming 10-
        year period with emphasis on the upcoming 3-to-5 year 
        period;
          [(4) an assessment of how the plan will incorporate 
        existing marine, coastal, and estuarine research and 
        management in the region, including activities pursuant 
        to section 320 of the Federal Water Pollution Control 
        Act (33 U.S.C. 1330) and section 315 of the Coastal 
        Zone Management Act of 1972 (16 U.S.C. 1461); and
          [(5) a general description of marine research and 
        monitoring objectives and timetables for achievement 
        through the funding of projects under this title during 
        the 4-year period covered by the plan so as to meet the 
        priorities specified in the plan in accordance with 
        paragraph (3).
  [(c) Plan Review and Approval.--
          [(1) In general.--When a Board has developed a marine 
        research plan, including amendments thereto, the Board 
        shall submit the plan to the Administrator of the 
        National Oceanic and Atmospheric Administration and the 
        Administration of the Environmental Protection Agency, 
        who shall jointly determine whether the plan meets the 
        requirements of subsection (b).
          [(2) Time for approval or disapproval.--The 
        Administrator of the National Oceanic and Atmospheric 
        Administration and the Administrator of the 
        Environmental Protection Agency, shall jointly approve 
        or disapprove such research plan within 120 days after 
        receiving the plan.
          [(3) Action after disapproval.--In the case of 
        disapproval of such research plan, the Administrator of 
        the National Oceanic and Atmospheric Administration and 
        the Administrator of the Environmental Protection 
        Agency shall jointly notify the appropriate Board in 
        writing, stating in detail the revisions necessary to 
        obtain approval of the plan. Such Administrators shall 
        approve or disapprove the revised plan within 90 days 
        after receiving the revised plan from the Board.

                        [research grant program

  [Sec. 405. (a) Program Administration.--The Administrator of 
the National Oceanic and Atmospheric Administration shall 
administer a grant program to support the administrative 
functions of each Board.
    [(b) Research Grants.--(1) Each Board may annually submit a 
grant application to the Administrator of the National Oceanic 
and Atmospheric Administration to fund projects aimed at 
achieving the research priorities set forth in each research 
plan, including amendments thereto, developed and approved 
pursuant to section 404.
    [(2) Projects eligible for funding under this section shall 
include research, investigations, studies, surveys, or 
demonstrations with respect to--
          [(A) baseline assessment of marine environmental 
        quality, including chemical, physical, and biological 
        indicators of environmental quality;
          [(B) effects or potential effects of contaminants, 
        including nutrients, toxic chemicals and heavy metals, 
        on the environment, including marine and aquatic 
        organisms;
          [(C) effects of modification of habitats, including 
        coastal wetlands, seagrass beds and reefs, on the 
        environment, including marine organisms;
          [(D) assessment of impacts of pollutant sources and 
        pollutant discharges into the coastal environment;
          [(E) transport, dispersion, transformation, and fate 
        and effect of contaminants in the marine environment;
          [(F) marine and estuarine habitat assessment and 
        restoration;
          [(G) methods and techniques for modeling 
        environmental quality conditions and trends;
          [(H) methods and techniques for sampling of water, 
        sediment, marine and aquatic organisms, and 
        demonstration of such methods and techniques;
          [(I) the effects on human health and the environment 
        of contaminants or combinations of contaminants at 
        various levels, whether natural or anthropogenic, that 
        are found in the marine environment;
          [(J) environmental assessment of potential effects of 
        major coastal and offshore development projects in the 
        region;
          [(K) assessment of the effects of climate change on 
        marine resources in the region; and
          [(L) analysis and interpretation of research data for 
        the benefit of State and local environmental protection 
        and resource management agencies in the region.
  [(3) Grant applications submitted pursuant to this subsection 
shall include--
          [(A) a description of the specific research projects 
        to be conducted;
          [(B) identification of the organization responsible 
        for each project and the principal investigator 
        directing the project;
          [(C) a budget statement for each project;
          [(D) a schedule of milestones and interim products 
        for each research project;
          [(E) a description of the relationship of the 
        proposed project to the goals, objectives, and 
        priorities of the research plan for the region and to 
        other research projects; and
          [(F) any other information which may be required by 
        the Administrator.
  [(c) Review and Approval of Project Proposals.--(1) The 
Administrator of the National Oceanic and Atmospheric 
Administration shall review the annual grant application and, 
with the concurrence of the Administrator of the Environmental 
Protection Agency, approve such grant application with such 
conditions as are determined to be appropriate based on peer 
reviews conducted pursuant to paragraph (2).
  [(2) The Administrator of the National Oceanic and 
Atmospheric Administration shall develop a system of peer 
review of grant applications which shall ensure that only the 
highest quality research is approved for funding and that each 
project is reviewed by research scientists outside the region 
concerned.
  [(d) Reporting.--Any recipient of a grant under this section 
shall report to the appropriate Board, not later than 18 months 
after award of the grant, on the activities of such recipient 
conducted pursuant to this subsection. Such report shall 
include narrative summaries and technical data in such form as 
the Administrator of the National Oceanic and Atmospheric 
Administration may require.

                      [report on research program

  [Sec. 406. (a) Preparation and Submission of Report.--Each 
Board receiving a grant under section 405 shall, not later than 
2 years after the approval of its comprehensive plan under 
section 405 and at 2-year intervals thereafter, prepare and 
submit to the Administrator of the National Oceanic and 
Atmospheric Administration and the Administrator of the 
Environmental Protection Agency a report describing--
          [(1) the findings and conclusions of research 
        projects conducted in the region;
          [(2) recommendations for improvements in the design 
        or implementation of programs for the protection of the 
        marine environment; and
          [(3) available data and information concerning 
        ecosystem health within the region.
  [(b) Transmittal to Congress.--Upon receipt of a report 
prepared by a Board under subsection (a), the Administrator of 
the National Oceanic and Atmospheric Administration and the 
Administrator of the Environmental Protection Agency shall 
transmit a copy of such report to the Committees on Commerce, 
Science, and Transportation and on Environment and Public Works 
of the Senate and to the Committee on Merchant Marine and 
Fisheries of the House of Representatives.

                    [authorization of appropriations

  [Sec. 407. (a) In General.--For purposes of carrying out the 
provisions of this title, there are authorized to be 
appropriated $18,000,000 for each of the fiscal years 1992 
through 1996.
  [(b) Allocation.--(1) Of funds appropriated in any fiscal 
year, not more than $500,000 shall be reserved for 
administration of this title by the National Oceanic and 
Atmospheric Administration and the Environmental Protection 
Agency.
  [(2) Funds appropriated in a fiscal year which are available 
after allocation pursuant to paragraph (1), shall be used to 
support the administrative costs of Boards established pursuant 
to subsection 403(a), provided that such funding does not 
exceed $300,000 for each research Board in each fiscal year.
  [(3) Seventy-five percent of funds appropriated in a fiscal 
year available after allocation pursuant to paragraphs (1) and 
(2), shall be allocated equally among Boards located in regions 
submitting research project grant applications pursuant to 
section 405(b).
  [(4) Twenty-five percent of funds appropriated in a fiscal 
year available after allocation pursuant to paragraphs (1) and 
(2), shall be allocated among Boards located in regions 
submitting research project grant applications pursuant to 
section 405(b) which, in the judgment of the Administrator of 
the National Oceanic and Atmospheric Administration, in 
consultation with the Administrator of the Environmental 
Protection Agency, propose the most needed and highest quality 
research.

               [TITLE V--NATIONAL COASTAL MONITORING ACT

[SEC. 501. PURPOSES.

  [The purposes of this title are to--
          [(1) establish a comprehensive national program for 
        consistent monitoring of the Nation's coastal 
        ecosystems;
          [(2) establish long-term water quality assessment and 
        monitoring programs for high priority coastal waters 
        that will enhance the ability of Federal, State, and 
        local authorities to develop and implement effective 
        remedial programs for those waters;
          [(3) establish a system for reviewing and evaluating 
        the scientific, analytical, and technological means 
        that are available for monitoring the environmental 
        quality of coastal ecosystems;
          [(4) establish methods for identifying uniform 
        indicators of coastal ecosystem quality;
          [(5) provide for periodic, comprehensive reports to 
        Congress concerning the quality of the Nation's coastal 
        ecosystems;
          [(6) establish a coastal environment information 
        program to distribute coastal monitoring information;
          [(7) provide state programs authorized under the 
        Coastal Zone Management Act of 1972 (16 U.S.C. 1451 et 
        seq.) with information necessary to design land use 
        plans and coastal zone regulations that will contribute 
        to the protection of coastal ecosystems; and
          [(8) provide certain water pollution control programs 
        authorized under the Federal Water Pollution Control 
        Act 33 U.S.C. 1251 et seq.) with information necessary 
        to design and implement effective coastal water 
        pollution controls.

[SEC. 502. DEFINITIONS.

  [For the purposes of this title, the term--
          [(1) ``Administrator'' means the Administrator of the 
        Environmental Protection Agency;
          [(2) ``coastal ecosystem'' means a system of 
        interacting biological, chemical, and physical 
        components throughout the water column, water surface, 
        and benthic environment of coastal waters;
          [(3) ``coastal water quality'' means the physical, 
        chemical and biological parameters that relate to the 
        health and integrity of coastal ecosystems;
          [(4) ``coastal water quality monitoring'' means a 
        continuing program of measurement, analysis, and 
        synthesis to identify and quantify coastal water 
        quality conditions and trends to provide a technical 
        basis for decisionmaking;
          [(5) ``coastal waters'' means waters of the Great 
        Lakes, including their connecting waters and those 
        portions of rivers, streams, and other bodies of water 
        having unimpaired connection with the open sea up to 
        the head of tidal influence, including wetlands, 
        intertidal areas, bays, harbors, and lagoons, including 
        waters of the territorial sea of the United States and 
        the contiguous zone; and
          [(6) ``Under Secretary'' means Under Secretary of 
        Commerce for Oceans and Atmosphere.

[SEC. 503. COMPREHENSIVE COASTAL WATER QUALITY MONITORING PROGRAM.

  [(a) Authority; Joint Implementation.--(1) The Administrator 
and the Under Secretary, in conjunction with other Federal, 
State, and local authorities, shall jointly develop and 
implement a program for the long-term collection, assimilation, 
and analysis of scientific data designed to measure the 
environmental quality of the Nation's coastal ecosystems 
pursuant to this section. Monitoring conducted pursuant to this 
section shall be coordinated with relevant monitoring programs 
conducted by the Administrator, Under Secretary, and other 
Federal, State, and local authorities.
  [(2) Primary leadership for the monitoring program activities 
conducted by the Environmental Protection Agency pursuant to 
this section shall be located at the Environmental Research 
Laboratory in Narragansett, Rhode Island.
  [(b) Program Elements.--The Comprehensive Coastal Water 
Quality Monitoring Program shall include, but not be limited 
to--
          [(1) identification and analysis of the status of 
        environmental quality in the Nation's coastal 
        ecosystems, including but not limited to, assessment 
        of--
                  [(A) ambient water quality, including 
                contaminant levels in relation to criteria and 
                standards issued pursuant to title III or the 
                Federal Water Pollution Control Act 33 U.S.C. 
                1311 et seq.);
                  [(B) benthic environmental quality, including 
                analysis of contaminant levels in sediments in 
                relation to criteria and standards issued 
                pursuant to title III of the Federal Water 
                Pollution Control Act 33 U.S.C. 1311 et seq.); 
                and
                  [(C) health and quality of living resources.
          [(2) identification of sources of environmental 
        degradation affecting the Nation's coastal ecosystems;
          [(3) assessment of the impact of governmental 
        programs and management strategies and measures 
        designed to abate or prevent the environmental 
        degradation of the Nation's coastal ecosystems;
          [(4) assessment of the accumulation of floatables 
        along coastal shorelines;
          [(5) analysis of expected short-term and long-term 
        trends in the environmental quality of the Nation's 
        coastal ecosystems; and
          [(6) the development and implementation of intensive 
        coastal water quality monitoring programs in accordance 
        with subsection (d).
  [(c) Monitoring Guidelines and Protocols.--
          [(1) Guidelines.--Not later than 18 months after the 
        date of the enactment of this title, the Administrator 
        and the Under Secretary shall jointly issue coastal 
        water quality monitoring guidelines to assist in the 
        development and implementation of coastal water quality 
        monitoring programs. The guidelines shall--
                  [(A) provide an appropriate degree of 
                uniformity among the coastal water quality 
                monitoring methods and data while preserving 
                the flexibility of monitoring programs to 
                address specific needs;
                  [(B) establish scientifically valid 
                monitoring methods that will--
                          [(i) provide simplified methods to 
                        survey and assess the water quality and 
                        ecological health of coastal waters;
                          [(ii) identify and quantify through 
                        more intensive efforts the severity of 
                        existing or anticipated problems in 
                        selected coastal waters;
                          [(iii) identify and quantify sources 
                        of pollution that cause or contribute 
                        to those problems, including point and 
                        nonpoint sources; and
                          [(iv) evaluate over time the 
                        effectiveness of efforts to reduce or 
                        eliminate pollution from those sources;
                  [(C) provide for data compatibility to enable 
                data to be efficiently stored and shared by 
                various users; and
                  [(D) identify appropriate physical, chemical, 
                and biological indicators of the health and 
                quality of coastal ecosystems.
          [(2) Technical protocols.--Guidelines issued under 
        paragraph (1) shall include protocols for--
                  [(A) designing statistically valid coastal 
                water quality monitoring networks and 
                monitoring surveys, including assessment of the 
                accumulation of floatables.
                  [(B) sampling and analysis, including 
                appropriate physical and chemical parameters, 
                living resource parameters, and sediment 
                analysis techniques; and
                  [(C) quality control, quality assessment, and 
                data consistency and management.
          [(3) Periodic review.--The Administrator and the 
        Under Secretary shall periodically review the 
        guidelines and protocols issued under this subsection 
        to evaluate their effectiveness, the degree to which 
        they continue to answer program objectives and provide 
        an appropriate degree of uniformity while taking local 
        conditions into account, and any need to modify or 
        supplement them with new guidelines and protocols, as 
        needed.
          [(4) Discharge permit data.--The Administrator or a 
        State permitting authority shall ensure that compliance 
        monitoring conducted pursuant to section 402(a)(2) of 
        the Federal Water Pollution Control Act 33 U.S.C. 
        1342(a)(2)) for permits for discharges to coastal 
        waters is consistent with the guidelines issued under 
        this subsection. Any modifications of discharge permits 
        necessary to implement this subsection shall be deemed 
        to be minor modifications of such permit. Nothing in 
        this subsection requires dischargers to conduct 
        monitoring other than compliance monitoring pursuant to 
        permits under section 402(a)(2) of the Federal Water 
        Pollution Control Act 33 U.S.C. 1342(a)(2)).
  [(d) Intensive Coastal Water Quality Monitoring Programs.--
          [(1) In general.--The Comprehensive Coastal Water 
        Quality Monitoring Program established pursuant to this 
        section shall include intensive coastal water quality 
        monitoring programs developed under this subsection.
          [(2) Designation of intensive monitoring areas.--Not 
        later than 24 months after the date of enactment of 
        this title and periodically thereafter, the 
        Administrator and the Under Secretary shall, based on 
        recommendations by the National Research Council, 
        jointly designate coastal areas to be intensively 
        monitored.
          [(3) Identification of suitable coastal areas.--(A) 
        The Administrator and the Under Secretary shall 
        contract with the National Research Council to conduct 
        a study to identify coastal areas suitable for the 
        establishment of intensive coastal monitoring programs. 
        In identifying these coastal areas, the National 
        Research Council shall consider areas that--
                  [(i) are representatives of coastal 
                ecosystems throughout the United States;
                  [(ii) will provide information to assess the 
                status and trends of coastal water quality 
                nation-wide; and
                  [(iii) would benefit from intensive water 
                quality monitoring because of local management 
                needs.
          [(B) In making recommendations under this paragraph, 
        the National Research Council shall consult with 
        Regional Research Boards established pursuant to title 
        IV of this Act.
          [(C) The National Research Council shall, within 18 
        months of the date of enactment of this title, submit a 
        report to the Administrator and the Under Secretary 
        listing areas suitable for intensive monitoring.
          [(D) The Administrator and the Under Secretary, in 
        conjunction with other Federal, State, and local 
        authorities, shall develop and implement multi-year 
        programs of intensive monitoring for Massachusetts and 
        Cape Cod Bays, the Gulf of Maine, the Chesapeake Bay, 
        the Hudson-Raritan Estuary, and each area jointly 
        designated by the Administrator and the Under Secretary 
        pursuant to paragraph (2).
          [(4) Intensive coastal water quality monitoring 
        programs.--Each intensive coastal water quality 
        monitoring program developed pursuant to this 
        subsection shall--
                  [(A) identify water quality conditions and 
                problems and provide information to assist in 
                improving coastal water quality;
                  [(B) clearly state the goals and objectives 
                of the monitoring program and their 
                relationship to the water quality objectives 
                for coastal waters covered by the program;
                  [(C) identify the water quality and 
                biological parameters of the monitoring program 
                and their relationship to these goals and 
                objectives;
                  [(D) describe the types of monitoring 
                networks, surveys and other activities to be 
                used to achieve these goals and objectives, 
                using where appropriate the guidelines issued 
                under subsection (c);
                  [(E) survey existing Federal, State, and 
                local coastal monitoring activities and private 
                compliance monitoring activities in or on the 
                coastal waters covered by the program, describe 
                the relationship of the program to those other 
                monitoring activities, and integrate them, as 
                appropriate, into the intensive monitoring 
                program;
                  [(F) describe the data management and quality 
                control components of the program;
                  [(G) specify the implementation requirements 
                for the program, including--
                          [(i) the lead Federal, State, or 
                        regional authority that will administer 
                        the program;
                          [(ii) the public and private parties 
                        that will implement the program;
                          [(iii) a detailed schedule for 
                        program implementation;
                          [(iv) all Federal and State 
                        responsibilities for implementing the 
                        program; and
                          [(v) the changes in Federal, State, 
                        and local monitoring programs necessary 
                        to implement the program;
                  [(H) estimate the costs to Federal and State 
                governments, and other participants, of 
                implementing the monitoring program; and
                  [(I) describe the methods to assess 
                periodically the success of the monitoring 
                program in meeting its goals and objectives, 
                and the manner in which the program may be 
                modified from time-to-time.
          [(5) Criteria for monitoring massachusetts and cape 
        cod bays.--In addition to the criteria listed in 
        paragraph (4), the intensive monitoring program for 
        Massachusetts and Cape Cod Bays shall establish 
        baseline data on environmental phenomena (such as 
        quantity of bacteria and quality of indigenous species, 
        and swimmability) and determine the ecological impacts 
        resulting from major point source discharges.
          [(6) Memorandum of understanding.--Prior to 
        implementing any intensive coastal water quality 
        monitoring program under this subsection, the 
        Administrator and the Under Secretary shall enter into 
        a Memorandum of Understanding to implement the 
        intensive coastal water quality monitoring programs and 
        may extend the memorandum of Understanding to include 
        other appropriate Federal agencies. The Memorandum of 
        Understanding shall identify the monitoring and 
        reporting responsibilities of each agency and shall 
        encourage the coordination of monitoring activities.
          [(7) Implementation.--(A) The Administrator, the 
        Under Secretary, and the Governor of each State having 
        waters subject to an intensive coastal water quality 
        monitoring program developed pursuant to this 
        subsection shall ensure compliance with that program.
          [(B) The Administrator and the Under Secretary are 
        authorized to enter into cooperative agreements to 
        provide financial assistance to non-Federal agencies 
        and institutions to support implementation of intensive 
        monitoring programs under this subsection. Federal 
        financial assistance may only be provided on the 
        condition that not less than fifty percent of the costs 
        of the monitoring to be conducted by a non-Federal 
        agency or institution is provided from non-Federal 
        funds.
  [(e) Comprehensive Implementation Strategy.--
          [(1) In general.--Within 1 year after the date of 
        enactment of this title, the Administrator and the 
        Under Secretary shall jointly submit to Congress a 
        Comprehensive Implementation Strategy identifying the 
        current and planned activities to implement the 
        Comprehensive Coastal Monitoring Program pursuant to 
        this section.
          [(2) Consultation.--The Administrator and the Under 
        Secretary shall consult with the National Academy of 
        Sciences, the Director of the United States Fish and 
        Wildlife Service, the Director of the Minerals 
        Management Service, the Commandant of the Coast Guard, 
        the Secretary of the Navy, the Secretary of 
        Agriculture, the heads of any other relevant Federal or 
        regional agencies, and the Governors of coastal States 
        in developing the Strategy.
          [(3) Public comment.--Not less than 3 months before 
        submitting the Strategy to Congress, the Administrator 
        and the Under Secretary shall jointly publish a draft 
        version of the Strategy in the Federal Register and 
        shall solicit public comments regarding the Strategy.
          [(4) Memorandum of understanding.--Within 1 year 
        after submission of the Strategy under paragraph (1), 
        the Administrator and the Under Secretary shall enter 
        into a Memorandum of Understanding with appropriate 
        Federal agencies necessary to effect the coordination 
        of Federal coastal monitoring programs. The Memorandum 
        of Understanding shall identify the monitoring and 
        reporting responsibilities of each agency and shall 
        encourage the coordination of monitoring activities 
        where possible.

[SEC. 504. REPORT TO CONGRESS.

  [On September 30 of each other year beginning in 1993, the 
Administrator and the Under Secretary shall jointly submit to 
the Committee on Commerce, Science, and Transportation and the 
Committee on Environment and Public Works of the Senate and the 
Committee on Merchant Marine and Fisheries and the Committee on 
Public Works and Transportation of the House of Representatives 
a report describing the condition of the Nation's coastal 
ecosystems, including the following:
          [(1) an assessment of the status and health of the 
        Nation's coastal ecosystems;
          [(2) an evaluation of environmental trends in coastal 
        ecosystems;
          [(3) identification of sources of environmental 
        degradation affecting coastal ecosystems;
          [(4) an assessment of the extent to which floatables 
        degrade coastal ecosystems, including trends in the 
        accumulation of floatables and the threat posed by 
        floatables to aquatic life;
          [(5) an assessment of the impact of government 
        programs designed to abate the degradation of coastal 
        ecosystems:
          [(6) an evaluation of the adequacy of monitoring 
        programs and identification of any additional program 
        elements which may be needed; and
          [(7) a summary of monitoring results in areas 
        monitored under subsection 503(d).

[SEC. 505. AUTHORIZATION OF APPROPRIATIONS.

  [(a) NOAA Authorization.--For development and implementation 
of programs under this title, including financial assistance to 
non-Federal agencies and institutions to support implementation 
of intensive monitoring programs under section 503(d), there is 
authorized to be appropriated to the Under Secretary amounts 
not to exceed $5,000,000 for fiscal year 1993, $8,000,000 for 
fiscal year 1994, $10,000,000 for fiscal year 1995, and 
$12,000,000 for fiscal year 1996.
  [(b) EPA Authorization.--For development and implementation 
of programs under this title, including financial assistance to 
non-Federal agencies and institutions to support implementation 
of intensive monitoring programs under section 503(d), there is 
authorized to be appropriated to the Administrator amounts not 
to exceed $5,000,000 for fiscal year 1993, $8,000,000 for 
fiscal year 1994, and $10,000,000 for fiscal year 1995, and 
$12,000,000 for fiscal year 1996.]
          * * * * * * *
                              ----------                              


                           PUBLIC LAW 85-342

   AN ACT  To authorize the Secretary of the Interior to establish a 
      program for the purpose of carrying on certain research and 
  experimentation to develop methods for the commercial production of 
fish on flooded rice acreage in rotation with rice field crops, and for 
                             other purposes

    [Be it enacted by the Senate and House of Representatives 
of the United States of America in Congress assembled, That the 
Secretary of the Interior is authorized and directed to 
establish an experiment station or stations for the purpose of 
carrying on a program of research and experimentation--
          [(1) to determine species of fishes most suitable for 
        culture on a commercial basis in shallow reservoirs and 
        flooded rice lands;
          [(2) to determine methods for production of 
        fingerling fishes for stocking in commercial 
        reservoirs;
          [(3) to develop methods for the control of parasites 
        and diseases of brood fishes and of fingerlings prior 
        to stocking;
          [(4) to develop economical methods for raising the 
        more desirable species of fishes to a marketable size;
          [(5) to determine, in cooperation with the Department 
        of Agriculture, the effects of fish-rice rotations, 
        including crops other than rice commonly grown on rice 
        farms, upon both the fish and other crops; and
          [(6) to develop suitable methods for harvesting the 
        fish crop and preparing it for marketing, including a 
        study of sport fishing as a means of such harvest.
    [Sec. 2. For the purpose of carrying out the provisions of 
this Act, the Secretary of the Interior is authorized (1) to 
acquire by purchase, condemnation, or otherwise such suitable 
lands, to construct such buildings, to acquire such equipment 
and apparatus, and to employ such officers and employees as he 
deems necessary; (2) to cooperate with State and other 
institutions and agencies upon such terms and conditions as he 
determines to be appropriate; and (3) to make public the 
results of such research and experiments conducted pursuant to 
the first section of this Act.
    [Sec. 3. The Department of Agriculture is authorized to 
cooperate in carrying out the provisions of this Act by 
furnishing such information and assistance as may be requested 
by the Secretary of the Interior.
    [Sec. 4. There are hereby authorized to be appropriated 
such sums as may be necessary to carry out the provisions of 
this Act.]
                              ----------                              


                         ACT OF AUGUST 8, 1956

 AN ACT  To promote the fishing industry in the United States and its 
Territories by providing for the training of needed personnel for such 
                                industry

    [Be it enacted by the Senate and House of Representatives 
of the United States of America in Congress assembled, That (a) 
the Secretary of the Interior is authorized to make grants, out 
of funds appropriated for the purposes of this section, to 
public and nonprofit private universities and colleges in the 
several States and Territories of the United States for such 
purposes as may be necessary to promote the education and 
training of professionally trained personnel (including 
scientists, technicians, and teachers) needed in the field of 
commercial fishing. Any amount appropriated for the purposes of 
this section shall be apportioned on an equitable basis, as 
determined by the Secretary of the Interior, among the several 
States and Territories for the purpose of making grants within 
each such State and Territory. In making such apportionment the 
Secretary of the Interior shall take into account the extent of 
the fishing industry within each State and Territory as 
compared with the total fishing industry of the United States 
(including Territories), and such other factors as may be 
relevant in view of the purposes of this section.
    [(b) There are authorized to be appropriated not in excess 
of $550,000 for the fiscal year beginning on July 1, 1955, and 
for each fiscal year thereafter for the purposes of this 
section.
    [(c) The Secretary of the Interior may establish such 
regulations as may be necessary to carry out the provisions of 
this section.]
          * * * * * * *
                              ----------                              


                           PUBLIC LAW 86-359

   AN ACT Authorizing and directing the Secretary of the Interior to 
 undertake continuing research on the biology fluctations, status, and 
 statistics of the migratory marine species of game fish of the United 
                      States and contiguous waters

    [Be it enacted by the Senate and House of Representatives 
of the Untied States of America in Congress assembled, That the 
Secretary of the Interior is hereby directed to undertake a 
comprehensive continuing study of the migratory marine fish of 
interest to recreational fishermen of the United States, 
including species inhabiting the off-shore waters of the Untied 
States and species which migrate through or spend a part of 
their lives in the inshore waters of the United States. The 
study shall include, but not be limited to, research on 
migrations, identity of stocks, growth rates, mortality rates, 
variations in survival, environmental influences, both natural 
and artificial, including pollution, and effects of fishing on 
the species, for the purpose of developing wise conservation 
policies and constructive management activities.
    [Sec. 2. For the purpose of carrying out the provisions of 
this Act, the Secretary of the Interior is authorized (1) to 
acquire lands, construct laboratory or other buildings, 
purchase boats, acquire such other equipment and apparatus, and 
to employ such officers and employees as he deems necessary; 
(2) to cooperate or contract with State and other institutions 
and agencies upon such terms and conditions as he determines to 
be appropriate; and (3) to make public the results of such 
research conducted pursuant to the first section of this Act.
    [Sec 3. There are hereby authorized to be appropriated such 
sums as may be necessary to carry out the provisions of this 
Act: Provided, That no more than $2,700,000 be appropriated for 
this purpose in any one fiscal year.]
                              ----------                              


                         ACT OF AUGUST 15, 1914

    [CHAP. 253.--An Act To regulate the taking or catching of 
sponges in the waters of the Gulf of Mexico and the Straits of 
Florida outside of State jurisdiction; the landing, delivering, 
curing, selling, or possession of the same; providing means of 
enforcement of the same; and for other purposes
    [Be it enacted by the Senate and House of Representative of 
the United States of America in Congress assembled, That on and 
after the approval of this Act it shall be unlawful for any 
citizen of the Untied States, or person owing duty of obedience 
to the laws of the United States or any boat or vessel of the 
United States, or person belonging to or on any such boat or 
vessel, to take or catch, by any means or method, in the waters 
of the Gulf of Mexico or the Straits of Florida outside of 
State territorial limits, any commercial sponges measuring when 
wet less than five inches in their maximum diameter, or for any 
person or vessel to land, deliver, cure, offer for sale, or 
have in possession at any port or place in the United States, 
or on any boat or vessel of the United States, any such 
commercial sponges.
    [Sec. 2. That the presence of sponges of a diameter of less 
than five inches on any vessel or boat of the United States 
engaged in sponging in the waters of the Gulf of Mexico or the 
Straits of Florida outside of States territorial limits, or the 
possession of any sponges of less than the said diameter sold 
or delivered by such vessels, shall be prima facie evidence of 
a violation of this Act.
    [Sec. 3. That every person, partnership or association 
guilty of a violation of the Act shall be liable to a find of 
not more than $500, and in addition such fine shall be a lien 
against the vessel or boat on which the offense is committed, 
and said vessel or boat shall be seized and proceeded against 
by process of libel in any court having jurisdiction of the 
offense.
    [Sec. 4. That any violation of this Act shall be prosecuted 
in the district court of the United States of the district 
wherein the offender is found or into which he is first 
brought.
    [Sec. 5. That it shall be the duty of the Secretary of 
Commerce to enforce the provisions of this Act, and he is 
authorized to employer such officers and employees of the 
Department of Commerce as he may designate, or such officers 
and employees of other departments as may be detailed for the 
purpose, to make arrests and seize vessels and sponges, and 
upon his request the Secretary of the Treasury may employ the 
vessels of the Revenue Cutter Service or the employees of the 
Customs Service to that end.
    [Sec. 6. That the Act approved June twentieth, nineteen 
hundred and six , entitled ``An Act of regulate the landing, 
delivery, cure, and sale of sponges'' and all other laws in 
conflict herewith be, and the same hereby are, repealed.]
          * * * * * * *

                Title VI--Operating-Differential Subsidy

          * * * * * * *
    Sec. 607.(a) * * *
          * * * * * * *
    (k) Definitions.
    For purposes of this section--
    (1) The term ``eligible vessel'' means any vessel--
          (A) * * *
          * * * * * * *
    [(9) The term ``Secretary'' means the Secretary of Commerce 
with respect to eligible or qualified vessels operated or to be 
operated in the fisheries of the United States, and the 
Secretary of Transportation with Respect to all other vessels.]
    (9) The term ``Secretary'' means the Secretary of 
Transportation.
          * * * * * * *

               Title XI--Federal Ship Mortgage Insurance

    Sec. 1101. As used in this title--
(a) * * *
          * * * * * * *
    [(n) The term ``Secretary'' means the Secretary of Commence 
with respect to fishing vessels and fishing facilities as 
provided by this title, and the Secretary of Transportation 
with respect to all other vessels and general shipyard 
facilities (as defined in section 1112(d)(3)).]
    (n) The term ``Secretary'' means the Secretary of 
Transportation.
          * * * * * * *
                              ----------                              


SECTION 401 OF THE OUTER CONTINENTAL SHELF LANDS ACT AMENDMENTS OF 1978

                 TITLE IV--FISHERMEN'S CONTINGENCY FUND

                              definitions

    Sec. 401. As used in this title, the term--
          (1) * * *
          * * * * * * *
          [(8) ``Secretary'' means the Secretary of Commerce or 
        the designee of such Secretary.]
          (8) ``Secretary'' means the Secretary of 
        Transportation.
                              ----------                              


          SECTION 10 OF THE FISHERMEN'S PROTECTIVE ACT OF 1967

    Sec. 10. (a) For purposes of this section--
          [(1) The terms ``fishery'', ``fishery conservation 
        zone'', ``fishing'', ``fishing vessel,'' ``Secretary'', 
        and ``vessel of the United States'' shall each have the 
        same respective meaning as is given to such terms in 
        section 3 of the Fishery Conservation and Management 
        Act of 1976 (16 U.S.C. 1802).]
          (1) The terms ``fishery'', ``fishery conservation 
        zone'', ``fishing'', ``fishing vessel'', and ``vessel 
        of the United States'' have the same meaning given to 
        each of such terms in section 3 of the Magnuson Fishery 
        Conservation and Management Act (16 U.S.C. 1802).
          * * * * * * *
          (5) The term ``Secretary'' means the Secretary of 
        Transportation.
          * * * * * * *
                              ----------                              


                            THE ACT OF 1890

CHAP. 1266.--An act to increase the efficiency and reduce the expenses 
of the Signal Corps of the Army, and to transfer the Weather Service to 
                     the Department of Agriculture

          * * * * * * *
    [Sec. 3. That the Chief of the Weather Bureau, under the 
direction of the Secretary of Agriculture, on and after July 
first, eighteen hundred, and ninety-one, shall have charge of 
the forecasting of weather, the issue of storm warnings, the 
display of weather and flood signals for the benefit of 
agriculture, commerce, and navigation, the gauging and 
reporting of rivers, the maintenance and operation of sea-coast 
telegraph lines and the collection and transmission of marine 
intelligence for the benefit of commerce and navigation, the 
reporting of temperature and rain-fall conditions for the 
cotton interests, the display of frost and cold-wave signals, 
the distribution of meteorological information in the interests 
of agriculture and commerce, and the taking of such 
meterological observations as may be necessary to establish and 
record the climatic conditions of the United States, or as are 
essential for the proper execution of the foregoing duties.]
          * * * * * * *
    Sec. 9. That on and after July first, eighteen hundred and 
ninety-one, the appropriations for the support of the Signal 
Corps of the Army shall be made with those of other staff corps 
of the Army, and the appropriations for the support of the 
Weather Bureau shall be made with those of the other bureaus of 
the Department of Agriculture[, and it shall be the duty of the 
Secretary of Agriculture to prepare future estimates for the 
Weather Bureau which shall be hereafter specially developed and 
extended in the interests of agriculture].
                              ----------                              


                      TITLE 44, UNITED STATES CODE

          * * * * * * *

        CHAPTER 11--EXECUTIVE AND JUDICIARY PRINTING AND BINDING

          * * * * * * *

Sec. 1111. Annual reports: time for furnishing manuscript and proofs to 
                    Public Printer

  The appropriations made for printing and binding may not be 
used for an annual report or the accompanying documents unless 
the manuscript and proof is furnished to the Public Printer in 
the following manner:
          * * * * * * *
  This section does not apply to the annual reports of the 
Smithsonian Institution, the [Commissioner of Patents,] the 
Comptroller of the Currency, or the Secretary of the Treasury.
          * * * * * * *

Sec. 1114. Annual reports: number of copies for Congress one thousand 
                    copies of the annual reports of the departments to 
                    Congress shall be printed for the Senate, and two 
                    thousand for the House of Representatives

  The usual number only of the reports of the Chief of 
Engineers of the Army, the [Commissioner of Patents] 
Commissioner of Patents and Trademarks, the Commissioner of 
Internal Revenue, the report of the Chief Signal Officer of the 
Department of the Army, and the Chief of Ordnance shall be 
printed.
          * * * * * * *

Sec. 1123. Binding materials; bookbinding for libraries

  Binding for the departments of the Government shall be done 
in plain sheep or cloth, except that record and account books 
may be bound in Russia leather, sheep fleshers, and skivers, 
when authorized by the head of a department. The libraries of 
the several departments, the Library of Congress, the libraries 
of the Surgeon General's Office, [the Patent Office,] and the 
Naval Observatory may have books for the exclusive use of these 
libraries bound in half Turkey, or material no more expensive.
          * * * * * * *

              CHAPTER 13--PARTICULAR REPORTS AND DOCUMENTS

Sec.
1301. Agriculture, Department of: report of Secretary.
     * * * * * * *
[1337. Patent Office: publications authorized to be printed.
[1338. Patent Office: limitations and conditions concerning printing.]
     * * * * * * *

[Sec. 1337. Patent Office: publications authorized to be printed

  [The Commissioner of Patents, upon the requisition of the 
Secretary of Commerce may cause to be printed:
  [1. Patents issued.--The patents for inventions and designs 
issued by the Patent Office, including grants, specifications, 
and drawings, together with copies of them, and of patents 
already issued, in the number needed for the business of the 
office.
  [2. Trade-marks and labels.--The certificates of trade-marks 
and labels registered in the Patent Office, including 
descriptions and drawings, together with copies of them, and of 
trade-marks and labels previously registered, in the numbers 
needed for the business of the office.
  [3. Official Gazette.--The Official Gazette of the United 
States Patent Office in numbers sufficient to supply all who 
subscribe for it at $5 a year; also for exchange for other 
scientific publications desirable for the use of the Patent 
Office; also to supply one copy to each Senator and 
Representative in Congress; with one hundred additional copies, 
together with weekly, monthly, and annual indexes. The ``usual 
number'' of the Official Gazette may not be printed.
  [4. Report of Commissioner of Patents.--The annual report of 
the Commissioner of Patents, not exceeding five hundred in 
number, for distribution by him; the annual report of the 
Commissioner of Patents to Congress, without the list of 
patents, not exceeding one thousand five hundred in number, for 
distribution by him; and the annual report of the Commissioner 
of Patents to Congress, with the list of patents, five hundred 
copies for sale by him, if needed, and in addition the ``usual 
number'' only shall be printed.
  [5. Rules of practice, laws, etc.--Pamphlet copies of the 
rules of practice, and of the patent laws, and pamphlet copies 
of the laws and rules relating to trade-marks and labels, and 
circulars relating to the business of the office, all in 
numbers as needed for the business of the office. The ``usual 
number'' may not be printed.
  [6. Decisions of Commissioner and courts.--Annual volumes of 
the decisions of the Commissioner of Patents and of the United 
States courts in patent cases, not exceeding one thousand five 
hundred in number, of which the usual number shall be printed, 
and for this purpose a copy of each shall be transmitted to 
Congress promptly when prepared.
  [7. Indexes.--Indexes to patents relating to electricity, and 
indexes to foreign patents, in the numbers needed for the 
business of the office. The ``usual number'' may not be 
printed.

[Sec. 1338. Patent Office: limitations and conditions concerning 
                    printing and lithographing

  [Printing for the Patent Office making use of lithography or 
photo-lithography, together with the plates, shall be 
contracted for and performed under the direction of the 
Commissioner of Patents, under limitations and conditions 
prescribed by the Joint Committee on Printing, and other 
printing for the Patent Office shall be done by the Public 
Printer under limitations and conditions prescribed by the 
Joint Committee on Printing. The entire work may be done at the 
Government Printing Office when in the judgment of the Joint 
Committee on Printing it is to the interest of the Government.]
          * * * * * * *
                              ----------                              


           SECTION 661 OF THE FOREIGN ASSISTANCE ACT OF 1961

[SEC. 661. TRADE AND DEVELOPMENT AGENCY.

  [(a) Purpose.--The Trade and Development Agency shall be an 
agency of the United States under the foreign policy guidance 
of the Secretary of State. The purpose of the Trade and 
Development Agency is to promote United States private sector 
participation in development projects in developing and middle-
income countries.
  [(b) Authority To Provide Assistance.--
          [(1) Authority.--The Director of the Trade and 
        Development Agency is authorized to work with foreign 
        countries, including those in which the United States 
        development programs have been concluded or those not 
        receiving assistance under part I, to carry out the 
        purpose of this section by providing funds for 
        feasibility studies, architectural and engineering 
        design, and other activities related to development 
        projects which provide opportunities for the use of 
        United States exports.
          [(2) Use of funds.--Funds under this section may be 
        used to provide support for feasibility studies for the 
        planning, development, and management of, and 
        procurement for, bilateral and multilateral development 
        projects, including training activities undertaken in 
        connection with a project, for the purpose of promoting 
        the use of United States goods and services in such 
        projects. Funds under this section may also be used for 
        architectural and engineering design, including--
                  [(A) concept design, which establishes the 
                basic technical and operational criteria for a 
                project, such as architectural drawings for a 
                proposed facility, evaluation of site 
                constraints, procurement requirements, and 
                equipment specifications; and
                  [(B) detail design, which sets forth specific 
                dimensions and criteria for structural, 
                mechanical, electrical, and architectural 
                operations, and identifies other resources 
                required for project operations.
          [(3) Information dissemination.--(A) The Trade and 
        Development Agency shall disseminate information about 
        its project activities to the private sector.
          [(B) Other agencies of the United States Government 
        shall cooperate with the Trade and Development Agency 
        in order for the Agency to provide more effectively 
        informational services to persons in the private sector 
        concerning trade development and export promotion 
        related to development projects.
          [(4) Nonapplicability of other provisions.--Any funds 
        used for purposes of this section may be used 
        notwithstanding any other provision of law.
  [(c) Director and Personnel.--
          [(1) Director.--There shall be at the head of the 
        Trade and Development Agency a Director who shall be 
        appointed by the President, by and with the advice and 
        consent of the Senate.
          [(2) Officers and employees.--(A) The Director may 
        appoint such officers and employees of the Trade and 
        Development Agency as the Director considers 
        appropriate.
          [(B) The officers and employees appointed under this 
        paragraph shall have such functions as the Director may 
        determine.
          [(C) Of the officers and employees appointed under 
        this paragraph, 2 may be appointed without regard to 
        the provisions of title 5, United States Code, 
        governing appointments in the competitive service, and 
        may be compensated without regard to the provisions of 
        chapter 51 or subchapter III of chapter 53 of such 
        title.
          [(D) Under such regulations as the President may 
        prescribe, any individual appointed under subparagraph 
        (C) may be entitled, upon removal (except for cause) 
        from the position to which the appointment was made, to 
        reinstatement to the position occupied by that 
        individual at the time of appointment or to a position 
        of comparable grade and pay.
  [(d) Annual Report.--The President shall, not later than 
December 31 of each year, submit to the Committee on Foreign 
Affairs of the House of Representatives and the Committee on 
Foreign Relations of the Senate a report on the activities of 
the Trade and Development Agency in the preceding fiscal year.
  [(e) Audits.--
          [(1) In general.--The Trade and Development Agency 
        shall be subject to the provisions of chapter 35 of 
        title 31, United States Code, except as otherwise 
        provided in this section.
          [(2) Independent audit.--An independent certified 
        public accountant shall perform a financial and 
        compliance audit of the financial statements of the 
        Trade and Development Agency each year, in accordance 
        with generally accepted Government auditing standards 
        for a financial and compliance audit, taking into 
        consideration any standards recommended by the 
        Comptroller General. The independent certified public 
        accountant shall report the results of such audit to 
        the Director of the Trade and Development Agency. The 
        financial statements of the Trade and Development 
        Agency shall be presented in accordance with generally 
        accepted accounting principles. These financial 
        statements and the report of the accountant shall be 
        included in a report which contains, to the extent 
        applicable, the information identified in section 3512 
        of title 31, United States Code, and which the Trade 
        and Development Agency shall submit to the Congress not 
        later than 6\1/2\ months after the end of the last 
        fiscal year covered by the audit. The Comptroller 
        General may review the audit conducted by the 
        accountant and the report to the Congress in the manner 
        and at such times as the Comptroller General considers 
        necessary.
          [(3) Audit by comptroller general.--In lieu of the 
        financial and compliance audit required by paragraph 
        (2), the Comptroller General shall, if the Comptroller 
        General considers it necessary or upon the request of 
        the Congress, audit the financial statements of the 
        Trade and Development Agency in the manner provided in 
        paragraph (2).
          [(4) Availability of information.--All books, 
        accounts, financial records, reports, files, 
        workpapers, and property belonging to or in use by the 
        Trade and Development Agency and the accountant who 
        conducts the audit under paragraph (2), which are 
        necessary for purposes of this subsection, shall be 
        made available to the representatives of the General 
        Accounting Office designated by the Comptroller 
        General.
  [(f) Funding.--
          [(1) Authorization.--(A) There are authorized to be 
        appropriated for purposes of this section, in addition 
        to funds otherwise available for such purposes, 
        $77,000,000 for fiscal year 1995 and such sums as are 
        necessary for fiscal year 1996.
          [(B) Amounts appropriated pursuant to the 
        authorization of appropriations under subparagraph (A) 
        are authorized to remain available until expended.
          [(2) Funding for technical assistance grants by 
        multilateral development banks.--(A) The Trade and 
        Development Agency should, in fiscal years 1993 and 
        1994, substantially increase the amount of funds it 
        provides to multilateral development banks for 
        technical assistance grants.
          [(B) As used in subparagraph (A)--
                  [(i) the term ``technical assistance grants'' 
                means funding by multilateral development banks 
                of services from the United States in 
                connection with projects and programs supported 
                by such banks, including, but not limited to, 
                engineering, design, and consulting services; 
                and
                  [(ii) the term ``multilateral development 
                bank'' has the meaning given that term in 
                section 1701(c) of the International Financial 
                Institutions Act.]
                              ----------                              


             SECTION 242 OF THE TRADE EXPANSION ACT OF 1962

SEC. 242.* INTERAGENCY TRADE ORGANIZATION.

    (a)(1) * * *
           * * * * * * *
    [(3) The interagency organization shall be composed of the 
following:
          [(A) The Trade Representative, who shall be 
        chairperson.
          [(B) The Secretary of Commerce.
          [(C) The Secretary of State.
          [(D) The Secretary of the Treasury.
          [(E) The Secretary of Agriculture
          [(F) The Secretary of Labor.
The Trade Representative may invite representatives from other 
agencies, as appropriate, to attend particular meetings if 
subject matters of specific functional interest to such 
agencies are under consideration. It shall meet at such times 
and with respect to such matters as the President or the 
Chairman shall direct.]
          (3)(A) The interagency organization established under 
        subsection (a) shall be composed of--
                  (i) the United States Trade Representative, 
                who shall be the chairperson,
                  (ii) the Secretary of Agriculture,
                  (iii) the Secretary of the Treasury,
                  (iv) the Secretary of Labor,
                  (v) the Secretary of State, and
                  (vi) the representatives of such other 
                departments and agencies as the United States 
                Trade Representative shall designate.
          (B) The United States Trade Representative may invite 
        representatives from other agencies, as appropriate, to 
        attend particular meetings if subject matters of 
        specific functional interest to such agencies are under 
        consideration. It shall meet at such times and with 
        respect to such matters as the President or the 
        chairperson shall direct.
          * * * * * * *
                              ----------                              


            SECTION 101 OF THE NATIONAL SECURITY ACT OF 1947

                       national security council

  Sec. 101. (a) There is hereby established a council to be 
known as the National Security Council (thereinafter in this 
section referred to as the ``Council'').
  The President of the United States shall preside over 
meetings of the Council: Provided, That in his absence he may 
designate a member of the Council to preside in his place.
  The function of the Council shall be to advise the President 
with respect to the integration of domestic, foreign, and 
military policies relating to the national security so as to 
enable the military services and the other departments and 
agencies of the Government to cooperate more effectively in 
matters involving the national security.
  The Council shall be composed of--
          (1) the President;
          (2) the Vice President;
          (3) the Secretary of State;
          (4) the Secretary of Defense;
          (5) the United States Trade Representative;
          [(5)] (6) the Director for Mutual Security;
          [(6)] (7) the Chairman of the National Security 
        Resources Board; and
          [(7)] (8) The Secretaries and Under Secretaries of 
        other executive departments and the military 
        departments, the Chairman of the Munitions Board, and 
        the Chairman of the Research and Development Board, 
        when appointed by the President by and with the advice 
        and consent of the Senate, to serve at his pleasure.
          * * * * * * *
                              ----------                              


              SECTION 3 OF THE BRETTON WOODS AGREEMENT ACT

     appointment of governors, executive directors, and alternates

  Sec. 3. (a) * * *
          * * * * * * *
  (e) The United States executive director of the Fund shall 
consult with the United States Trade Representative with 
respect to matters under consideration by the Fund which relate 
to trade.
                              ----------                              


                           TRADE ACT OF 1974

                            TABLE OF CONTENTS

                TITLE I--NEGOTIATING AND OTHER AUTHORITY

     * * * * * * *

      [Chapter 4--Office of the United States Trade Representative

[Sec. 141.  Office of the United States Trade Representative.]

             Chapter 4--Representation in Trade Negotiations

Sec. 141. Functions of the United States Trade Representative.
     * * * * * * *

                TITLE I--NEGOTIATING AND OTHER AUTHORITY

          * * * * * * *

      [CHAPTER 4--OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

[SEC. 141. OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE.

  [(a) There is established within the Executive Office of the 
President the Office of the United States Trade Representative 
(hereinafter in this section referred to as the ``Office'').
  [(b)(1) The Office shall be headed by the United States Trade 
Representative who shall be appointed by the President, by and 
with the advice and consent of the Senate. As an exercise of 
the rulemaking power of the Senate, any nomination of the 
United States Trade Representative submitted to the Senate for 
confirmation, and referred to a committee, shall be referred to 
the Committee on Finance. The United States Trade 
Representative shall hold office at the pleasure of the 
President, shall be entitled to receive the same allowances as 
a chief of mission, and shall have the rank of Ambassador 
Extraordinary and Plenipotentiary.
  [(2) There shall be in the Office three Deputy United States 
Trade Representatives who shall be appointed by the President, 
by and with the advice and consent of the Senate. As an 
exercise of the rulemaking power of the Senate, and nomination 
of a Deputy United States Trade Representative submitted to the 
Senate for confirmation, and referred to a committee, shall be 
referred to the Committee on Finance. Each Deputy United States 
Trade Representative shall hold office at the pleasure of the 
President and shall have the rank of Ambassador.
  [(c)(1) The United States Trade Representative shall--
          [(A) have primary responsibility for developing, and 
        for coordinating the implementation of, United States 
        international trade policy, including commodity 
        matters, and, to the extent they are related to 
        international trade policy, direct investment matters;
          [(B) serve as the principal advisor to the President 
        on international trade policy and shall advise the 
        President on the impact of other policies of the United 
        States Government on international trade;
          [(C) have lead responsibility for the conduct of, and 
        shall be the chief representative of the United States 
        for, international trade negotiations, including all 
        negotiations on any matter considered under the 
        auspices of the World Trade Organization, commodity and 
        direct investment negotiations, in which the United 
        States participates;
          [(D) issue and coordinate policy guidance to 
        departments and agencies on basic issues of policy and 
        interpretation arising in the exercise of international 
        trade functions, including any matter considered under 
        the auspices of the World Trade Organization, to the 
        extent necessary to assure the coordination of 
        international trade policy and consistent with any 
        other law;
          [(E) act as the principal spokesman of the President 
        on international trade;
          [(F) report directly to the President and the 
        Congress regarding, and be responsible to the President 
        and the Congress for the administration of, trade 
        agreements programs;
          [(G) advise the President and Congress with respect 
        to nontariff barriers to international trade, 
        international commodity agreements, and other matters 
        which are related to the trade agreements programs;
          [(H) be responsible for making reports to Congress 
        with respect to matters referred to in subparagraphs 
        (C) and (F);
          [(I) be chairman of the interagency trade 
        organization established under section 242(a) of the 
        Trade Expansion Act of 1962, and shall consult with and 
        be advised by such organization in the performance of 
        his functions; and
          [(J) in addition to those functions that are 
        delegated to the United States Trade Representative as 
        of the date of the enactment of the Omnibus Trade and 
        Competitiveness Act of 1988, be responsible for such 
        other functions as the President may direct.
  [(2) It is the sense of Congress that the United States Trade 
Representative should--
          [(A) be the senior representative on any body that 
        the President may establish for the purpose of 
        providing to the President advice on overall economic 
        policies in which international trade matters 
        predominate; and
          [(B) be included as a participant in all economic 
        summit and other international meetings at which 
        international trade is a major topic.
  [(3) The United States Trade Representative may--
          [(A) delegate any of his functions, powers, and 
        duties to such officers and employees of the Office as 
        he may designate; and
          [(B) authorize such successive redelegations of such 
        functions, powers, and duties to such officers and 
        employees of the Office as he may deem appropriate.
  [(4) Each Deputy United States Trade Representative shall 
have as his principal function the conduct of trade 
negotiations under this Act and shall have such other functions 
as the United States Trade Representative may direct.
  [(d)(1) In carrying out subsection (c) with respect to unfair 
trade practices, the United States Trade Representative shall--
          [(A) coordinate the application of interagency 
        resources to specific unfair trade practice cases;
          [(B) identify, and refer to the appropriate Federal 
        department or agency for consideration with respect to 
        action, each act, policy, or practice referred to in 
        the report required under section 181(b), or otherwise 
        known to the United States Trade Representative on the 
        basis of other available information, that may be an 
        unfair trade practice that either--
                  [(i) is considered to be inconsistent with 
                the provisions of any trade agreement and has a 
                significant adverse impact on United States 
                commerce, or
                  [(ii) has a significant adverse impact on 
                domestic firms or industries that are either 
                too small or financially weak to initiate 
                proceedings under the trade laws;
          [(C) identify practices having a significant adverse 
        impact on United States commerce that the attainment of 
        United States negotiating objectives would eliminate; 
        and
          [(D) identify, on a biennial basis, those United 
        States Government policies and practices that, if 
        engaged in by a foreign government, might constitute 
        unfair trade practices under United States law.
  [(2) For purposes of carrying out paragraph (1), the United 
States Trade Representative shall be assisted by an interagency 
unfair trade practices advisory committee composed of the Trade 
Representative, who shall chair the committee, and senior 
representatives of the following agencies, appointed by the 
respective heads of those agencies:
          [(A) The Bureau of Economics and Business Affairs of 
        the Department of State.
          [(B) The United States and Foreign Commercial 
        Services of the Department of Commerce.
          [(C) The International Trade Administration (other 
        than the United States and Foreign Commercial Service) 
        of the Department of Commerce.
          [(D) The Foreign Agricultural Service of the 
        Department of Agriculture.
The United States Trade Representative may also request the 
advice of the United States International Trade Commission 
regarding the carrying out of paragraph (1).
  [(3) For purposes of this subsection, the term ``unfair trade 
practice'' means any act, policy, or practice that--
          [(A) may be a subsidy with respect to which 
        countervailing duties may be imposed under subtitle A 
        of title VII;
          [(B) may result in the sale or likely sale of foreign 
        merchandise with respect to which antidumping duties 
        may be imposed under subtitle B of title VII;
          [(C) may be either an unfair method of competition, 
        or an unfair act in the importation of articles into 
        the United States, that is unlawful under section 337; 
        or
          [(D) may be an act, policy, or practice of a kind 
        with respect to which action may be taken under title 
        III of the Trade Act of 1974.
  [(e) The United States Trade Representative may, for the 
purpose of carrying out his functions under this section--
          [(1) subject to the civil service and classification 
        laws, select, appoint, employ, and fix the compensation 
        of such officers and employees as are necessary and 
        prescribe their authority and duties, except that not 
        more than 20 individuals may be employed without regard 
        to any provision of law regulating the employment or 
        compensation at rates not to exceed the rate of pay for 
        level IV of the Executive Schedule in section 5314 of 
        title 5, United States Code;
          [(2) employ experts and consultants in accordance 
        with section 3109 of title 5, United States Code, and 
        compensate individuals so employed for each day 
        (including traveltime) at rates not in excess of the 
        maximum rate of pay for grade GS-18 as provided in 
        section 5332 of title 5, United States Code, and while 
        such experts and consultants are so serving away from 
        their homes or regular place of business, to pay such 
        employees travel expenses and per diem in lieu of 
        subsistence at rates authorized by section 5703 of 
        title 5, United States Code, for persons in Government 
        service employed intermittently;
          [(3) promulgate such rules and regulations as may be 
        necessary to carry out the functions, powers and duties 
        vested in him;
          [(4) utilize, with their consent, the services, 
        personnel, and facilities of other Federal agencies;
          [(5) enter into and perform such contracts, leases, 
        cooperative agreements, or other transactions as may be 
        necessary in the conduct of the work of the Office and 
        on such terms as the United States Trade Representative 
        may deem appropriate, with any agency or 
        instrumentality of the United States, or with any 
        public or private person, firm, association, 
        corporation, or institution;
          [(6) accept voluntary and uncompensated services, 
        notwithstanding the provisions of section 1342 of title 
        31, United States Code;
          [(7) adopt an official seal, which shall be 
        judicially noticed; and
          [(8) pay for expenses approved by him for official 
        travel without regard to the Federal Travel Regulations 
        or to the provisions of subchapter I of chapter 57 of 
        title 5, United States Code (relating to rates of per 
        diem allowances in lieu of subsistence expenses);
          [(9) accept, hold, administer, and utilize gifts, 
        devises, and bequests of property, both real and 
        personal, for the purpose of aiding or facilitating the 
        work of the Office;
          [(10) acquire, by purchase or exchange, not more than 
        two passenger motor vehicles for use abroad, except 
        that no vehicle may be required at a cost exceeding 
        $9,500; and
          [(11) provide, where authorized by law, copies of 
        documents to persons at cost, except that any funds so 
        received shall be credited to, and be available for use 
        from, the account from which expenditures relating 
        thereto were made.
  [(f) The United States Trade Representative shall, to the 
extent he deems it necessary for the proper administration and 
execution of the trade agreements programs of the United 
States, draw upon the resources of, and consult with, Federal 
agencies in connection with the performance of his functions.
  [(g)(1)(A) There are authorized to be appropriated to the 
Office for the purposes of carrying out its functions not to 
exceed the following:
          [(i) $23,250,000 for fiscal year 1991.
          [(ii) $21,077,000 for fiscal year 1992.
  [(B) Of the amounts authorized to be appropriated under 
subparagraph (A) for any fiscal year--
          [(i) not to exceed $98,000 may be used for 
        entertainment and representation expenses of the 
        Office;
          [(ii) not to exceed $2,050,000 may be used to pay the 
        United States share of the expenses of binational 
        panels and extraordinary challenge committees convened 
        pursuant to chapter 19 of the United States-Canada 
        Free-Trade Agreement; and
          [(iii) not to exceed $1,000,000 shall remain 
        available until expended.
  [(2) For the fiscal year beginning October 1, 1982, and for 
each fiscal year thereafter, there are authorized to be 
appropriated to the Office for the salaries of its officers and 
employees such additional sums as may be provided by law to 
reflect pay rate changes made in accordance with the Federal 
Pay Comparability Act of 1970.]

            CHAPTER 4--REPRESENTATION IN TRADE NEGOTIATIONS

SEC. 141. FUNCTIONS OF THE UNITED STATES TRADE REPRESENTATIVE.

  The United States Trade Representative of the United States 
Trade Administration established under section 201 of the Trade 
Reorganization Act of 1995 shall--
          (1) be the chief representative of the United States 
        for each trade negotiation under this chapter or 
        chapter 1 of title III of this Act, or subtitle A of 
        title I of the Omnibus Trade and Competitiveness Act of 
        1988, or any other provision of law enacted after the 
        Department of Commerce Dismantling Act;
          (2) report directly to the President and the 
        Congress, and be responsible to the President and the 
        Congress for the administration of trade agreements 
        programs under this Act, the Omnibus Trade and 
        Competitiveness Act of 1988, the Trade Expansion Act of 
        1962, section 350 of the Tariff Act of 1930, and any 
        other provision of law enacted after the Department of 
        Commerce Dismantling Act;
          (3) advise the President and the Congress with 
        respect to nontariff barriers to international trade, 
        international commodity agreements, and other matters 
        which are related to the trade agreements programs; and
          (4) be responsible for making reports to Congress 
        with respect to the matters set forth in paragraphs (1) 
        and (2).
          * * * * * * *
                              ----------                              


             SECTION 202 OF THE FOREIGN SERVICE ACT OF 1980

  Sec. 202. Other Agencies Utilizing the Foreign Service 
Personnel System.--(a)(1)  * * *
          * * * * * * *
  [(3) The Secretary of Commerce may utilize the Foreign 
Service personnel system in accordance with this Act--
          [(A) with respect to the personnel performing 
        functions transferred to the Department of Commerce 
        from the Department of State by Reorganization Plan 
        Numbered 3 of 1979, and
          [(B) with respect to other personnel of the 
        Department of Commerce to the extent the President 
        determines to be necessary in order to enable the 
        Department of Commerce to carry out functions which 
        require service abroad.]
  (3) The United States Trade Representative of the United 
States Trade Administration may utilize the Foreign Service 
personnel system in accordance with this Act--
          (A) with respect to the personnel performing 
        functions--
                  (i) which were transferred to the Department 
                of Commerce from the Department of State by 
                Reorganization Plan No. 3 of 1979; and
                  (ii) which were subsequently transferred to 
                the United States Trade Representative by 
                section 432 of the Department of Commerce 
                Dismantling Act; and
          (B) with respect to other personnel of the United 
        States Trade Administration to the extent the President 
        determines to be necessary in order to enable the 
        United States Trade Administration to carry out 
        functions which require service abroad.
          * * * * * * *
                              ----------                              


                          ACT OF JUNE 5, 1939

 AN ACT To establish the position of Under Secretary in the Department 
                              of Commerce

    Be it enacted by the Senate and House of Representatives of 
the United States of America in Congress assembled, [That there 
is hereby established in the Department of Commerce the 
position of Under Secretary of Commerce with compensation at 
the rate of $10,000 per annum and with appointment thereto by 
the President, by and with the advice and consent of the 
senate.
    Sec. 2. Such Under Secretary shall perform the duties of 
the Secretary of Commerce in the case of absence or sickness of 
the Secretary, or in the case of the death or resignation of 
the Secretary until a successor is appointed.]
          * * * * * * *
                              ----------                              


                      TITLE 35, UNITED STATES CODE

                  PART I--PATENT AND TRADEMARK OFFICE

[1. Establishment, Officers, Functions............................    1]
1. Establishment, Officers and Employees, Functions...............    1.
          * * * * * * *

             [CHAPTER 1--ESTABLISHMENT, OFFICERS, FUNCTIONS

[Sec.
[1.  Establishment.
[2.  Seal.
[3.  Officers and employees.
[4.  Restrictions on officers and employees as to interest in patents.
[6.  Duties of Commissioner.
[7.  Board of Patent Appeals and Interferences.
[8.  Library.
[9.  Classification of patents.
[10.  Certified copies of records.
[11.  Publications.
[12.  Exchange of copies of patents with foreign countries.
[13.  Copies of patents for public libraries.
[14.  Annual report to Congress.]

      CHAPTER 1--ESTABLISHMENT, OFFICERS AND EMPLOYEES, FUNCTIONS

Sec.
 1. Establishment.
 2. Powers and duties.
 3. Officers and employees.
 4. Restrictions on officers and employees as to interest in patents.
 5. Patent and Trademark Office Management Advisory Board.
 6. Duties of Commissioner.
 7. Board of Patent Appeals and Interferences.
 8. Suits by and against the Corporation.
 9. Library.
10. Classification of patents.
11. Certified copies of records.
12. Publications.
13. Exchange of copies of patents with foreign countries.
14. Copies of patents for public libraries.
15. Annual report to Congress.
          * * * * * * *

[Sec. 1. Establishment

  [The Patent and Trademark Office shall continue as an office 
in the Department of Commerce, where records, books, drawings, 
specifications, and other papers and things pertaining to 
patents and to trademark registrations shall be kept and 
preserved, except as otherwise provided by law.

[Sec. 2. Seal

  [The Patent and Trademark Office shall have a seal with which 
letters patent, certificates of trade-mark registrations, and 
papers issued from the Office shall be authenticated.

[Sec. 3. Officers and employees

  [(a) There shall be in the Patent and Trademark Office a 
Commissioner of Patents and Trademarks, a Deputy Commissioner, 
two Assistant Commissioners, and examiners-in-chief appointed 
under section 7 of this title. The Deputy Commissioner, or, in 
the event of a vacancy in that office, the Assistant 
Commissioner senior in date of appointment shall fill the 
office of Commissioner during a vacancy in that office until 
the Commissioner is appointed and takes office. The 
Commissioner of Patents and Trademarks, the Deputy 
Commissioner, and the Assistant Commissioners shall be 
appointed by the President, by and with the advice and consent 
of the Senate. The Secretary of Commerce, upon the nomination 
of the Commissioner, in accordance with law shall appoint all 
other officers and employees.
  [(b) The Secretary of Commerce may vest in himself the 
functions of the Patent and Trademark Office and its officers 
and employees specified in this title and may from time to time 
authorize their performance by any other officer or employee.
  [(c) The Secretary of Commerce is authorized to fix the per 
annum rate of basic compensation of each examiner-in-chief in 
the Patent and Trademark Office at not in excess of the maximum 
scheduled rate provided for positions in grade 17 of the 
General Schedule of the Classification Act of 1949, as amended.
  [(d) The Commissioner of Patents and Trademarks shall be an 
Assistant Secretary of Commerce and shall receive compensation 
at the rate prescribed by law for Assistant Secretaries of 
Commerce.
  [(e) The members of the Trademark Trial and Appeal Board of 
the Patent and Trademark Office shall each be paid at a rate 
not to exceed the maximum rate of basic pay payable for GS-16 
of the General Schedule under section 5332 of title 5.]

Sec. 1. Establishment

  (a) Establishment.--The Patent and Trademark Office is 
established as a wholly owned Government corporation subject to 
chapter 91 of title 31, except as otherwise provided in this 
title.
  (b) Offices.--The Patent and Trademark Office shall maintain 
an office in the District of Columbia, or the metropolitan area 
thereof, for the service of process and papers and shall be 
deemed, for purposes of venue in civil actions, to be a 
resident of the District of Columbia. The Patent and Trademark 
Office may establish offices in such other places as it 
considers necessary or appropriate in the conduct of its 
business.
  (c) Reference.--For purposes of this title, the Patent and 
Trademark Office shall also be referred to as the ``Office''.

Sec. 2. Powers and Duties

  (a) In General.--The Patent and Trademark Office shall be 
responsible for--
          (1) the granting and issuing of patents and the 
        registration of trademarks;
          (2) conducting studies, programs, or exchanges of 
        items or services regarding domestic and international 
        patent and trademark law or the administration of the 
        Office, including programs to recognize, identify, 
        assess, and forecast the technology of patented 
        inventions and their utility to industry;
          (3) authorizing or conducting studies and programs 
        cooperatively with foreign patent and trademark offices 
        and international organizations, in connection with the 
        granting and issuing of patents and the registration of 
        trademarks; and
          (4) disseminating to the public information with 
        respect to patents and trademarks.
  (b) Specific Powers.--The Office--
          (1) shall have perpetual succession;
          (2) shall adopt and use a corporate seal, which shall 
        be judicially noticed and with which letters patent, 
        certificates of trademark registrations, and papers 
        issued by the Office shall be authenticated;
          (3) may sue and be sued in its corporate name and be 
        represented by its own attorneys in all judicial and 
        administrative proceedings;
          (4) may indemnify the Commissioner of Patents and 
        Trademarks, and other officers, attorneys, agents, and 
        employees (including members of the Management Advisory 
        Board established in section 5), of the Office for 
        liabilities and expenses incurred within the scope of 
        their employment;
          (5) may adopt, amend, and repeal bylaws, rules, and 
        regulations, governing the manner in which its business 
        will be conducted and the powers granted to it by law 
        will be exercised, without regard to chapter 35 of 
        title 44;
          (6) may acquire, construct, purchase, lease, hold, 
        manage, operate, improve, alter, and renovate any real, 
        personal, or mixed property, or any interest therein, 
        as it considers necessary to carry out its functions, 
        without regard to the provisions of the Federal 
        Property and Administrative Services Act of 1949;
          (7)(A) may make such purchases, contracts for the 
        construction, maintenance, or management and operation 
        of facilities, and contracts for supplies or services, 
        after advertising, in such manner and at such times 
        sufficiently in advance of opening bids, as the Office 
        determines is adequate to ensure notice and an 
        opportunity for competition, except that advertising 
        shall not be required when the Office determines that 
        the making of any such purchase or contract without 
        advertising is necessary, or that advertising is not 
        reasonably practicable;
          (B) may enter into and perform such purchases and 
        contracts for printing services, including the process 
        of composition, platemaking, presswork, silk screen 
        processes, binding, microform, and the products of such 
        processes, as it considers necessary to carry out the 
        functions of the Office, without regard to sections 501 
        through 517 and 1101 through 1123 of title 44; and
          (C) may enter into and perform such other contracts, 
        leases, cooperative agreements, or other transactions 
        with international, foreign, and domestic public 
        agencies and private organizations, and persons as is 
        necessary in the conduct of its business and on such 
        terms as it considers appropriate;
          (8) may use, with their consent, services, equipment, 
        personnel, and facilities of other departments, 
        agencies, and instrumentalities of the Federal 
        Government, on a reimbursable basis, and to cooperate 
        with such other departments, agencies, and 
        instrumentalities in the establishment and use of 
        services, equipment, and facilities of the Office;
          (9) may obtain from the Administrator of General 
        Services such services as the Administrator is 
        authorized to provide to other agencies of the United 
        States, on the same basis as those services are 
        provided to other agencies of the United States;
          (10) may use, with the consent of the agency, 
        government, or international organization concerned, 
        the services, records, facilities, or personnel of any 
        State or local government agency or instrumentality or 
        foreign government or international organization to 
        perform functions on its behalf;
          (11) may determine the character of and the necessity 
        for its obligations and expenditures and the manner in 
        which they shall be incurred, allowed, and paid, 
        subject to the provisions of this title and the Act of 
        July 5, 1946 (commonly referred to as the ``Trademark 
        Act of 1946'');
          (12) may retain and use all of its revenues and 
        receipts, including revenues from the sale, lease, or 
        disposal of any real, personal, or mixed property, or 
        any interest therein, of the Office, in carrying out 
        the functions of the Office, including for research and 
        development and capital investment, without 
        apportionment under the provisions of subchapter II of 
        chapter 15 of title 31;
          (13) shall have the priority of the United States 
        with respect to the payment of debts from bankrupt, 
        insolvent, and decedents' estates;
          (14) may accept monetary gifts or donations of 
        services, or of real, personal, or mixed property, in 
        order to carry out the functions of the Office;
          (15) may execute, in accordance with its bylaws, 
        rules, and regulations, all instruments necessary and 
        appropriate in the exercise of any of its powers;
          (16) may provide for liability insurance and 
        insurance against any loss in connection with its 
        property, other assets, or operations either by 
        contract or by self-insurance; and
          (17) shall pay any settlement or judgment entered 
        against it from the funds of the Office and not from 
        amounts available under section 1304 of title 31.

Sec. 3. Officers and employees

  (a) Commissioner.--
          (1) In general.--The management of the Patent and 
        Trademark Office shall be vested in the Commissioner of 
        Patents and Trademarks (hereafter in this title 
        referred to as the ``Commissioner''), who shall be a 
        citizen of the United States and who shall be appointed 
        by the President, by and with the advice and consent of 
        the Senate. The Commissioner shall be a person who, by 
        reason of professional background and experience in 
        patent and trademark law, is especially qualified to 
        manage the Office.
          (2) Duties.--
                  (A) In general.--The Commissioner shall be 
                responsible for the management and direction of 
                the Office, including the issuance of patents 
                and the registration of trademarks.
                  (B) Advising the president.--The Commissioner 
                shall advise the President of all activities of 
                the Patent and Trademark Office undertaken in 
                response to obligations of the United States 
                under treaties and executive agreements, or 
                which relate to cooperative programs with those 
                authorities of foreign governments that are 
                responsible for granting patents or registering 
                trademarks. The Commissioner shall also 
                recommend to the President changes in law or 
                policy which may improve the ability of U.S. 
                citizens to secure and enforce patent rights or 
                trademark rights in the United States or in 
                foreign countries.
                  (C) Consulting with the management advisory 
                board.--The Commissioner shall consult with the 
                Management Advisory Board established in 
                section 5 on a regular basis on matters 
                relating to the operation of the Patent and 
                Trademark Office, and shall consult with the 
                Board before submitting budgetary proposals to 
                the Office of Management and Budget or changing 
                or proposing to change patent or trademark user 
                fees or patent or trademark regulations.
          (3) Term.--The Commissioner shall serve a term of six 
        years, and may continue to serve until a successor is 
        appointed and assumes office. The Commissioner may be 
        reappointed to subsequent terms.
          (4) Oath.--The Commissioner shall, before taking 
        office, take an oath to discharge faithfully the duties 
        of the Office.
          (5) Compensation.--The Commissioner shall receive 
        compensation at the rate of pay in effect for level II 
        of the Executive Schedule under section 5313 of title 
        5.
          (6) Removal.--The Commissioner may be removed from 
        office by the President only for cause.
          (7) Designee of commissioner.--The Commissioner shall 
        designate an officer of the Office who shall be vested 
        with the authority to act in the capacity of the 
        Commissioner in the event of the absence or incapacity 
        of the Commissioner.
  (b) Officers and Employees of the Office.--
          (1) Deputy commissioners.--The Commissioner shall 
        appoint a Deputy Commissioner for Patents and a Deputy 
        Commissioner for Trademarks for terms that shall expire 
        on the date on which the Commissioner's term expires. 
        The Deputy Commissioner for Patents shall be a person 
        with demonstrated experience in patent law and the 
        Deputy Commissioner for Trademarks shall be a person 
        with demonstrated experience in trademark law. The 
        Deputy Commissioner for Patents and the Deputy 
        Commissioner for Trademarks shall be the principal 
        policy advisors to the Commissioner on all aspects of 
        the activities of the Office that affect the 
        administration of patent and trademark operations, 
        respectively.
          (2) Other officers and employees.--The Commissioner 
        shall--
                  (A) appoint an Inspector General and such 
                other officers, employees (including 
                attorneys), and agents of the Office as the 
                Commissioner considers necessary to carry out 
                its functions;
                  (B) fix the compensation of such officers and 
                employees, subject to the limits set forth in 
                subsection (c); and
                  (C) define the authority and duties of such 
                officers and employees and delegate to them 
                such of the powers vested in the Office as the 
                Commissioner may determine.
The Office shall not be subject to any administratively or 
statutorily imposed limitation on positions or personnel, and 
no positions or personnel of the Office shall be taken into 
account for purposes of applying any such limitation, except to 
the extent otherwise specifically provided by statute with 
respect to the Office.
  (c) Limits on Compensation.--Except as otherwise provided in 
this title or any other provision of law, the basic pay of an 
officer or employee of the Office for any calendar year may not 
exceed the annual rate of basic pay in effect for level III of 
the Executive Schedule under section 5314 of title 5. The 
Commissioner shall by regulation establish a limitation on the 
total compensation payable to officers or employees of the 
Office, consistent with the limitation under section 5307 of 
title 5.
  (d) Inapplicability of Title 5 Generally.--Except as 
otherwise provided in this section, officers and employees of 
the Office shall not be subject to the provisions of title 5 
relating to Federal employees.
  (e) Carryover of Personnel.--
          (1) To the office.--Effective as of the effective 
        date of the Patent and Trademark Office Corporation Act 
        of 1995, all officers and employees of the Patent and 
        Trademark Office on the day before such effective date 
        shall become officers and employees of the Office, 
        without a break in service.
          (2) Continuation in office of certain officers.--
                  (A) Commissioner of patents and trademarks.--
                The individual serving as the Commissioner of 
                Patents and Trademarks on the day before the 
                effective date of the Patent and Trademark 
                Office Corporation Act of 1995 may serve as the 
                Commissioner for a period of 1 year beginning 
                on such effective date or, if earlier, until a 
                Commissioner has been appointed under 
                subsection (a).
                  (B) Assistant commissioner for patents.--The 
                individual serving as the Assistant 
                Commissioner for Patents on the day before the 
                effective date of the Patent and Trademark 
                Office Corporation Act of 1995 may serve as the 
                Deputy Commissioner for Patents for a period of 
                1 year beginning on such effective date or, if 
                earlier, until a Deputy Commissioner for 
                Patents has been appointed under subsection 
                (b).
                  (C) Assistant commissioner for trademarks.--
                The individual serving as the Assistant 
                Commissioner for Trademarks on the day before 
                the effective date of the Patent and Trademark 
                Office Corporation Act of 1995 may serve as the 
                Deputy Commissioner for Trademarks for a period 
                of 1 year beginning on such effective date or, 
                if earlier, until a Deputy Commissioner for 
                Trademarks has been appointed under subsection 
                (b).
  (f) Employee Protection.--Not later than the effective date 
of the Patent and Trademark Office Corporation Act of 1995, the 
Commissioner shall, notwithstanding section 3531 of such Act, 
take appropriate measures to protect the employment interests 
of individuals who become employees of the Office pursuant to 
subsection (e)(1). Such measures shall include provisions to 
ensure that--
          (1) the Office will adopt labor agreements in 
        accordance with subsection (g);
          (2) no such individual shall, during the 2-year 
        period commencing on the effective date of the Patent 
        and Trademark Office Corporation Act of 1995, be 
        subject to separation or any reduction in compensation 
        by reason of the establishment of the Office as a 
        Government corporation pursuant to such Act;
          (3) all sick leave, annual leave, and compensatory 
        time accrued or accumulated under title 5 before the 
        start of such 2-year period shall be obligations of the 
        Office during such period; and
          (4) there shall be made available to such employees 
        not less than 1 life insurance program and not less 
        than 3 health insurance programs, during such 2-year 
        period, which shall be reasonably comparable, in terms 
        of employee premium cost and coverage, to the Federal 
        health and life insurance programs available to such 
        employees on the day before the start of such period.
  (g) Labor Agreements.--
          (1) Adoption of existing agreements.--The Office 
        shall adopt all labor agreements which are in effect, 
        as of the day before the effective date of the Patent 
        and Trademark Office Corporation Act of 1995, with 
        respect to such Office (as then in effect). Each such 
        agreement shall remain in effect for the 2-year period 
        commencing on such date, unless the agreement provides 
        for a shorter duration or the parties agree otherwise 
        before such period ends.
          (2) Continued applicability of chapter 71.--Chapter 
        71 of title 5 shall continue to apply with respect to 
        the Office after the Patent and Trademark Office 
        Corporation Act of 1995 takes effect.
  (h) Termination Rights.--Any employee referred to in the 
first sentence of subsection (f) whose employment with the 
Office is terminated during the 2-year period commencing on the 
effective date of the Patent and Trademark Office Corporation 
Act of 1995 shall be entitled to rights and benefits, to be 
afforded by the Office, similar to those such employee would 
have had under Federal law if termination had occurred 
immediately before such date.
  (i) Retirement.--
          (1) Continued coverage.--Any employee referred to in 
        the first sentence of subsection (f) who, on the day 
        before the effective date of the Patent and Trademark 
        Office Corporation Act of 1995, is subject to 
        subchapter III of chapter 83 of title 5 or chapter 84 
        of such title shall, so long as such employee remains 
        employed by the Office without a break in service, 
        remain subject to such subchapter or chapter, as the 
        case may be. Any employment that satisfies the 
        preceding sentence shall be considered employment by 
        the Government of the United States for purposes of 
        such subchapter or chapter. During any such employment, 
        the Office shall be considered to be the employing 
        agency of the employee and shall make all agency 
        contributions required under such subchapter or chapter 
        with respect to such employee.
          (2) Deposit requirement.--Not later than 1 year after 
        the effective date of the Patent and Trademark Office 
        Corporation Act of 1995, the Office shall pay into the 
        Treasury of the United States, to the credit of the 
        Civil Service Retirement and Disability Fund, an amount 
        determined by the Office of Personnel Management to 
        represent the present value of the difference between 
        (A) the future cost of benefits payable from the Fund 
        and due the employees referred to in the first sentence 
        of subsection (f) that are attributable to employment 
        on or after the effective date of the Patent and 
        Trademark Office Corporation Act of 1995, and (B) the 
        contributions made by such employees and the Office 
        under paragraph (1). In determining the amount due, the 
        Office of Personnel Management shall take into 
        consideration the actual interest such amount can be 
        expected to earn when invested in the Treasury.
  (j) Competitive Status.--For purposes of appointment to a 
position in the competitive service for which an officer or 
employee of the Office is qualified, such officer or employee--
          (1) shall not forfeit any competitive status, 
        acquired by such officer or employee before the 
        effective date of the Patent and Trademark Office 
        Corporation Act of 1995, by reason of becoming an 
        officer or employee of the Office pursuant to 
        subsection (e)(1); or
          (2) if not covered by paragraph (1), shall acquire 
        competitive status after completing at least 1 year of 
        continuous service under a nontemporary appointment to 
        a position within the Office (taking into account any 
        such service performed with the former Patent and 
        Trademark Office immediately before such effective 
        date).
  (k) Savings Provisions.--All orders, determinations, rules, 
and regulations regarding compensation and benefits and other 
terms and conditions of employment, in effect for the Office 
and its officers and employees immediately before the effective 
date of the Patent and Trademark Office Corporation Act of 
1995, shall continue in effect with respect to the Office and 
its officers and employees until modified, superseded, or set 
aside by the Office or a court of appropriate jurisdiction or 
by operation of law.
          * * * * * * *

Sec. 5. Patent and Trademark Office Management Advisory Board

  (a) Compensation.--
          (1) Appointment.--The Patent and Trademark Office 
        shall have a Management Advisory Board (hereafter in 
        this title referred to as the ``Board'') of 18 members, 
        6 of whom shall be appointed by the President, 6 of 
        whom shall be appointed by the Speaker of the House of 
        Representatives, and 6 of whom shall be appointed by 
        the President pro tempore of the Senate. Not more than 
        4 of the 6 members appointed by each appointing 
        authority shall be members of the same political party.
          (2) Terms.--Members of the Board shall be appointed 
        for a term of 6 years each, except that of the members 
        first appointed by each appointing authority, 1 shall 
        be for a term of 1 year, 1 shall be for a term of 2 
        years, 1 shall be for a term of 3 years, 1 shall be for 
        a term of 4 years, and 1 shall be for a term of 5 
        years. No member may serve more than 1 term.
          (3) Chair.--The President shall designate the chair 
        of the Board, whose term as chair shall be for 3 years.
          (4) Timing of appointments.--Initial appointments to 
        the Board shall be made within 3 months after the 
        effective date of the Patent and Trademark Office 
        Corporation Act of 1995, and vacancies shall be filled 
        within 3 months after they occur.
          (5) Vacancies.--Vacancies shall be filled in the 
        manner in which the original appointment was made under 
        this subsection. Members appointed to fill a vacancy 
        occurring before the expiration of the term for which 
        the member's predecessor was appointed shall be 
        appointed only for the remainder of that term. A member 
        may serve after the expiration of that member's term 
        until a successor is appointed.
  (b) Basis for Appointments.--Members of the Board shall be 
citizens of the United States who shall be chosen so as to 
represent the interests of diverse users of the Patent and 
Trademark Office, and shall include individuals with 
substantial background and achievement in corporate finance and 
management.
  (c) Applicability of Certain Ethics Laws.--Members of the 
Board shall be special Government employees within the meaning 
of section 202 of title 18.
  (d) Meetings.--The Board shall meet at the call of the chair 
to consider an agenda set by the chair.
  (e) Duties.--The Board shall--
          (1) review the policies, goals, performance, budget, 
        and user fees of the Patent and Trademark Office, and 
        advise the Commissioner on these matters; and
          (2) within 60 days after the end of each fiscal year, 
        prepare an annual report on the matters referred to in 
        paragraph (1), transmit the report to the President and 
        the Committees on the Judiciary of the Senate and the 
        House of Representatives, and publish the report in the 
        Patent and Trademark Office Official Gazette.
  (f) Staff.--The Board shall employ a staff and procure 
support services for the staff adequate to enable the Board to 
carry out its functions, using funds available to the 
Commissioner under section 42 of this title. Persons employed 
by the Board shall receive compensation as determined by the 
Board, serve in accordance with terms and conditions of 
employment established by the Board, and be subject solely to 
the direction of the Board, notwithstanding any other provision 
of law.
  (g) Compensation.--Members of the Board may accept 
reimbursement for expenses incurred in attending meetings of 
the Board and compensation not to exceed $1000 per day for each 
day in attendance at meetings of the Board.
  (h) Access to Information.--Members of the Board shall be 
provided access to records and information in the Patent and 
Trademark Office, except for personnel or other privileged 
information and information concerning patent applications 
required to be kept in confidence by section 122 of this title.
  (i) Applicability of Federal Advisory Committee Act.--The 
provisions of the Federal Advisory Committee Act (5 U.S.C. 
App.) shall not apply to meetings of the Board, but all 
meetings of the Board shall be announced in the Federal 
Register at least 30 days in advance and all meetings shall be 
open to the public unless closed by the Board for good cause.
          * * * * * * *

Sec. 6. Duties of Commissioner

  (a) The Commissioner[, under the direction of the Secretary 
of Commerce,] shall superintend or perform all duties required 
by law respecting the granting and issuing of patents and the 
registration of trademarks; shall have the authority to carry 
on studies, programs, or exchanges of items or services 
regarding domestic and international patent and trademark law 
or the administration of the Patent and Trademark Office, 
including programs to recognize, identify, assess and forecast 
the technology of patented inventions and their utility to 
industry; and shall have charge of property belonging to the 
Patent and Trademark Office. He may[, subject to the approval 
of the Secretary of Commerce,] establish regulations, not 
inconsistent with law, for the conduct of proceedings in the 
Patent and Trademark Office.
  (b) The Commissioner[, under the direction of the Secretary 
of Commerce,] may, in coordination with the Department of 
State, carry on programs and studies cooperatively with foreign 
patent offices and international intergovernmental 
organizations, or may authorize such programs and studies to be 
carried on, in connection with the performance of duties stated 
in subsection (a) of this section.
  (c) The Commissioner[, under the direction of the Secretary 
of Commerce], may, with the concurrence of the Secretary of 
State, transfer funds appropriated to the Patent and Trademark 
Office, not to exceed $100,000 in any year, to the Department 
of State for the purpose of making special payments to 
international intergovernmental organizations for studies and 
programs for advancing international cooperation concerning 
patents, trademarks, and related matters. These special 
payments may be in addition to any other payments or 
contributions to the international organization and shall not 
be subject to any limitations imposed by law on the amounts of 
such other payments or contributions by the Government of the 
United States.

[Sec. 7. Board of Patent Appeals and Interferences

  [(a) The examiners-in-chief shall be persons of competent 
legal knowledge and scientific ability, who shall be appointed 
to the competitive service. The Commissioner, the Deputy 
Commissioner, the Assistant Commissioners, and the examiners-
in-chief shall constitute the Board of Patent Appeals and 
Interferences.
  [(b) The Board of Patent Appeals and Interferences shall, on 
written appeal of an applicant, review adverse decisions of 
examiners upon applications for patents and shall determine 
priority and patentability of invention in interferences 
declared under section 135(a) of this title. Each appeal and 
interference shall be heard by at least three members of the 
Board of Patent Appeals and Interferences, who shall be 
designated by the Commissioner. Only the Board of Patent 
Appeals and Interferences has the authority to grant 
rehearings.
  [(c) Whenever the Commissioner considers it necessary, in 
order to keep current the work of the Board of Patent Appeals 
and Interferences, the Commissioner may designate any patent 
examiner of the primary examiner grade or higher, having the 
requisite ability, to serve as examiner-in-chief for periods 
not exceeding six months each. An examiner so designated shall 
be qualified to act as a member of the Board of Patent Appeals 
and Interferences. Not more than one of the members of the 
Board of Patent Appeals and Interferences hearing an appeal or 
determining an interference may be an examiner so designated. 
The Secretary of Commerce is authorized to fix the pay of each 
designated examiner-in-chief in the Patent and Trademark Office 
at not to exceed the maximum rate of basic pay payable for 
grade GS-16 of the General Schedule under section 5332 of title 
5. The rate of basic pay of each individual designated 
examiner-in-chief shall be adjusted, at the close of the period 
for which that individual was designated to act as examiner-in-
chief, to the rate of basic pay which that individual would 
have been receiving at the close of such period if such 
designation had not been made.]

Sec. 7. Board of Patent Appeals and Interferences

  (a) Establishment and Composition.--There shall be in the 
Patent and Trademark Corporation a Board of Patent Appeals and 
Interferences. The Commissioner, the Deputy Commissioner for 
Patents, the Deputy Commissioner for Trademarks, the officer 
principally responsible for the examination of patents, the 
officer principally responsible for the examination of 
trademarks, and the examiners-in-chief shall constitute the 
Board. The examiners-in-chief shall be persons of competent 
legal knowledge and scientific ability.
  (b) Duties.--The Board of Patent Appeals and Interferences 
shall, on written appeal of an applicant, review adverse 
decisions of examiners upon applications for patents and shall 
determine priority and patentability of invention in 
interferences declared under section 135(a) of this title. Each 
appeal and interference shall be heard by at least 3 members of 
the Board, who shall be designated by the Commissioner. Only 
the Board of Patent Appeals and Interferences may grant 
rehearings.

Sec. 8. Suits by and against the Corporation

  (a) In General.--
          (1) Actions under united states law.--Any civil 
        action, suit, or proceeding to which the Patent and 
        Trademark Office is a party is deemed to arise under 
        the laws of the United States. Exclusive jurisdiction 
        over all civil actions by or against the Office is in 
        the Federal courts as provided by law.
          (2) Contract claims.--Any action, suit, or proceeding 
        against the Office founded upon contract shall be 
        subject to the limitations and exclusive remedy 
        provided in section 1346(a)(2) and sections 1491 
        through 1509 of title 28, whether or not such contract 
        claims are cognizable under the sections 507, 1346, 
        1402, 1491, 1496, 1497, 1501, 1503, 2071, 2072, 2411, 
        2501, 2512 of title 28. For purposes of the Contract 
        Disputes Act of 1978 (41 U.S.C. 601 and following), the 
        Commissioner shall be deemed to be the agency head with 
        respect to contract claims arising with respect to the 
        Office.
          (3) Tort claims.--Any action, suit, or proceeding 
        against the Office founded upon tort shall be subject 
        to the limitations and exclusive remedies provided in 
        section 1346(b) and sections 2671 through 2680 of title 
        28, whether or not such tort claims are cognizable 
        under section 1346(b) of title 28.
          (4) Prohibition on attachment, liens, etc.--No 
        attachment, garnishment, lien, or similar process, 
        intermediate or final, in law or equity, may be issued 
        against property of the Office.
          (5) Substitution of office as party.--The Office 
        shall be substituted as defendant in any civil action, 
        suit, or proceeding against an officer or employee of 
        the Office, if the Office determines that the employee 
        was acting within the scope of the officer or 
        employee's employment with the Office. If the Office 
        refuses to certify scope of employment, the officer or 
        employee may at any time before trial petition the 
        court to find and certify that the officer or employee 
        was acting within the scope of the officer or 
        employee's employment. Upon certification by the court, 
        the Office shall be substituted as the party defendant. 
        A copy of the petition shall be served upon the Office.
  (b) Relationship With Justice Department.--
          (1) Exercise by office of attorney general's 
        authorities.--Except as provided in this section, in 
        relation to all judicial proceedings in which the 
        Office or an officer or employee thereof is a party or 
        in which the officer or employee thereof is interested 
        and which arise from or relate to officers or employees 
        thereof acting within the scope of their employment, 
        torts, contracts, property, registration of patent and 
        trademark practitioners, patents or trademarks, or 
        fees, the officer or employee thereof may exercise, 
        without prior authorization from the Attorney General, 
        the authorities and duties that otherwise would be 
        exercised by the Attorney General on behalf of the 
        officer or employee thereof under title 28, and other 
        laws. In all other judicial or administrative 
        proceedings in which the Office or an officer or 
        employee of the Office is a party or is interested, the 
        Office may exercise these authorities and duties only 
        after obtaining authorization from the Attorney 
        General.
          (2) Appearances by attorney general.--The Attorney 
        General may file an appearance on behalf of the Office 
        or an employee of the Office, without the consent of 
        the Office, in any suit in which the Office is a party 
        and represent the Office with exclusive authority in 
        the conduct, settlement, or compromise of that suit.
          (3) Consultations with and assistance by attorney 
        general.--The Office may consult with the Attorney 
        General concerning any legal matter, and the Attorney 
        General shall provide advice and assistance to the 
        Office, including representing the Office in 
        litigation, if requested by the Office.
          (4) Representation before supreme court.--The 
        Attorney General shall represent the Office in all 
        cases before the United States Supreme Court.
          (5) Qualifications of attorneys.--An attorney 
        admitted to practice to the bar of the highest court of 
        at least one State in the United States or the District 
        of Columbia and appointed by the Office may represent 
        the Office in any legal proceeding in which the Office 
        or an officer or employee of the Office is a party or 
        interested, regardless of whether the attorney is a 
        resident of the jurisdiction in which the proceeding is 
        held and notwithstanding any other prerequisites of 
        qualification or appearance required by the court or 
        administrative body.

Sec. [8] 9. Library

  The Commissioner shall maintain a library of scientific and 
other works and periodicals, both foreign and domestic, in the 
Patent and Trademark Office to aid the officers in the 
discharge of their duties.

Sec. [9] 10. Classification of patents

  The Commissioner may revise and maintain the classification 
by subject matter of United States letters patent, and such 
other patents and printed publications as may be necessary or 
practicable, for the purpose of determining with readiness and 
accuracy the novelty of inventions for which applications for 
patent are filed.

Sec. [10] 11. Certified copies of records

  The Commissioner may furnish certified copies of 
specifications and drawings of patents issued by the Patent and 
Trademark Office, and of other records available either to the 
public or to the person applying therefor.

Sec. [11] 12. Publications

  (a) The Commissioner may print, or cause to be printed, the 
following:
  1. Patents, including specifications and drawings, together 
with copies of the same. The Patent and Trademark Office may 
print the headings of the drawings for patents for the purpose 
of photolithography.
  2. Certificates of trade-mark registrations, including 
statements and drawings, together with copies of the same.
  3. The Official Gazette of the United States Patent and 
Trademark Office.
  4. Annual indexes of patents and patentees, and of trade-
marks and registrants.
  5. Annual volumes of decisions in patent and trade-mark 
cases.
  6. Pamphlet copies of the patent laws and rules of practice, 
laws and rules relating to trade-marks, and circulars or other 
publications relating to the business of the Office.
  (b) The Commissioner may exchange any of the publications 
specified in items 3, 4, 5, and 6 of subsection (a) of this 
section for publications desirable for the use of the Patent 
and Trademark Office.

Sec. [12] 13. Exchange of copies of patents with foreign countries

  The Commissioner may exchange copies of specifications and 
drawings of United States patents for those of foreign 
countries.

Sec. [13] 14. Copies of patents for public libraries

  The Commissioner may supply printed copies of specifications 
and drawings of patents to public libraries in the United 
States which shall maintain such copies for the use of the 
public, at the rate for each year's issue established for this 
purpose in section 41(d) of this title.

[Sec. 14. Annual report to Congress

  [The Commissioner shall report to Congress annually the 
moneys received and expended, statistics concerning the work of 
the Office, and other information relating to the Office as may 
be useful to the Congress or the public.]

Sec. 15. Annual report to Congress

  The Commissioner shall report to the Congress, not later than 
90 days after the end of each fiscal year, the moneys received 
and expended by the Office, the purposes for which the moneys 
were spent, the quality and quantity of the work of the Office, 
and other information relating to the Office.
          * * * * * * *

         CHAPTER 3--PRACTICE BEFORE PATENT AND TRADEMARK OFFICE

          * * * * * * *

Sec. 32. Suspension or exclusion from practice

  The Commissioner may, after notice and opportunity for a 
hearing, suspend or exclude, either generally or in any 
particular case, from further practice before the Patent and 
Trademark Office, any person, agent, or attorney shown to be 
incompetent or disreputable, or guilty of gross misconduct, or 
who does not comply with the regulations established under 
section 31 of this title, or who shall, by word, circular, 
letter, or advertising, with intent to defraud in any manner, 
deceive, mislead, or threaten any applicant or prospective 
applicant, or other person having immediate or prospective 
business before the Office. The reasons for any such suspension 
or exclusion shall be duly recorded. The Commissioner shall 
have the discretion to designate any officer or employee of the 
Patent and Trademark Office to conduct the hearing required by 
this section. The United States District Court for the District 
of Columbia, under such conditions and upon such proceedings as 
it by its rules determines, may review the action of the 
Commissioner upon the petition of the person so refused 
recognition or so suspended or excluded.
          * * * * * * *

                         CHAPTER 4--PATENT FEES

Sec.
41.  Patent fees; patent and trademark search systems.
42.  Patent and Trademark Office funding.
43.  Audits.
     * * * * * * *

[Sec. 42. Patent and Trademark Office funding

  [(a) All fees for services performed by or materials 
furnished by the Patent and Trademark Office will be payable to 
the Commissioner.
  [(b) All fees paid to the Commissioner and all appropriations 
for defraying the costs of the activities of the Patent and 
Trademark Office will be credited to the Patent and Trademark 
Office Appropriation Account in the Treasury of the United 
States.
  [(c) Revenues from fees shall be available to the 
Commissioner to carry out, to the extent provided in 
appropriation Acts, the activities of the Patent and Trademark 
Office. Fees available to the Commissioner under section 31 of 
the Trademark Act of 1946 may be used only for the processing 
of trademark registrations and for other activities, services, 
and materials relating to trademarks and to cover a 
proportionate share of the administrative costs of the Patent 
and Trademark Office.
  [(d) The Commissioner may refund any fee paid by mistake or 
any amount paid in excess of that required.
  [(e) The Secretary of Commerce shall, on the day each year on 
which the President submits the annual budget to the Congress, 
provide to the Committees on the Judiciary of the Senate and 
the House of Representatives--
          [(1) a list of patent and trademark fee collections 
        by the Patent and Trademark Office during the preceding 
        fiscal year;
          [(2) a list of activities of the Patent and Trademark 
        Office during the preceding fiscal year which were 
        supported by patent fee expenditures, trademark fee 
        expenditures, and appropriations;
          [(3) budget plans for significant programs, projects, 
        and activities of the Office, including out-year 
        funding estimates;
          [(4) any proposed disposition of surplus fees by the 
        Office; and
          [(5) such other information as the committees 
        consider necessary.]

Sec. 42. Patent and Trademark Office funding

  (a) Fees Payable to the Office.--All fees for services 
performed by or materials furnished by the Patent and Trademark 
Office shall be payable to the Office.
  (b) Use of Moneys.--Moneys of the Patent and Trademark Office 
not otherwise used to carry out the functions of the Office 
shall be kept in cash on hand or on deposit, or invested in 
obligations of the United States or guaranteed by the United 
States, or in obligations or other instruments which are lawful 
investments for fiduciary, trust, or public funds. Fees 
available to the Commissioner under this title shall be used 
exclusively for the processing of patent applications and for 
other services and materials relating to patents. Fees 
available to the Commissioner under section 31 of the Act of 
July 5, 1946 (commonly referred to as the ``Trademark Act of 
1946'') (15 U.S.C. 1113) shall be used exclusively for the 
processing of trademark registrations and for other services 
and materials relating to trademarks.
  (c) Borrowing Authority.--The Patent and Trademark Office is 
authorized to issue from time to time for purchase by the 
Secretary of the Treasury its debentures, bonds, notes, and 
other evidences of indebtedness (hereafter in this subsection 
referred to as ``obligations'') in an amount not exceeding 
$2,000,000 outstanding at any one time, to assist in financing 
its activities. Such obligations shall be redeemable at the 
option of the Office before maturity in the manner stipulated 
in such obligations and shall have such maturity as is 
determined by the Office with the approval of the Secretary of 
the Treasury. Each such obligation issued to the Treasury shall 
bear interest at a rate not less than the current yield on 
outstanding marketable obligations of the United States of 
comparable maturity during the month preceding the issuance of 
the obligation as determined by the Secretary of the Treasury. 
The Secretary of the Treasury shall purchase any obligations of 
the Office issued under this subsection and for such purpose 
the Secretary of the Treasury is authorized to use as a public-
debt transaction the proceeds of any securities issued under 
chapter 31 of title 31, and the purposes for which securities 
may be issued under that chapter are extended to include such 
purpose. Payment under this subsection of the purchase price of 
such obligations of the Patent and Trademark Office shall be 
treated as public debt transactions of the United States.

Sec. 43. Audits

  (a) In General.--Financial statements of the Patent and 
Trademark Office shall be prepared on an annual basis in 
accordance with generally accepted accounting principles. Such 
statements shall be audited by an independent certified public 
accountant chosen by the Secretary. The audit shall be 
conducted in accordance with standards that are consistent with 
generally accepted Government auditing standards and other 
standards established by the Comptroller General, and with the 
generally accepted auditing standards of the private sector, to 
the extent feasible.
  (b) Review by Comptroller General.--The Comptroller General 
may review any audit of the financial statement of the Patent 
and Trademark Office that is conducted under subsection (a). 
The Comptroller General shall report to the Congress and the 
Office the results of any such review and shall include in such 
report appropriate recommendations.
  (c) Audit by Comptroller General.--The Comptroller General 
may audit the financial statements of the Office and such audit 
shall be in lieu of the audit required by subsection (a). The 
Office shall reimburse the Comptroller General for the cost of 
any audit conducted under this subsection.
  (d) Access to Office Records.--All books, financial records, 
report files, memoranda, and other property that the 
Comptroller General deems necessary for the performance of any 
audit shall be made available to the Comptroller General.
  (e) Applicability in Lieu of Title 31 Provisions.--This 
section applies to the Office in lieu of the provisions of 
section 9105 of title 31.
          * * * * * * *
                              ----------                              


                 SECTION 17 OF THE ACT OF JULY 5, 1946

          (commonly referred to as the Trademark Act of 1946)

  [Sec. 17. In every case of interference, opposition to 
registration, application to register as a lawful concurrent 
user, or application to cancel the registration of a mark, the 
Commissioner shall give notice to all parties and shall direct 
a Trademark Trial and Appeal Boards, to determine and decide 
the respective rights of registration.
  [The Trademark Trail and Appeal Board shall include the 
Commissioner, the Deputy Commissioner, the Assistant 
Commissioners, and members appointed by the Commissioner. 
Employees of the Patent and Trademark Office and other persons, 
all of whom shall be competent in trademark law, shall be 
eligible for appointment as members. Each case shall be heard 
by at least three members of the Board, the members hearing 
such case to be designated by the Commissioner.]
  Sec. 17. (a) In every case of interference, opposition to 
registration, application to register as a lawful concurrent 
user, or application to cancel the registration of a mark, the 
Commissioner shall give notice to all parties and shall direct 
a Trademark Trial and Appeal Board to determine and decide the 
respective rights of registration.
  (b) The Trademark Trial and Appeal Board shall include the 
Commissioner, the Deputy Commissioner for Patents, the Deputy 
Commissioner for Trademarks, and members competent in trademark 
law who are appointed by the Commissioner.
          * * * * * * *
                              ----------                              


SECTION 602 OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 
                                  1949

SEC. 602. REPEAL AND SAVING PROVISIONS.

    (a) * * *
          * * * * * * *
    (d) Nothing in this Act shall impair or affect any 
authority of--
          (1) * * *
          * * * * * * *
          (20) the Secretary of the Interior with respect to 
        procurement for program operations under the Bonneville 
        Project Act of 1937 (50 Stat. 731), as amended; [or]
          (21) the Director of the International Communication 
        Agency with respect to the furnishing of facilities in 
        foreign countries and reception centers within the 
        United States[.]; or
          (22) the Patent and Trademark Office.
          * * * * * * *
                              ----------                              


                        ACT OF FEBRUARY 14, 1903

  CHAP. 552.--An Act To establish the Department of Commerce and Labor

          * * * * * * *

                         BUREAUS IN DEPARTMENT

    Sec. 12. The following named bureaus, administrations, 
services, offices, and programs of the public service, and all 
that pertains thereto, shall be under the jurisdiction and 
subject to the control of the Secretary of Commerce:
    [(a)] (1) National Oceanic and Atmospheric Administration;
    [(b)] (2) United States Travel Service;
    [(c)] (3) National Bureau of Standards;
    [(d) Patent Office;]
    [(e)] (4) Bureau of the Census;
    [(f)] (5) Administration; United States Fire; and
    [(g)] (6) such other bureaus or other organizational units 
as the Secretary of Commerce may from time to time establish in 
accordance with law.
                              ----------                              


                         ACT OF APRIL 12, 1992

[No. 8.] Joint resolution to encourage the establishment and endowment 
  of institutions of learning at the national capital by defining the 
policy of the Government with reference to the use of its literary and 
                  scientific collections by students.

    Whereas, large collections illustrative of the various arts 
and sciences and facilitating literary and scientific research 
have been accumulated by the action of Congress through a 
series of years at the national capital; and
    Whereas, it was the original purpose of the Government 
thereby to promote research and the diffusion of knowledge, and 
is now the settled policy and present practice of those charged 
with the care of these collections specially to encourage 
students who devote their time to the investigation and study 
of any branch of knowledge by allowing to them all proper use 
thereof; and
    Whereas it is represented that the enumeration of these 
facilities and the formal statement of this policy will 
encourage the establishment and endowment of institutions of 
learning at the seat of Government, and promote the work of 
education by attracting students to avail themselves of the 
advantages aforesaid under the direction of competent 
instructors: Therefore,
    Resolved by the Senate and House of Representatives of the 
United States of America, in Congress assembled, That the 
facilities for research and illustration in the following and 
any other Governmental collections now existing or hereafter to 
be established in the city of Washington for the promotion of 
knowledge shall be accessible, under such rules and 
restrictions as the officers in charge of each collection may 
prescribe, subject to such authority as is now or may hereafter 
be permitted by law, to the scientific investigators and to 
students or any institution of higher education now 
incorporated or hereafter to be incorporated under the laws of 
Congress or of the District of Columbia, to wit:
    One. Of the Library of Congress.
    Two. Of the National Museum.
    Three. Of the [Patent Office] Patent and Trademark Office.
    Four. Of the Bureau of Education.
    Five. Of the Bureau of Ethnology.
    Six. Of the Army of Medical Museum.
    Seven. Of the Department of Agriculture.
    Eight. Of the Fish Commission.
    Nine. Of the Botanic Gardens.
    Ten. Of the Coast and Geodetic Survey.
    Eleven. Of the Geological Survey.
    Twelve. Of the Naval Observatory.
                              ----------                              


                  FEDERAL FOOD, DRUG, AND COSMETIC ACT

           * * * * * * *

                      CHAPTER V--DRUGS AND DEVICES

                    Subchapter A--Drugs and Devices

           * * * * * * *

                               new drugs

    Sec. 505. (a) * * *
           * * * * * * *
    (m) For purposes of this section, the term ``patent'' means 
a patent issued by the Patent and Trademark Office [of the 
Department of Commerce].
           * * * * * * *

                            new animal drugs

    Sec. 512.(a) * * *
           * * * * * * *
    (o) For purposes of this section, the term ``patent'' means 
a patent issued by the Patent and Trademark Office [of the 
Department of Commerce].
           * * * * * * *
                              ----------                              


         SECTION 105 OF THE FEDERAL ALCOHOL ADMINISTRATION ACT

               unfair competition and unlawful practices

    Sec. 105. It shall be unlawful for any person engaged in 
business as a distiller, brewer, rectifier, blender, or other 
producer, or as an importer or wholesaler, of distilled 
spirits, wine, or malt beverages, or as a bottler, or 
warehouseman and bottler, of distilled spirits, directly or 
indirectly or through an affiliate:
    (a) * * *
          * * * * * * *

                      TITLE 28, UNITED STATES CODE

          * * * * * * *

                           PART V--PROCEDURE

          * * * * * * *

                   CHAPTER 115--EVIDENCE; DOCUMENTARY

          * * * * * * *

Sec. 1744. Copies of [Patent Office] Patent and Trademark Office 
                    documents, generally

    Copies of letters patent or of any records, books, papers, 
or drawings belonging to the [Patent Office] Patent and 
Trademark Office and relating to patents, authenticated under 
the seal of the [Patent Office] Patent and Trademark Office and 
certified by the [Commissioner of Patents] Commissioner of 
Patents and Trademarks, or by another officer of the [Patent 
Office] Patent and Trademark Office authorized to do so by the 
Commissioner, shall be admissible in evidence with the same 
effect as the originals.
    Any person making application and paying the required fee 
may obtain such certified copies.

Sec. 1745. Copies of foreign patent documents

    Copies of the specifications and drawings of foreign 
letters patent, or applications for foreign letters patent, and 
copies of excerpts of the official journals and other official 
publications of foreign patent offices belonging to the [United 
States Patent Office] Patent and Trademark Office, certified in 
the manner provided by section 1744 of this title are prima 
facie evidence of their contents and of the dates indicated on 
their face.
          * * * * * * *

                      CHAPTER 123--FEES AND COSTS

Sec. 1928. Patent infringement action; disclaimer not filed

    Whenever a judgment is rendered for the plaintiff in any 
patent infringement action involving a part of a patent and it 
appears that the patentee, in his specifications, claimed to 
be, but was not, the original and first inventor or discoverer 
of any material or substantial part of the thing patented, no 
costs shall be included in such judgment, unless the proper 
disclaimer has been filed in the [Patent Office] Patent and 
Trademark Office prior to the commencement of the action.
          * * * * * * *

     SECTION 305 OF THE NATIONAL AERONAUTICS AND SPACE ACT OF 1958

                     property rights in inventions

    Sec. 305. (a) * * *
          * * * * * * *
    (c) No patent may be issued to any applicant other than the 
Administrator for any invention which appears to the 
[Commissioner of Patents] Commissioner of Patents and 
Trademarks to have significant utility in the conduct of 
aeronautical and space activities unless the applicant files 
with the Commissioner, with the application or within thirty 
days after request therefor by the Commissioner, a written 
statement executed under oath setting forth the full facts 
concerning the circumstances under which such invention was 
made and stating the relationship (if any) of such invention to 
the performance of any work under any contract of the 
Administration. Copies of each such statement and the 
application to which it relates shall be transmitted forthwith 
by the Commissioner and the Administrator.
          * * * * * * *
                              ----------                              


 SECTION 12 OF THE SOLAR HEATING AND COOLING DEMONSTRATION ACT OF 1974

dissemination of information and other actions to promote practical use 
               of solar heating and cooling technologies

    Sec. 12. (a) The Secretary shall take all possible steps to 
assure that full and complete information with respect to the 
demonstrations and other activities conducted under this Act is 
made available to Federal, State, and local authorities, the 
building industry and related segments of the economy, the 
scientific and technical community, and the public at large, 
both during and after the close of the programs under this Act, 
with the objective of promoting and facilitating to the maximum 
extent feasible the early and widespread practical use of solar 
energy for the heating and cooling of buildings throughout the 
United States. In accordance with regulations prescribed under 
section 16 such information shall be disseminated on a 
coordinated basis by the Secretary, the Administrator, the 
Director of the National Bureau of Standards, the Director, the 
[Commissioner of the Patent Office] Commissioner of Patents and 
Trademarks, and other appropriate Federal offices and agencies.
          * * * * * * *
                              ----------                              


              SECTION 10 OF THE TRADING WITH THE ENEMY ACT

    Sec. 10. That nothing contained in this Act shall be held 
to make unlawful any of the following Acts:
    (a) * * *
          * * * * * * *
    (i) Whenever the publication of an invention by the 
granting of a patent may, in the opinion of the President, be 
detrimental to the public safety or defense, or may assist the 
enemy or endanger the successful prosecution of the war, he may 
order that the invention be kept secret and withhold the grant 
of a patent until the end of the war: Provided, That the 
invention disclosed in the application for said patent may be 
held abandoned upon it being established before or by the 
[Commissioner of Patents] Commissioner of Patents and 
Trademarks that, in violation of said order, said invention has 
been published or that an application for a patent therefor has 
been filed in any other country, by the inventor or his assigns 
or legal representatives, without the consent or approval of 
the commissioner or under a license of the President.
    When an applicant whose patent is withheld as herein 
provided and who faithfully obeys the order of the President 
above referred to shall tender his invention to the Government 
of the United States for its use, he shall, if he ultimately 
receives a patent, have the right to sue for compensation in 
the United States Claims Court, such right to compensation to 
begin from the date of the use of the invention by the 
Government.
          * * * * * * *
    (e) Labeling.--To sell or ship or deliver for sale or 
shipment, or otherwise introduce in interstate or foreign 
commerce, or to receive therein, or to remove from customs 
custody for consumption, any distilled spirits, wine, or malt 
beverages in bottles, unless such products are bottled, 
packaged, and labeled in conformity with such regulations, to 
be prescribed by the Administrator, with respect to packaging, 
marking, branding, and labeling and size and fill of container 
(1) as will prohibit deception of the consumer with respect to 
such products or the quantity thereof and as will prohibit, 
irrespective of falsity, such statements relating to age, 
manufacturing processes, analyses, guarantees, and scientific 
or irrelevant matters as the Administrator finds to be likely 
to mislead the consumer; (2) as will provide the consumer with 
adequate information as to the identity and quality of the 
products, the alcoholic content thereof (except that statements 
of, or statements likely to be considered as statements of, 
alcoholic content of malt beverages are hereby prohibited 
unless required by State law and except that, in case of wines, 
statements of alcoholic content shall be required only for 
wines containing more than 14 per centum of alcohol by volume), 
the net contents of the package, and the manufacturer or 
bottler or importer of the product; (3) as will require an 
accurate statement, in the case of distilled spirits (other 
than cordials, liqueurs, and specialties) produced by blending 
or rectification, if neutral spirits have been used in the 
production thereof, informing the consumer of the percentage of 
neutral spirits so used and of the name of the commodity from 
which such neutral spirits have been distilled, or in case of 
neutral spirits or of gin produced by a process of continuous 
distillation, the name of the commodity from which distilled; 
(4) as will prohibit statements on the label that are 
disparaging of a competitor's products or are false, 
misleading, obscene, or indecent; and (5) as will prevent 
deception of the consumer by use of a trade or brand name that 
is the name of any living individual of public prominence, or 
existing private or public organization, or is a name that is 
in simulation or is an abbreviation thereof, and as will 
prevent the use of a graphic, pictorial, or emblematic 
representation of any such individual or organization, if the 
use of such name or representation is likely falsely to lead 
the consumer to believe that the product has been endorsed, 
made, or used by, or produced for, or under the supervision of, 
or in accordance with the specifications of, such individual or 
organization: Provided, That this clause shall not apply to the 
use of the name of any person engaged in business as a 
distiller, brewer, rectifier, blender, or other producer, or as 
an importer, wholesaler, retailer, bottler, or warehouseman, of 
distilled spirits, wine, or malt beverages, nor to the use by 
any person of a trade or brand name used by him or his 
predecessor in interest prior to the date of the enactment of 
this title; including regulations requiring, at time of release 
from customs custody, certificates issued by foreign 
governments covering origin, age, and identity of imported 
products: Provided further, That nothing herein nor any 
decision, ruling, or regulation of any Department of the 
Government shall deny the right of any person to use any trade 
name or brand of foreign origin not presently effectively 
registered in the United States [Patent Office] Patent and 
Trademark Office which has been used by such person or 
predecessors in the United States for a period of at least five 
years last past, if the use of such name or brand is qualified 
by the name of the locality in the United States in which the 
product is produced, and, in the case of the use of such name 
or brand on any label or in any advertisement, if such 
qualification is as conspicuous as such name or brand.
    It shall be unlawful for any person to alter, mutilate, 
destroy, obliterate, or remove any mark, brand, or label upon 
distilled spirits, wine, or malt beverages held for sale in 
interstate or foreign commerce or after shipment therein, 
except as authorized by Federal law or except pursuant to 
regulations of the Administrator authorizing relabeling for 
purposes of compliance with the requirements of this subsection 
or of State law.
    In order to prevent the sale or shipment or other 
introduction of distilled spirits, wine, or malt beverages in 
interstate or foreign commerce, if bottled, packaged, or 
labeled in violation of the requirements of this subsection, 
(1) no bottler of distilled spirits, no producer, blender, or 
wholesaler of wine, or proprietor of a bonded wine storeroom, 
and no brewer or wholesaler of malt beverages shall bottle, and 
(2) no person shall remove from customs custody, in bottles, 
for sale or any other commercial purpose, distilled spirits, 
wine, or malt beverages, respectively, after such date as the 
Administrator fixes as the earliest practicable date for the 
application of the provisions of this subsection to any class 
of such persons (but not later than August 15, 1936, in the 
case of distilled spirits, December 15, 1936, in the case of 
wine and malt beverages, and only after thirty days' public 
notice), unless, upon application to the Administrator, he has 
obtained and has in his possession a certificate of label 
approval covering the distilled spirits, wine, or malt 
beverages, issued by the Administrator in such manner and form 
as he shall by regulations prescribe: Provided, That any such 
bottler of distilled spirits, or producer, blender, or 
wholesaler of wine, or proprietor of a bonded wine storeroom, 
or brewer or wholesaler of malt beverages shall be exempt from 
the requirements of this subsection if, upon application to the 
Administrator, he shows to the satisfaction of the 
Administrator that the distilled spirits, wine, or malt 
beverages to be bottled by the applicant are not to be sold, or 
offered for sale, or shipped or delivered for shipment, or 
otherwise introduced, in interstate or foreign commerce. 
Officers of internal revenue are authorized and directed to 
withhold the release of distilled spirits from the bottling 
plant unless such certificates have been obtained, or unless 
the application of the bottler for exemption has been granted 
by the Administrator; and customs officers are authorized and 
directed to withhold the release from customs custody of 
distilled spirits, wine, and malt beverages, unless such 
certificates have been obtained. The District Courts of the 
United States, the Supreme Court of the District of Columbia, 
and the United States court for any Territory shall have 
jurisdiction of suits to enjoin, annul, or suspend in whole or 
in part any final action by the Administrator upon any 
application under this subsection; or
          * * * * * * *
                              ----------                              


SECTION 255 OF THE BALANCED BUDGET AND EMERGENCY DEFICIT CONTROL ACT OF 
                                  1985

SEC. 255. EXEMPT PROGRAMS AND ACTIVITIES.--

    (a) * * *
          * * * * * * *
    (g) Other Programs and Activities.--
          (1)(A) The following budget accounts and activities 
        shall be exempt from reduction under any order issued 
        under this part;
                  Activities resulting from private donations, 
                bequests, or voluntary contributions to the 
                Government;
                  Administration of Territories, Northern 
                Mariana Islands Covenant grants (14-0412-0-1-
                806);
                  Thrift Savings Fund (26-8141-0-7-602);
          * * * * * * *
                  United States Enrichment Corporation;
                  Patent and Trademark Office;
          * * * * * * *

                        Committee Cost Estimate

    The committee accepts the cost estimate of the 
Congressional Budget Office with the exception of the receipts 
that would be raised by selling Federal laboratories within the 
Department of Commerce.
    The proposed legislative language requires any private 
sector purchaser of a laboratory to intend ``to perform 
substantially the same functions as were performed by the 
laboratories.'' CBO apparently attributes no receipts from the 
sale of Federal laboratories because it believes that few, it 
any, potential buyers would either qualify as ``intending to 
perform the same functions'' or be willing to pay for the 
privilege of performing functions for which the Federal 
Government currently loses money. The committee concludes, 
however, that the enormous value of the assets owned by the 
Department of Commerce laboratories would attract buyers 
willing to pay for those valuable assets in exchange for 
incurring the cost, if any, of ensuring that the functions of 
those laboratories continue. The committee's conclusion is 
based on three findings: First, the assets of DOC laboratories 
have enormous market value; second, many, if not all, functions 
of DOC laboratories would continue to be performed if the DOC 
laboratories closed and no public funding were earmarked for 
those functions; and third, under the provisions of the 
proposed legislative language, a joint venture of private and 
academic interests--or an intermediary party--could ``intend'' 
to perform the functions of a DOC laboratory and could 
profitably purchase the assets of the DOC laboratory.
    (1) The assets of DOC laboratories have enormous market 
value. According to the March 1992 NIST Report on the 
Facilities of the National Institute of Standards and 
Technology, ``NIST's headquarters site in Gaithersburg, MD * * 
* includes 29 buildings located on 234 hectares (578 acres). 
Its Boulder, CO., field site * * * consists of 16 buildings on 
83 hectares (205 acres). The current value of the facilities on 
both sites exceeds $2 billion.'' When combined with 
laboratories within the National Telecommunications and 
Information Administration [NTIA] and the National Oceanic and 
Atmospheric Administration [NOAA], the value of laboratories to 
be privatized far exceeds the $2 billion 1992 estimate of NIST 
laboratories alone.
    (2) Many if not all functions of DOC laboratories would 
continue to be performed if the DOC laboratories closed and no 
public funding were earmarked for those functions. Although the 
NIST, NOAA, and NTIA laboratories perform many different 
functions, many if not all of these functions are already also 
performed by one or more private or academic laboratories 
around the country. Moreover, if Federal support for the 
Department of Commerce laboratories ended without other 
provision in law, many of the essential functions of these 
laboratories upon which either government or industry presently 
rely would almost certainly be adopted elsewhere.
    (3) Under the provisions of the proposed legislative 
language, a joint venture of private and academic interests--or 
an intermediary party--could intend to perform the functions of 
a DOC laboratory and could profitably purchase the assets of 
the DOC laboratory. The standard of a party with ``intent'' to 
perform these functions could be met either by first, a 
consortium of these private and academic laboratories, or 
second, a third party that could pay these laboratories a small 
sum to perform these functions that they would already perform. 
Consequently, it is only the non-essential functions of these 
Department of Commerce laboratories--those functions that would 
not be performed absent government funding--that would lead to 
a substantial cost and performance of a laboratory function 
that would not otherwise occur. The cost of performing these 
non-essential functions--and only that cost--would be deducted 
from the price that a purchaser would be willing to pay for the 
assets of the laboratory. The Commerce Committee believes that 
the costs of performing these non-essential functions are small 
relative to the market value of the assets of the laboratories.

                  Congressional Budget Office Estimate

    Pursuant to clause 2(l)(3)(C) of rule XI of the Rules of 
the House of Representatives, a letter from the Congressional 
Budget Office providing a cost estimate for all six subtitles 
of title III follows:

                                     U.S. Congress,
                               Congressional Budget Office,
                                   Washington, DC, October 6, 1995.
Hon. Thomas J. Bliley, Jr.,
Chairman, Committee on Commerce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for selected reconciliation 
recommendations of the House Committee on Commerce. This 
estimate encompasses all provisions approved by the committee 
except these dealing with health programs. CBO's evaluation of 
the committee's health-related recommendations will be provided 
in a separate cost estimate.
    The estimate shows the budgetary effects of the committee's 
proposals over the 1996-2002 period. CBO understands that the 
Committee on the Budget will be responsible for interpreting 
how these proposals compare with the reconciliation 
instructions in the budget resolution.
    This estimate assumes the reconciliation bill will be 
enacted by November 15, 1995; the estimate could change if the 
bill is enacted later.
    If you wish further details on this estimate, we will be 
pleased to provide them.
            Sincerely,
                                             James L. Blum,
                                   (For June E. O'Neill, Director).

               congressional budget office cost estimate

    1. Bill number: Not yet assigned.
    2. Bill title: Reconciliation recommendations of the House 
Committee on Commerce (except health-related recommendations).
    3. Bill status: As approved by the House Committee on 
Commerce on or before September 19, 1995.
    4. Bill purpose: The Commerce Committee approved 
recommendations for six program areas other than health:
    Spectrum Auctions. Subtitle A would instruct the Federal 
Communications Commission [FCC] to use competitive bidding to 
assign licenses for most mutually exclusive applications of the 
electromagnetic spectrum. This provision would amend current 
law by broadening the FCC's authority to use competitive 
bidding to assign licenses. Current law restricts the use of 
competitive bidding to those mutually exclusive applications in 
which the licensee would receive compensation from subscribers 
to a communications service. Subtitle A also would extend the 
time period during which the FCC may use competitive bidding 
for licenses from 1998 to 2002. In addition, subtitle A would:
          Require the FCC to use competitive bidding to assign 
        licenses for 100 megahertz [MHz] of spectrum located 
        below 3 gigahertz [GHz] and currently not designated 
        for auction by the FCC or identified by previous law as 
        spectrum available for transfer from Federal to non-
        Federal use;
          Require the Department of Commerce, through the 
        National Telecommunications and Information 
        Administration [NTIA], to reallocate from Federal to 
        non-Federal use a single frequency band of at least 20 
        MHz of the electromagnetic spectrum located below 3 
        GHz, and require the FCC to allocate that spectrum by 
        auction;
          Authorize appropriations for fiscal year 1996 for the 
        FCC;
          Allow the FCC to issue blanket licenses by rule for 
        radio equipment on airplanes and ships and for personal 
        radio services; and
          Authorize the FCC to deposit in an interest-bearing 
        escrow account up-front payments from prospective 
        bidders in an auction.
    Nuclear Regulatory Commission annual charge. Subtitle B 
would extend through 2002 the annual fees that offset spending 
by the Nuclear Regulatory Commission [NRC].
    United States Enrichment Corporation. Subtitle C would 
provide a legislative framework for converting the United 
States Enrichment Corporation [USEC] from Federal to private 
ownership and for resolving various policy issues related to 
the uranium industry.
    Waste Isolation Pilot Project. Subtitle D would modify the 
Waste Isolation Pilot Plant [WIPP] Land Withdrawal Act to 
provide for earlier opening of the facility.
    Naval Petroleum Reserves. Subtitle F would require that the 
Department of Energy [DOE] sell all of the Naval Petroleum 
Reserves [NPR] and would authorize various methods for settling 
certain claims related to Reserve 1 (Elk Hills).
    Department of Commerce. The Commerce Committee's 
reconciliation recommendations would abolish the Department of 
Commerce by eliminating some of its components and transferring 
certain functions to other agencies. This subtitle also would 
create a Commerce Programs Resolution Agency, which would 
manage any activities associated with terminating and 
transferring programs and agencies. Specifically, the subtitle 
would:
          Abolish the Economic Development Administration, the 
        Minority Business Development Administration, the 
        Technology Administration, the Advanced Technology 
        Program, the Manufacturing Extension Programs, and the 
        U.S. Travel and Tourism Administration;
          Create the United States Trade Administration [USTA], 
        which would carry out the functions of the United 
        States Trade Representative [USTR], the National 
        Institute of Standards and Technology [NIST], the 
        National Telecommunications and Information 
        Administration [NTIA], the Bureau of Export 
        Administration, and the International Trade 
        Administration;
          Direct the administrator of the USTA to sell NIST's 
        laboratories;
          Abolish several programs within the National Oceanic 
        and Atmospheric Administration [NOAA] and transfer the 
        rest of its functions to the U.S. Department of 
        Agriculture.
          Direct the Administrator of the Commerce Programs 
        Resolution Agency to sell the laboratories and other 
        properties of the NTIA and the National Technical 
        Information Service;
          Create the Federal Statistics Agency, which would 
        carry out the functions of the Bureau of the Census, 
        the Bureau of Economic Analysis, and statistical 
        management functions of the Office of Management and 
        Budget; and
          Change the operation and administration of the Patent 
        and Trademark Office [PTO] by establishing it as a 
        wholly owned government corporation.
    5. Estimated cost to the Federal Government: CBO estimates 
that the provisions outlined above would reduce direct spending 
by about $13.7 billion over the 1996-2002 period. In addition, 
we estimate that these provisions would yield asset sale 
receipts of about $3.3 billion, for a total reduction in 
mandatory outlays of about $17 billion over the next 7 years. 
Finally, these provisions would make changes in discretionary 
programs--most notably by eliminating the Department of 
Commerce--but those changes would be reflected in future 
appropriations action.
    Table 1 summarizes the budgetary effects of these proposals 
for the 1996-2002 period.

          TABLE 1.--BUDGETARY IMPACT OF THE RECONCILIATION PROPOSALS OF THE HOUSE COMMITTEE ON COMMERCE         
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                               1996     1997      1998      1999      2000      2001      2002  
----------------------------------------------------------------------------------------------------------------
                                           CHANGES IN DIRECT SPENDING                                           
Spectrum auctions:                                                                                              
    Estimated budget authority.............     -153    -1,802    -2,653    -3,554    -3,103    -2,652    -1,401
    Estimated outlays......................     -153    -1,802    -2,653    -3,554    -3,103    -2,652    -1,401
NRC changes:                                                                                                    
    Estimated budget authority.............       --        --        --      -330      -330      -330      -330
    Estimated outlays......................       --        --        --      -330      -330      -330      -330
Uranium enrichment:                                                                                             
    Estimated budget authority.............       --        --        --        --        --        --        --
    Estimated outlays......................      306         8       -10       -88      -159       -80        20
Naval petroleum reserves:                                                                                       
    Estimated budget authority.............       --       351       470       445       424       401       379
    Estimated outlays......................       --       351       470       445       424       401       379
Department of Commerce \1\:                                                                                     
    Estimated budget authority.............      216       115       121        --        --        --        --
    Estimated outlays......................       92        94       138        84        43        --        --
    Total--Direct spending:                                                                                     
    Estimated budget authority.............       63    -1,336    -2,062    -3,439    -3,009    -2,581    -1,352
    Estimated outlays......................      245    -1,349    -2,055    -3,443    -3,125    -2,661    -1,332
                                                                                                                
                                          RECEIPTS FROM ASSET SALES \2\                                         
                                                                                                                
Uranium enrichment:                                                                                             
    Estimated budget authority.............     -500    -1,100       -15       -30       -31       -32       -33
    Estimated outlays......................     -500    -1,100       -15       -30       -31       -32       -33
Naval petroleum authority                                                                                       
    Estimated budget authority.............       --    -1,550        --        --        --        --        --
    Estimated outlays......................       --    -1,550        --        --        --        --        --
Department of Commerce:                                                                                         
    Estimated budget authority.............        6       -13        --        --        --        --        --
    Estimated outlays......................        6       -13        --        --        --        --        --
    Total--Asset sales:                                                                                         
        Estimated budget authority.........     -494    -2,663       -15       -30       -31       -32       -33
        Estimated outlays..................     -494    -2,663       -15       -30       -31       -32       -33
                                                                                                                
                              CHANGES IN SPENDING SUBJECT TO APPROPRIATIONS ACTION                              
                                                                                                                
FCC:                                                                                                            
    Estimated authority level..............      186        --        --        --        --        --        --
    Estimated outlays......................      175        11        --        --        --        --        --
Naval petroleum reseves:                                                                                        
    Estimated authority level..............        6        --       105        --        --        --        --
    Estimated outlays......................        5         1       105        --        --        --        --
Waste isolation pilot project:                                                                                  
    Estimated authority level..............        3        20      -149        -4        -4        -4        -4
    Estimated outlays......................       18        22       -80       -49       -16        -4        -4
Department of Commerce:                                                                                         
    Estimated authority level..............    1,726     1,832     1,858     1,866     1,868     1,870     1,870
    Estimated outlays......................    1,049     1,601     1,725     1,838     1,853     1,865     1,867
    Total--Subject to appropriations:                                                                           
        Estimated authority level..........    1,948     1,852     1,814     1,852     1,864     1,866     1,866
        Estimated outlays..................    1,247     1,635     1,750     1,789     1,837     1,861     1,863
----------------------------------------------------------------------------------------------------------------
\1\ The House Committee on the Judiciary recommended extending the PTO's surcharge fees through 2002 for        
  reconciliation. If the recommendations of both the Judiciary Committee and the Commerce Committee were to be  
  included in the reconciliation bill, then the direct spending for the Commerce Committee would increase by    
  $476 million in budget authority and $347 million in outlays over the 1999-2002 period.                       
\2\ Under the 1996 budget resolution, proceeds from asset sales are counted in the budget totals for purposes of
  Congressional scoring. Under the Balanced Budget Act, however, proceeds from asset sales are not counted in   
  determining compliance with the discretionary spending limits or pay-as-you-go requirement.                   

    The costs of this bill fall within budget functions 050, 
270, 300, 370, 450, 500, 800, and 950.
    6. Basis of estimate: This estimate assumes that the 
reconciliation bill will be enacted on November 15, 1995; the 
estimate could change if the bill is enacted later.
    Receipts from Spectrum Auctions. CBO expects that receipts 
from the spectrum auctions authorized under subtitle A would 
result primarily from the auctioning of licenses permitting a 
wide variety of uses of the electromagnetic spectrum. Under 
current law, the authority to use competitive bidding to assign 
licenses expires in 1998 and the FCC would assign those 
licenses by comparative hearings or some other means. CBO has 
estimated the amount of receipts that could be obtained by 
auctioning such licenses instead. Although most of these 
potential receipts would accrue after 1998, we estimate some 
increase in receipts in earlier years because of the bill's 
provisions that would broaden the FCC's auction authority 
beginning in 1996.
    CBO assumes that the licenses auctioned would grant the 
same property rights as current licenses. The licensee would 
have a very high expectation that the license would be renewed 
upon expiration, and that the license would not be auctioned 
again when it expires. Auctions would be open to all bidders 
who would qualify to hold an FCC license under current law.
    CBO estimates that the spectrum auctions authorized under 
subtitle A would raise about $15.3 billion over the 1996-2002 
period. CBO's estimate of auction receipts is based on 
expectations about the availability of frequencies for 
assignment by auction and the market price that those 
frequencies would fetch when sold. CBO has priced the 
frequencies available for auction by taking into account the 
prices paid for roughly comparable frequencies at FCC auctions 
held in 1994 and 1995, and the effect on prices in the future 
of the increased supply of licenses permitting the use of the 
radio spectrum. The estimate also accounts for the receipts 
that could be generated from auctioning licenses in 
circumstances where the use of the spectrum is limited 
exclusively to one service as well as in those circumstances 
where the spectrum is shared with other non-interfering uses or 
users providing a different service.
    The bill would authorize the FCC to deposit up-front 
payments from prospective bidders in an auction in an interest-
bearing escrow account. The interest earned from the upfront 
payments of the winning or accepted bid would be deposited in 
the general fund of the Treasury. Based on information from the 
FCC, we estimate that additional receipts to the Treasury from 
these interest earnings would be about $18 million over the 
1996-2002 period. These receipts are included in the estimates 
for spectrum auctions shown in table 2.

                 TABLE 2.--BUDGETARY IMPACT OF THE RECONCILIATION PROPOSAL FOR SPECTRUM AUCTIONS                
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                    1995      1996      1997      1998      1999      2000      2001      2002  
----------------------------------------------------------------------------------------------------------------
                                                 DIRECT SPENDING                                                
                                                                                                                
Offsetting receipts under                                                                                       
 current law:                                                                                                   
    Estimated budget authority..    -7,644    -2,800      -600      -800      -700      -700         0         0
    Estimated outlays...........    -7,644    -2,800      -600      -800      -700      -700         0         0
Proposed changes:                                                                                               
    Estimated budget authority..        --      -153    -1,802    -2,653    -3,554    -3,103    -2,652    -1,401
    Estimated outlays...........        --      -153    -1,802    -2,653    -3,554    -3,103    -2,652    -1,401
Offsetting receipts under                                                                                       
 proposal:                                                                                                      
    Estimated budget authority..    -7,644    -2,953    -2,402    -3,453    -4,254    -3,803    -2,652    -1,401
    Estimated outlays...........    -7,644    -2,953    -2,402    -3,453    -4,254    -3,803    -2,652    -1,401
----------------------------------------------------------------------------------------------------------------

    Annual Charges of the Nuclear Regulatory Commission. This 
provision would extend through 2002 NRC's authority to charge 
fees to offset 100 percent of its appropriation. Under current 
law, after 1998 the NRC would only be authorized to set fees 
equal to 33 percent of its budget. Assuming future 
appropriations for the NRC remain at the 1995 level, enactment 
of this provision would increase offsetting receipts by $330 
million annually over the 1999-2002 period. Under rules set in 
the Budget Enforcement Act of 1990, CBO's baseline projection 
of NRC spending for that period is based on the net spending 
level in 1995. Because that level reflects 100 percent recovery 
of appropriations from the general fund, the proposal to extend 
such full-cost recovery does not produce savings relative to 
the CBO baseline. The 1996 budget resolution, however, adjusted 
the baseline to reflect current law by changing the assumed 
rate of cost recovery from 100 percent to 33 percent in 1999. 
Hence, extending the full-cost recovery provision produces 
savings of $330 million relative to the budget resolution 
baseline. These changes are summarized in table 3.

    TABLE 3.--BUDGETARY IMPACT OF THE RECONCILIATION PROPOSAL ON THE ANNUAL CHARGES OF THE NUCLEAR REGULATORY   
                                                   COMMISSION                                                   
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                            1995     1996     1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
                                                 DIRECT SPENDING                                                
                                                                                                                
Spending under current law:                                                                                     
    Estimated budget authority..........     -504     -504     -504     -504     -174     -174     -174     -174
    Estimated outlays...................     -504     -504     -504     -504     -174     -174     -174     -174
Proposed changes:                                                                                               
    Estimated budget authority..........       --       --       --       --     -330     -330     -330     -330
    Estimated outlays...................       --       --       --       --     -330     -330     -330     -330
Spending under proposal:                                                                                        
    Estimated budget authority..........     -504     -504     -504     -504     -504     -504     -504     -504
    Estimated outlays...................     -504     -504     -504     -504     -504     -504     -504     -504
----------------------------------------------------------------------------------------------------------------

    United States Enrichment Corporation. While it is possible 
the USEC could become a private corporation under current law, 
such action does not appear likely because of numerous policy 
and contractual concerns. Hence, CBO believes that USEC would 
remain a government-owned entity under current law and that 
enacting this bill would be sufficient to remove the policy 
impediments to privatization. The bill would divide assets and 
liabilities of the corporation between the Federal Government 
and a privatized corporation, clarifying responsibility for 
employee benefits, the disposal of low-level radioactive 
wastes, the purchase and marketing of materials derived from 
highly-enriched uranium [HEU] from United States and Russian 
nuclear warheads, and other corporate activities. Under this 
bill, the private corporation would be given the rights to 
certain licenses and assets related to advanced laser isotope 
separation technology developed by the Federal Government.
    CBO estimates that privatizing USEC would have the effect 
of reducing Federal outlays by a total of $1,876 million over 
the 1996-2002 period. Most of this total would be derived from 
selling USEC to the private sector, which CBO estimates would 
yield $1.65 billion over the 1996-97 period under the 
provisions in this bill. We estimate that USEC would spend 
slightly more than $300 million over the same 2 years to 
facilitate the sale, including a purchase of Russian uranium. 
Once the corporation is sold, additional budgetary impacts 
would result from the removal of USEC's spending and receipts 
from the budget and from the eventual resale by DOE of uranium 
bought by USEC and transferred to DOE prior to privatization. 
Table 4 summarizes the estimated budgetary effects of this 
provision.
    Based on the information provided by USEC, DOE, and the 
Department of the Treasury, we estimate that privatization 
through a stock offering or merger would yield about $1.6 
billion in asset sale proceeds over fiscal years 1996 and 1997, 
net of any transfer of cash balances held at the Treasury. 
Projected sale proceeds include an estimated $100 million 
resulting from the proposed transfer of 50 metric tons of U.S. 
HEU and 7,000 metric tons of natural uranium from DOE to the 
corporation prior to privatization. While $1.6 billion 
represents CBO's best estimate of the net proceeds, the net 
sales price could range from $1.3 billion to $1.9 billion, 
depending on how potential purchasers value USEC's contracts, 
assets, and prospects for the future.
    Direct spending for USEC's operations as a government 
corporation would change as a result of privatization and other 
legislative directives. USEC's direct spending is projected to 
increase by $306 million in 1996 and $8 million in 1997 because 
of the costs associated with sale transactions, the equipment 
and facility upgrades necessary to complete the sale, and the 
requirement in this bill to transfer to DOE without charge the 
natural uranium associated with at least 18 metric tons of HEU 
purchased from Russia. Once USEC is sold, its net spending 
under current law would no longer be part of the Federal 
budget. CBO estimates that these savings would total over $300 
million over the 1998-2002 period.
    Under this bill, CBO estimates that DOE's sale of the 
natural uranium derived from the 18 metric tons of Russian HEU 
transferred by USEC would result in asset sale proceeds 
totaling $140 million over the 1998-2002 period, and about $90 
million thereafter. Under this bill, DOE would be required to 
sell these materials within 7 years after enactment, subject to 
certain conditions. For the purposes of this estimate, and in 
the absence of a legislative requirement that DOE be paid for 
the materials within that timeframe, we assume that DOE would 
sell the materials for delivery and payment over a period of 7 
to 8 years beginning in 1998.

     TABLE 4.--BUDGETARY IMPACT OF THE RECONCILIATION PROPOSAL FROM THE UNITED STATES ENRICHMENT CORPORATION    
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                     1995     1996      1997      1998      1999      2000      2001      2002  
----------------------------------------------------------------------------------------------------------------
                                            RECEIPTS FROM ASSET SALES                                           
                                                                                                                
Uranium enrichment:                                                                                             
    Estimated budget authority...  .......      -500    -1,100       -15       -30       -31       -32       -33
    Estimated outlays............  .......      -500    -1,100       -15       -30       -31       -32       -33
                                                                                                                
                                                 DIRECT SPENDING                                                
                                                                                                                
Spending under current law:                                                                                     
    Estimated budget authority...  .......  ........  ........  ........  ........  ........  ........  ........
    Estimated outlays............     -335      -183       -88        10        88       159        80       -20
Proposed changes:                                                                                               
    Estimated budget authority...  .......  ........  ........  ........  ........  ........  ........  ........
    Estimated outlays............  .......       306         8       -10       -88      -159       -80        20
Spending under proposal:                                                                                        
    Estimated budget authority...  .......  ........  ........  ........  ........  ........  ........  ........
    Estimated outlays............     -335       123       -80  ........  ........  ........  ........  ........
----------------------------------------------------------------------------------------------------------------

    Naval Petroleum Reserves. Under the provisions if this 
bill, the sale of the reserves would have three types of 
budgetary impacts over the 1996-2002 period (see table 5). 
First, we estimate that selling all of the reserves would yield 
about $1.55 billion in nonroutine asset sale receipts, of which 
about $1.5 billion would be collected from the sale of Elk 
Hills and the remainder from the sale of reserves in Colorado, 
Wyoming, and Utah. We expect that the proceeds would be 
collected in fiscal year 1997, consistent with the directive in 
the bill to complete the sales by December 31, 1996. Under this 
bill, the costs associated with administering the sales, which 
are estimated to total $6 million, would be deducted from the 
proceeds. We assume, however, that DOE would need to use 
appropriated funds in 1996 to pay for the services and 
activities specified in the bill. Hence, the table shows an 
estimated authorization for those administrative costs in 1996 
and outlays in 1996 and 1997.
    Second, once the sales are completed, the government would 
forgo the offsetting receipts that would otherwise have been 
collected from production and sale of oil, gas, and related 
products from the reserves. These receipts, which are included 
in budget function 270, are projected to total over $400 
million annually under current law over most of the 1997-2002 
period. Assuming that the sale would be completed by the end of 
December 1996, we estimate that the loss of receipts from the 
sale of NPR would begin by the second quarter of the fiscal 
year. The loss would reach $470 million in 1998 and decline 
gradually to 379 million in 2002.
    Third, the bill would authorize alternative methods of 
settling certain claims made by the State of California related 
to Elk Hills, including appropriations, a grant of non-revenue-
producing lands, or any other arrangement consistent with the 
Congressional Budget Act. The value of such payments would be 
capped at 7 percent of the net proceeds from the sale of Elk 
Hills. With total proceeds from that sale projected at $1.5 
billion, we estimate that this provision would authorize a 
payment or land grant valued at up to $105 million. Although we 
cannot predict what form such a settlement would take, we 
assume that any appropriation resulting from court rulings 
would be unlikely to occur before 1998.

        TABLE 5.--BUDGETARY IMPACT OF THE RECONCILIATION PROPOSAL OF SELLING THE NAVAL PETROLEUM RESERVES       
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                           1995     1996     1997      1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
                                          RECEIPTS FROM ASSET SALE \1\                                          
                                                                                                                
Proceeds from the sale:                                                                                         
    Estimated budget authority.........        0        0    -1,550        0        0        0        0        0
    Estimated outlays..................        0        0    -1,550        0        0        0        0        0
                                                                                                                
                                                 DIRECT SPENDING                                                
                                                                                                                
Receipts under current law:                                                                                     
    Estimated budget authority.........     -433     -450      -477     -470     -445     -424     -401     -379
    Estimated outlays..................     -433     -450      -477     -470     -445     -424     -401     -379
Proposed changes:                                                                                               
    Estimated budget authority.........        0        0       351      470      445      424      401      379
    Estimated outlays..................        0        0       351      470      445      424      401      379
Receipts under proposal:                                                                                        
    Estimated budget authority.........     -433     -450      -126        0        0        0        0        0
    Estimated outlays..................     -433     -450      -126        0        0        0        0        0
                                                                                                                
                                    SPENDING SUBJECT TO APPROPRIATIONS ACTION                                   
                                                                                                                
Conduct of the sale:                                                                                            
    Authorization level................        0        6         0        0        0        0        0        0
    Estimated outlays..................        0        5         1        0        0        0        0        0
Payment of possible claims: \2\                                                                                 
    Estimated authorization level......        0        0         0      105        0        0        0        0
    Estimated outlays..................        0        0         0      105        0        0        0       0 
----------------------------------------------------------------------------------------------------------------
\1\ Under the 1996 budget resolution, proceeds from asset sales are counted in the budget totals for purposes of
  Congressional scoring. Under the Balanced Budget Act, however, proceeds from asset sales are not counted in   
  determining compliance with the discretionary spending limits or pay-as-you-go requirement.                   
\2\ This authorization is contingent upon administrative and Congressional actions that cannot be predicted by  
  CBO. However, it is unlikely that any appropriation or grant would occur before fiscal year 1998.             

    Department of Commerce. CBO estimates that this subtitle 
would increase direct spending, result in new asset sale 
receipts, and provide new authorizations of appropriations. 
Several agencies or programs that are not currently authorized 
would be reauthorized by this subtitle, including NOAA and 
agencies that would be consolidated into the proposed U.S. 
Trade Administration [USTA]. The costs of continuing these 
programs are shown in table 6 as proposed changes--relative to 
authorizations under current law--in spending subject to 
appropriations action. As indicated by the estimated 
authorization levels shown at the bottom of table 8, we 
estimate that appropriations would initially decline by about 
$1.6 billion from the 1995 level, assuming that 1996 
appropriations are reduced to be consistent with the new 
authorization amounts. An additional decline of about $.1 
billion would occur over the 1997-2002 period.
    Under this bill, abolishing the Department of Commerce 
would result in the elimination of between 1,500 and 2,000 
employee positions. Some of those employee terminations would 
be immediate and, in the absence of appropriations for those 
purposes, would trigger new direct spending to cover severance 
pay, accrued annual leave, and other termination expenses. Some 
additional costs to phase out or reduce staff levels within the 
department would be paid out of discretionary appropriations 
over the next several years.

       TABLE 6.--BUDGETARY IMPACT OF THE RECONCILIATION PROPOSAL OF ABOLISHING THE DEPARTMENT OF COMMERCE       
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                            1995     1996     1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
                                               DIRECT SPENDING \1\                                              
                                                                                                                
Estimated budget authority..............  .......      216      115      121  .......  .......  .......  .......
Estimated outlays.......................  .......       92       94      138       84       43  .......  .......
                                                                                                                
                                          RECEIPTS FROM ASSET SALE \2\                                          
                                                                                                                
Estimated budget authority..............  .......        6      -13  .......  .......  .......  .......  .......
Estimated outlays.......................  .......        6      -13  .......  .......  .......  .......  .......
                                                                                                                
                                    SPENDING SUBJECT TO APPROPRIATIONS ACTION                                   
                                                                                                                
Spending under current law:                                                                                     
    Authorization level \3\.............    4,227      907      745      718      719      707      705      705
    Estimated outlays...................    3,684    2,391    1,638    1,144      806      699      669      669
Proposed changes:                                                                                               
    Estimated authorization level.......  .......    1,726    1,832    1,858    1,856    1,868    1,870    1,870
    Estimated outlays...................  .......    1,049    1,601    1,725    1,838    1,853    1,865    1,867
Projected spending under proposal:                                                                              
    Estimated authorization level \3\...    4,227    2,633    2,577    2.577    2,575    2,575    2,575    2,575
    Estimated outlays...................    3,684    3,440    3,240    2,869    2,644    2,552    2,534    2,536
----------------------------------------------------------------------------------------------------------------
\1\ The House Committee on the Judiciary recommended extending the PTO's surcharge fees through 2002 for        
  reconciliation. If the recommendations of both the Judiciary Committee and the Commerce Committee were to be  
  included in the reconciliation bill, then the direct spending for the Commerce Committee would increase by    
  $476 million in budget authority and $347 million in outlays over the 1999-2002 period.                       
\2\ Under the 1996 budget resolution, proceeds from asset sales re counted in the budget totals for purposes of 
  Congressional scoring. Under the Balanced Budget Act, however, proceeds from asset sales are not counted in   
  determining compliance with the discretionary spending limits or pay-as-you-go requirement.                   
\3\ The 1995 level is the amount appropriated for that year.                                                    

    Direct Spending from Abolishing the Department of Commerce. 
Enacting this subtitle would result in direct spending outlays 
of about $451 million over fiscal years 1996 through 2002. Most 
of this estimated increase would result from the bill's 
proposal to allow direct spending of fees collected by the 
Patent and Trademark Office [PTO]. Other mandatory costs would 
derive from eliminating employees associated with agencies that 
are abolished, along with any reductions-in-force that occur.
    The subtitle would transfer residual and unappropriated 
balances of the PTO surcharge fund to the office and would 
authorize the PTO to spend any further receipts from the 
surcharge fund without an appropriation. CBO estimates that 
spending from the transferred balances and new direct spending 
from surcharge receipts would increase outlays of the Federal 
Government by about $405 million over the 1996-2002 period.
    The subtitle also would authorize the PTO to borrow from 
the U.S. Treasury, but the committee's language would cap that 
authority at only $2 million. CBO would expect any significant 
budgetary impact if the PTO were to exercise this very small 
amount of borrowing authority. However, if the PTO were allowed 
to borrow more than $2 million, CBO would estimate greater 
direct spending effects.
    CBO estimates that the direct costs resulting from the 
immediate elimination of certain agencies and programs would be 
about $45 million in fiscal year 1996. These estimated costs 
would arise from the government's obligation to provide Federal 
employees with a 60-day notification of termination, severance 
pay, payments for annual leave balances, and for other 
necessary costs to close an agency.
    CBO does not estimate a cost to the civilian retirement 
system resulting from the elimination of positions at the 
Department of Commerce. Although some of the employees who lose 
their jobs will be eligible for retirement, CBO assumes that 
some of these individuals find work elsewhere in the Federal 
Government. Others will retire, but not so many as to exceed 
the CBO's baseline for the number of retirements resulting from 
downsizing.
    Department of Commerce Asset Sales. This subtitle would 
authorize the sale of certain assets including the NIST and 
NTIA laboratories and the National Technical Information 
Service [NTIS]. CBO estimates that the sale of these assets 
would yield about $13 million in asset sale receipts, all of 
which would result from the sale of NTIS. In estimating the 
proceeds from the sale of NTIS, CBO examined such factors as 
the increasing availability of Federal documents over the 
internet and the efficiency savings that might result if a 
private firm owned NTIS.
    At this time, CBO does not have enough information to 
determine if the NTIA laboratory could be sold and what its 
market value might be. Also, CBO believes that it is unlikely 
that the U.S. Trade Administration would be able to find a 
buyer for the NIST laboratories within the allotted 18 months. 
The subtitle would require the USTA to find buyer for NIST that 
would perform essentially the same functions (basic research to 
develop measurements and standards) as the agency does now. It 
seems unlikely that there would be much of a private market for 
such services.
    Finally, this subtitle directs the Secretary of the 
Treasury to sell the loan portfolio of the Economic Development 
Administration. CBO expects these loan asset sales to result in 
a cost of $6 million, consistent with the treatment of loan 
modifications under the Credit Reform Act of 1990. Under those 
provisions, changes in the cost of loans are recorded on a 
present value basis in the year that such loan modifications 
are made. Selling loan assets would constitute a modification 
of the loans sold because the expected stream of future loan 
repayments would be replaced by the sale proceeds in the year 
of such a sale.
    The average maturity date for EDA's outstanding loans is 
2002. Many loans in the portfolio, however, are delinquent. CBO 
expects that--in total--the outstanding loans would be sold for 
less than their current discounted value to the Federal 
Government, because potential buyers would discount the 
expected receipts of scheduled loan repayments at a higher rate 
than the rate of Treasury borrowing for a comparable term.
    Authorizations of Appropriations. This subtitle also would 
create a Commerce Programs Resolutions Agency that would handle 
any administrative functions necessary as the Department of 
Commerce is dismantled. The agency would exist for 3 years 
after the enactment of this subtitle, after which it, along 
with all of its functions, would be abolished. Specifically, it 
would be responsible for attempting to sell the laboratories 
and other properties of the NTIA and NTIS, and completing any 
other activities necessary to close down or transfer agencies 
and programs of the Department of Commerce, including 
disbursing grants previously obligated by former agencies. CBO 
estimates that these functions would cost the Federal 
Government about $12 million for fiscal years 1996 through 
1998.
    The bill would create a U.S. Trade Administration, which 
would be responsible for conducting trade negotiations and 
advising the President on international trade policy, and would 
transfer to the new agency the USTR, the Bureau of Export 
Administration [BEA], and most of NTIA, NIST, and the 
International Trade Administration [ITA]. The subtitle 
authorizes appropriations of such sums as are necessary for the 
new agency. Assuming continued appropriations at the 1995 
levels, CBO estimates that the government would spend about 
$4.2 billion over the 1996-2002 period for the USTA.
    Finally, this subtitle would transfer the Bureau of the 
Census, the Bureau of Economic and Statistical Analysis, and 
the statistical management functions of OMB to a new Federal 
Statistics Agency, and would authorize appropriations of such 
sums as may be necessary for the new agency. Assuming continued 
appropriations at the 1995 levels, CBO estimates that the 
Federal Statistics Agency would incur costs of about $2.2 
billion over the 1996-2002 period.
    In total, assuming appropriations of the authorized 
amounts, CBO estimates that the Federal Government would spend 
about $20 billion over the 1996-2002 period for the three new 
agencies as well as other programs authorized under this 
subtitle. By comparison, keeping the Department of Commerce in 
its current form and continuing its current level of funding 
would result in discretionary spending of $29 billion over the 
same period.
    FCC Authorization. Subtitle A also would authorize 
appropriations of $186 million for the FCC in fiscal year 1996. 
Assuming appropriations of the authorized amounts, CBO 
estimates that this authorization would result in costs to the 
Federal Government of about $186 million over the 1996-97 
period, primarily for salaries and expenses of the FCC. This 
estimate is displayed in table 7.

                 TABLE 7.--BUDGETARY IMPACT OF THE RECONCILIATION PROPOSAL ON FCC AUTHORIZATION                 
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                            1995     1996     1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
                                    SPENDING SUBJECT TO APPROPRIATIONS ACTION                                   
                                                                                                                
Spending under current law:                                                                                     
    Authorization level \1\.............      185  .......  .......  .......  .......  .......  .......  .......
    Estimated outlays...................      184       11  .......  .......  .......  .......  .......  .......
Proposed changes:                                                                                               
    Authorization level.................  .......      186  .......  .......  .......  .......  .......  .......
    Estimated outlays...................  .......      175       11  .......  .......  .......  .......  .......
Spending under proposal:                                                                                        
    Authorization level \1\.............      185      186  .......  .......  .......  .......  .......  .......
    Estimated outlays...................      184      186       11  .......  .......  .......  .......  .......
----------------------------------------------------------------------------------------------------------------
\1\ The 1995 level is the amount appropriated for that year.                                                    

    Waste Isolation Pilot Project [WIPP]. CBO estimates that 
subtitle D could save $113 million in outlays that are subject 
to appropriations over the 1996-2002 period. Opening the WIPP 
facility earlier would result in both costs and savings. The 
legislation would advance scheduled payments of $20 million 
annually to the State of New Mexico by 2 years. Under current 
law, the first payment is scheduled for 1998. According to DOE, 
opening the WIPP facility sooner would raise by $30 million the 
near-term cost of complying with current laws and other 
operational activities. The bill would exempt WIPP from the 
land disposal restrictions for wastes that are also covered by 
a performance assessment required by other regulations. 
According to DOE, the exemption would lead to savings of at 
least $5 million over the 1996-2002 period, depending on the 
conditions imposed by the Environmental Protection Agency. The 
legislation would also allow DOE to begin operations earlier, 
as the 6-month waiting period after DOE notification to 
Congress of full environmental compliance would be eliminated. 
Based on information provided by DOE, CBO estimates that 
eliminating the requirement for full environmental compliance 
would save approximately $140 million over the 1996-2002 
period. The modification of various reporting requirements 
would save approximately $1 million annually. The legislation 
also would give DOE the option of using engineered or natural 
barriers as necessary to isolate the transuranic waste in 
contrast to current law that requires their use. This change 
would save at least $3 million annually over the 1997-2002 
period.

         TABLE 8.--BUDGETARY IMPACT OF THE RECONCILIATION PROPOSAL ON THE WASTE ISOLATION PILOT PROGRAM         
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                            1995     1996     1997     1998     1999     2000     2001     2002 
----------------------------------------------------------------------------------------------------------------
                                    SPENDING SUBJECT TO APPROPRIATIONS ACTION                                   
                                                                                                                
Spending under current law:                                                                                     
    Estimated budget authority..........      335      345      355      366      377      388      400      412
    Estimated outlays...................      330      340      350      361      382      383      394      406
Proposed changes:                                                                                               
    Estimated budget authority..........  .......       30       20     -149       -4       -4       -4       -4
    Estimated outlays...................  .......       18       22      -80      -49      -16       -4       -4
Spending under proposal:                                                                                        
    Estimated budget authority..........      335      375      375      217      373      384      396      408
    Estimated outlays...................      330      358      372      281      323      367      390      402
----------------------------------------------------------------------------------------------------------------

    7. Estimated cost to State and local governments: CBO 
estimates that a number of provisions of the House Commerce 
Committee's reconciliation recommendations relating to 
abolishing the Department of Commerce would have a direct 
impact on State and local governments. The major grant programs 
being eliminated are discussed below. First, the subtitle would 
abolish eleven National Oceanic and Atmospheric Administration 
programs that provide research funds or grants to State 
governments and universities. The fiscal year 1995 funding for 
these programs was approximately $26 million. In addition, four 
programs jointly administered between the Federal Government 
and universities would be abolished.
    Second, the subtitle would abolish the Economic Development 
Administration. This administration provides public works 
grants, other financial assistance, and planning and 
coordination assistance to economically distressed areas and 
regions of the country. These programs, which were funded at a 
level totaling $418 million in fiscal year 1995, are generally 
administered by State or local development agencies.
    Third, the subtitle would abolish the Information 
Infrastructure Grants Program and the Public Telecommunications 
Facilities Program in the National Telecommunications and 
Information Administration [NTIA]. Funding for these programs 
was $64 million and $29 million in fiscal year 1995, 
respectively. A significant portion of these funds was 
allocated to public institutions, including universities and 
colleges.
    Finally, the subtitle would abolish the State Technology 
Extension Program and the Manufacturing Extension Centers 
Program in the National Institute of Standards and Technology. 
The State Technology Extension Program provides planning grants 
to States to develop or revitalize their technology programs. 
The fiscal year 1995 funding for this program was $6 million.
    The Manufacturing Extension Centers Program was developed 
to enhance productivity and technological performance in the 
United States. It involves cooperative agreements between the 
Federal Government and nonprofit institutions that are often 
funded by State or local development agencies or universities. 
These agreements can last up to 6 years and provide up to 50 
percent funding for the manufacturing centers in the first 3 
years and a declining percentage in subsequent years. Thus, the 
elimination of Federal funding might result in the need for 
additional State or local funding. The fiscal year 1995 funding 
for this program was $69 million.
    8. Estimate comparison: None.
    9. Previous CBO estimate: None.
    10. Estimate prepared by:
    Federal Cost Estimate: Spectrum Auctions: Rachel Forward, 
David Moore; NRC, Kim Cawley; USEC, NPR, Kathleen Gramp; WIPP, 
Elizabeth Chambers; Department of Commerce: Rachel Robertson, 
Rachel Forward, Gary Brown.
    State and Local Estimate: Marc Nicole.
    12. Estimate approved by: Robert A. Sunshine, Paul N. Van 
de Water, for Assistant Director for Budget Analysis.

                      Committee Oversight Findings

    Pursuant to clause 2(l)(3)(A) of rule XI of the Rules of 
the House of Representatives, the Subcommittee on Commerce, 
Trade, and Hazardous Materials and the Subcommittee on 
Telecommunications and Finance held oversight and legislative 
hearings and made findings that are reflected in this report.

              Committee on Government Reform and Oversight

    Pursuant to clause 2(l)(3)(D) of rule XI of the Rules of 
the House of Representatives, no oversight findings have been 
submitted to the committee by the Committee on Government 
Reform and Oversight.

                     Inflationary Impact Statement

    Pursuant to clause 2(l)(4) of rule XI of the Rules of the 
House of Representatives, the committee finds that subtitle F 
would have no inflationary impact.
                MISCELLANEOUS HOUSE REPORT REQUIREMENTS

                       Budget Committee Estimates

    Clause 7(a) of rule XIII of the Rules of the House of 
Representatives requires an estimate and a comparison by the 
committee of the cost which would be incurred in carrying out 
the Seven-Year Balanced Budget Reconciliation Act of 1995. 
However clause 7(d) of that rule provides that this requirement 
does not apply when the committee has included in its report a 
timely submitted cost estimate of the bill prepared by the 
Director of the Congressional Budget Office under section 403 
of the Congressional Budget Act.

                  Miscellaneous Budgetary Information

    Section 308(a)(1) of the Congressional Budget and 
Impoundment Control Act of 1974 and clause 26 of rule XI of the 
Rules of the House require the report to include a statement 
identifying various budgetary information. The bill provides 
for a gross increase of new budget authority of $693 million in 
fiscal year 1996, $6.027 billion over the next 5 years, and 
$7.523 billion over the next 7 years. It should be noted that 
any gross increase in new budget authority is greatly offset by 
gross decreases in new budget authority. There is a gross 
increase in revenue of $3.068 billion in fiscal year 1996, 
$23.530 billion over the next 5 years, and $37.471 billion over 
7 years. However, the bill contains gross decreases in revenues 
of $3.266 billion in fiscal year 1996, $13.125 billion over the 
next 5 years, and $15.687 billion over the next 7 years. The 
net effect on revenues of this bill (as reported from 
committee) is a decrease of $0.198 billion in fiscal year 1996, 
an increase of $10.405 billion over the next 5 years, and an 
increase of $21.784 billion over the next 7 years. 
Nevertheless, this bill will include tax cuts of $245 billion 
over 7 years before it reaches the floor of the House.

                       Inflation Impact Statement

    Clause 2(l)(4) of rule XI requires each committee report on 
a bill or joint resolution of a public character to include an 
analytical statement describing what impact enactment of the 
measure would have on prices and costs in the operation of the 
national economy. This bill will have no inflationary impact on 
prices and costs in the operation of the national economy.

                  Budget Committee Oversight Findings

    Clause 2(l)(3)(A) of rule XI requires each committee report 
to contain oversight findings and recommendations required 
pursuant to clause (2)(b)(1) of rule X. The committee has no 
oversight findings.

 Oversight Findings and Recommendations of the Committee on Government 
                          Reform and Oversight

    Clause 2(l)(3)(D) of rule XI requires each committee report 
to contain a summary of oversight findings and recommendations 
made by the Government Reform and Oversight Committee pursuant 
to clause 4(c)(2) of rule X, whenever such findings have been 
timely submitted. The Committee on Budget has received no such 
findings or recommendations from the Committee on Government 
Reform and Oversight.

                     Statement on Federal Mandates

    Beginning January 1, 1996, congressional committees will be 
required to include in reports a statement regarding the 
Federal mandates contained in bills or resolutions.
    Contained in this bill is a dramatic devolution of 
government programs from distant bureaucracies in Washington, 
DC, back to the State and local governments that are closer to 
and more accountable to the people these programs are intended 
to serve. The number of federally controlled programs has 
proliferated over the years, to the point where for a given 
need there are a multitude of different Federal programs, each 
with its own set of onerous rules and regulations. The 
devolution contained within this bill will provide State and 
local governments with greatly increased flexibility, by 
greatly decreasing burdensome Federal mandates.

                            Committee Votes

    Clause 2(l)(2)(B) of House rule XI requires each committee 
report to accompany any bill or resolution of a public 
character, ordered to include the total number of votes cast 
for and against on each rollcall vote on a motion to report and 
any amendment offered to the measure or matter, together with 
the names of those voting for and against. Below are the 
results of the rollcall votes taken in the Budget Committee on 
this resolution:
    On October 12, 1995, the committee met in open session, a 
quorum being present, and ordered reported the bill, the Seven-
Year Balanced Budget Reconciliation Act of 1995.
    The following votes were taken by the committee:
    1. Mr. Sabo moved that the Committee on the Budget postpone 
further consideration of the 1995 reconciliation bill until 
Wednesday, October 18, in order to provide additional time to 
receive submissions from those committees that have not yet 
responded to the reconciliation directives adopted by the House 
of Representatives in House Concurrent Resolution 67, the 
concurrent resolution on the budget for fiscal year 1996 
through 2002. The motion failed by a rollcall vote of 15 ayes 
and 23 noes.

----------------------------------------------------------------------------------------------------------------
                  Member                       Aye       No                Member                Aye       No   
----------------------------------------------------------------------------------------------------------------
Mr. Kasich, Chairman......................                  X   Mr. Sabo....................        X           
Mr. Hobson................................                  X   Mr. Stenholm................        X           
Mr. Walker................................                      Mrs. Slaughter..............        X           
Mr. Kolbe.................................                  X   Mr. Parker..................                  X 
Mr. Shays.................................                  X   Mr. Coyne...................        X           
Mr. Herger................................                  X   Mr. Mollohan................                    
Mr. Bunning...............................                  X   Mr. Costello................        X           
Mr. Smith of Texas........................                  X   Mr. Johnston................        X           
Mr. Allard................................                  X   Mrs. Mink...................        X           
Mr. Miller................................                  X   Mr. Orton...................        X           
Mr. Lazio.................................                  X   Mr. Pomeroy.................        X           
Mr. Franks................................                  X   Mr. Browder.................        X           
Mr. Smith of Michigan.....................                  X   Ms. Woolsey.................        X           
Mr. Inglis................................                  X   Mr. Olver...................                    
Mr. Hoke..................................                  X   Ms. Roybal-Allard...........        X           
Ms. Molinari..............................                  X   Mrs. Meek...................        X           
Mr. Nussle................................                  X   Ms. Rivers..................        X           
Mr. Hoekstra..............................                  X   Mr. Doggett.................        X           
Mr. Largent...............................                  X                                                   
Mrs. Myrick...............................                  X                                                   
Mr. Brownback.............................                  X                                                   
Mr. Shadegg...............................                                                                      
Mr. Radanovich............................                  X                                                   
Mr. Bass..................................                  X                                                   
----------------------------------------------------------------------------------------------------------------

    2. Mr. Hobson moved that the committee order reported with 
a favorable recommendation the text of the Seven-Year Budget 
Reconciliation Act of 1995, and pursuant to rule XX, clause 1 
of the Rules of the House, authorize the chairman to offer a 
motion to go to conference. The motion was agreed to by a 
rollcall vote of 24 ayes and 16 noes.

----------------------------------------------------------------------------------------------------------------
                  Member                       Aye       No                Member                Aye       No   
----------------------------------------------------------------------------------------------------------------
Mr. Kasich, Chairman......................        X             Mr. Sabo....................                  X 
Mr. Hobson................................        X             Mr. Stenholm................                  X 
Mr. Walker................................                      Mrs. Slaughter..............                  X 
Mr. Kolbe.................................        X             Mr. Parker..................        X           
Mr. Shays.................................        X             Mr. Coyne...................                  X 
Mr. Herger................................        X             Mr. Mollohan................                    
Mr. Bunning...............................        X             Mr. Costello................                  X 
Mr. Smith of Texas........................        X             Mr. Johnston................                  X 
Mr. Allard................................        X             Mrs. Mink...................                  X 
Mr. Miller................................        X             Mr. Orton...................                  X 
Mr. Lazio.................................        X             Mr. Pomeroy.................                  X 
Mr. Franks................................        X             Mr. Browder.................                  X 
Mr. Smith of Michigan.....................        X             Ms. Woolsey.................                  X 
Mr. Inglis................................        X             Mr. Olver...................                  X 
Mr. Hoke..................................        X             Ms. Roybal-Allard...........                  X 
Ms. Molinari..............................        X             Mrs. Meek...................                  X 
Mr. Nussle................................        X             Ms. Rivers..................                  X 
Mr. Hoekstra..............................        X             Mr. Doggett.................                  X 
Mr. Largent...............................        X                                                             
Mrs. Myrick...............................        X                                                             
Mr. Brownback.............................        X                                                             
Mr. Shadegg...............................        X                                                             
Mr. Radanovich............................        X                                                             
Mr. Bass..................................        X                                                             
----------------------------------------------------------------------------------------------------------------

    3. Mr. Sabo moved that:
          (1) The chairman be directed to convene a business 
        meeting of the Committee on the Budget not later than 
        Wednesday, October 18, to consider recommending 
        committee amendments to the Omnibus Budget 
        Reconciliation Act of 1995;
          (2) During the meeting called pursuant to paragraph 
        (1), the first order of business shall be consideration 
        of any amendments to the reconciliation bill proposed 
        by the chairman, provided that the text of any such 
        amendments is circulated to members of the committee 
        and made available to the public not less than 48 hours 
        before the meeting;
          (3) In the event the Committee on the Budget agrees 
        to recommend amendments to the reconciliation bill, the 
        chairman shall notify the Committee on Rules of the 
        recommended amendments and shall request, on behalf of 
        the Committee on the Budget, that the recommended 
        amendments be made in order, either as original text or 
        as amendments to be offered on the House floor. The 
        motion failed by a rollcall vote of 15 ayes and 22 
        noes.

----------------------------------------------------------------------------------------------------------------
                  Member                       Aye       No                Member                Aye       No   
----------------------------------------------------------------------------------------------------------------
Mr. Kasich, Chairman......................                  X   Mr. Sabo....................        X           
Mr. Hobson................................                  X   Mr. Stenholm................        X           
Mr. Walker................................                      Mrs. Slaughter..............        X           
Mr. Kolbe.................................                  X   Mr. Parker..................                  X 
Mr. Shays.................................                  X   Mr. Coyne...................        X           
Mr. Herger................................                  X   Mr. Mollohan................                    
Mr. Bunning...............................                  X   Mr. Costello................        X           
Mr. Smith of Texas........................                      Mr. Johnston................                    
Mr. Allard................................                  X   Mrs. Mink...................        X           
Mr. Miller................................                  X   Mr. Orton...................        X           
Mr. Lazio.................................                  X   Mr. Pomeroy.................        X           
Mr. Franks................................                  X   Mr. Browder.................        X           
Mr. Smith of Michigan.....................                  X   Ms. Woolsey.................        X           
Mr. Inglis................................                  X   Mr. Olver...................        X           
Mr. Hoke..................................                  X   Ms. Roybal-Allard...........        X           
Ms. Molinari..............................                  X   Mrs. Meek...................        X           
Mr. Nussle................................                  X   Ms. Rivers..................        X           
Mr. Hoekstra..............................                  X   Mr. Doggett.................        X           
Mr. Largent...............................                  X                                                   
Mrs. Myrick...............................                  X                                                   
Mr. Brownback.............................                  X                                                   
Mr. Shadegg...............................                                                                      
Mr. Radanovich............................                  X                                                   
Mr. Bass..................................                  X                                                   
----------------------------------------------------------------------------------------------------------------

    4. Ms. Rivers moved that the Committee on the Budget direct 
its chairman to request, on behalf of the committee, that the 
rule for consideration of the Omnibus Budget Reconciliation Act 
of 1995 provide a full opportunity for Members of the House of 
Representatives to offer amendments to any title or section of 
the reconciliation bill, as made in order for consideration in 
the Committee of the Whole, that has not been considered and 
approved by the appropriate committee or committees of the 
House of Representatives. The motion failed by a rollcall vote 
of 15 ayes and 23 noes.

----------------------------------------------------------------------------------------------------------------
                  Member                       Aye       No                Member                Aye       No   
----------------------------------------------------------------------------------------------------------------
Mr. Kasich, Chairman......................                  X   Mr. Sabo....................        X           
Mr. Hobson................................                  X   Mr. Stenholm................        X           
Mr. Walker................................                      Mrs. Slaughter..............        X           
Mr. Kolbe.................................                  X   Mr. Parker..................                  X 
Mr. Shays.................................                  X   Mr. Coyne...................        X           
Mr. Herger................................                  X   Mr. Mollohan................                    
Mr. Bunning...............................                  X   Mr. Costello................        X           
Mr. Smith of Texas........................                  X   Mr. Johnston................                    
Mr. Allard................................                  X   Mrs. Mink...................        X           
Mr. Miller................................                  X   Mr. Orton...................        X           
Mr. Lazio.................................                  X   Mr. Pomeroy.................        X           
Mr. Franks................................                  X   Mr. Browder.................        X           
Mr. Smith of Michigan.....................                  X   Ms. Woolsey.................        X           
Mr. Inglis................................                  X   Mr. Olver...................        X           
Mr. Hoke..................................                      Ms. Roybal-Allard...........        X           
Ms. Molinari..............................                  X   Mrs. Meek...................        X           
Mr. Nussle................................                  X   Ms. Rivers..................        X           
Mr. Hoekstra..............................                  X   Mr. Doggett.................        X           
Mr. Largent...............................                  X                                                   
Mrs. Myrick...............................                  X                                                   
Mr. Brownback.............................                  X                                                   
Mr. Shadegg...............................                  X                                                   
Mr. Radanovich............................                  X                                                   
Mr. Bass..................................                  X                                                   
----------------------------------------------------------------------------------------------------------------

    5. Mrs. Meek moved that the chairman be directed to seek a 
rule for consideration of the fiscal year 1996 reconciliation 
bill that makes in order an amendment that substitutes the 
formula passed by the Senate's Committee on Finance for the 
formula passed by the House of Representatives' Committee on 
Commerce for allocating the Medicaid block grants to the 
States. The motion failed by a rollcall vote of 8 ayes and 28 
noes.

----------------------------------------------------------------------------------------------------------------
                  Member                       Aye       No                Member                Aye       No   
----------------------------------------------------------------------------------------------------------------
Mr. Kasich, Chairman......................                  X   Mr. Sabo....................        X           
Mr. Hobson................................                  X   Mr. Stenholm................                  X 
Mr. Walker................................                      Mrs. Slaughter..............        X           
Mr. Kolbe.................................                  X   Mr. Parker..................                  X 
Mr. Shays.................................                  X   Mr. Coyne...................        X           
Mr. Herger................................                  X   Mr. Mollohan................                    
Mr. Bunning...............................                      Mr. Costello................                    
Mr. Smith of Texas........................                  X   Mr. Johnston................                    
Mr. Allard................................                  X   Mrs. Mink...................        X           
Mr. Miller................................                  X   Mr. Orton...................        X           
Mr. Lazio.................................                  X   Mr. Pomeroy.................                  X 
Mr. Franks................................                  X   Mr. Browder.................                  X 
Mr. Smith of Michigan.....................                  X   Ms. Woolsey.................        X           
Mr. Inglis................................                  X   Mr. Olver...................                  X 
Mr. Hoke..................................                  X   Ms. Roybal-Allard...........        X           
Ms. Molinari..............................                  X   Mrs. Meek...................        X           
Mr. Nussle................................                  X   Ms. Rivers..................                  X 
Mr. Hoekstra..............................                  X   Mr. Doggett.................                  X 
Mr. Largent...............................                  X                                                   
Mrs. Myrick...............................                  X                                                   
Mr. Brownback.............................                  X                                                   
Mr. Shadegg...............................                  X                                                   
Mr. Radanovich............................                                                                      
Mr. Bass..................................                  X                                                   
----------------------------------------------------------------------------------------------------------------

    6. Ms. Woolsey moved that the Committee on the Budget 
direct its chairman to request, on behalf of the committee, 
that the rule for consideration of the Omnibus Budget 
Reconciliation Act of 1995 make in order an amendment striking 
any cuts in student loans and striking any repeal or alteration 
of the corporate alternative minimum tax that may be included 
in the legislation brought before the House. The motion failed 
on a voice vote.
    7. Mr. Stenholm moved that the Committee on the Budget 
direct its chairman to request, on behalf of the committee, 
that the rule for consideration of the Omnibus Budget 
Reconciliation Act of 1995 make in order an amendment to be 
offered by Mr. Browder, Mr. Orton, and Mr. Stenholm, or their 
designee, bringing the Federal budget into balance by the year 
2002 while postponing tax cuts until a balanced budget has been 
achieved. The motion failed by a rollcall vote of 15 ayes and 
23 noes.

----------------------------------------------------------------------------------------------------------------
                  Member                       Aye       No                Member                Aye       No   
----------------------------------------------------------------------------------------------------------------
Mr. Kasich, Chairman......................                  X   Mr. Sabo....................        X           
Mr. Hobson................................                  X   Mr. Stenholm................        X           
Mr. Walker................................                      Mrs. Slaughter..............                    
Mr. Kolbe.................................                  X   Mr. Parker..................                  X 
Mr. Shays.................................                  X   Mr. Coyne...................        X           
Mr. Herger................................                  X   Mr. Mollohan................                    
Mr. Bunning...............................                      Mr. Costello................        X           
Mr. Smith of Texas........................                  X   Mr. Johnston................        X           
Mr. Allard................................                  X   Mrs. Mink...................        X           
Mr. Miller................................                  X   Mr. Orton...................        X           
Mr. Lazio.................................                  X   Mr. Pomeroy.................        X           
Mr. Franks................................                  X   Mr. Browder.................        X           
Mr. Smith of Michigan.....................                  X   Ms. Woolsey.................        X           
Mr. Inglis................................                  X   Mr. Olver...................        X           
Mr. Hoke..................................                  X   Ms. Roybal-Allard...........        X           
Ms. Molinari..............................                  X   Mrs. Meek...................        X           
Mr. Nussle................................                  X   Ms. Rivers..................        X           
Mr. Hoekstra..............................                  X   Mr. Doggett.................        X           
Mr. Largent...............................                  X                                                   
Mrs. Myrick...............................                  X                                                   
Mr. Brownback.............................                  X                                                   
Mr. Shadegg...............................                  X                                                   
Mr. Radanovich............................                  X                                                   
Mr. Bass..................................                  X                                                   
----------------------------------------------------------------------------------------------------------------

    8. Mr. Pomeroy moved that the Committee on the Budget 
direct its chairman to request, on behalf of the committee, 
that the rule for consideration of the Omnibus Budget 
Reconciliation Act of 1995 provide for an amendment to restore 
current law protections which protect spouses of nursing home 
residents from utter impoverishment and welfare dependence. The 
motion was withdrawn.
    9. Mr. Pomeroy moved that the Committee on the Budget 
direct its chairman to request, on behalf of the committee, 
that the rule for consideration of the Omnibus Budget 
Reconciliation Act of 1995 provide for an amendment to delete 
the provision reported by the Ways and Means Committee that 
suspends the penalty excise tax for corporations that withdraw 
employee pension funds for purposes other than to pay for 
retiree benefits. The motion was tabled by a rollcall vote of 
21 ayes and 15 noes.

----------------------------------------------------------------------------------------------------------------
                  Member                       Aye       No                Member                Aye       No   
----------------------------------------------------------------------------------------------------------------
Mr. Kasich, Chairman......................        X             Mr. Sabo....................                  X 
Mr. Hobson................................        X             Mr. Stenholm................                  X 
Mr. Walker................................        X             Mrs. Slaughter..............                  X 
Mr. Kolbe.................................        X             Mr. Parker..................        X           
Mr. Shays.................................        X             Mr. Coyne...................                  X 
Mr. Herger................................        X             Mr. Mollohan................                    
Mr. Bunning...............................                      Mr. Costello................                  X 
Mr. Smith of Texas........................                      Mr. Johnston................                    
Mr. Allard................................        X             Mrs. Mink...................                  X 
Mr. Miller................................        X             Mr. Orton...................                  X 
Mr. Lazio.................................        X             Mr. Pomeroy.................                  X 
Mr. Franks................................        X             Mr. Browder.................                  X 
Mr. Smith of Michigan.....................        X             Ms. Woolsey.................                  X 
Mr. Inglis................................        X             Mr. Olver...................                  X 
Mr. Hoke..................................        X             Ms. Roybal-Allard...........                  X 
Ms. Molinari..............................        X             Mrs. Meek...................                  X 
Mr. Nussle................................        X             Ms. Rivers..................                  X 
Mr. Hoekstra..............................        X             Mr. Doggett.................                  X 
Mr. Largent...............................        X                                                             
Mrs. Myrick...............................        X                                                             
Mr. Brownback.............................                                                                      
Mr. Shadegg...............................                                                                      
Mr. Radanovich............................        X                                                             
Mr. Bass..................................        X                                                             
----------------------------------------------------------------------------------------------------------------

                       Views of Committee Members

    Clause (2)(l)(5) of rule XI requires each committee to 
afford a 3-day opportunity for members of the committee to file 
additional minority, or dissenting views and to include the 
view in its report. The views submitted are found at the end of 
this report.
               MINORITY, ADDITIONAL, AND DISSENTING VIEWS

                              ----------                              


         MINORITY, ADDITIONAL, AND DISSENTING VIEWS TO TITLE II

                              ----------                              


                 Additional Views of Hon. Robert W. Ney

    As a member of the Committee on Banking and Financial 
Services, I would like to offer my views to be included in the 
final report in order to clarify my support of amendment No. 
26, section 2226(c) and 2243(c) offered by Congressman 
Stockman. This amendment essentially overturns an amendment to 
the Riegel-Neal Interstate Banking and Branching Efficiency Act 
of 1994 (Public Law 103-328) which effectively overruled an 
appellate court decision upholding congressional intent and 
Federal regulatory determinations regarding availability of 
limited types of home equity lending. Although I was unable to 
be present for the vote, I would like to be added to the record 
as a member in strong support of this amendment.
            Respectfully submitted,
                                   Robert W. Ney.
                              ----------                              


              Additional Views of Hon. Maurice D. Hinchey

    While I understand the need to modify programs under the 
committee's jurisdiction in order to meet the savings levels 
targeted in the budget resolution, I want to express my concern 
about the actions taken in regard to the Community Reinvestment 
Act [CRA]. The broad exemptions, self-certifications, and 
``safe harbor'' provisions have no place in this type of 
legislation. This is clearly an attack on CRA that attempts to 
skirt the traditional legislative through using the procedural 
protections afforded by the reconciliation process.
    The 7-year savings realized by these CRA provisions are 
estimated by the Congressional Budget Office to total $21 
million. However, the committee print altogether has scored 
almost $450 million above the level required by the budget 
resolution. Even if the CRA provisions were eliminated, the 
committee would save almost $430 million over the required 
amount. I think it is unfortunate that Congressman Kennedy's 
amendment to strike the CRA provisions from the bill was 
defeated by a slim margin.
    Gutting CRA will hurt low- and middle-income people across 
the Nation, in rural and urban areas, by encouraging banks to 
filter deposits from their communities. Credit availability 
will be reduced greatly as a result. In New York State alone, 
which has received an estimated $2.3 billion in credit due to 
the CRA, I expect credit availability to suffer dramatically if 
this is enacted.
    I would also like to explain my absence from several votes 
taken by the committee during consideration of this measure. 
Due to scheduling conflicts with the Resources Committee, which 
held its reconciliation markup concurrently, I was unable to be 
present for all of the votes in both committees. I made every 
effort to run back and forth from the two sessions, but 
unfortunately I was not able to be present for all of the 
votes.

                                   Maurice D. Hinchey.
        MINORITY, ADDITIONAL, AND DISSENTING VIEWS TO TITLE III

                              ----------                              


                        Minority Views--Spectrum

    We are ambivalent about the telecommunications provisions 
of the reconciliation legislation. Several provisions, in our 
view, improve current law, and we commend the majority for 
making these important changes. In the main, the majority 
fulfilled its reconciliation instructions while doing minimal 
damage to sound telecommunications policy and to spectrum 
users.
    However, we object vigorously to the notion that the radio 
spectrum is a bottomless drawer that can disgorge billions of 
dollars whenever the House Republican leadership runs short of 
cash.
    Perhaps the time has come for our committee to transfer 
responsibility for telecommunications policy from the Federal 
Communications Commission [FCC] to the Bureau of Engraving and 
Printing. Because in the House Budget Committee's latest search 
for ways to balance the Federal budget and fund a tax cut, the 
FCC has been transformed into the Government's very own bank.
    The majority should recognize that moving around spectrum 
users--at enormous expense, and with substantial disruption--is 
an indirect form of taxation. The revenues generated by 
instructing the Commission to conduct additional auctions may 
seem like found money. It is not. It will cause real companies 
to spend real money. The Republican majority should be aware 
that they are imposing significant costs on American 
businesses.
    In the Omnibus Budget Reconciliation Act of 1993, we 
authorized the Commission to use competitive bidding to assign 
licenses to use the radio spectrum. We believed then, and still 
believe, that this is a prudent mechanism for differentiating 
between mutually exclusive applications for the same spectrum 
license. That policy was intended to end the Commission's 
failed experience with lotteries, while promoting the efficient 
use of the radio spectrum and speeding the introduction of 
innovative new telecommunications services to the market. It 
has proven to be very successful, as demonstrated by the recent 
PCS auctions.
    In 1993, however, we were careful not to tamper with the 
Commission's process of allocating spectrum. Competitive 
bidding was intended to be, and should remain, simply a method 
of differentiating among competing applicants for the same 
license. It certainly was not intended to transform the process 
of assigning all radio spectrum into a commodities market.
    Furthermore, we made it clear in 1993 that the Commission 
should not base an allocation decision on the expectation of 
deriving more revenue through the competitive bidding process. 
We said that the Commission should make its decisions based on 
sound communications policy pursuant to the Communications Act, 
and not budgetary considerations.
    The committee reaffirmed these decisions. It made statutory 
changes to highlight the Commission's obligations to continue 
to use engineering solutions, negotiation, threshold 
qualifications, service regulations, and other means to avoid 
mutual exclusivity among licenses. In our view, this is a 
responsible change. Similarly, the committee's decision to 
extend competitive bidding authority for an additional 4 years 
was also responsible.
    However, it is simply irresponsible to craft 
telecommunications policy and enact laws based solely on the 
needs of the Republican leadership to fund a tax cut, or to 
generate revenues for the U.S. Treasury.
    Moreover, making spectrum use decisions based on the 
willingness of the Congressional Budget Office to score each 
megahertz with a specific dollar value perverts an already bad 
process, and results in mediocre--at best--spectrum policies. 
CBO's scoring has the effect of dictating the amount of 
spectrum that must be auctioned. Yet the so-called model that 
CBO utilizes is simplistic and unidimensional. It fails to 
recognize that spectrum is used by hundreds of thousands of 
American businesses to achieve otherwise unobtainable 
efficiencies. The committee's dependence on achieving a 
satisfactory CBO score--no matter how flawed--imposes an 
indirect tax on unsuspecting spectrum users. We are confident 
that they will make their views known to the majority.
    Perhaps the most irresponsible aspect of this bill stems 
from the majority's need to meet a budget reconciliation 
shortfall in another area. It was not clear what caused the 
shortfall--we were variously informed that it concerned the 
naval petroleum reserve or Food and Drug Administration user 
fees. The majority determined that it would exceed the $14.4 
billion that the Budget Committee had assigned to be generated 
from spectrum auctions by requiring the National 
Telecommunications and Information Administration [NTIA] to 
transfer an additional 20 mHz of federally controlled spectrum 
to the Commission for public auction.
    No inquiry or analysis was performed to determine where 
this spectrum would come from, or what the cost would be to 
relocate incumbent users.
    It is true that in the 1993 budget bill, Congress directed 
NTIA to transfer at least 200 mHz of Federal Government 
spectrum to the Commission. That action followed 5 years of 
hearings in both the House and the Senate, and extensive 
discussion with spectrum managers at NTIA.
    In its report to Congress pursuant to that act, NTIA 
identified 235 mHz of spectrum for transfer at a cost of $477 
to $592 million to relocate existing Federal users to new 
frequencies. That relocation cost is borne by the Federal 
agency that must be moved, and ultimately by the taxpayers.
    That 235 mHz of spectrum identified by NTIA had the lowest 
possible relocation cost. The next 20 mHz will necessarily cost 
more. The largest Government user of spectrum under 3 gHz is 
the Defense Department, and an estimate of the relocation cost 
to defense users actually exceeds the value of the spectrum on 
the open market. The added potential cost to public safety and 
national security has not even been addressed.
    The legislation further requires that if the Commission is 
unable to identify the entire 100 mHz for auction on its own, 
the NTIA must kick in the remainder. This mandate will not only 
be difficult to carry out due to the existing congestion in the 
radio spectrum below 3 gHz, but also will be devastating to the 
Government given the tremendous relocation costs that would be 
incurred. The toll on critical public services, such as 
national defense, law enforcement, and air traffic control, 
could pose an even greater threat.
    The dangers of budget-driven policymaking are real. 
Unfortunately, they often go unnoticed until disaster strikes. 
If the majority persists in treating spectrum licenses like 
penalty-free certificates of deposit, they run a very real risk 
of endangering communications that guide jumbo jets and 
maintain our defense systems.
    Radio spectrum is a vital national resource that is 
critical to protecting the public welfare, providing for public 
safety needs, and making American business more productive and 
efficient. Competitive bidding is a useful device to 
differentiate among competing applicants for the same license. 
But the bidding process should not be treated like a friendly 
banker, ever prepared to cough up whatever money is needed in 
any given year. Given the shortcomings inherent in crafting 
spectrum policies in the context of the budget process, the 
committee's majority has in most respects acted responsibly. 
However, its decision to require the Federal Government to 
vacate an additional 20 mHz of spectrum to cover a shortfall in 
another area is patently irresponsible, and will prove to cost 
far more to implement than projected by CBO's flawed cost 
estimates.

                                   John D. Dingell.
                                   Henry A. Waxman.
                                   Edward J. Markey.
                                   Ron Wyden.
                                   John Bryant.
                                   Rick Boucher.
                                   Thomas J. Manton.
                                   Edolphus Towns.
                                   Gerry E. Studds.
                                   Frank Pallone.
                                   Sherrod Brown.
                                   Blanche L. Lincoln.
                                   Bart Gordon.
                                   Elizabeth Furse.
                                   Peter Deutsch.
                                   Bobby L. Rush.
                                   Anna G. Eshoo.
                                   Ron Klink.
                                   Bart Stupak.
                              ----------                              


                  Minority Views--Reconciliation--WIPP

    The committee print amending the Waste Isolation Pilot 
Plant Land Withdrawal Amendment Act of 1992--WIPP Act--is both 
unnecessary and unwise. It substantially alters a law enacted 
less than 3 years ago, when changes have not been requested by 
either of the two Federal agencies responsible for the project 
or the State of New Mexico, where the facility is located.
    The legislation achieves little in terms of accomplishing 
its stated goal--to speed up the date on which WIPP will begin 
accepting waste for disposal. Testimony from the Department of 
Energy [DOE] indicates that enactment of H.R. 1663, the basis 
of this provision, would advance WIPP's opening--now scheduled 
for June 1998--by only 9 months.
    This paltry benefit comes at the expense of important 
environmental protections which DOE, the Environmental 
Protection Agency [EPA], and the General Accounting Office 
[GAO] all support. The legislation exempts WIPP from the land 
ban requirements under the Resource Recovery and Conservation 
Act, as well as from independent oversight by EPA. Both GAO and 
DOE testified that retaining these protections is critical to 
building public confidence in the facility--as well as DOE.
    It is particularly disappointing that this committee would 
vote to do away with independent oversight of a DOE nuclear 
weapons facility. The Commerce Committee has a distinguished 
record of oversight, done on a bipartisan basis, documenting 
the problems associated with allowing DOE to escape the sort of 
routine oversight which applies to private industry. This is 
particularly true in the area of nuclear safety, as 
demonstrated by the problems experienced at the DOE weapons 
plants at Rocky Flats, Savannah River, Hanford, and Fernald. 
The committee's concern about DOE self-regulation has resulted 
in enactment of legislation to subject DOE to outside scrutiny 
and increase its accountability--the Price-Anderson Amendments 
Act of 1988, the Defense Nuclear Facilities Safety Oversight 
Board Act of 1989, the 1992 Federal Facility Compliance Act, 
and of course the 1992 WIPP Act.
    The WIPP provisions agreed to in reconciliation run 
contrary to the reforms in which the Commerce Committee has 
previously taken the lead. Despite its initial resistance to 
outside scrutiny, DOE itself now strongly supports the concept 
of outside oversight. In exempting WIPP from key provisions of 
current law, the committee now sends a confusing signal to DOE, 
the State of New Mexico, and the public--not only in New Mexico 
but also in other States where DOE facilities are located--
regarding its intentions. We can only hope that this is an 
isolated incident and that the committee will resume its prior 
effort to shake off the final vestiges of the cold war by 
making DOE fully accountable to the public and to the Congress.

                                   John D. Dingell.
                                   Henry A. Waxman.
                                   Edward J. Markey.
                                   Ron Wyden.
                                   John Bryant.
                                   Rick Boucher.
                                   Thomas J. Manton.
                                   Edolphus Towns.
                                   Gerry E. Studds.
                                   Frank Pallone, Jr.
                                   Sherrod Brown.
                                   Elizabeth Furse.
                                   Peter Deutsch.
                                   Anna G. Eshoo.
                                   Ron Klink.
                                   Bart Stupak.
                              ----------                              


        Minority Views--Reconciliation--Naval Petroleum Reserves

    The minority is not opposed philosophically to privatizing 
Federal assets, so long as public policy concerns, including 
obtaining fair value for the taxpayer, are fairly addressed. 
Unfortunately, the committee print directing the Department of 
Energy [DOE] to sell the naval petroleum reserves does not meet 
this test. It instead reflects the pressures of the majority's 
self-imposed budget targets, which have led to a plan that 
authorizes what could well become a fire sale.
    The committee print includes several safeguards the 
Commerce Committee has adopted in prior legislation selling 
Federal assets. As in the case of privatizing Conrail, and in 
legislation to privatize the Government's uranium enrichment 
plants, the plan directs the responsible official--in this 
case, the Secretary of Energy--to engage outside financial 
advisors, to identify the best method of sale, and to establish 
an appropriate minimum price for the reserves.
    However, the effect of these prudent steps is nearly wholly 
undercut by a fatal flaw in the committee print--the 
requirement that the reserves be sold by the end of calendar 
1996. This deadline runs counter to the advice provided in 
testimony by both DOE and a private investment adviser. Both 
indicated that forcing the sale to occur on this timetable, 
which is driven solely by budget scoring concerns, is foolhardy 
and could depress the prices ultimately paid for these 
properties.
    Specifically, the Department indicated that the bill's 
prescriptive provisions would lock it into a schedule that 
would not permit it the flexibility needed to properly prepare 
for the sale. It also warned that the 1996 deadline might 
prevent DOE from properly analyzing the various oil and gas 
fields, from conforming its accounting methods to commercial 
standards, and from pursuing an optimal marketing strategy. DOE 
noted that the administration supports selling the reserves and 
held out hope that the reserves could be sold in 1996. However, 
it strongly appealed for an additional year, or some other 
failsafe mechanism, in order to ensure that a premature sale 
did not result in depressed bids.
    Similarly, the investment advisor--one of the country's 
foremost oil and gas acquisition specialists, who was invited 
by the majority--testified that an overly short deadline could 
reduce the sale price as potential purchasers discounted their 
bids to reflect uncertainties about the fields. This witness 
agreed with DOE that providing an additional year would be 
advisable.
    Unfortunately, the majority did not support the amendment 
offered by Mr. Brown to build flexibility into the Department's 
timetable in the event the Secretary and Director of the Office 
of Management and Budget determined that a quick sale would 
cheat the taxpayer out of the full value of these assets.
    Regrettably, the majority chose not to adopt an approach 
based on the committee's accrued experience in privatizing 
Federal assets. The elements of a sound and responsible 
transfer of Federal assets to private hands are not difficult 
to identify. The majority's rejection of a reasonable 
timetable, contrary to strong testimony, renders its overriding 
motives utterly transparent. It is akin to a breach of 
fiduciary duty by a family trustee who has sold off the family 
jewels in haste. The committee should not be party to efforts 
to produce apparent immediate relief for the Republican 
leadership's self-imposed time constraints at the expense of 
more responsible long-term stewardship of Federal assets on 
behalf of the taxpayer.

                                   John D. Dingell.
                                   Henry A. Waxman.
                                   Ed Markey.
                                   Ron Wyden.
                                   John Bryant.
                                   Thomas J. Manton.
                                   Edolphus Towns.
                                   Gerry E. Studds.
                                   Frank Pallone.
                                   Sherrod Brown.
                                   Blanche L. Lincoln.
                                   Elizabeth Furse.
                                   Peter Deutsch.
                                   Bobby L. Rush.
                                   Anna G. Eshoo.
                                   Ron Klink.
                                   Bart Stupak.
                              ----------                              


           Minority Views--Department of Commerce Elimination

    We strongly support streamlining the Government, finding 
ways to achieve efficiencies, and eliminating wasteful and 
unnecessary Federal spending.
    Unfortunately, the reported bill neither cuts Government 
spending nor reduces bureaucracy. It shuffles boxes for the 
sake of a trophy hunt, but to the great detriment of programs 
and activities that create and preserve American jobs, promote 
the sale of American products and services around the world, 
allow for effective representation of U.S. interests in trade 
negotiations, provide domestic and international 
telecommunications policy and advocacy functions, stimulate new 
technologies that produce high-technology, high-wage jobs, and 
spur investments to benefit communities, the environment, and 
the economy.
    The legislation is called the Department of Commerce 
Dismantling Act. Many other names could describe this ill-
conceived and hastily-drafted legislation.
    The bill could be called the Government Agency Creation and 
Proliferation Act of 1995. At least four new Federal entities 
are created by the bill:
          (1) the Commerce Programs Resolution Agency, vested 
        with broad authority to dispose of Department of 
        Commerce [DOC] programs, obligations, and functions--
        for which no funding is provided;
          (2) the U.S. Trade Administration, which commingles 
        existing functions of the U.S. Trade Representative 
        [USTR], the Bureau of Export Administration, 
        International Trade Administration, and National 
        Institute of Science and Technology;
          (3) the Federal Statistics Agency, which combines 
        DOC's Bureaus of the Census and Economic Analysis; and
          (4) the Patent and Trademark Office, a new 
        ``Government corporation.''
    Other committees considering this bill demonstrated the 
same propensity to create a plethora of new Federal entities. 
The Ways and Means Committee also created a new U.S. Trade 
Administration, but retained USTR and as a separate entity. The 
Science Committee created a new U.S. Science and Technology 
Administration, which may be the first step to a new Department 
of Science. The Transportation Committee created a new Office 
of Economic Development, combining the Appalachian Regional 
Commission with the Economic Development Administration [EDA]. 
The Resources Committee created the National Marine Resources 
Administration, a new independent agency housing most functions 
of the National Oceanic and Atmospheric Administration [NOAA].
    This creation and proliferation of new Federal agencies, 
each with its own new bureaucracy and new responsibilities, 
indicates the folly of what is happening here. Publicly, 
Republicans trumpet the spoils of their trophy hunt--to abolish 
a Cabinet agency. But anyone who reads the fine print knows the 
bills reported by the various committees would expand 
Government, increase the number of separate Federal agencies, 
and decrease the delivery of services that produce economic 
returns far in excess of the current Federal investment in the 
Department.
    The bill also could be called the ``Let's Make Sure No One 
Figures Out How Much This Bill Really Costs Act of 1995.'' 
There is no CBO cost estimate of H.R. 1756 (the Chrysler bill), 
H.R. 2124 (the Mica bill), or the bill reported by the Commerce 
Committee. Including this massive bill in reconciliation--
supposedly because it saves money--may be a good way to hide 
its real costs, but is no way to process important legislation.
    Representative Chrysler claims his bill would save $7.7 
billion over 5 years. But information OMB and CBO have provided 
to the committee indicates the bill will increase the deficit 
by about $2 billion during the same time. The Chrysler bill 
fails to provide for $2 billion in costs associated with 
closing the Department (including running the new Commerce 
Programs Resolution Agency, reductions in force, and contract 
terminations); falsely claims credit for cutting 25 percent of 
overhead charges, where no such charges exist; fails to include 
mandated costs of performing the 2000 Census and modernizing 
the National Weather Service; and falsely claims $325 million 
in savings from making the Patent and Trademark Office [PTO] 
fee-funded, when it already is 100 percent fee-funded.
    The reported bill certainly does nothing to increase any 
savings of the original Chrysler bill. It exempts the Census 
Bureau and PTO from huge cuts applicable to all other surviving 
DOC functions. By creating many new free-standing agencies, it 
increases costs resulting from box-shuffling and creating new 
bureaucracies. And, by transferring DOC functions to various 
new or existing agencies, it reduces effective internal 
oversight activities of such functions and programs.
    Any real savings in the legislation result primarily from 
provisions that permanently cap expenditures for surviving 
Department functions at 75 percent of fiscal year 1994 
expenditures for each function. This arbitrary, permanent cap 
translates to far more than 25 percent cuts from current 
appropriated levels because it is based on fiscal year 1994 
expenditures. Savings from the cap come not from dismantling 
the Department or creating new efficiencies, but instead from 
deep cuts in personnel and resources needed to carry out 
important statutory responsibilities. In fact, these cuts will 
make it impossible to perform the transferred functions 
effectively. Had our colleagues chosen to eliminate or modify 
statutory mandates relating to surviving DOC functions, this 
enormous, permanent reduction in funding might be justified, at 
least in fiscal terms. But preserving certain functions because 
they serve critical and necessary goals while precluding the 
ability to perform such functions appropriately is questionable 
policymaking at best and sheer intellectual dishonesty at 
worst.
    The legislation might be called the ``I Have No Idea What's 
In The Bill But I'm All For It Anyway Act of 1995.'' With just 
one hearing--no hearings were held on the bill actually 
considered by the committee--and no effort to construct 
bipartisan legislation, our colleagues have provided a gross 
example of how expedient political goals produce very bad 
legislation.
    During markup, neither Members nor staff could explain the 
meaning, justification, or import of many provisions of the 
bill. For example, section 3205 repeals 11 explicit statutes 
relating to NOAA. No one could explain what these laws are or 
what they do. One Member noted these provisions could not even 
be explained by the primary committee of jurisdiction. Section 
3205 also repeals ``All other acts inconsistent with this 
subsection.'' Upon questioning, we were informed that no one 
could ascertain either the meaning or import of this provision. 
This is but one blatant example of provisions that will cause 
great confusion and prompt litigation.
    Questions regarding the newly-created Patent and Trademark 
Corporation, including those relating to the constitutionality 
of transferring broad judicial and regulatory responsibilities 
to a Government corporation that is basically unaccountable to 
any Federal authority, were similarly unanswered, or perhaps 
unanswerable. Questions on the effect of exempting PTO 
employees from ``provisions of title 5 relating to Federal 
employees'' and the reason for not applying the Federal 
Advisory Committee Act (the so-called Sunshine Act) or the 
Freedom of Information Act to the Board of the PTO corporation 
were not adequately explained.
    Even more basic questions were not answered. For example, 
no one could really say why it makes any sense to transfer NOAA 
to the Department of Agriculture--an approach Republicans on 
the Resources Committee explicitly rejected. The first 
Republican amendment offered to the substitute--to ensure that 
the Department of Agriculture would track hurricanes--
underscores the absurdity of the approach taken in the bill.
    Nor could anyone describe what an ``independent 
establishment within the executive branch of Government'' is, 
how it differs--if at all--from independent agencies like the 
Securities and Exchange Commission, or its relationship to 
other Executive branch departments and agencies. In fact, 
another Republican amendment was adopted to make the new 
entities created in the bill ``free-standing''--a term that, so 
far as we can determine, may not appear anywhere in the United 
States Code to describe an agency of the Federal Government.
    No one can explain why the bill abolishes domestic offices 
of the Commercial Service, which provide ``how to'' export 
assistance to smaller businesses, when estimates indicate these 
offices return $10.40 in increases sales, profits, jobs, and 
income for every dollar invested. No one can explain why 
Members who helped defeat a floor amendment to abolish EDA on 
July 26 voted in committee against an amendment reflecting the 
bipartisan EDA legislation reported by the Transportation 
Committee last week.
    No one can explain why the reported bill commingles USTR 
and other trade/export functions performed by DOC in a new sub-
Cabinet agency, makes huge funding cuts in surviving DOC 
functions--thus causing great disruption to employees, our 
foreign and national security interests, and to trade 
negotiations--and then requires USTR to submit a 
``comprehensive plan to consolidate Federal trade programs and 
activities.'' No one can explain how much leakage of critical 
technologies to countries like Iran, Iraq, North Korea, and 
Libya will occur when the permanent funding cap is immediately 
applied to functions previously performed by the Bureau of 
Export Administration--or how the funding cap will affect all 
other surviving DOC functions.
    We do note the Republican substitute corrected one of the 
more glaring defects of the Chrysler bill. Under the Chrysler 
bill's permanent spending cap, annual expenditures of the 
Census Bureau would be forever limited to less than $14 
million, thus ensuring that neither the year 1997 5-year 
snapshot or the year 2000 census could be taken. We note the 
cost of just mailing out postcards to the estimated 117 million 
households in 2000, at the current rate, would amount to more 
than $23 million. By exempting the Census Bureau from the 
permanent funding cap, the substitute amendment evidently 
envisions allowing the Bureau to perform its constitutional 
duties.
    But this one correction does not conceal the fact that no 
one really knows what is in this bill, how it will work, or how 
much money it will cost. This is what happens when one is more 
interested in scoring political points than in legislating 
responsibly and sensibly.
    We stand ready to work with our colleagues to craft 
responsible and sensible legislation that really will 
streamline Government programs and eliminate wasteful and 
unnecessary Federal spending.
    This, however, is not such a proposal.

                                   John D. Dingell.
                                   Henry A. Waxman.
                                   Ed Markey.
                                   Ron Wyden.
                                   John Bryant.
                                   Rick Boucher.
                                   Thomas J. Manton.
                                   Edolphus Towns.
                                   Gerry E. Studds.
                                   Frank Pallone, Jr.
                                   Sherrod Brown.
                                   Blanche Lambert Lincoln.
                                   Bart Gordon.
                                   Elizabeth Furse.
                                   Peter Deutsch.
                                   Bobby L. Rush.
                                   Anna G. Eshoo.
                                   Ron Klink.
                                   Bart Stupak.
                              ----------                              

                          House of Representatives,
                                     Committee on Commerce,
                                  Washington, DC, October 10, 1995.
Hon. John R. Kasich,
Chairman, Committee on the Budget,
Washington, DC.
    Dear Mr. Chairman: On Monday, October 9, 1995, I 
transmitted to you the recommendations of the Committee on 
Commerce for changes in laws within its jurisdiction with 
respect to the Medicaid program, pursuant to the provisions of 
section 310 of the Congressional Budget Act of 1974 and section 
105(a)(2)(B)(iii) of House Concurrent Resolution 67, the 
Concurrent Resolution on the Budget--fiscal years 1996-2002.
    Regrettably, because of the Columbus Day holiday, when the 
committee transmitted its recommendations, the committee had 
not received the minority's dissenting views. The minority 
delivered their views to us this afternoon, and pursuant to our 
prior understanding, I am transmitting those views to you 
herewith for inclusion in the Commerce Committee's report 
language for title XVI of the Fiscal Year 1996 Omnibus Budget 
Reconciliation Act.
    If I can be of any further assistance to you as you proceed 
with your committee's deliberations, please do not hesitate to 
contact me.
            Sincerely,
                                     Thomas J. Bliley, Jr.,
                                                          Chairman.
    Enclosure.
                              ----------                              


    Minority Views on the Passage of the Medicaid Transformation Act

    Future generations might very well label the ``Medicaid 
Transformation Act'' as the ``Medicaid Decimation Act.'' This 
Act essentially abrogates the Federal Government's 
responsibility to protect and improve the health care of 
millions of Americans. Instead, it provides States with a 
virtually no-strings-attached check in the form of a block 
grant. Under the guise of ``flexibility,'' the act fails to 
include even the most rudimentary enforceable requirements that 
the States use taxpayer funds to provide essential health care 
services to especially vulnerable and needy Americans.
    It allows the States--with only minor Federal involvement--
to determine who will receive services and what, if any, 
benefits they will receive. Further, it allows the States to 
determine how--if at all--they will regulate, oversee, and 
control participating providers. In short, the Medicaid 
Transformation Act slices the cord on a three-decade old safety 
net that has helped millions. Presently, the program serves 
about 18 million children, 4 million aged; 6 million disabled, 
and 8 million nondisabled adults.
    The process by which this legislation evolved was 
particularly troubling. Aside from being veiled in secrecy with 
almost no opportunity for public input or congressional debate 
on the particulars of the proposal, the process culminated with 
committee members receiving legislative language only 36 hours 
before markup began: 36 hours to assess the impact of this 160-
page health care bill for 36 million Americans; 36 hours to 
understand how 50 States could absorb a staggering $182 billion 
in cuts without depriving poor women, children, and elderly 
people of essential health care services; 36 hours to calculate 
how each State could effectively run a Medicaid program with 
growth caps as low as 2 percent of current spending; 36 hours 
to evaluate the potential impact of a State refusing to cover 
people whose only current access to care is through Medicaid; 
36 hours to determine what happens if a State is unable to pay 
for health care when there is a recession, and thus a sudden 
increase in the number of people who need care; and finally, 36 
hours to examine the effect on senior citizens of a State's 
failure to provide effective oversight over nursing homes.
    Over the course of 2\1/2\ days, Democratic members 
endeavored to correct some of the many flaws of the Republican 
plan. But, hiding behind a red herring dubbed ``State 
flexibility,'' Republicans in lockstep opposed virtually every 
amendment offered. Most of these amendments were designed 
simply to maintain existing protections critical to any viable 
health care program.
    For example, one amendment would have ensured that States 
maintain basic nursing home standards enacted in the Omnibus 
Budget Reconciliation Act of 1987. These requirements were put 
in law after it became evident--through a succession of nursing 
home horror stories--that States either couldn't or wouldn't 
regulate the nursing home industry. They include prohibitions 
on the use of physical restraints or mind-altering drugs and 
other similar protections against poor and abusive care. 
Despite widespread belief that Federal regulation of nursing 
homes is working, the amendment was defeated. Republicans 
argued--not surprisingly--that States needed flexibility. But 
flexibility to do what? Leave the elderly vulnerable to such 
atrocities? Let the States pick and choose what protections the 
nursing home lobby of their State would allow them to 
implement? Or, at best, simply reinvent the wheel and repeat 
what already has been achieved and implemented efficiently by 
the Federal Government?
    Over the next several days, dozens of amendments designed 
to protect the working middle class and the poor, and moderate 
the dismantling of Medicaid, were presented but quickly shot 
down.
    Amendments were offered to maintain current provisions of 
law to protect against impoverishing spouses and adult children 
or imposing liens on family homes and farms to pay nursing home 
care for Medicaid-eligible individuals. They were defeated. 
Amendments to guarantee continued health care coverage for poor 
children, pregnant women, and infants and children with special 
needs were defeated. An amendment to provide coverage for 
mothers attempting to leave welfare and move to the work force 
was defeated. Even an amendment to ensure coverage for 
screening and treating of women with breast and cervical cancer 
was defeated.
    The attack on health care for the most vulnerable in 
America did not end there. An amendment to reward States that 
had made progress in reducing health care costs through 
creative Medicaid demonstration programs was killed; an 
amendment to establish a public process for determining 
appropriate provider payment rates was killed; an amendment to 
guarantee access to good-quality care for rural residents 
through adequate payments to rural clinics was killed; an 
amendment to modify the formula was killed.
    The form in which this act finally prevailed is startling. 
Now, regardless of decades of painful lessons demonstrating 
that laissez faire with the taxpayers' money doesn't work, 
States will determine--with no guidance or requirements--what, 
if any, money they will spend to provide health care to the 
needy. If a State suddenly finds itself faced with a dramatic 
increase in eligible individuals--such as during a recession, 
for example--it will be forced to cut services, expel 
beneficiaries, or both. And there is no contingency plan to 
deal with what happens if a State runs out of money--the 
revolution apparently moves too fast to worry about small 
details such as this. States, local governments, and--more 
importantly--helpless beneficiaries must now assume all the 
risks.
    Republicans have proclaimed their plan an ``improvement'' 
that ``saves'' Medicaid. In reality, the Medicaid 
Transformation Act transforms this health care program into a 
shapeless, faceless shadow. The act provides that States will 
receive an annual check with which they can play Russian 
roulette with who gets health care and who doesn't. This is 
literally passing the buck. The Republican blueprint merely 
transforms a program--with some flaws--about which we know a 
great deal, into 50 programs about which we know nothing. As 
the Republicans have provided no details on how the States 
intend to do any of this, Medicaid is now flying blind without 
a compass in sight.
    Of course, there is the shop-worn view that managed care 
will somehow be a magic bullet for each State. But managed care 
can offset only a fraction of the $182 billion in cuts over 7 
years, and will barely dent the sparse 2 percent growth caps 
imposed on many States. Further, the act provides for 
distribution of Federal funds to States based on a formula that 
is almost certain to fail, and that reduces some States' 
spending to levels that cannot possibly provide sufficient 
funds or flexibility to serve their citizens. And even if 
States could implement managed care systems perfectly, it is 
foolish to assume that health care for millions isn't still in 
jeopardy. As a prominent leader in one of the Nation's most 
successful State managed care programs reminds us, ``you can't 
do it on the cheap, and you can't do it on the quick.'' The 
Republican plan rejects that wisdom and depends on both.
    September 22, 1995--the day this act passed--will not be 
remembered as a day when legislative compromise triumphed or 
sound public policy prevailed. Instead, it will be remembered 
as a day when a huge social experiment was unleashed by 
Congress with almost no details or public discussion. And 
because this plan essentially risks the health care of 
millions, this date might also be remembered as a day in which 
some of the most socially irresponsible legislation ever was 
passed by the Committee on Commerce.
                                   John D. Dingell.
                                   Henry A. Waxman.
                                   Ed Markey.
                                   Ron Wyden.
                                   John Bryant.
                                   Rick Boucher.
                                   Thomas J. Manton.
                                   Edolphus Towns.
                                   Gerry E. Studds.
                                   Frank Pallone.
                                   Sherrod Brown.
                                   Blanche L. Lincoln.
                                   Bart Gordon.
                                   Elizabeth Furse.
                                   Peter Deutsch.
                                   Bobby L. Rush.
                                   Anna G. Eshoo.
                                   Ron Klink.
                                   Bart Stupak.
                              ----------                              


    Separate Views of Mr. Dingell on the Medicaid Transformation Act

    The Commerce Committee majority transmitted its report on 
the Medicaid title of the reconciliation bill to the Budget 
Committee at about 6 p.m. on Monday, October 9--a national 
holiday--apparently at the insistence of the Budget Committee's 
staff. Until that moment, the majority and minority on the 
Commerce Committee had operated under a longstanding, well-
established, and mutually beneficial process for the filing of 
committee reports and any accompanying minority, dissenting, 
separate, and other views.
    Under that process, followed prior to January 1995 when the 
Democrats were in the majority and since January 1995 when the 
Republicans have controlled the House, near-final drafts of 
committee reports would be shared with the minority, who would 
be given a reasonable--and sometimes more than reasonable--
period of time to review their contents and suggest changes, 
edits, or other modifications. Of course, the minority does not 
have a veto over the contents of the report, and the majority 
is certainly entitled to include in a report both its policy 
judgments and whatever conclusions it may draw from the facts 
in the record. But the minority has always been permitted to 
question the accuracy of factual assertions in the report or to 
ask that potential misimpressions of fact be clarified. On more 
than a few occasions, conclusory statements based on such 
factual errors or misimpressions have had to be adjusted 
accordingly. And of course, suggestions as to grammar and 
syntax have generally been welcomed.
    This process resulted in a better, more professional 
committee product. Although it took some modest additional time 
and occasionally provoked some professional disagreements, the 
process produced documents that could be relied upon 
confidently in future years by both sides and by any outside 
party as reliable sources of legislative history and especially 
the committee's intentions. It also saved the majority from 
potential embarrassment on the House floor, where the manager 
of the bill can be called upon by opponents to explain errors 
and omissions in the report.
    The majority and minority on this committee generally 
worked well with one another during this process, probably 
because it was based on mutual courtesy and respect rather than 
on any written rule or right. In return for the courtesy of 
being given a reasonable time to review and comment upon the 
draft report prior to its filing, the minority committed to not 
using its views to criticize or even comment directly upon the 
contents of the report.
    Until now, I am not aware of a single instance in which 
that process produced an unsatisfactory result or in which 
either side breached its understandings with the other. 
Regrettably, although hopefully not irreparably, that 
unblemished record has been stained by the filing of this 
Medicaid report.
    This half-inch thick, single-spaced document was shared 
with the minority for the first time at 11 a.m. on Monday 
morning, October 9--2 hours after the Republican majority 
delivered to us for the first time its 400-plus page amendment 
in the nature of a substitute for the Medicare bill that was to 
be marked up the following day. Although that day was a 
national holiday, the minority staff was working to prepare for 
the Medicare markup. At around 4 p.m., we were informed for the 
first time that the majority planned to file the Medicaid 
report that afternoon. The only reason given was that the staff 
of the Budget Committee was demanding it. It obviously would 
have been impossible for the staff to review and offer 
intelligent comments on a document of that size and scope in 
just a few hours even if there were no other business pending 
that day or the next. Being placed in that position with a 
Medicare markup looming the next day went well beyond the point 
of reasonableness.
    I am deeply perturbed that neither the chairman of the 
committee nor the committee staff had sufficient respect for 
their professional relationship with the minority or for the 
traditions of the committee to tell Mr. Kasich that he would 
simply have to wait, even if only overnight. But apparently 
such respect is lacking, for the report was indeed transmitted 
at around 6 p.m. that evening, with no minority review, input, 
or views--although we were told that the Budget Committee staff 
promised to include our views later in the printed report on 
the reconciliation bill. In light of this unprecedented breach 
of comity, I take this opportunity to do precisely what the 
minority, both Republican and Democratic, have always refrained 
from doing in minority, dissenting, or separate views--that is, 
commenting directly upon the contents of the report. There is 
indeed much to comment upon, because the extreme ideological 
agenda underlying the bill has resulted in the inclusion of a 
number of questionable factual assertions and the omission of a 
number of inconvenient facts to convey false impressions in the 
report. The speed with which it was obviously prepared to meet 
an artificial deadline has also resulted in a certain 
sloppiness in the use of language which does the committee 
little credit. I will highlight just a few examples:
    South Carolina's Neonatal Cocaine Treatment and Prevention 
Program. The report contains a discussion of a program at the 
Medical University of South Carolina [MUSC] designed to reduce 
the number of crack babies. The report describes the program as 
an ``unprecedented success'' and decries the Federal Department 
of Health and Human Services' threats to terminate Federal 
funding as an example of unwarranted Federal interference with 
State innovation. The report fails entirely to note that HHS 
became involved only because serious concerns were raised about 
the inadequacy of MUSC's institutional systems for protecting 
human research subjects; the program was found to be violating 
the Civil Rights Act; and research experts declared the project 
to be ``the worst kind of research, conducted by individuals 
who are not * * * qualified or competent.'' Incidentally, the 
attorney general of South Carolina, who testified at the 
subcommittee about the State's experience with HHS, was at the 
time of the hearing a named defendant in a lawsuit aimed at 
ending these abuses.
    The Governors' Testimony. In discussing the Health 
Subcommittee's June 8, 1995, hearing on Medicaid, the report 
dutifully notes the appearance of several Governors, including 
Florida's Governor Chiles, and discusses some--but only some--
of the testimony presented. To read the report, one would think 
that only Governors Edgar of Illinois and Engler of Michigan 
had anything useful to say. The report totally ignores Governor 
Chiles' testimony, which emphasized the great danger to senior 
citizens, poor people, and the States of limiting the growth of 
Federal spending on Medicaid, especially for growth States like 
Florida which are experiencing tremendous increases in their 
elderly populations.
    Statements of Committee Intent. The report generously 
expresses ``the committee's intention''--an intention not 
reflected anywhere, to my knowledge, in the record of the 
markup--``that states protect against the impoverishment of the 
community spouses and adult children of institutionalized 
family members'' and that ``the policy under current law * * * 
shall apply to children of institutionalized parents.'' Of 
course, there is absolutely no provision in the bill itself 
that ensures this result. In fact, the actual legislative 
record of the committee would convey to the objective observer 
precisely the opposite impression. The Republican members of 
the committee voted unanimously against Democratic amendments 
to preserve in statutory language precisely the protections now 
in current law. Thus, the intention expressed in the report is 
not only worthless as legislative history, it is contradicted 
directly by the plain record of the markup. Other expressions 
of the committee's intention sprinkled throughout the report 
should similarly be viewed with some skepticism.
    There are many more examples of incorrect, misleading, or 
simply sloppy draftsmanship in the report in question. I have 
resisted the temptation to deal with the multitude of 
grammatical, syntax, and proofreading errors we might have been 
able to point out to the majority if given the chance--some of 
which, incidentally, dramatically alter the meaning of the 
sentences in which they appear.
    For the moment, at least, it should suffice to observe that 
for no particularly good reason, the minority has been denied 
an important and traditional courtesy always accorded to the 
Republican members on this committee when they were in the 
minority. Regrettably, one of the few areas in the 104th 
Congress in which a modicum of decency and comity still 
prevailed has gone the way of so many other traditions of 
decency and comity in the House--swallowed up in the 
Republicans' urgent zeal to remake America because, like 
democracy itself, it is occasionally inconvenient. It is not 
too late to retrieve this mistake; for now, however, the 
question of whether it is worth retrieving--and worth 
preserving for the future--lies in the hands of the chairman 
and his Republican colleagues.
                                   John D. Dingell.
         MINORITY, ADDITIONAL, AND DISSENTING VIEWS TO TITLE IV

                              ----------                              


     Views of Democratic Members of the Committee on Economic and 
 Educational Opportunities on Budget Reconciliation, September 29, 1995

    The Democratic members of this committee support national 
policies and programs to expand access to higher education. We 
offer no apology for our party's half-century support for 
programs that have enabled tens of millions of Americans of all 
walks of life to attend college.
    The Federal Government's investment in higher education has 
had an extraordinary rate of return. Student aid has made our 
society fairer, more mobile, and more prosperous. Our economy 
is the strongest in the world, in large part, because our 
colleges have produced highly trained scientists, engineers, 
and managers. And considering the global competition American 
firms now face, the Federal Government should be doing more, 
not less, to expand access to college.
    That is why Democratic members of this committee support 
expanding access to higher education. And that is why we oppose 
the committee's budget reconciliation proposal. The Republican 
reconciliation proposal requires student loan cuts of $10.1 
billion over the next 7 years. In a nutshell, the majority's 
proposal will hurt students and parents. It will mean fewer 
loans. It will mean fewer banks participating in the program. 
Ultimately, the proposal could undermine the entire loan 
program.

              student aid cuts are completely unnecessary

    Let us be clear about one thing: The committee does not 
have to cut the Student Loan Program to balance the budget. 
Republican claims to the contrary are easy to refute. Committee 
Democrats need only point to the House Republican proposal to 
hand out $245 billion in tax cuts to wealthy families; if our 
Nation can afford that extravagance, we should not be 
increasing college costs with this proposal.
    The committee should not make these cuts for another, very 
simple reason--student loans have already been cut to the bone. 
Every time the committee has written a budget reconciliation 
bill in the past decade, it has cut student loans. We cut them 
by $477 million in 1986; by $295 million in 1989; by $2 billion 
in 1990; and by $4.3 billion in 1993. The committee has cut 
this program by more than $7 billion in the past 10 years. 
Student loans have already given at the office; they have made 
their fair share of sacrifice.
    We think it is ironic that our Republican colleagues are 
trying to take some degree of credit for not including the 
elimination of the in-school interest subsidy in this 
reconciliation proposal. That is interesting, since it was the 
House-passed Republican budget resolution that suggested 
eliminating this subsidy in the first place, and it was the 
House Republican chairs of the authorizing committee and 
authorizing subcommittee who wrote in The Washington Post, that 
eliminating the subsidy was the fair thing to do.\1\ This 
proposal did not just spring from thin air; it was the 
Republican proposal. It was they who advocated reducing student 
loan spending by $18 billion; they said it was doable. Now 
apparently because students and parents have increased the heat 
on them, and because our colleagues in the Senate realized how 
foolhardy these contentions were, House Republicans are 
retreating.
    \1\ See exhibit 1.
---------------------------------------------------------------------------
    The Republicans painted themselves into a corner. Because 
they counted on savings from eliminating the subsidy to meet 
their reconciliation savings target of $10.1 billion in student 
loan cuts, they now have to find other ways to reduce student 
loan spending. And the Republicans cannot avoid reducing 
student benefits or charging their parents more in order to 
comply with the conference agreement's instructions to the 
committee.

             republican cuts will hurt students and parents

    The proposal the majority has adopted does away with the 
interest subsidy to students during the first 6 months after a 
student leaves school. Eliminating this subsidy will increase 
students' costs by $3.5 billion, a pretty hefty tax on student 
borrowing. The proposal ignores one of the principal reasons 
this 6-month grace period was put in the law in the first 
place. It was adopted to help reduce potential defaults.
    We know that many students often do not get a job right 
after college for a variety of reasons. Some are studying for 
licensing exams. Some have a hard time finding employment. The 
committee discovered it was less costly to give these students 
a little time to get their feet on the ground--to get a job, 
earn some money, and begin paying their bills--than having to 
cover the costs of potential loan defaults. Reliable studies 
clearly demonstrate that loan defaults occur most frequently in 
those first few months after a student completes school. So 
students were given 6 months to get their economic house in 
order.
    Now the Republicans want to ignore reality, to ignore all 
the facts, and take this away. Doing away with the grace period 
interest subsidy will not only cost students more--$3.5 billion 
more over 7 years--but it could lead to increased loan 
defaults. This is bad, illogical public policy.
    The other parts of the Republican proposal are just as bad. 
Republicans have reduced the amount of money parents can borrow 
under the PLUS Loan Program for parents of college students. 
They have also increased the interest rate charged to parents 
on loans they receive. Why they insist on charging parents more 
to borrow less is beyond us. This is not a sound way to balance 
a budget. And, from information from major lenders in the 
parent loan program, these changes could totally undermine the 
PLUS Program. Past experience points out very clearly that the 
only result from the kinds of changes our colleagues have 
adopted will be fewer loans to fewer students. Their heated 
protestations notwithstanding, Republicans cannot escape that 
fact.
    We also know that, with the Republican imposition of new 
costs to parent loan lenders, guaranty agencies and secondary 
markets, lenders could well leave the program. This is no idle 
speculation; these program participants have put the Congress 
on notice time and time again that they will refuse to make or 
guarantee loans if student loans become less profitable. They 
repeated that concern to us recently when these Republican 
options were first floated. If lenders leave the program, 
students will be the losers. Fewer loans will be made. Or 
certain students, especially high-risk students, will not get 
loans. Simply put: lenders will redline.
    The reduction of payments to State guaranty agencies--
agencies that have been established to assist and encourage 
private lenders to participate in the program and to monitor 
loan practices to ensure program integrity--could also lead to 
fewer loans being made, and potentially increased loan 
defaults. It is no exaggeration to fear the eventual downfall 
of the entire Student Loan Program.
    Another provision adopted by the majority would shift more 
costs to the States, which could cause a further decline in 
student loans. States may be less willing to guarantee loans, 
especially to at-risk students. Again, students could be hurt 
significantly.

                   elimination of direct loan program

    The majority proposal also terminates an important Student 
Loan Program, the Direct Lending Program. This is the second 
student aid program that the House Republicans have voted to 
eliminate in the last 2 months. At a time when the Federal 
Government should continue its efforts to expand access to 
higher education for all deserving students, the Republicans 
inexplicably reverse course, eliminating worthy programs.
    The proposal to terminate direct lending is particularly 
disconcerting considering the program receives its highest 
accolades from the very schools and students who have had the 
opportunity to participate in direct lending. Members on both 
sides of the aisle need only read their mail to learn that the 
constituents who use the program like the program.
    The program significantly simplifies the loan application 
process to the benefit of students. It brings much-needed 
competition to the student loan system. Students and schools 
have informed us that competition from direct lending has led 
to significant improvements and streamlining in the bank-driven 
loan program. Further, with the elimination of the Direct Loan 
Program, consolidation of the student loan market will result--
to the injury of the ultimate customers, students, and their 
parents.
    The Republican claim of budget savings from the elimination 
of the program is based on manipulated budget numbers. A fairer 
scoring would show that direct lending saves money for the 
Government. Perhaps that is one reason, among many, why Federal 
Reserve Board Member Lawrence Lindsey (a Republican appointee) 
and former Reagan economist William Niskanen (now of the CATO 
Institute) oppose terminating the program.\2\
    \2\ See exhibit 2 and 3.
---------------------------------------------------------------------------
    Why the Republicans want to eliminate a program that works 
to the benefit of schools and students, and that brings 
competition into our student loan system seems to have more to 
do with political posturing than sound public policy. Or, maybe 
it is because they favor the interests of big banks more than 
those of students and working families. That could be one of 
the reasons that they have adopted a provision that reduces 
lenders fees. Why should banks be charged less while students 
and parents are charged more? Whatever their reasoning, we can 
find no justification for eliminating a program that benefits 
students while at the same time reducing fees to lenders. In 
our opinion, that is bad policy.

                        legislating in the dark

    The majority will deny the harmful effects of their 
reconciliation proposal, but they cannot present any hearing 
record to demonstrate the purported benign effect of their 
cuts. They cannot do that because there is no meaningful 
hearing record. There was not a single hearing on the proposal 
the committee considered.\3\
    \3\ On May 23, 1995, the Oversight and Investigations Subcommittee 
held a hearing on the operation of the Federal Direct Loan Program. 
Most of the witnesses offered testimony favorable to the program. Of 
the half-dozen or so witnesses who testified, only one, Representative 
Ernest Istook (R-OK) who is not a committee member, testified that the 
program should be abolished.
    Curiously, full committee Chairman Bill Goodling sang a different 
tune on that spring day. Expressing support for allowing the direct 
loan program to continue operating, albeit on what he described as a 
``level playing field'', Mr. Goodling stated:

        Why not find that out by having the two systems [the 
      direct loan program and the guaranteed loan program] or 
      three systems working at the same time, fairly, on a level 
      playing field, and then making the decision which way we 
      should go.
    The committee never heard any testimony on how much could 
safely be cut from the program. We never heard any testimony on 
what impact this proposal will have on both the availability 
and cost of loans. We never heard any testimony from students 
or parents or the smaller banks that participate in the 
program.
    The Republicans have simply put themselves in a bind caused 
by their rush to cut taxes and find a way to pay for those tax 
cuts. Cutting student loans is merely a convenient target. 
Their leaders first said they could easily make these cuts. Now 
they realize that their initial proposal generated considerable 
opposition and would have caused tremendous harm to students 
and parents. It would have made it increasingly difficult for 
these families, especially working class families, to pay for 
college. Now they are quickly trying to backtrack, but the 
proposal they have reported out has the potential of 
undermining student loans and making it quite probable that 
fewer students will be eligible for fewer and fewer student 
loans. And it appears that they are cutting a slick deal for 
banks in the process. We think this is appalling.
    It is time for the House Republicans to admit that their 
initial plans were wrong. Student loans are investments in our 
future. Our Nation will continue to be competitive and 
productive only if we have a well-educated and well-trained 
work force. Student loans help us achieve that goal. They are 
the last cuts we should make.

            repeal of davis-bacon and service contract acts

    The proposed repeal of the Davis-Bacon Act and the Service 
Contract Act is farcical. The Senate parliamentarian has 
already ruled that repeal of these two laws may not be included 
in the Senate budget reconciliation legislation because it 
would violate the Byrd Rule.\4\ So what is the point? And to 
the extent that there are any savings from this repeal, such 
savings will come from the pockets of hard-working construction 
workers and service employees.
    \4\ The Senate Byrd Rule prohibits consideration of provisions 
which do not effect direct spending as a part of the reconciliation 
process.
---------------------------------------------------------------------------
    Turning first to the Service Contract Act [SCA], it has 
enjoyed bipartisan support since it was enacted in 1965 and 
amended in 1972. The law has been virtually without controversy 
because it protects some of our most exploited and victimized 
workers. When the 88th Congress enacted the law in 1965, it 
found service contract workers to be ``the most unskilled, the 
weakest, and the poorest of our citizens'' who were greatly in 
need of labor standards protections.
    Today, 30 years later, the SCA continues to protect almost 
1 million workers--most of whom are minority and female workers 
in low-wage occupations.
    Repeal of the SCA would shred the safety net, as modest as 
it is, for these service contract workers, many of whom earn a 
very modest wage even with the SCA. For example, janitors in 
Little Rock, AR earn $10,020 annually under the Service 
Contract Act. In Atlanta, janitors receive $12,730 annually; in 
St. Louis, janitors make $12,860 annually; in a high-wage area 
like Boston, janitors make $17,200 annually. When the Federal 
poverty line of $14,784 for a family of four is considered, it 
is clear that even with the protections of the SCA, workers 
still need the protections of the act.
    Committee Democrats oppose the repeal of the Davis-Bacon 
Act because its purpose--that the Federal Government should not 
use its vast procurement power to depress the wages and living 
standards of construction workers across the country--is as 
valid today as it was when the law was first enacted.
    The Davis-Bacon Act ensures that the prevailing wage 
structure in the local labor market is not destroyed by large 
scale Government funded construction projects. Local economies 
can experience tremendous destabilization where Government 
projects cause contractors to underbid local wages. Prevailing 
wage laws help provide a stable foundation for workers 
throughout the industry, whether union or nonunion, whether 
working on Government or private projects. When prevailing wage 
laws are repealed, contractors slash wages and benefits to win 
Government contracts. This wage-cutting has a ripple effect 
throughout the construction industry, and all workers are hurt.

                  Final Comment on Committee Procedure

    The Democratic members of the committee were greatly 
dismayed with the manner in which the majority conducted the 
markup of this legislation. The majority employed what best 
might be described as a closed rule. The chairman announced 
that no perfecting amendments to the chairman's mark, whether 
or not they achieved budget savings or amended provisions that 
had no budgetary implications, were permitted. No amendments to 
the Republican proposal were allowed, and the majority used 
strong-arm procedural devices to restrict the process.
    The minority was only allowed to offer an amendment in the 
nature of a substitute, that is, an alternative package for 
slashing $10 billion from the student loan programs. This 
condition amounted to procedural extortion. Considering that 
Democrats, to a member, did not believe that the Student Aid 
Program needed to be cut $10 billion to balance the budget when 
tax cuts are being handed out to the rich, the majority's offer 
was laughable, if not insulting.
    Democratic members were limited to offering 5-minute 
opening statements before the chairman's mark was brought up 
for consideration. No debate was allowed on the chairman's mark 
or the Republican amendment in the nature of a substitute.\5\ 
Republicans moved the previous question on the substitute 
almost immediately.
    \5\ The Republican substitute was not different than the chairman's 
mark, except for a change in the measure's short title. This device was 
used merely to cut off debate and preclude amendments.
---------------------------------------------------------------------------
    Permitting members to speak for 5 minutes is not fair 
exchange for trampling on the right of Democratic members of 
the committee to offer amendments to the chairman's mark. The 
conditions set by the majority for consideration of its 
proposal were utterly unacceptable.
    The effective adoption of a closed rule in committee is 
contrary to the letter and spirit of the rules and procedures 
of the House. Any member of this committee should be entitled 
to disagree, in whole or in part, with the Republican package. 
And the right to express that opposition, in whole or in part, 
by offering perfecting amendments is among the most important 
privileges and responsibilities held by Members of Congress.
    The Nation's students and the public deserve better; they 
deserve public disclosure and full debate on a proposal that 
would saddle them with billions of dollars in increased college 
costs. The majority decided its proposal could not withstand 
the light of day and rammed it through the committee. This is a 
sad day for this committee and the Nation.

                                   William L. Clay.
                                   Dale E. Kildee.
                                   Matthew G. Martinez.
                                   Tom Sawyer.
                                   Patsy T. Mink.
                                   Jack Reed.
                                   Eliot L. Engel.
                                   Bobby Scott.
                                   Lynn C. Woolsey.
                                   George Miller.
                                   Pat Williams.
                                   Major R. Owens.
                                   Donald M. Payne.
                                   Robert E. Andrews.
                                   Tim Roemer.
                                   Xavier Becerra.
                                   Gene Green.
                                   Carlos Romero-Barcelo.
                                ------                                


                              [Exhibit 1]

               [From the Washington Post, April 21, 1995]

                       Making College Loans Fair
               (By William F. Goodling and Howard McKeon)

    In a clearly calculated campaign to misrepresent the facts, 
claims are being made that Republicans intend to eliminate most 
federal student aid programs: student loans, Pell grants, 
college work-study. Or as one congressman put it in a speech on 
the House floor. ``We [Congress] are going to deny college 
loans to middle class working who want to pick themselves up by 
the bootstraps.''
    None of this has any relationship to the truth. Here are 
the facts. Republicans support the Pell grant, work-study and 
student loan programs. The Pell grant program is essentially a 
voucher to low-income students to attend college. Last time we 
looked, Republicans supported vouchers. Pell grants are the one 
student aid program that bypasses bureaucracies and puts money 
directly in the hands of students. Nothing could be more 
Republican than that. We will also fight to protect the work-
study program. Again, if there was ever a Republican program, 
it is one that helps millions of college students work to pay 
for their education.
    Regarding student loans. Republicans are attempting to do 
what is fair. Again, let us be clear: We fully support this 
program and would not consider its elimination. But like The 
Post, we support having those who benefit from government loans 
pay for them. Is that so controversial? President Clinton's own 
budget director, Alice Rivlin didn't think so. She included it 
in a list of recommendations to reduce the deficit.
    Under the current federal student loan program, qualifying 
students have the interest on their federal loans paid by the 
government while they are in school, and for up to six months 
after they graduate. This subsidy costs the American taxpayer 
almost $2.5 billion a year--money that is never repaid.
    Given the fact that our nation is almost $4 trillion in 
debt, we are not sure this subsidy can be justified any longer. 
Something has got to give. Everything is on the table, from 
health care to farm subsidies to foreign aid to, yes, interest 
subsidies. In our view, if it takes a reduction in loan 
subsidies to save such programs as Pell grants, work study and 
the entire student loan program itself, it's a choice we are 
willing to seriously consider.
    We make no bones about the fact that balancing the federal 
budget is the single best thing we can do for our children. 
According to Alan Greenspan, a balanced budget would produce a 
2 percent lower interest rate for everyone. Most important, it 
would mean that we could finally begin to put a down payment on 
the federal debt that mortgages the future of our children.
    Many have argued that in-school interest subsides help low- 
and middle-income lads afford college. This is not the case. 
First, the criteria to qualify for interest-free (taxpayer-
funded) federal loans are not based solely on income; they are 
also based on the cost of the college the student chooses. This 
allows students with relatively high incomes to qualify for 
government-subsidy loans by choosing expensive colleges and 
universities.
    Second, opponents of eliminating the in-school interest 
subsidy will make the point that student loans are different 
from other loans. On this point, we agree. Unlike any other 
type of loan of which we are aware, student loans actually pay 
the borrower back--and then some.
    Any college-caliber student, even one from a disadvantaged 
background, can expect to have a future income well above the 
national average. According to a recent survey, graduates of 
four-year colleges can look forward to an average annual income 
of $32,600--a full $14,000 more than the average high school 
graduate.
    Others have argued that without the in-school interest 
subsidy, many students would not be able to afford the debt 
they would amass in school, and thus will simply choose not to 
go to college. Again, this is highly unlikely. For the average 
student, removal of the in-school interest subsidy will amount 
to an extra $21 a month over the 10-year repayment period. Thus 
is about equal to the cost of basic cable television. For 
students borrowing the maximum amount all four years, the added 
cost amounts to approximately $45 per month. The only students 
who would face substantial increase in their monthly payments 
are ``professional degree,'' students, such as doctors and 
lawyers. Of course, professional students will have average 
annual income of almost $75,000, and lifetime earnings in 
excess of $3 million. In this light, a higher payment does not 
seem unreasonable.
    The real issue in this debate is fairness. Is it fair for 
high school graduates to pay taxes to subsidize future high-
income earners? We think the answer is obvious.
    In the 1992 presidential campaign, candidate Bill Clinton 
often stated that to truly reform government we must be willing 
to say there will be ``no more something for nothing.'' Mr. 
Clinton talked of establishing a new student loan program 
whereby anyone who wanted a loan would get one. There was on 
qualification, the loan had to be repaid. ``Opportunity plus 
responsibility.'' Clinton told the students. ``No more 
something for nothing.'' We agree.
                                ------                                

                              [Exhibit 2]
    [Lobbying on both sides of the student loan issue has been fierce 
and contradictory. Here is an independent view from William A. 
Niskanen, Chairman of the Cato Institute and a former economic adviser 
to President Ronald Reagan.]
               Direct Student Loans Merit Further Testing
                        (By William A. Niskanen)
    House Republicans are about to end the direct student loan program, 
apparently on the basis that it is endorsed by the Clinton 
administration and opposed by the banks. That would be a mistake.
    There is a reasonable case that the federal government should not 
provide any student loans. For the moment, however, the controversy is 
whether student loans should be financed by the government. The 
administration proposed to substitute direct loans for all guaranteed 
loans over the next two years. In the rush of appropriations and 
reconciliation deadlines, the House is poised to eliminate the direct 
loan program and the Senate has imposed severe limitations on it. The 
issue on which this controversy should be resolved is whether 
guaranteed or direct loans incur the smallest cost to the taxpayers.
    Under the guaranteed loan program, banks now make student loans 
with the following characteristics:
      No initial credit analysis is required;
      the loans are fully guaranteed by the federal government;
      for the period before any repayment, banks receive an interest 
payment from the government equal to the Treasury-bill yield plus 2.5 
percentage points, and
      at the end of this period, banks may sell the loan or start to 
collect on the loans, at which time they receive an interest premium of 
3.1 percentage points.
    These guaranteed loans are a sweet deal for the banks; unless they 
choose to collect on the loans, the banks provide no services other 
than to make a loan guaranteed by the federal government at a 
substantial premium above the rate if they made the same loan to the 
government. Moreover, because lenders have little incentive to be 
diligent collectors of guaranteed loans, the government has set up a 
complex and costly system of nonprofit guarantee agencies to manage 
these loans.
    Under the direct loan program, in contrast, the federal government 
finances the loans and contracts with private loan service firms to 
serve the loans. The interest cost of these loans is the Treasury 
borrowing rate, and the service cost are based on competitive bids from 
private loans service firms. At issue is whether the cost of servicing 
the direct loans is higher or lower than the sum of the interest rate 
premium and the cost of the guarantee agencies; accounting for 
administrative costs on the same basis, a Department of Education study 
estimated that the total cost of direct loans to the taxpayers was 
lower by about 3.9 percent of loan volumes. That estimate should not be 
regarded as the final word, because the record of direct loans is still 
quite limited; that estimate, however, should be sufficient to merit a 
continued parallel test of guaranteed and direct student loans for 
several more years without making a premature judgment in favor of one 
approach or the other.
    America's banks are burdened with too much regulation. And the 
budget of the Department of Education is much too large. They way to 
help banks, however, is to reduce these regulations, not to pay them a 
premium for guaranteed student loans. The Education budget should be 
cut by eliminating whole programs, not by reducing the necessary 
administrative costs of direct students loans. The crunch of 
reconciliation is not a proper venue for evaluating the most efficient 
way to provide student loans. The two programs should be allowed to 
compete and then be carefully evaluated--on their merit and as a 
stimulus to each other.
                                 ______

                              [Exhibit 3]

                [From the New York Times, Aug. 20, 1995]

G.O.P. Revises a Budget Rule To Help Banks--Cuts Their Competition for 
                           Loans to Students
                            (By Adam Clymer)
    Washington, Aug. 19.--After complaints from banks that have seen 
their share of student loans drop sharply, Republicans have changed the 
accounting rules to make it easier for Congress to kill off the banks' 
competition--a Federal program that makes direct loans from the 
Treasury.
    The Republican-led House of Representatives has also voted to 
reduce the amount the Department of Education can spend supervising the 
system of Federal guarantees for banks that make student loans--a 
program has frequently had management problems. The Senate has yet to 
act on the House proposal.
    Under current law, the direct-loan program is expected to provide 
$13.8 billion in student loans in the year beginning Oct. 1, while 
federally guaranteed bank loans will provide $15.3 billion. In 1993, 
the year before the direct program was created with strong support from 
President Clinton, bank loans made up all $19.2 billion in Federal 
student loans.
    The direct loans have proved popular with students because the 
money comes through faster, and with university administrators, who 
have found them to be simpler to administer. Banks, however, have long 
treasured the guaranteed loan program, which offers profits without 
much less risk than they have on other loans.
    A big boost for the direct loan program, enacted in the 1993 budget 
reconciliation bill, was an accounting rule that required the 
Congressional Budget Office and the Office of Management and Budget to 
exclude Federal administrative expenses when calculating the effects of 
loan programs on the Federal budget.
    Both sides agree this gave direct loans an unfair advantage in any 
budget-making comparison, since more Federal money is spent on 
administering the direct-loan program than on the guarantee program.
    Seizing on that, Republican opponents of the direct-loan program 
put a very unusual directive into this year's budget resolution. It 
ordered the Congressional Budget Office to include administrative 
expenses of the direct-loan program, which are estimated at $441 
million for next year, in its budget calculations--but not the 
Government's outlays to administer the guaranteed loan program, which 
are estimated at $270 million next year.
    When the Budget Office followed orders last month the Republicans 
hailed the figures as a reason for ``scrapping the direct-lending 
program,'' in the words of Representative Howard P. McKeon, the 
California Republican who heads the subcommittee dealing with higher 
education.
    But the Clinton Administration, Senate Democrats and many 
supporters of direct loans cry foul.
    Senator Edward M. Kennedy, Democrat of Massachusetts, 
accused Republicans of ``cooking the books.'' Marshall Smith, 
Under Secretary of Education, accused them of ``a venal assault 
on student aid'' and ``putting bankers first.''
    Mr. Kennedy and White House officials said if the 
administrative costs of both programs were counted, the direct 
loans in total would again prove to be cheaper for the 
government.
    Even one supporter of the changes, John E. Dean, a 
consultant to the Consumer Bankers Association, agreed that 
$160 million in Federal payments to assist the 40 agencies 
around the country that administer the guaranteed loan program 
meet their administrative costs should be included, although he 
argued that the other $110 million in supervisory costs should 
not be counted because much of it was unnecessary. These 
agencies have often been criticized in the past, and in 1990, 
one of the largest, the Higher Education Assistance Foundation, 
went broke while carrying $9 billion in loans.
    And a conservative Republican economist now serving on the 
Federal Reserve Board has sought to halt the changes for the 
loan program. The Fed governor, Lawrence Lindsey, criticized 
the step as ``making the change the industry proposes without 
looking at other changes.''
    In a letter to Senator Spencer Abraham, a Michigan 
Republican, Mr. Lindsey wrote that ``As long as it is necessary 
to provide a profit to induce lenders to guarantee student 
loans, direct lending will be cheaper.'' Mr. Lindsey is in 
charge of consumer finance at the Fed, and in an interview on 
Wednesday, he said bankers had ``selected the change that makes 
them look good.''
    He also said the argument that university officials make 
about the direct system as simpler for them was ``a compelling 
argument for the advantage of direct loans to the economy.''
    In Seattle, for example, Eric Godfrey, assistant vice 
president of the University of Washington and director of 
financial aid, said the university was very pleased with the 
direct-loan program ``We would characterize our first year in 
the program as being very close to an unqualified success,'' he 
said.
    The debate over the system does not involve interest rates, 
which are set by the Federal Government for both programs.
    But Mr. Godfrey said the direct-loan program was simple for 
students to understand and much easier for the university to 
deal with than the 700 banks and 40 or so state guarantee 
agencies it used to work with. Students had $13 million in 
their hands in the first week of school last year, compared 
with $3 million in the first week of the 1993-1994 school year, 
when the university last used the guarantee program.
    Just as Mr. McKeon would like to see the direct program 
abolished, the Clinton Administration urged Congress to move 
quickly to eliminate the guarantee program entirely, saying the 
direct program was cheaper and better.
    But others argue students are best served by the 
competition. That has been, for example, a strongly held view 
of Senator Nancy Landon Kassebaum, the Kansas Republican who 
heads the Senate Committee on Labor and Human Resources. Even 
one guarantee agency official, Sheryl Hagemeir, vice president 
of the American Student Loan Association, said, ``We welcome 
the competition,'' and said universities that wanted the direct 
loan program should be allowed to join it, but not required to, 
as they could be under existing law.
    Terry Hartle, vice president for government relations of 
the American Council on Education, said eliminating either 
program would be worse for students because competition had 
forced the banks to do a better job of providing services, and 
continuing the guarantee program would keep the direct program 
on its toes. He also said the House Appropriations Committee's 
proposal to eliminate most of the $110 million spent on 
supervision of guarantee agencies was ``a very risky thing to 
do.''
    One past director of the Congressional Budget Office, 
Robert Reischauer, said the sort of instruction the Republicans 
had issued to the Budget Office about accounting for 
administrative costs was very unusual. He found it comparable 
to a Congressional habit of preferring the lower estimates of 
politically popular loans to Israel from the White House over 
the more expensive estimates of the less-political 
Congressional Budget Office. But Mr. Reischauer said the change 
made sense, even though it should have gone further and 
included the costs on guaranteed loans. ``If you are going to 
do it, do it right,'' he said.
    Mr. Reischauer, who left the job at the beginning of this 
year, was preceded by Rudolph Penner, who has recently worked 
as consultant to the student-loan industry. He agreed Friday 
that it was very unusual for the Budget Office to be ordered 
how to make its calculations on a program. But in this case, he 
said, ``It has put the whole thing on a better basis.'' He also 
said it was very difficult to decide just which administrative 
costs should be included in estimates for the guarantee 
program.
    One argument House Republicans make for killing the direct 
program is that doing so would enable them to make less severe 
cuts in other student loan programs, like interest subsidies.
    Another clear Republican motive is to attack a popular 
program created by President Clinton. A July 27 ``Dear 
Colleague'' letter from Mr. McKeon and Representative Bill 
Goodling of Pennsylvania, chairman of the House Committee on 
Economic and Educational Opportunities, began by denouncing 
``the President's fundamental belief that the Federal 
Government can run the student loan program better than the 
private sector.''
    And they complained of the Department of Education's use of 
its funds to advertise direct loans as ``President Clinton's 
New Direct Student Loan Program.'' That proved, they said, that 
``The President has chosen to make the program an important 
component of his re-election campaign.''
        MINORITY, ADDITIONAL, AND DISSENTING VIEWS TO TITLE VII

    We are strongly opposed to extending for the next 7 fiscal 
years section 10101 of the Omnibus Budget Reconciliation Act of 
1990 [OBRA], which requires the Patent and Trademark Office 
[PTO] to annually deposit in the Treasury specific levels of 
patent surcharge fees.1 This proposal allows an increasing 
amount of fees paid by users of the Patent and Trademark Office 
to be diverted away from the PTO and toward the general 
Treasury.
    \1\ In 1990, the PTO was funded through a mixture of user fees and 
taxpayer revenues. As a result of OBRA, additional user fees were 
established to replace taxpayer revenues. In short, PTO became entirely 
self-supporting.
    Section 10101 was adopted for budget scoring purposes. Revenues 
from the surcharge were to be placed in a special account in the U.S. 
Treasury that was ``available only to the Patent and Trademark Office 
to the extent provided in appropriations Acts.''
---------------------------------------------------------------------------
    In essence this is a tax on innovation--the very engine of 
our economic growth. It is astounding to us that the party 
seeking to cut capital gains in a purported effort to spur 
innovation would advocate a tax on the actual process of 
innovation.
    It is clear that allowing the continued diversion of funds 
away from the PTO does absolutely nothing to benefit users of 
the PTO. Yet every year the amount of user fees diverted to the 
general Treasury increases.2 This year the Republican 
Congress has proposed diverting a full $21 million in user fees 
away from the PTO. These are funds that should be used to 
expedite the process of patent review and benefit users and the 
American public.
    \2\ Each year since fiscal year 1991, Congress has appropriated for 
the PTO a sum less than the amount that was deposited in surcharge fees 
in the general Treasury. The difference, that is, the amount Congress 
withheld from the PTO, was $8.1 million in fiscal year 1992, $12.3 
million in fiscal year 1993, $14.6 million in fiscal year 1994, $24.6 
in fiscal year 1995, for a total amount of $59.7 million. In fiscal 
year 1996 the House has proposed withholding an additional $21 million 
and the Senate has proposed withholding an additional $55 million.
---------------------------------------------------------------------------
    We recognize that the PTO surcharge was originally 
established as part of the 1990 budget agreement. However, when 
the surcharge was written into law, it was never contemplated 
that these fees would be diverted away from the PTO to the 
degree they have been. This year, we are seeing a proposal from 
the Senate that is so sizeable that the PTO will not be able to 
sustain an acceptable level of services if it is adopted. This 
is clearly an experiment which has failed and which should be 
allowed to sunset.
    We would also note that H.R. 1659, Mr. Moorhead's bill to 
create an independent government corporation out of the PTO, 
would prevent these very same fees from being diverted to the 
general Treasury. This would appear to be inconsistent with the 
proposal before us today. We also object to the fact that we 
are considering this proposal without the benefit of hearings, 
and without understanding its impact on the patent community, 
innovation, or the American public.

                                   John Conyers, Jr.
                                   Pat Schroeder.
                                   Barney Frank.
                                   Howard L. Berman.
                                   Rick Boucher.
                                   John Bryant.
                                   Jack Reed.
                                   Jerrold Nadler.
                                   Bobby Scott.
                                   Melvin L. Watt.
                                   Xavier Becerra.
                                   Jose E. Serrano.
                                   Zoe Lofgren.
                                   Sheila Jackson-Lee.
        MINORITY, ADDITIONAL, AND DISSENTING VIEWS TO TITLE VIII

    The unanimous vote by which the budget reconciliation 
recommendations were adopted is testimony to the amount of 
support Members on this committee have for the solutions that 
were worked out.
    The plan to recommend the so-called High One formula--a 
recalculation of certain military retirement payments--that was 
adopted by the committee on August 1, 1995, was justifiably 
vacated and the more sensible solution of asset sales was set 
forth in its place.
    Observers will note that the gentleman from Texas, Mr. 
Edwards, in an effort to defeat High One had offered an 
amendment on August 1 that would have given the committee time 
to find just such an alternative solution as was eventually 
found. While his amendment was voted down, I believe it is 
useful to note that, in all practical effect, it was adopted 
and the intervening time was used to work out a solution that 
did not break faith with service personnel.
    I believe this is further evidence of the merit of a 
process which dignifies the value of ideas and promotes the 
environment for the exploration of those ideas. As we continue 
to tackle difficult and divisive issues, I urge the committee 
to go forward in that spirit.

                                                 Ronald V. Dellums.
         MINORITY, ADDITIONAL, AND DISSENTING VIEWS TO TITLE IX

    The bill approved by the committee represents an 
unprecedented assault on the Nation's resource management and 
environmental laws, and also misrepresents the amount of 
revenue it will raise towards meeting the reconciliation 
responsibilities of this committee.
    Those two characteristics of this bill are closely related: 
for by parceling out wholesale change in Federal law and 
reinterpreting public policy for the benefit of special 
interest after special interest, the majority has concocted 
legislation that, contrary to raising revenues to reduce the 
deficit, costs taxpayers billions of dollars from the 
management and development of public resources that belong to 
all Americans.
    This legislation is truly Christmas in September, an 
unabashed capitulation to powerful resource industries that 
have long enjoyed and profited from multibillion dollar 
taxpayer subsidies--and who now want even more. This 
legislation gives it to them. The provisions of this 
legislation constitute a veritable cornucopia of costly, 
special interest giveaways that run rampant over environmental 
law and deprive the people of the United States, who own these 
resources, of a fair return from their exploitation and 
development. In addition, this bill makes a mockery of the 
reconciliation process by converting a procedure intended to 
reduce federal debts and waste into a rummage sale of valuable 
Federal assets at bargain basement prices.
    Instead of asking those special interests to join in the 
sacrifice that is being required of virtually all other members 
of the American society--and especially seniors confronting 
drastic changes in Medicare and Medicaid, middle income workers 
who will lose tax benefits, students who will lose educational 
funding and loan assistance, farmers who will lose support 
programs--this legislation showers new, additional and 
lucrative benefits on resource special interest, including many 
multinational conglomerates whose interests are little related 
to the best interests of the United States and its citizens.
    The treasures of America--our oil and gas reserves, our 
gold, silver and other hard rock minerals, our water, our 
public lands--are being dispensed for pennies on the dollar 
while our efforts to properly manage and preserve those 
resources are decimated. Ironically, many of those who implore 
us to ``run government like a business'' are among those who 
voted down the line for public resource giveaways that would 
land any private business in Chapter 11.

                    ARCTIC NATIONAL WILDLIFE REFUGE

    By a vote of 27 to 14, the committee rejected an amendment 
by Congressman Vento to strike language to authorize oil and 
gas leasing of the 1.5 million acre Coastal Plain of the Arctic 
National Wildlife Refuge [ANWR]. The committee also rejected: 
First, an amendment by Congressman Miller that would have 
voided the leasing authority if the State of Alaska prevailed 
in a lawsuit challenging equal division of the revenues with 
the Federal Government; second, an amendment by Congressman 
Vento to prohibit the export of any oil produced in ANWR; and 
third, an amendment by Congressman DeFazio to strike the 
unprecedented, permanent exemption from environmental scrutiny 
under NEPA for any ANWR leasing or development activity.
    The measure adopted by the committee creates wholesale 
exemptions from environmental and other laws applicable to the 
management of oil and gas leasing. This ironically provides 
less protection, public process and oversight for developing a 
national wildlife refuge--which has been in protected status 
since the Eisenhower administration--than is the currently the 
case on the public lands elsewhere in the country. The bill 
unjustifiably and unscientifically ties the Secretary's hands 
by barring him from setting aside any more than a cumulative 
total of 30,000 acres from leasing, which effectively precludes 
him from protecting the ``core'' caribou calving area, a 
longstanding issue in the debate over ANWR. The bill also 
undermines international agreements which are intended to 
protect wildlife. It makes Federal officials subject to $10,000 
per day fines for missing leasing deadlines. In essence, the 
bill turns the management of this unique wildlife refuge over 
to the decisions of the oil and gas industry which need not 
operate with the constraints of the resource and species 
protection laws that apply elsewhere in the United States.
    The ANWR provision, which provides the majority of revenues 
in the majority's budget bill ($1.3 billion over the next 7 
years), is doubly deceptive on the amount of revenues it 
purports to raise for the Treasury. First, the $1.3 billion in 
estimated bonus payments is based on projections dating from 
the Bush administration which anticipated oil prices rising to 
$38.60 per barrel by the year 2000. By contrast a recent report 
from the U.S. Geological Survey downgrades the estimates of oil 
reserves in ANWR.
    Second, the majority assumes that Congress can unilaterally 
amend the terms of Alaska's admission into the Union (Alaska 
Statehood Act of 1958), changing the revenue split from 90 
percent State/10 percent Federal to 50/50, thereby yielding far 
more revenues for the Federal Government than current law 
permits. However, such a reduction in the State share will 
surely be challenged in court. If a court were to find for the 
State, actual Federal share of the revenues declines to only 
$260 million, undermining the deficit reduction goals of this 
reconciliation bill. The senior Senator from Alaska already has 
predicted such a suit, and much of the debate in the Resources 
Committee acknowledged both Alaska's right to file such a suit 
and the support of many Members for the State position.
    The majority's text authorizing ANWR leasing provides fewer 
environmental and substantive safeguards than legislation 
supported by the Reagan and Bush administrations and reported 
in the past by congressional committees. Indeed, the bill 
abrogates the applicability of all other Federal environmental 
and species protection laws to the ANWR leasing decision, 
relying on an incomplete 10-year-old report from the Reagan 
administration.
    In sum, the majority's text--which has not been the subject 
of any public hearings--seeks to avoid environmental lawsuits 
and public process by exempting ANWR leasing from environmental 
laws. It also exempts ANWR from the basic laws governing oil 
and gas leasing and thus from such requirements as bonding and 
reclamation which apply even to less sensitive public lands 
elsewhere in the country. At the same time the majority is 
acting with full knowledge--as Chairman Young admitted--that 
this legislation invites a lawsuit from the State of Alaska to 
enforce the State's entitlement to 90 percent of the revenues, 
thus nullifying the purported value of ANWR for deficit 
reduction.

                    POWER MARKETING ADMINISTRATIONS

    The committee's disposition of Federal power assets 
similarly provides sweeping exemptions from environmental laws 
and energy regulation policy, while denying the Treasury the 
sizable income stream from power sales that is owed to the 
taxpayers over the next several decades. The majority appears 
to be guided by the principle: sell it now, sell it cheap, and 
ignore the future losses.
Alaska Power Administration
    The reconciliation bill sells the assets of the Alaska 
Power Administration--two dams and associated power 
facilities--far less than the remaining value of the taxpayers' 
investment in these projects. The sale prices is about $90 
million less than the remaining investment to be repaid, and 
about $9 million less than the net present value of the 
repayment that would otherwise be received over the next 
several years. By setting the sale price below the net present 
value, the purchases of the Alaska Power Administration may buy 
it a lower price than even the minimum bid set for the sale of 
the Southeastern Power Administration. These purchases have 
been reserved to the existing APA customers--there was not 
competitive bidding on these assets to ensure the highest 
return to the taxpayer.
    APA purchasers also are exempted from hydropower regulation 
by the Federal Energy Regulatory Commission. The FERC has a 
national responsibility to ensure that the public interest is 
served when our navigable waterways are dedicated to hydropower 
production. This bill exempts these two hydro projects from 
FERC's hydropower standards in perpetuity, in exchange for the 
purchaser's agreement to comply with a fish and wildlife 
management plan.
Southeastern Power Administration
    Although the bill requires an open bidding process on the 
Southeastern Power Administration, it sets the minimum bid at 
just the level of the net present value of existing project 
repayment obligations. This minimum bid level does not 
guarantee that the taxpayers will receive the value of their 
assets, as in the cases of the sale of the Naval Petroleum 
Reserves and other Federal assets where the Congress has 
required an independent financial analysis to set the minimum 
bid price for those assets.
    In addition, the bill goes beyond mere sale of SEPA assets, 
and requires sale of the associated locks, dams and reservoirs 
owned by the Army Corps of Engineers. These facilities are 
operated by the Corps for multiple purposes including 
navigation, flood control, municipal water supply and 
recreation. This committee has no jurisdiction over those 
facilities and no testimony was provided concerning how sale of 
the facilities to private power companies will affect the 
public interest in these other project purposes.
    The potential loss of multiple-use projects on navigable 
waterways is compounded by the bill's exemption of the projects 
after sale from Federal laws relating to the environment and 
hydropower regulation. Unlike any other private hydropower 
operator in the country, the purchasers of these projects will 
receive an automatic FERC license for the next 30 years that 
sustains only the existing minimum flow of water from the 
projects for environmental purposes. This license explicitly 
overrides every other law and regulation that might govern 
project operations. Indeed, the bill includes a detailed list 
of environmental laws that may not be considered in license 
issuance, including the Clean Water Act, the Endangered Species 
Act, the National Environmental Policy Act and the Federal Land 
Policy Management Act, and then dismisses as well any other 
laws that may affect project operations. Such sweeping 
exemptions, written by a committee that does not even have 
legislative jurisdiction or expertise over many of the specific 
issues affected by these exemptions, is not only irresponsible 
public policy, but wholly extraneous to the purpose of a 
reconciliation bill.

                           CONCESSION REFORM

    The majority has included a provision purported to 
represent reform of the Nation's concessions policy for 
national parks and other public lands. Broad concessions 
reform, in fact, was approved by the House of Representatives 
in 1993 by the overwhelming vote of 386-30 in 1994, but was not 
enacted despite Senate approval of a comparable measure. The 
version of concessions reform approved by the committee as part 
of this reconciliation bill is vastly different and seriously 
fails the test of ``reform.''
    This measure should be termed the ``Incumbent 
Concessionaires Protection Act'' because it utterly fails to 
provide meaningful competition for concession contracts while 
failing to ``score'' any meaningful revenues for the 
reconciliation process.
    This concessions policy undermines a primary goal of reform 
efforts by perpetuating the policy of ``possessory interest'' 
which virtually assures that current concessionaires retain the 
exclusive right to renew their contracts for another 10 to 20 
years. The majority bill merely renames the current policy 
``investment interest'' and then extends its provisions to 
additional Federal agencies beyond the National Park Service 
that had previously not provided this generous allowance which 
restricts competition. This new policy would also allow 
concessionaires to set the rates to be charged to their captive 
audiences, and gives incumbent concessionaires a preferential 
right of renewal for one renewal of a contract following 
enactment.
    A major effort to reform concessions policy for the benefit 
of taxpayers and competing businesses, therefore, would be 
destroyed by passage of this misguided, anticompetitive and 
fiscally irresponsible proposal.

                       NATIONAL FOREST SKI AREAS

    The committee-approved bill directs the sale of national 
forest lands used as ski resorts to monopoly bidders, thereby 
facilitating the intensive development of these lands. Contrary 
to sound business practices, this proposal does not require 
competitive bidding for these sales. In fact, sale of national 
forest land to ski operators violates the PAYGO provisions of 
the Omnibus Budget Reconciliation Act of 1990 by increasing 
direct spending.
    The bill contains thoroughly inadequate protection of the 
public interest once these lands are sold. Lands now used for 
skiing could be converted to any purpose, and could be resold 
to any purchaser, including foreign-owned corporations. Public 
lands now used for skiing could be converted into private ski 
clubs that exclude the public from admission.
    The bill locks in place the ski industry's proposed ski fee 
schedule that the General Accounting Office has concluded does 
not provide a fair return to the Federal Government for the use 
of these valuable assets (``Little Assurance That Fair Market 
Value Fees Are Being Collected From Ski Areas'' GAO/RCED-93-
107). This schedule does not generate additional revenue for 
the Federal Government, raising further questions about the 
appropriateness of this provision in a reconciliation bill. 
Indeed, under this industry-developed ski formula, several 
large ski operators will pay less to taxpayers than they 
presently do, while several small ski operators will pay more.

                                GRAZING

    Once again, the majority has chosen to address a complex 
and controversial policy in the course of a reconciliation bill 
although it unfortunately contains little if anything to assist 
in the goal of reducing the deficit. Indeed, this grazing 
proposal misses an important opportunity to increase revenues 
by charging grazers on Federal lands a fee that more accurately 
reflects the costs of operating the grazing and range 
management program.
    Despite the professed support for the small rancher who is 
affected by Federal land management policies, the grazing fee 
included in this bill provides a windfall for the largest 
producers. Of the 28,000 permittees on public lands, just 15 
percent of the permittees control 58 percent of the forage. On 
national forest land, just 12 percent of the permittees control 
63 percent of the forage. Overall, 25 percent of the permittees 
control 75 percent of the forage. It should be noted that far 
from the rugged, individual cattleman portrayed by lobbyists, 
the corporate beneficiaries who control vast amounts of these 
permits include so-called ``wingtip cowboys'' as Metropolitan 
Life and the J.R. Simplot Co., a national brewery company, a 
Japanese land and livestock company, and a national oil 
company, according to the Inspector General of the Department 
of the Interior. Surely Congress has a right to demand that 
such interest--who presumably run their own businesses like a 
business--pay a reasonable rate to taxpayers when they utilize 
the public rangeland.
    By contrast, 75 percent of the permittees graze 500 or less 
``animal unit months'' and could reasonably be termed ``small 
ranchers.'' The Democratic minority offered an amendment that 
would have provided continued reduced fees to this large 
majority of ranchers while eliminating the subsidy for large-
scale corporate operations. Unfortunately, the majority 
rejected this reasonable proposal.
    Far from reforming grazing fees or helping to reduce the 
deficit, the plan passed by the committee would compound the 
financial losses associated with this heavily subsidized 
program. Indeed, the Republican majority's own grazing 
economist testified that if the grazing fee formula included in 
this bill (identical to that contained in the pending Domenici/
Cooley bill) had been in place since 1978, the fee would have 
been lower in 12 of those 18 years. Indeed, under this fee 
formula, ranchers will pay less in fees than they did in 1980. 
In addition, this bill provides a 40-percent reduction in the 
fee schedule for sheep and goat ranchers by raising the number 
of sheep or goats that can graze under one AUM from five to 
seven. So much for deficit reduction.
    Moreover, this will allow ranchers who pay low grazing fees 
to sublease these permits for public lands for a small 
surcharge and then pocket subleases that pay three to five 
times more than what they paid to the Federal Government. It is 
obvious that the authors of this proposal are not opposed to 
profiting handsomely from the leasing of public rangelands; 
they merely oppose allowing taxpayers, who own these lands, 
from realizing a profit although that is the professed goal of 
this reconciliation bill.

                          HELIUM PRIVATIZATION

    The Helium Privatization section adopted by the committee 
would terminate the Federal Helium Program. While the ending of 
the archaic Helium Program is generally supported, the 
committee unwisely rejected an important amendment offered by 
Congressman Abercrombie to provide assistance to Federal helium 
employees such as extending life and health insurance, allowing 
the use of local employment agencies to help place employees, 
relocation assistance, and Governmentwide priority rather than 
just Departmentwide preference in hiring. CBO advised the 
committee that the amendment would have had no budgetary 
effect. Even so, the committee refused to provide this 
additional assistance to the 200-plus employees and their 
families who will lose their jobs in Amarillo, TX, in the next 
year. Although there is general agreement that we need to 
reduce unnecessary functions of Government like the Helium 
Program, it is unfortunate that the majority was unwilling to 
provide this assistance to the employees, and their families, 
who have served their Government and taxpayers for many years.

                                MINERALS

    The mining law of 1872 governs extraction of Federal hard 
rock minerals such as gold, silver, copper, lead, zinc, and 
uranium. This 123-year-old law, signed by President Ulysses S. 
Grant, continues to allow mining claimants to gain fee simple 
title to both Federal minerals and the land containing them 
upon payment of a nominal sum ($2.50 or $5 an acre). Just this 
month, because Congress has failed to reform the 1872 mining 
law, Interior Secretary Bruce Babbitt signed away as much as $1 
billion in public mineral resources for the sum of $275. No 
royalty will be paid to the taxpayers who own this resource. 
Last year, a Canadian-based mining corporation, American 
Barrick, secured rights to $10 billion worth of gold on public 
lands for about $10,000, also free of royalty payments.
    Earlier this year, the House voted overwhelmingly to 
maintain a moratorium on issuing patents (ownership rights) to 
lands under the mining law because of widespread concern that 
taxpayers are being cheated out of hundreds of millions of 
dollars in royalties and other payments because of an archaic 
law enacted in the days of Jesse James, the robber barons, and 
the mineral kings. The House voted to continue that moratorium 
in hopes that a true reform bill would be enacted by the 104th 
Congress.
    Once again, it appears the special interest mining lobby is 
succeeding in frustrating the national demand for reform. The 
House-Senate Conference on the 1996 Interior appropriations 
bill has acquiesced to the Senate position to remove the 
moratorium and require expeditious transfer of applied for 
mineral-rich lands at ``fair market value'' for the surface 
without consideration for mineral values. In the case of the 
Barrick patent, the lessee would have paid only $100,000 for 
its patents. This strategy is analogous to selling Fort Knox 
for the value of its roof. Under this agreement, the Department 
will be forced to expedite approval of the 233 patent 
applications in the pipeline, and give away as much as $15.5 
billion worth of gold and silver for no royalty whatsoever.
    The committee's bill essentially retains patenting for the 
foreseeable future. It would require patent applicants to pay 
fair market value for the land exclusive of the minerals, and 
would give claimants 2 years to apply for a patent. Rural 
Federal land in Nevada, where most of Federal gold production 
is based, may be worth no more than a few pennies per acre 
apart from the mineral values.
    The bill would require payment of a sliding scale 
maintenance fee starting at $100 for the first years and ending 
with $500 for years the claim is held beyond 20 years. But it 
also allows deduction of up to 75 percent of the costs of 
developing the claim for mining. In addition, the bill would 
give away the first year's rental fee. By allowing miners to 
deduct the costs of mining from their rental fees, the revenues 
which could be raised are significantly lower than would be 
collected under the Democrats' proposal. According to CBO, the 
Republican holding fee would start raising $20 to $30 million 
per year after 1998; the Democrats alternative would have 
raised $127 million over 7 years.
    The Republican bill would also establish a 3.5-percent net 
proceeds royalty similar to the Nevada net proceeds minerals 
severance tax. Nevada's tax is 5 percent with a downward 
adjustment for profitability. The committee bill, however, 
permits more than a dozen deductions from gross yield, which is 
far more generous even than the Nevada tax law permits. 
Exemptions included above and beyond those allowed by Nevada 
include engineering costs, costs of support services and 
support personnel (not defined), environmental compliance, 
permitting and other administrative costs.
    The 3.5-percent royalty would apply only to new claims 
located after the date of enactment--essentially 
``grandfathering'' over 300,000 existing claims. The bill also 
provides a very generous 2-year window for applying for a 
patent, creating an opportunity for miners to get out of paying 
a royalty. This is significant, especially to budget 
reconciliation, because it will essentially eliminate any 
revenue generation within the 7-year timeframe. The CBO scored 
this provision as raising no funds. The evident purpose of this 
provision is not to raise funds to meet reconciliation or 
deficit reduction goals, but rather to pass a sham mining law 
in order to quell the momentum for responsible reform.
    The committee unwisely rejected an amendment offered by 
Representative Rahall to impose an 8 percent gross income 
royalty, the most commonly used formula in State and private 
royalties. This royalty, which was overwhelmingly approved by 
the House of Representatives in 1993, was scored by CBO as 
raising $540 million over 7 years, of which $120 million would 
go to the Western States and $420 million toward deficit 
reduction.

                          WARD VALLEY TRANSFER

    The bill requires the Secretary of the Interior to transfer 
unconditionally land from the Bureau of Land Management to the 
State of California subject only to payment of $500,000 by the 
State. This action is designed to permit the proposed Ward 
Valley low level radioactive waste disposal facility to be 
developed on this site. The action by the committee improperly 
intervenes at a crucial point in negotiations between the 
Department and the State over the need to complete additional 
tests to assure the safety of the site.
    In an effort to resolve lingering concerns about potential 
risks of radioactive contamination of the Colorado River 
because of a leak at the site, the National Academy of Sciences 
was asked to convene an expert panel of physicists to review 
the safety and plans for Ward Valley.
    That Academy Panel recommended additional safety tests to 
determine whether the radioactive tritium that will be stored 
at the site could migrate and contaminate the Colorado River. 
The Academy Panel recommended additional monitoring and other 
measures to protect public health and safety following 
construction of the Ward Valley facility. The Department of the 
Interior has been engaged in negotiations with the State of 
California concerning these conditions--none of which are 
contained in the committee bill.
    The Department and the State reached agreements on most of 
the points in dispute. However, Governor Wilson refused to 
include a provision making enforceable the State's obligation 
to implement the National Academy's recommendations. Governor 
Wilson's refusal to consent to basic guarantees that the State 
would in fact do what it promised is the only point holding up 
an agreement to transfer the land.
    The bill ignores the report of the National Academy and the 
advice of many of our Nation's leading physicists. It ignores 
the concerns of people living in southern California and 
elsewhere who have raised reasonable questions about the 
reliability of the Ward Valley design. It is irresponsible for 
the committee to interject itself into this complex, ongoing 
dispute in so cavalier a manner. The majority has demonstrated 
utter disregard for legitimate scientific concerns that have 
been raised about this project's safety
    Congress should not intrude on these negotiations between 
Interior and the State that involve highly technical and 
scientific matters. We instead should encourage both parties to 
continue their negotiations, and address this subject outside 
the context of the reconciliation bill to which it is unsuited 
and totally inappropriate.

                     FEDERAL OIL AND GAS ROYALTIES

    This subtitle is based on a bill introduced in June 1995, 
by Congressman Calvert. It was the subject of one subcommittee 
hearing and was found to be seriously flawed by the 
administration and others. As contained in this bill, the 
Calvert proposal is seriously defective. It would drastically 
modify the existing statute of limitations on the collection of 
royalties due taxpayers, and would create dangerous precedents 
that will diminish the Government's ability to collect 
royalties.
    Also, the bill would change longstanding Federal policy and 
require the payment of ``interest'' to lessees who make 
overpayments. This change will cost, according to CBO, $60 
million over 7 years, hardly a suitable provision for a 
reconciliation bill intended to reduce, not expand, Federal 
deficits.

                    ENDANGERED SPECIES ACT AMENDMENT

    The bill would change the commitment of resources provision 
in the Endangered Species Act [ESA] to specifically exclude any 
consultation regarding ``any agency's periodic or long-term 
planning activities, mission or policy statements, programmatic 
documents or general policies, regulations or activities.''
    Section 7 of the ESA requires that agencies consult with 
the Fish and Wildlife Service or the National Marine Fisheries 
Service on actions that they permit or fund. This requirement 
makes common sense, and serves to prevent agencies from wasting 
crucial taxpayer dollars to begin a project that may jeopardize 
federally protected species.
    Aimed at overturning recent lawsuits in the Pacific 
Northwest, the language of this amendment is far too broad and 
will have uncertain results. Including ``mission or policy 
statements, general policies, regulations and activities'' 
potentially affects everything the agencies do and could 
effectively destroy the consultation process. In any event, 
this provision is not scored to yield budget savings, which is 
the purpose of the bill, and the underlying issue can, and 
should be addressed more suitably in the reauthorization of the 
ESA which is currently before the committee.

                          MISSED OPPORTUNITIES

    The committee, by voting against numerous amendments missed 
opportunities both to raise substantial revenues and reform 
wasteful resource practices. We mention only two examples.
    The majority failed to accept Democratic proposals to end 
below-cost timber sales by the Forest Service that, according 
to the Congressional Budget Office, would save $225 million 
over 5 years. In 1994 alone, when the Forest Service received 
about $800 million in Federal timber receipts, it cost the 
agency $900 million to administer the timber program, a loss of 
$100 million. In seven of the nine National Forest regions, 
annual cash receipts from Federal timber sales have 
consistently failed to cover the Forest Service's annual cash 
expenditures. In at least three regions, cash expenditures have 
exceeded cash receipts by a ratio of about 3 to 1, on average, 
over the past decade.
    Beyond the evident financial losses associated with these 
sales, they have numerous additional disadvantages: they are a 
wasteful depletion of Federal timber resources, an unwarranted 
destruction of roadless forests, and interfere with private 
timber markets.
    The committee also rejected an amendment by Congressman 
Gejdenson to prohibit the payment of double subsidies to 
farmers who receive Federal subsidized water. As was noted in 
the debate before the committee, the Federal Government is 
subsidizing one farmer to grow a crop we are subsidizing other 
farmers not to grow; and in doing so, we are affecting the 
price of that crop and may be forced to pay support payments to 
other farmers. This proposal has been passed by large margins 
in the House of Representatives on several occasions and it is 
regrettable that the majority refused to include it in this 
legislation.

                               CONCLUSION

    We dissent from this bill because it is abusive to the 
environment, because it deprives the taxpayers of the value of 
the resources that belong to them, and because it makes a 
mockery of the reconciliation and legislative processes. These 
provisions are illustrative of the willingness of the majority 
to bow to the special interests represented by lobbyists for 
resource consumptive corporations at the expense of the 
national interest and the taxpayers. Severe and in many cases 
irreparable damage will be done to our Treasury, to our 
Nation's legacy of natural resources, to our fish and wildlife 
resources and to our public lands by passage of this 
legislation.

                                   George Miller.
                                   Neil Abercrombie.
                                   Maurice Hinchey.
                                   Nick Rahall.
                                   Sam Farr.
                                   Gerry E. Studds.
                                   Bruce F. Vento.
                                   Dale E. Kildee.
                                   Frank Pallone, Jr.
                                   Sam Gejdenson.
                                   Pat Williams.
                                   Robert A. Underwood.
                              ----------                              


               Additional Views of Representative DeFazio

    I concur with the dissenting views offered by my colleagues 
with two notable exceptions.
    With respect to the proposed sale of the Southeastern Power 
Administration, I disagree both with the majority's proposal 
and, to a lesser degree, with my colleagues' response. I do not 
support sale of any of the Federal power marketing 
administrations, with the possible exception of the tiny Alaska 
Power Administration and then only under terms that recover the 
full Federal investment in the facilities in question. The sale 
of power from federally owned and operated hydroelectric 
facilities is a legitimate Federal function.
    Selling Federal power marketing administrations for a price 
that simply recovers the Federal investment, as the Clinton 
administration has proposed, robs future generations of a 
stream of debt payments that would otherwise be theirs in order 
to pay for current consumption. On the other hand, selling 
Federal power marketing administrations for something 
approaching their value on today's market, as some in the 
majority propose, amounts to little more than a hidden tax 
increase on the consumers of federally generated power. To go 
still further and propose the sale of the associated dams, 
locks, and reservoirs, while exempting those facilities from 
Federal environmental laws and other laws governing 
hydroelectric operations, is wildly irresponsible and 
outrageous.
    On the question of the Federal timber sale program, my 
colleagues are simply wrong when they seek to enact a blanket 
prohibition on any and all below cost timber sales.
    As a direct result of fire control and other human 
interventions over the course of many decades, forest stands 
throughout the West are heavily overstocked. Vast forested 
areas suffer from disease and pest infestation. Millions of 
acres of forest are dead or dying. This risk of catastrophic, 
stand-destroying wildfires is immense. Such fires, when they 
occur, do far more damage both to forest structure and wildlife 
habitat than the historic, lower intensity fire regime did. In 
addition, the forests of the Pacific Northwest contain 
thousands of acres of second growth Douglas Fir plantations 
that, without thinning, will take hundreds of years to develop 
the biological diversity and structural complexity associated 
with old growth forest ecosystems.
    Forest ecologists and silviculturalists agree that salvage 
and thinning in many of these stands is necessary and 
desirable. Clearly, the Federal Government will not be able to 
pay contractors to do the necessary work. Yet much of this 
work, if offered commercially, will fail the below-cost test.
    A below cost sale prohibition has other notable 
shortcomings, but it clearly has the potential to hinder 
efforts to restore forest health in the West. Forest management 
decisions should be made primarily on the basis of ecological 
need, not measured against a spurious and arbitrary economic 
standard.
    Finally, as my colleagues wrote in their dissenting views, 
``We dissent from this bill because it is abusive to the 
environment, because it deprives the taxpayers of the value of 
the resources that belong to them, and because it makes a 
mockery of the reconciliation and legislative process.'' I 
agree.

                                     Peter DeFazio,
                                            Ranking Member,
                         Subcommittee on Water and Power Resources.

          Additional Views of Congressman Robert A. Underwood

 COVENANT FUNDING FOR THE COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS

    I oppose section 9401 of the budget reconciliation bill 
approved by the committee which deletes funding for the 
Commonwealth of the Northern Mariana Islands [CNMI]. It is 
important to note that the CNMI, which has been a U.S. 
territory since implementation of the Covenant in 1976, is the 
only territory not represented by a delegate to Congress. 
Without CNMI representation in Congress, it is ironic that the 
committee deleted funding that was negotiated in a process 
authorized by Congress in the Covenant (Section 902 
negotiations).
    I have two reasons for objecting to this provision. First, 
I believe that Congress should honor the commitments made to 
the CNMI in the Covenant and in the agreement amending the 
Covenant that was negotiated by the Bush administration in 
December 1992. There are 5 years remaining in this funding 
agreement.
    Second, I believe that we should consider whether these 
funds could be reprogrammed to fulfill the commitment to the 
CNMI and also be used to take care of other needs of the 
insular territories. This is the approach of S. 638, the 
Insular Development Act passed by the Senate. While I do not 
agree with every aspect of S. 638, I believe that this approach 
merits consideration by this committee.
    I recognize the very difficult situation facing this 
committee with regard to the insular areas, and the pressing 
needs that must be addressed. We must confront the Rongelap 
resettlement issue, the capital infrastructure needs of the 
territories, the compact-impact reimbursement for Guam and the 
CNMI, and the recovery needs of the Virgin Islands after the 
devastation of Hurricane Marilyn. All of these are important 
issues, and all of these are competing priorities for a 
shrinking pool of Federal resources. I hope we can find a way 
to do all of this, and fulfill the CNMI Covenant funding within 
the present constraints.

                    ARCTIC NATIONAL WILDLIFE REFUGE

    While Guam is not directly affected by the development of 
the Arctic National Wildlife Refuge, the principle involved in 
this matter is of importance to the people of Guam. I believe 
that the decision to develop the natural resources of Alaska 
are best made by the people of Alaska, and I note that the 
majority of Alaskan Natives support this legislation. 
Similarly, decisions regarding resource development on Guam 
should be made by the people of Guam. As Congress makes 
decisions to balance resource development and environmental 
concerns, we must give greater weight to the views of those who 
are directly affected.

                                               Robert A. Underwood.

   MINORITY, ADDITIONAL, AND DISSENTING VIEWS TO TITLES XIII AND XIV

                              ----------                              


Dissenting Views of the Democratic Members of the Committee on Ways and 
                                 Means

    The Republicans have finally laid their cards on the table. 
After waiting many long months to learn how they intend to 
accomplish their contradictory goals--paying for their $245 
billion tax cut and balancing the federal budget in the next 
seven years--we have finally sat down at the table. They have 
dealt the cards. They have dealt the American people a losing 
hand. And, they have dealt a few aces under the table, as well.
    We regret this result. we had hoped for a better result, a 
result that lived up to the Republicans' rhetoric (and rhetoric 
was all we had during the many months of waiting for 
substantive policy proposals). We were prepared to collaborate 
with our Republican colleagues on the Committee to craft a 
package that would reduce the deficit and be good for the 
future of our country. We had hoped for a bipartisan result 
with our Committee colleagues that would have overcome the 
harshness of the partisanship one hears from some Republican 
circles these days.
    However, that is apparently not to be allowed. The Master 
Dealer has a different game in mind. A game of high-stakes 
poker with the wages and work incentives of low- and moderate-
income Americans. A game of Russian roulette with the hard-
earned and well-deserved pensions of current and future 
American workers. A game of craps with the fundamental needs of 
the poor. A game of backroom deals with select Republican 
special interests. And, a game of charades with the voters and 
the American public.
    Perhaps this is not surprising, but it is regrettable. It 
is a game that Democrats are unwilling to play with the 
American public. We, as Democrats, cannot support this bill. We 
find it objectionable and dangerous. We have no choice but to 
push our chairs away from this table.

               Some--Too Few--Bipartisan Accomplishments

    We are proud of the few elements of this bill that resulted 
from bipartisan collaboration.
    The Pickle-Johnson Taxpayer Bill of Rights is a major 
achievement that reflects more than a decade of bipartisan 
effort. It reflects legislation approved by the Committee and 
the Subcommittee on Oversight in recent years, as well as new 
proposals considered this year. The more-than-thirty provisions 
will provide needed protections for taxpayers in their dealings 
with the Internal Revenue Service [IRS], improvements that are 
long overdue. This legislation will help to make the IRS a more 
taxpayer-friendly organization, and resolve longstanding 
problem areas that cause taxpayers unnecessary hassle and 
frustration. It establishes a position of Taxpayer Advocate 
with expanded authority; grants the IRS greater authority to 
abate interest or reverse liens and levies when the IRS is at 
fault or in error; provides taxpayers with relief in the 
collection process and in court; and requires the IRS to change 
its administrative and statutory procedures in significant 
other ways to make IRS actions less burdensome. These 
provisions will ensure that taxpayers get a fair shake when 
dealing with the IRS.
    We are proud that these proposals, at the suggestion of 
Congressman Robert Matsui, Ranking Democrat of the Subcommittee 
on Oversight, with the agreement of Subcommittee Chairwoman 
Nancy Johnson, will be named in honor of Congressman J.J. 
Pickle (D-TX), our retired colleague and former Subcommittee 
Chairman. This acknowledges his hard work for the better part 
of a decade, and represents bipartisanship at its best. We wish 
there were more examples in this bill of such gracious 
partnership.
    Further tax provisions included in this bill with which we, 
as Democrats, agree and have worked to achieve are: (1) 
President Clinton's proposals to fight fraud and abuse in the 
earned income tax credit [EITC] program; (2) the requirement 
that gain on the redemption of certain corporate stock be 
recognized immediately if the redemption is treated as a 
dividend, as in the Seagrams-DuPont transaction; (3) the 
creation of IRS sanctions to prevent the use of tax-exempt 
organizations' funds by insiders for private benefit 
(inurement) and the expansion of public reporting by tax-exempt 
organizations; and (4) the extension of current authority for 
the IRS to share taxpayer information with the Department of 
Veterans Affairs for use in determining eligibility and benefit 
amounts for its programs.
    Although we believe that certain provisions were 
inappropriately included in the part of the bill relating to 
tax simplification, we believe that this part as a whole is an 
improvement in our tax laws and we support it. However, we were 
distressed that the Department of the Treasury was not accorded 
its traditional role in the simplification process.
    With respect to trade, the bill contains a number of 
provisions that were developed on a bipartisan basis, mostly in 
the Subcommittee on Trade. In this regard, the bill 
reauthorizes the Generalized System of Preferences program 
through December 31, 1997, and makes modest reforms and 
technical changes proposed mostly by the Administration that 
are intended to simplify and improve administration of the 
program. The bill also makes a number of technical corrections 
to various U.S. trade laws and includes other miscellaneous 
trade provisions. In addition, the bill would extend Super 301 
through the year 2000. Super 301 requires the U.S. Trade 
Representative to identify annually trade liberalization 
priorities and to initiate section 301 investigations on all 
foreign priority practices so identified. Finally, the bill 
reauthorizes the trade adjustment assistance programs for 
workers and firms until September 30, 2000, at which time the 
programs will terminate, and makes modest reforms to the worker 
trade adjustment assistance program.

     republican claims of corporate ``reform'' are not the reality

    The Republicans claims that they are closing corporate 
loopholes and cracking down on corporate welfare. The truth is 
they are paying for the reconciliation bill on the backs of 
moderate-income workers, the poor, and current and future 
retirees.
    The revenue-raising portions of this bill, the so-called 
Corporate and Other Reforms and the EITC program cuts raise a 
total of $51.8 billion. Of that total, $35.6 billion--almost 70 
percent--is raised in three areas: EITC program cuts; allowing 
corporations to take assets out of overfunded pension plans; 
and eventual repeal of the low-income housing credit. Although 
these last two items are disingenuously billed by Republicans 
as corporate reforms, they are a direct hit on two vulnerable 
populations: (1) workers and retirees and (2) the poor.
    First, the bill raises taxes by $22 billion on 14 million 
working families by making several program cuts in the earned 
income tax credit [EITC]. The Republicans try to argue that 
they are making minimal refinements to target the program more 
narrowly. That is grossly misleading. Almost three-quarters of 
all current recipients will be the targets of Chairman Archer's 
three proposed cutbacks.
    These proposals will make daily life more difficult for 
families with children, Social Security recipients, surviving 
widows with children, the disabled, and childless workers who 
earn less than $10,000 a year. For many of them, this will be a 
double hardship because they will also be victims of additional 
cutbacks in welfare.
    For two decades, the EITC has enjoyed strong bipartisan 
support. It has been the most effective work-promoting program 
of the federal government. Although the Republicans praise the 
virtues of self-reliance, their actions in this bill will 
severely reduce work incentives for the segment of the work 
force that must struggle to maintain a stable work life. 
Marginal tax rates on wages will go up by at least 2 percentage 
points. Childless workers, who are among those with the lowest 
wages, will be cut out entirely. Examples abound, and have been 
presented in Committee hearings, of workers trying hard to 
climb into the middle class. They use their EITC to pay their 
mortgages, their utility bills in winter, and their 
transportation and child care costs. They are doing everything 
the Republicans supposedly want them to do. Why are they being 
targeted? Why this sudden reversal in Republican support for 
this program?
    There is only one reason. The Republicans need cash to pay 
for their enormous contract With America Tax cuts passed by the 
House of Representatives earlier this year and included in this 
reconciliation bill. In order to lavish tax reductions on 
wealthy investors and corporations, they have cut back 
significantly on a program that provides a lifeline to low- and 
moderate-income American wage-earners.
    Second, the bill gives corporate executives license to raid 
retirement funds, that are supposed to be used for the 
exclusive benefit of their employees, by allowing corporations 
to remove as much as $40 billion from pension funds. The bill 
puts no restrictions on the use of these funds--indeed, 
corporate executives could give themselves bonuses if they 
wished or build a corporate retreat! This is no hardship for 
the corporations. This is no loophole closer. It is exactly the 
opposite--it allows corporate cashflow to be enhanced by using 
funds that have been set aside during employees' working years 
to pay their pension checks in the future. It frees up as much 
as $40 billion that has been dedicated to the benefit of 
employees and allows it to be used for virtually anything 
corporate executives decide. What kind of reform is that?
    Republicans rejected amendments offered by Democrats to 
require that employees and retirees be notified in advance when 
their employing companies plan to remove assets from their 
pension funds and to require conservative rules for determining 
whether pensions are actually overfunded. The Republicans' 
refusal to incorporate these reasonable protections for 
employees and retirees is evidence of their blatant disregard 
for ordinary hard-working Americans. It is also proof that one 
of their highest priorities is pandering to Corporate America.
    Permitting employers to withdraw assets from employee 
pension plans is nothing more than an irresponsible budgetary 
gimmick that places the pensions of working Americans at risk. 
It is ironic that at a time when the Republicans pretend to be 
concerned about the solvency of the Medicare Trust Fund they 
are endangering the pensions of working Americans for short-
term budgetary gains. It is ironic that at a time when the 
budgetary gains. It is ironic that at a time when the 
Republicans pretend to be committed to balancing the budget, 
they are substantially increasing the potential liabilities of 
the Pension Benefit Guaranty Corporation which must step in and 
bail out employers when the employers do not have sufficient 
assets to pay employee pensions.
    Our opposition to this proposal can be summarized by 
paraphrasing Republican Majority Leader Dick Armey's statement 
to the press on September 12 of this year: We will not stand by 
and let the Republican majority raid workers; hard-earned 
pensions. Our message is simple: Keep your paws off the 
pensions of hard-working ordinary Americans.
    Third, the bill would repeal the low-income housing tax 
credit as of the close of 1997. The low-income housing tax 
credit has helped more than 800,000 poor families afford a 
decent place to live. It encourages investment in residential 
housing. It has helped to revitalize urban and rural 
neighborhoods and boosted local economic activity. The National 
Governors' Association has urged Congress to retain the credit 
as a permanent incentive for the reliable and efficient 
construction of low-income housing units. The Republicans have 
not adequately explained why they think this credit is 
corporate welfare that should be cut, but those hundreds of 
thousands of families know otherwise. The credit has merely 
provided a helping hand to those who need it. How can this be 
characterized as a benefit to Corporate America? Repealing an 
incentive for investment in housing for the poorest among us is 
nothing more than a hit-them-when-they're-down attack on 
America's needy.
    The Republicans decry politics as usual. They are guilty of 
it in this bill. They talk about cutting corporate welfare, but 
instead they jeopardize the general welfare. They scold about 
personal responsibility and the work ethic, but they reduce the 
financial advantages of working for those to whom it means the 
most. They talk about getting the government out of people's 
lives, but they raise taxes on 14 million families and 
interfere in the competitive balance of several industries. 
They remind us of the importance of family, but they 
accommodate corporate raiding of the only nest egg many 
breadwinners are able to accumulate for their families' future 
security, their pensions.

         republicans raise taxes on 14 million working families

    The reductions in the earned income tax credit EITC will 
result in tax increases on 14 million families who earn less 
than $28,500 a year. Four million of them earn less than 
$10,000 a year. We strenuously oppose this tax increase.
    The bill would repeal the EITC for childless workers, 
require that Social Security benefits be included for purposes 
of calculating the phaseout of the credit, and increase the 
rate at which the credit for families with children phases out. 
All this raises taxes on people who are working--the very thing 
Republicans have said they want those people to do. It makes no 
sense to us.
    We tried several times to amend the bill in order to lessen 
the blow on working people. The Republicans rejected each 
attempt. Our amendments garnered not one single Republican vote 
in favor of the working class.
    Congresswoman Barbara Kennelly offered an amendment to 
strike all the proposed EITC tax increases, retaining only 
President Clinton's anti-fraud provisions mentioned above. This 
would have saved 14 million families from greater hardship than 
they already suffer. It would have been a vote of confidence, 
loud and clear, in the American Dream. It would have said to 
these workers: ``We believe in you. We believe that you'll make 
it. Don't lose your resolve, despite the difficulties. We are 
willing to help. We are on your side.'' Not a single Republican 
was willing to stand up for those 14 million American workers.
    Congressman Ben Cardin offered an amendment to restore the 
current rates at which the EITC phases out. This would have 
saved families with children from significant tax increases. It 
would have protected the 60 percent of EITC recipients who have 
incomes in the phaseout range ($11,630-$28,550) from an 
aggregate tax increase of $8.7 billion. Congressman Cardin's 
amendment would have also protected the federal budget. The 
revenue lost by retaining the current EITC phaseout rates would 
have been made up by restricting the Contract With America's 
family tax credit to families with incomes below about 
$105,000. The Contract tax cuts would provide very large 
benefits to very wealthy families and individuals: average tax 
cuts of $11,260 for those fortunate few who have incomes of 
$200,000 or more. Does it make any sense at all to have 
families who make less than $28,550--perhaps as little as 
$11,630--footing the bill so that wealthy families can receive 
tax breaks that are almost as large as the annual salaries of 
some of those targeted families? Which group of families needs 
our help more? Republicans made their choice--they all voted to 
defeat the amendment.
    Congressman Sander Levin offered an amendment to strike the 
provision of the bill that would require Social Security 
benefits and other retirement income to be included in the 
calculation of the phaseout of the EITC. To offset the cost, 
the amendment would also have prevented the enactment of the 
neutral cost recovery system, a complex and unpopular new 
depreciation scheme included in the Contract With America tax 
cuts. The Republicans may wish to tax the Social Security 
benefits of two million elderly couples, surviving widows with 
children, grandparents raising their grandchildren, and the 
disabled, but Democrats do not. If this tax increase on working 
Social Security recipients is necessary to pay for a silly 
depreciation provision in the Contract that benefits Corporate 
America, then the depreciation scheme is simply not necessary. 
It is especially offensive to us that the Republicans would 
combine this tax increase on moderate-income Social Security 
recipients with a cut in taxes on well-off Social Security 
beneficiaries. The Republicans apparently saw no injustice or 
imbalance in their priorities--they all voted down Congressman 
Levin's amendment.
    Congressman Charles Rangel offered an amendment to restore 
the EITC for childless workers. This amendment also would have 
been deficit-responsible. It would have replaced the revenue 
required to restore the credit--about $4 billion--by denying 
the Contract's family tax credit to upper-income families. 
After the markup was finished, the Joint Committee on Taxation 
finally responded to our request for an estimate of what that 
income level would be. The threshold of the Contract family tax 
credit could have remained as high as $150,000 and still 
Congressman Rangel's amendment to restore $175, on average, to 
childless workers could have been funded. But, Republicans 
chose to give $500 per child to families with incomes larger 
than $150,000 rather than give $175 to poor workers. The 
Republicans have made it clear that workers struggling to 
remain in the work force can expect no help from them.
    The Republicans try to downplay their tax increases as if 
they were a minimal shaving off the top. Not so. The proposal 
to increase the phaseout rates, by itself, will affect every 
taxpayer with income in the phaseout range. That means 9.4 
million families with incomes as low as $11,630, 60 percent of 
all taxpayers who receive the EITC, will be subject to a tax 
increase. They will have to work that much harder or that much 
longer to make up the difference in their net pay. Every one of 
those families has children. Every one of them has a working 
parent or guardian. Every one of them is worried about its 
future. Now the Republicans have given them greater reason for 
worry.
    The proposal to include Social Security benefits in the 
calculation of the phaseout of the EITC will hurt 1.9 million 
taxpayers. On average, they will lose $642 a year. Four hundred 
thousand of them will no longer qualify for the maximum 
benefit. The 1.4 million taxpayers who have children will lose 
$850 a year. These are not wealthy people. Their annual 
adjusted gross income averages $9,580 a year. They receive 
Social Security benefits, so we know they have already been 
identified as needy or suffering hardship. They are elderly 
couples, surviving widows with children, grandparents raising 
their grandchildren, and the disabled. What in the world have 
these people done to merit the heavy hand of the Republicans 
falling on them, shrinking their paychecks, taxing their Social 
Security benefits at a rate of at least 18 percent?
    The Republican Members of the Committee and their staffs 
were unable to provide a policy rationale for taking $4.2 
billion away from 4 million childless workers. They simply 
suggested that money was tight, there is not enough of it to go 
around. But apparently there is enough to give $63 billion to 
investors in the form of a capital gains tax cut, as the 
Republican Contract tax cut does. Apparently there is enough to 
give $7 billion in family tax credits to those with incomes of 
more than $100,000 a year. Apparently there is enough to spend 
$16 billion on a new, complicated depreciation scheme that no 
one in the business community wants.
    This is heartless. This is unfeeling. Raising taxes on 
working people who have nothing to spare in order to heap 
excess on those who want for nothing is unworthy. It is not 
what government should be about. It means taking care of 
special interests, rather than the public interest.

                  Corporate Welfare By Any Other Name

    The Republicans would have the American public believe that 
they are the party of reform. Their rhetoric is overloaded with 
promises to purge existing laws and regulations of provisions 
that are too narrowly targeted and to avoid any preferential 
treatment for special interests. They characterize a major 
section of this bill as an attack on corporate welfare in an 
undisguised attempt to win favor with the American public.
    The truth is the Republicans are using this bill to protect 
Republican special interests, to punish the competitors of 
Republican special interests, and to deliver directly new 
special favors for Republican special interests. They have 
tried to disguise this fact, to characterize it as leveling the 
playing field, and to claim credit for being tough on corporate 
welfare. They are misleading the American people and, 
amazingly, they are doing it with a straight face. The 
Republicans should be ashamed of themselves for such bald-faced 
deception.
    Protection of the Oil and Gas Industry.--Although there are 
numerous examples of such Republican favoritism, the most 
egregious one of all is the unmistakable attempt to protect--
indeed, enhance--the competitive position of the oil and gas 
industry. Most other sectors of the energy industry take a hit 
in this bill, but the oil and gas industry remains untouched.
    The Joint Committee on Taxation's pamphlet on tax 
expenditures lists five tax preferences specifically designed 
to encourage the production of fuel from renewable sources or 
energy conservation. The bill permits one of these provisions 
to terminate and substantially restricts or phases out three 
others. The bill does not threaten even one of the six 
provisions listed that are specifically designed to benefit the 
oil and gas industry. Indeed, the Republicans seem to go out of 
their way to eliminate benefits enjoyed by competitors of the 
oil and gas industry. It increases taxes on those who produce 
energy from alternative sources: wind, biomass, shale, 
geopressured brine, and synthetic fuels. It even eliminates 
provisions designed to provide incentives for energy 
conservation expenditures by businesses in other sectors of the 
economy. Any proposal that purports to eliminate unjustified 
tax benefits should treat competitors equally. This is simply 
not true of the Republican bill.
    There is more than one way to skin a cat--the Republicans 
may have avoided the direct appearance of dishing out new 
special tax breaks to the oil and gas industry, but they 
certainly have enhanced the industry's competitive position by 
increasing the tax burden on its competitors.
    Protection of the Organized Gambling Industry.--Another 
industry that will enjoy Republican protection as a result of 
tax increases on its competitors is the commercial gambling 
industry. Established casinos and other gambling enterprises 
have had their monopoly status threatened in recent years by 
the entry into this market by Indian tribes. Tribal-run 
gambling establishments have siphoned some profits from the 
more traditional gambling organizations. The bill would subject 
these tribal earnings to federal income tax, even though Indian 
tribes have always been considered sovereign nations that are 
not subject to federal laws of the United States. The 
constitutional validity of the bill's provision has been 
questioned. But its economic effect is not in question. It will 
unambiguously inflict a burden on the competitors of 
established gambling operations, providing protection to those 
established operations.
    License to Corporations to Raid Employee Pension Funds.--
The Internal Revenue Code provides substantial tax incentives 
to employers to encourage pre-funding of the pensions that they 
promise to their employees. Contributions by employers to 
pension trusts are deductible when made and the earnings of 
those trusts are exempt from tax until distributed. These tax 
benefits are specifically contingent on the fact that these 
monies are to be dedicated for the sole benefit of the 
employees. In general, amounts in these trust funds can be 
withdrawn by employers only if the plan is terminated and all 
of the plan liabilities are satisfied through the purchase of 
annuity contracts.
    During the 1980s, it became apparent that the requirement 
that the funds be used for the exclusive benefit of the 
employees was not sufficient to prevent employers from 
withdrawing those funds for their own use. In response to 
reports that pension fund assets were being used for corporate 
takeovers and other transactions, the Congress enacted an 
excise tax on reversions of plan assets to employers. This 
excise tax was increased in 1990 to strengthen the guarantee 
that these funds be used to benefit employees.
    This Republican bill would permit employers to withdraw 
assets from employee pension funds for their use. Any assets in 
excess of 125 percent of the plan's current liability could be 
withdrawn by the employer and used for any purpose. If the 
withdrawal is before July 1, 1996, the excise tax enacted in 
the 1980s would be waived completely. This tax holiday is 
designed to maximize the nominal revenue gain from this 
proposal by creating an incentive for employers to withdraw 
assets promptly. For withdrawals after July 1, 1996, and before 
December 31, 2000, the bill would reduce the excise tax from a 
maximum of 50 percent to a mere 6.5 percent. This is less than 
even the 10-percent additional tax that an individual must pay 
for premature withdrawals from an Individual Retirement 
Account.
    The PBGC estimates that as much as $100 billion of pension 
plan assets could be withdrawn if employers take full advantage 
of the Republican proposal. In making its revenue estimate of 
this provision, the Joint Committee on Taxation assumed that 
between $30 and $40 billion of pension fund assets would be 
withdrawn under this proposal, thus their estimated revenue 
gain for the government of approximately $10 billion. If their 
estimates are accurate, the net benefit to corporations under 
this proposal will be between $20 and $30 billion, money those 
corporations can pocket. This is purely a voluntary tax paid by 
corporations for the privilege of withdrawing pension assets: 
hardly cracking down on corporate loopholes. It should be noted 
that employers will be willing to pay this voluntary tax only 
if they dismiss Chairman Archer's prediction that he will 
succeed in tearing the income tax out by its roots.
    During Committee consideration of this proposal, some 
Republican Members argued that they were freeing up money for 
useful investment. This argument is fallacious since these 
monies are already productively invested through stock, bond, 
or other investments. The only question is who will receive the 
income earned by these investments, not whether these funds 
will be productively invested.
    Embarrassed by their failure to advance any policy 
rationale for this proposal during the Committee debate, the 
Republicans and their staff have now invented one. They contend 
that permitting employers to withdraw $30 to $40 billion from 
employee pension funds will actually enhance the security of 
employee pensions by encouraging greater employer contributions 
in the future.
    We have two responses to this rather astonishing argument. 
First, if the Republicans really believe that this proposal 
would have that beneficial effect, why is the proposal 
temporary? It is temporary because that is the only way it can 
raise revenue. The only way to disguise this $30 billion gift 
to corporations as a revenue increase is to make it temporary. 
Second, the staff in its desperate haste to produce a rationale 
for this proposal has failed to analyze its own bill. The 
amount that can be withdrawn under the Committee proposal 
cannot exceed the overfunding which existed on January 1, 1995. 
Therefore, this limitation removes any incentive for making 
larger contributions in the future under the proposal.
    Rather than justify their proposal, the Republicans merely 
argued that it was similar to provisions enacted in the past. 
This argument also is incorrect. In 1990, a provision was 
enacted permitting the use of excess pension plan assets for 
retiree health benefits. This provision was extended in last 
year's implementing legislation for the Uruguay Round trade 
agreements. The retiree health provisions are substantially 
different from the proposal adopted by the Committee for the 
following reasons:
  First, the present-law provision permitting use of excess 
pension plan assets for retiree health benefits directly 
benefits the retirees under the plan who also receive retiree 
health benefits. Technically, it is not even a withdrawal from 
the plan but is an allocation of plan assets to a retiree 
health account which is part of the plan.
  Second, the present-law provision contains substantial 
restrictions to ensure continuation of retiree health benefits. 
The provision adopted by the Committee contains no such 
restrictions. By permitting withdrawals for any purpose, it 
removes the incentives for employers to continue to provide 
retiree health or any other employee benefits.
  Third, the amount of money anticipated to be withdrawn under 
this Republican proposal dwarfs the amount anticipated to be 
allocated to retiree health accounts. The Joint Committee 
estimates that between $30 and $40 billion will be removed from 
pension plans under this Republican proposal. This is probably 
20 times the amount that will be allocated to retiree health 
accounts.
    It may be possible to carefully craft a proposal that would 
permit withdrawal of truly excess assets from pension plans 
without endangering employee pensions or increasing contingent 
liabilities of the PBGC. It is clear that the Committee 
proposal was not so crafted and was simply designed to maximize 
its revenue gain. Chairman Archer's original Mark would have 
permitted withdrawals of pension fund assets without regard to 
the funded status of the plan when the withdrawal would be 
made. It defined excess pension plan assets by reference to the 
fund's status on January 1, 1995, without regard to later 
events. This would have permitted withdrawals from plans 
overfunded on January 1, 1995, even if those plans were 
underfunded on the dates of the withdrawals. In response to 
concerns raised by Congressman Kleczka, Chairman Archer offered 
an amendment identical to the one that Congressman Kleczka 
considered proposing. This amendment was adopted even though it 
cost $1 billion in reduced revenue.
    Congressman Ben Cardin offered an amendment in Committee 
that would have required the use of conservative actuarial 
assumptions in determining whether there were excess pension 
assets that could be withdrawn under the provision. Last year, 
in the implementing legislation for the Uruguay Round trade 
agreements, Congress required the use of conservative actuarial 
assumptions by underfunded pension plans. Congress was 
concerned that then-current actuarial assumptions permitted 
employers to underfund plans by understating their liabilities. 
Congressman Cardin's amendment would have required that these 
conservative assumptions be used for purposes of determining 
how much may be withdrawn under the Republican bill. The 
Republican majority brushed off concerns of the Administration 
that unless conservative actuarial assumptions were used the 
proposal could substantially increase the potential liabilities 
of the PBGC. The only argument raised against the amendment was 
that it would cost revenue. This clearly revealed that the 
Committee proposal was designed to maximize revenue gain rather 
than ensure adequate assets for employee pensions.
    Congressman Gerald Kleczka offered an amendment in 
Committee that would have required employers to provide their 
employees with advance notice before making withdrawals under 
the Committee bill. Even notification to the employees was 
rejected by the Republican majority, who argued that it might 
create ill feeling between employees and employers if the 
employees were informed that their pension assets were to be 
used by their employer at the employer's discretion.
    The Republicans have constantly argued that assets in 
excess of 125 percent of a plan's current liability are not 
necessary to ensure payment of employee pensions. No foundation 
exists for this assertion. We do not agree with it for the 
following reasons:
    The stock market is at historically high levels. Excess 
pension funds could disappear in a single day in the case of a 
market correction. We have all seen stories of substantial 
losses from derivative transactions. These losses could also 
rapidly erode excess pension fund assets.
    A reduction in interest rates of as little as 1 percentage 
point together with an asset reduction of 10 percent (through 
investment performance) reduces the funding ratio from 125 
percent funding to 96 percent funding in the typical plan 
guaranteed by the PBGC.
    Use of current liability to measure excess pension fund 
assets substantially understates the risk to the PBGC. Even a 
pension plan funded at 125 percent of current liability could, 
if terminated, result in liability to the PBGC.
    The Republicans would have us believe that they have begun 
a revolution to divorce government from special interests. 
Their television commercials, their campaign slogans, their 
sound bites all try to persuade the American public that the 
Republicans are cleaning up politics. Nothing could be further 
from the truth. This bill is proof that, public relations 
jargon aside, at the end of the day when it really counts, the 
Republicans are even more cozy than ever with their special 
interests.

          republicans deny basic housing to the nation's poor

    The bill would eliminate the low-income housing tax credit 
(LIHTC) after December 31, 1997. This would jeopardize the 
future of affordable housing and the revitalization of urban 
and rural communities. At a time when the need for affordable 
housing can be seen clearly from the streets of the Nation's 
capital to the rural areas of this country, the Republicans 
have targeted the LIHTC for extinction.
    This provision was included in the bill by the Republicans 
under the guise of closing corporate and other loopholes, yet 
no evidence has ever been presented to substantiate that claim. 
The credit, which is allowed in annual installments over 10 
years for qualifying new construction or substantially 
rehabilitate low-income housing, is the only federal tax 
program available for private investment in affordable housing.
    The success of the LIHTC program has been praised by many, 
including Republican Governors. One Governor, in urging that 
the credit be retained on a permanent basis, stated that the 
``credit has been an important part of the statewide strategy 
to help low-income families afford decent housing, thereby 
reducing their dependence on other costly forms of public 
assistance.'' We agree. We believe there is a direct 
correlation between providing affordable housing to a low-
income family and reducing that family's dependency on 
government handouts. Unfortunately, the Republicans on this 
Committee have chosen to ignore this nexus in their quest to 
take from the weakest in our society and give to the most 
privileged.
    The Republicans have justified the elimination of the 
credit by arguing that this would facilitate a review by the 
Committee of whether the credit should be modified and/or 
retained after receiving a report from the General Accounting 
Office [GAO]. However, the Republicans were hard-pressed to 
explain why such drastic action was being taken before any 
report has been received and reviewed by the Committee. This is 
clearly another example of the Republicans' use of any means to 
justify their ends.
    Since its creation in 1986, the LIHTC has financed more 
than 800,000 affordable housing units for low-income families. 
These units would not otherwise have been built; and hundreds 
of thousands of low-income families would not have received 
decent, affordable housing. The more than 800,000 units account 
for all the new housing units for low-income renters since 
1986. Yet Committee Republicans voted unanimously to kill the 
program.
    We are convinced that the Republican are aware of the 
importance of permanence to the continuing success of this 
program. The National Governors' Association, in urging that 
the program be retained on a permanent basis, stated that the 
program was one of the best examples of a public-private 
partnership and a federal-state partnership. The LIHTC was made 
permanent in 1993 in response to these very concerns, concerns 
we know the Republicans are aware of, but have chosen to 
override.
    The revenue raised by this provision, $3.5 billion over 
seven years, is not critical for the Republicans to meet their 
budget target. Why then their committed effort to abolish the 
LIHTC? Except for the fact that this action is consistent with 
the Republicans' effort to take from the weakest in our society 
and give to the most privileged, we may never know the true 
driving force behind their inclusion of this provision.

            republicans conceal their plans from the public

    Lastly, we feel compelled to note that the process by which 
this bill was developed was a disappointment at best and an 
intentional obfuscation at worst. Chairman Archer changed his 
Mark three times within the first few hours of the markup. It 
was difficult to be certain which version was current at any 
given time.
    The Joint Committee on Taxation failed to make revenue 
tables available until the markup began. Even then, the tables 
did not correspond to the version of the mark that was before 
the Committee.
    Discussion of the effects of the bill's provisions on 
taxpayers and the economy was not allowed. Questions intended 
to illuminate the consequences of this legislation were 
silenced. Are Members of Congress no longer allowed to gain a 
thorough understanding of what we are voting on? Is the 
American public to be kept in the dark about what the 
Republicans are doing? What was Chairman Archer afraid of? What 
does he wish to hide? The American people deserve better.

                                   Sam Gibbons.
                                   Barbara B. Kennelly.
                                   Harold Ford.
                                   Robert T. Matsui.
                                   L.F. Payne.
                                   Pete Stark.
                                   Gerald D. Kleczka.
                                   Jim McDermott.
                                   C.B. Rangel.
                                   Sander M. Levin.
                                   John Lewis.
                                   Benjamin L. Cardin.
                                   Richard E. Neal.
                                   William J. Coyne.

                  Dissenting Views--Graduate Education

    In the section relating to extension of certain expiring 
tax provisions of the Budget Reconciliation Recommendations, a 
provision which addressed employer-provided educational 
assistance was included. Under prior law, an employee's gross 
income and wages did not include amounts paid or incurred by 
the employer for educational assistance provided to the 
employee if such amounts were paid or incurred pursuant to an 
educational assistance program. This provision expired December 
31, 1994.
    The proposal in these recommendations would extend the 
exclusion for educational assistance for taxable years 
beginning after December 31, 1994 and before January 1, 1998. 
However, the exclusion does not include graduate education for 
1996 and 1997. We are concerned that the exclusion does not 
include graduate education. The Joint Committee on Taxation has 
prepared an estimate for including graduate education. 
Including graduate education for 1996 and 1997 would cost a 
total of $259 million.
    During the mark-up, Chairman Archer offered a substitute 
amendment which affected the revenue of the total package. 
Several corporations benefitted. Whereas, the middle class and 
lower class will suffer. Section 127 has helped many 
individuals who want to better themselves through education. 
The amount of revenue saved is not worth the loss that will 
result from this provision. Education is the key to our future.

                                   Sam Gibbons.
                                   Charles Rangel.
                                   Andrew Jacobs, Jr.
                                   Robert Matsui.
                                   Barbara Kennelly.
                                   William Coyne.
                                   Sander Levin.
                                   Benjamin Cardin.
                                   Jim McDermott.
                                   John Lewis.
                                   L.F. Payne.
                                   Richard Neal.

          Dissenting Views of Richard E. Neal--Simplification

    In the section relating to tax simplification proposals of 
Budget Reconciliation Recommendations, I am concerned about the 
selection process. During the walk through and mark-up process 
it was not clear what the rationale was for including some 
provisions and not others. I was under the general belief there 
would be no retroactive provisions included in the 
reconciliation tax provisions.
    This section included a provision which would modify the 
FICA tip credit. The proposal clarifies the credit with respect 
to employee FICA taxes paid on tips by providing that the 
credit is available whether or not the employee reported the 
tips on which the employee FICA taxes were paid pursuant to 
section 6053(a). This provision is retroactive because it 
includes taxes paid after December 31, 1993.
    I have been working on a proposal which would clarify the 
employment tax status of certain fishermen. Congress has passed 
this proposal in the past. This proposal is similar to the FICA 
tip provision and they are both retroactive. The proposal 
clarifies the definition of employment for fishermen of certain 
small fishing vessels.
    The revenue loss associated with this proposal is small and 
I have an offset to pay for the proposal. The offset addresses 
tax compliance for the sale of fish. This offset is 
noncontroversial.
    I urge the Committee on Ways and Means to address the 
clarification of employment tax status of certain fishermen in 
a timely manner. All employment tax issues should have been 
addressed at the same time. One proposal should not have been 
treated differently than others.

                               Richard E. Neal, Member of Congress.

                      Additional Dissenting Views

    We want to express our opposition to the provision of this 
bill that would deny the deductibility of interest on loans 
taken against corporate owned life insurance policies.
    This proposal constitutes a retroactive tax increase on all 
holders of all policies with loans purchased after 1986. 
Countless companies across the country have made the business 
decision to purchase these policies. One factor in that 
decision was the deductibility of interest on policy loans. 
Now, in this legislation, we have retroactively changed the 
rules. Without notice and without any opportunity for public 
hearing, we have told the companies who purchased these 
policies that they may no longer deduct interest on those loans 
taken on the cash value of these policies.
    One of the basic principles of our corporate tax law is 
that businesses can borrow against corporate assets and deduct 
interest on the loan payments. Corporations may borrow against 
real estate, or equity holdings, or any other assets, and the 
interest on the loans is deductible. This proposal would, on a 
comprehensive basis, treat corporate life insurance differently 
from every other class of corporate assets for this purpose.
    We want to emphasize the fact that this provision does not 
differentiate on the basis of the purpose for which the 
corporate owned life insurance policy was purchased. None of 
the proponents of this provision have challenged the legitimacy 
of key employee policies. No criticism has been made of the 
policies that many companies use to help offset the rising 
costs of employee benefit plans. Yet this provision would 
undermine these important and legitimate purposes.
    The proponents of this provision have suggested that they 
seek to end abusive practices involving corporate owned life 
insurance. To the extent that there are abusive practices 
involving corporate owned life insurance, it is the 
responsibility of this committee to conduct public hearings, 
look into those abuses, and design legislative remedies. The 
provision in this bill, however, represents a classic case of 
throwing the baby out with the bathwater.

                                   Benjamin Cardin.
                                   L.F. Payne.
                                   Barbara Kennelly.
                                   Gerald D. Kleczka.
                                   Richard E. Neal.
                                   William J. Coyne.
                                   Robert T. Matsui.

                          VI. ADDITIONAL VIEWS

             Additional Views of Mr. Cardin and Mr. Portman

    Congress has made constant changes in the laws governing 
private pension plans over the past decade. Unfortunately, the 
consistent direction of those changes has been to add layers of 
complexity and expense to the administration of pension plans.
    The result of those changes has been to make it more 
difficult for businesses, and especially small businesses, to 
maintain an existing pension plan or to create a new one. That 
is why, over the past 15 years, the percent of small businesses 
which sponsor pension plans has declined. Twenty-five million 
Americans work for firms that employ fewer than 25 workers, and 
less than one out of five of those businesses sponsors a 
pension plan. This compares with the nearly three out of four 
employees of companies with more than 1,000 employees who have 
pension coverage.
    This legislation marks a dramatic and long-overdue reversal 
of the trend toward increasing complexity in federal pension 
law. Many of these proposals have been before the Congress for 
several years. In 1992, Congress included many of these 
provisions in H.R. 11, which passed the House and Senate and 
was sent to President Bush, only to be vetoed for reasons 
completely unrelated to the pension reforms.
    We greatly appreciate Chairman Archer's leadership in 
including in his mark many of the most important provisions of 
H.R. 2037, the Pension Simplification Act of 1995, which we 
jointly introduced earlier this year. Many of the 
simplification proposals included in the bill reported by the 
committee will remove obstacles that prevent businesses from 
sponsoring pension plans. This will ultimately add to our 
nation's savings rate and boost the retirement security of our 
nation's workers.
    One of the most significant changes is the design-based 
safe harbor for 401(k) plans, which will relieve plan sponsors 
of the expensive and cumbersome nondiscrimination testing while 
offering workers a strong pension plan. The safe harbor 
includes an employer match that is modeled after the Federal 
Thrift Savings plan.
    Several of the changes will remove unworkable and unfair 
provisions from the law. By repealing the family aggregation 
rules, we will remove a provision that unfairly penalizes 
workers in the same firm who happen to be family members. We 
are also very pleased that the bill includes the repeal of 
section 415(e), which imposes limits on combined plans 
sponsored by the same employers. The extraordinary complexity 
of the record-keeping and calculations required by section 
415(e) makes it virtually impossible for any plan sponsor to 
comply with the law.
    The bill also includes a number of provisions that were 
included in H.R. 2037 to address important problems which are 
still under discussion in the pension community. The new 
definitions of highly compensated employees will reduce from 
seven to two the number of criteria that must be considered, 
and the definition of leased employees would replace the 
historically performed test with a significant control 
standard. Both provisions will greatly improve current law, and 
we are pleased that they are included in the committee bill.
    As we have continued to work with the interested groups on 
these issues, however, additional considerations have come to 
our attention that suggest the need for further refinements to 
these two provisions. We hope to work with Chairman Archer as 
this bill moves through the process to address these concerns.
    In addition, further examination should be given to the 
provision that would require firms to use prior year data 
rather than current year data in nondiscrimination testing. It 
has come to our attention that for some firms in cyclical 
industries, use of prior year data could impose unreasonable 
limits on plan contributions. This problem could be solved by 
offering firms an election on the issue of using prior or 
current year data.

                                   Benjamin Cardin.
                                   Rob Portman.

  MINORITY, ADDITIONAL, AND DISSENTING VIEWS-- COMMITTEE ON THE BUDGET

                              ----------                              


Minority Views--Republican Reconciliation--An Example of Mismanagement 
                             and Extremism

    The Republican reconciliation package contained in this 
bill is only half-finished but it is 100 percent cruel. In 
fact, the mismanagement of this process is exceeded only by the 
mean-spirited nature of the recommendations that did make it 
through Republican-controlled committees to come before us.

                              the process

    The reconciliation legislation considered by the Budget 
Committee included only one-third of the cuts required by the 
budget resolution. Mandated cuts in Medicare, welfare, food 
stamps, child nutrition, commodity programs, and civilian 
pensions were not in the package. Five of the 12 committees 
reconciled to make cuts failed to meet their targets and--in 
fact--two committees did not report any legislation whatsoever. 
Further, one of those committees, the Agriculture Committee, 
actually voted down its reconciliation package and rather than 
go back and try again, it just gave up. Another committee, the 
Government Reform and Oversight Committee, didn't even try to 
mark up any product. Rather, their chairman just sent a letter 
to the Budget Committee as if he had the right to speak for his 
committee without any committee process.
    Although the Ways and Means Committee has jurisdiction over 
the all-important tax cut which is driving up cuts in all other 
areas of the budget, it only reported miscellaneous items of 
tax policy. It chose to abdicate all responsibility for 
deciding the final structure for the $245 billion tax cut 
contained in the reconciliation directive. Apparently, it was 
too painful for that committee to cut back the $354 billion 
Contract with America tax cut it had passed earlier, so it just 
walked away from that responsibility.
    Since the inception of the reconciliation process, 
committees have with few exceptions reported legislation to the 
Budget Committee that met their reconciliation instructions, In 
1993, for instance, the Budget Committee considered a 
reconciliation package that met the budget resolution's 
instructions and included recommendations from all 13 
reconciled committees--and it did this in May. The wholesale 
breakdown of the process this year is unprecedented.
    We are told that none of this is important because the 
Chairman of the Budget Committee will just introduce a new bill 
that will make up for all these shortcomings. In other words, 
he will introduce a bill that will fix: welfare reform, taxes, 
agriculture, government benefit plans, and Medicare by 
reference. We are told that the Chairman will be doing this as 
an agent of the committee. Really?!
    Normally, we would not dwell this much on process, but in 
this case process has become substance. This massive bill will 
most likely be considered by the House under rules permitting 
very few Floor amendments. Therefore, it is especially 
important that all of its provisions be subject to scrutiny, 
debate, and amendment at the committee level. And provisions 
that cannot or do not withstand committee scrutiny should not 
simply be crammed into the reconciliation bill by fiat of the 
Speaker.
    This process is such a total violation of any commitment to 
openness, fairness, or representative democracy, we must call 
attention to it. This bill represents a total failure of the 
new majority in the House of Representatives to meet its 
obligations under the Budget Act. And, any new bill introduced 
by the leadership under the name of the Chairman, represents a 
violation of democratic processes at all levels. And--this is 
coming from the new leadership that promised openness and 
honesty in governing.

                             the substance

    As awful as the process for this package has been its 
failures are nothing compared to the flaws in the substance. 
The two largest items contained in this bill involve 
devastating cuts in health care for the most vulnerable people 
in our society and tax increases on working people. And, more 
outrages are likely to be added in areas such as Medicare, 
welfare, and farm programs when the Republican leadership 
inserts its additional provisions into the bill. Here, however, 
we deal only with the provisions that were actually before the 
Budget Committee.

Medicaid

    The Republican Medicaid proposal cuts $182 billion out of 
the program that is designed to help low-income people receive 
health care. It represents one of the most backward proposals 
we have seen in this century. Not only does it take a major 
step backward in ensuring adequate health care for the poor, 
the uninsured, and the old in our society; it also takes 
serious risks with the public health of our nation.
    The Republican plan ends the entitlement to Medicaid 
services for low-income children, elderly, and disabled 
persons. Under this bill, states would be allowed to establish 
their own eligibility standards and benefit packages with no 
requirements that they guarantee coverage to people now 
protected under the law. At the same time, the resources shared 
with the states for this purpose are seriously constrained, 
making it extremely difficult for many states to continue to 
provide services in the manner required today.
    In one of its most cruel features, the bill abolishes the 
national standard that protects older couples from spousal 
impoverishment. Under today's rules, no person can be required 
to use all of his or her income and assets in order to receive 
Medicaid coverage for a husband or wife in need of nursing home 
care. Years ago before we had this standard, it was not 
uncommon for older couples to feel they had to get divorced in 
order for one partner to receive the help needed to cover the 
costs of nursing home care. Moving back to that era is hardly 
an example of pro-family public policy.
    Further, the bill abolishes standards that require Medicaid 
coverage for prenatal care for low-income women, intensive care 
for newborns, screening and preventive services for school-aged 
children, and special services for disabled children.
    Clearly, this plan places the health care of the 36 million 
Americans who now receive Medicaid in serious jeopardy. In an 
era of increasing risks to the public health in general--
through higher incidence of infectious diseases such as 
tuberculosis, AIDS, and pneumonia--it hardly seems good public 
policy to reduce health care for those most at risk.

Tax increases

    In its second most serious substantive piece, the 
Republican reconciliation plan imposes $36 billion in tax 
increases on low- and middle-income workers. It does so 
directly through cuts in the Earned Income Tax Credit for 
workers; it does so indirectly through sanctioning corporate 
raids on workers pension funds. And, it eliminates one of the 
few tax tools that helps communities increase the supply of 
affordable housing for low-income families.
    The Republican plan cuts $23.2 billion out of the Earned 
Income Tax Credit. This is ad real tax increase on low-income 
workers. It will hurt four million childless workers who have 
incomes of less than $9,520 in 1996. It will hurt ten million 
families with children who have incomes between $11,620 and 
$25,119. Because the credit goes only to low-income people with 
earnings, it is reward for working rather than relying on 
welfare. Cutting the credit is a peculiar policy when moving 
people off welfare is--and should be--one of our highest 
priorities. Once again, the new majority has it backwards.
    The plan also indulges itself in a very destructive and 
deceptive change in the tax treatment of corporate pension 
plans. The bill temporarily removes the excise tax on pension 
reversions that was enacted in the 1980's to discourage 
corporate takeovers. This results in a revenue gain as 
corporations withdraw money from their workers' pension funds 
and pay corporate income taxes on the withdrawal. While this 
provision may look like a tax increase on corporations, the 
increase is only temporary and corporations would not choose to 
pay the tax unless it were of more benefit to them to get at 
the pension funds. It has the effect of leaving little margin 
of safety in many pension funds. Ultimately, this hurts not 
only workers, but also taxpayers who will have to back up the 
Pension Benefit Guarantee Corporation which must make good on 
pension promises if a company pension fund falls short.
    The low-income housing credit has helped 800,000 families 
afford decent housing. This housing assistance is being taken 
away at the same time other funds appropriated for low-income 
housing assistance are being cut severely. Clearly, this 
provision along with the two mentioned above is hardly an 
example of clamping down on corporate welfare.

                               Conclusion

    The reconciliation package contained in this bill falls far 
short of what needs to be done either to balance the budget or 
to meet the requirements of the budget act. It falls short in 
money. It falls short in process. And, most importantly, it 
falls short of the simple, basic humaneness needed to govern in 
a pluralistic and complex society.


    Appendix II--Letter From Democratic Members of the Committee on 
                              Agriculture

                     U.S. House of Representatives,
                                  Committee on Agriculture,
                                  Washington, DC, October 11, 1995.
Hon. John Kasich,
Chairman, Committee on the Budget,
U.S. House of Representatives.
    Dear Mr. Chairman: We are writing regarding reconciliation 
instructions directed to the Agriculture Committee under 
section 105(a) of H. Con. Res 67, the concurrent resolution on 
the budget for fiscal year 1996.
    As you know, the Committee on Agriculture was unable to 
produce a majority sufficient to report recommendations to the 
Committee on the Budget as required under the budget 
resolution. In anticipation of the involvement of you and the 
Committee on the Budget in providing for the inclusion of an 
agriculture title in the budget reconciliation bill, we take 
this opportunity to share our views regarding this important 
matter.
    Under H. Con. Res. 67, the Agriculture Committee is 
directed to recommend changes in law sufficient to reduce 
spending on commodity programs by $13.4 billion over the next 
seven years. The budget resolution also allows the inclusion in 
reconciliation of a $245 billion tax cut. Our goals are to 
achieve a balanced budget and to establish a farm policy that 
preserves the security of our food supply. Since the magnitude 
of proposed cuts in farm spending threatens severe damage to 
our nation's food security, we believe providing a quarter of a 
trillion dollar tax cut is inconsistent with achieving these 
goals.
    Agriculture is the very foundation of our nation's economy. 
Our basic farm programs have played a significant role in the 
farmer/government partnership that has been so successful in 
assuring that our nation has a safe, reliable, and affordable 
food supply. Reducing Federal spending on farm programs by 
$13.4 billion will threaten the economic viability of American 
agriculture and thereby endanger our food security.
    To take such an enormous risk with our food production 
system in order to provide a tax cut is a reckless approach to 
fiscal policy.
    When Democrats were in the majority in the House, the 
Committee on Agriculture never failed to meet its budget 
reconciliation directives. From 1981 from 1993, the Committee 
made changes in agricultural programs that reduced Federal 
spending by over $50 billion. In fact, agricultural commodity 
programs comprise the only significant category of entitlements 
that has undergone actual reductions in outlays over the 
period.
    Agriculture will continue to share in efforts to eliminate 
the budget deficit. During the Committee on Agriculture's day-
long deliberations of reconciliation legislation on September 
20, 1995, we offered a substitute amendment for the matter laid 
before the Committee of Chairman Roberts. If adopted, our 
proposal would reduce farm program spending by $4.4 billion. 
This amount is a significant proportion of total commodity 
program spending and we feel it is a reduction appropriate to 
achieve a balanced budget without drastically undermining the 
viability of our nation's rural economy. Our amendment was 
defeated in the Committee by a vote of 22-25.
    The Committee also considered two other major alternatives 
that would have achieved savings of $13.4 billion. The base 
text before the Committee consisted of the Freedom to Farm Act 
and other changes proposed by Chairman Roberts. The Roberts 
proposal would eliminate the basic structure of farm commodity 
programs, eliminate milk price support and marketing other 
programs, and make annual payments available to past recipients 
of farm program funds. Payment amounts would be independent of 
market prices. The other alternative was offered by 
Representatives Emerson and Combest. The Emerson/Combest plan 
would have achieved savings by reducing the amount of a 
farmer's acreage on which farm commodity program payments are 
made but would have largely left the basic structure of 
commodity programs in place. The Emerson/Combest proposal was 
defeated by a vote of 23-26. The base text presented by 
Chairman Roberts was defeated by a vote 22-27.
    During Committee deliberations on September 20, we raised 
concerns regarding a number of matters. First, we expressed our 
concern that the magnitude of the reductions on which the 
Committee was being asked to vote were imprudently large and 
should not be made in order to provide a tax cut.
    Second, we voiced our concern that very little information 
was available to the Committee regarding the impact of the 
Freedom of Farm Act. Up to that time and until today, the 
Committee on Agriculture has not held a single hearing to 
obtain the views of farmers, analysts, or consumers regarding 
what the impact might be of this dramatic change in farm 
policy. We feel that all Members of the House should be aware 
of the lack of available information.
    Finally, we expressed our concern regarding a letter to 
Chairman Roberts from Speaker Gingrich, Republican Leader 
Armey, and Republican Whip DeLay stating that they would take 
it upon themselves to force inclusion of the Freedom to Farm 
Act in the reconciliation bill regardless of any action taken 
by a majority of the members of the Committee on Agriculture. 
We feel that this letter represents a profound repudiation of 
the Congressional committee system and a dangerous precedent 
with severe negative consequences for the future of our 
nation's food production system.
    The paralysis of the Agriculture Committee with regard to 
budget reconciliation is a signal that should not be ignored. 
The deep divisions in our Committee's membership are a 
harbinger of broader discord regarding the fiscal priorities 
being set by the Congress.
    We take this opportunity to invite you and your colleagues 
on the Budget Committee to begin now to redirect those 
priorities. At this time, Americans need a balanced budget--not 
a $245 billion tax cut. Our nation's well-being requires that 
we preserve the farmer/government partnership that has been so 
successful in ensuring the reliability of our food supply. 
Finally, in order to actually achieve the balanced budget which 
our people now demand, we must begin immediately to come 
together and address these concerns.
            Sincerely,
                                   E de la Garza.
                                   Charlie Stenholm.
                                   Collin C. Peterson.
                                   Bennie G. Thompson.
                                   Tim Holden.
                                   Cal Dooley.
                                   John Baldacci.
                                   George E. Brown, Jr.
                                   Cynthia McKinney.
                                   Earl Pomeroy.
                                   Ed Pastor.
                                   Karen L. Thurman.
                                   Sam Farr.
                                   Charlie Rose.
                                   Tim Johnson.
                                   Sanford D. Bishop, Jr.
                                   David Minge.
                                   Harold L. Volkmer.
                                   Earl F. Hilliard.
                                   Gary A. Condit.
                                   Scotty Baesler.
                                   Eva M. Clayton.
                                   Martin O. Sabo.
                                   Harry Johnston.
                                   Louise Slaughter.
                                   Alan Mollohan.
                                   William J. Coyne.
                                   Jerry F. Costello.
                                   Patsy T. Mink.
                                   Lynn Woolsey.
                                   Carrie P. Meek.
                                   William Orton.
                                   Glen Browder.
                                   Lucille Roybal-Allard.

                     Dissenting Views--Agriculture

    A farm bill, as its name would indicate, is supposed to be 
about farm policy. It is meant to be about how to make our farm 
programs work better for American farmers and consumers, so 
that the nation can continue to enjoy the same top-quality, 
rock-bottom priced food we have been enjoying for more than 50 
years.
    But from the outset, this farm bill debate has had 
absolutely nothing to do with farm policy, and everything to do 
with wringing $13.4 billion out of agriculture programs in 
order to pay for a tax cut that will primarily benefit the most 
privileged among us.
    There was not one hearing held on the 1995 farm bill. Not 
one. The Freedom to Farm Act--which effectively spells the end 
of the farm program as we know it--was brought to a Committee 
vote without a speck of input from the farmers who would be 
most severely impacted.
    The House Agriculture Committee rejected this bill. A 
Republican Leadership memo was circulated, detailing the brutal 
sanctions that would be levied against Republican Ag Committee 
members who dissented. Still, the ag experts in Congress knew 
that trying to craft a farm bill with a $13 billion cut is like 
trying to make a shirt from a handkerchief. There just isn't 
enough material to go around.
    The Leadership is undeterred by this setback. Now the 
Budget Committee Chairman--not even the Budget Committee--will 
do what those who represent rural America could not and would 
not do. This was a Gingrich plan from the beginning--now all 
pretenses have been dropped.
    There has been a stark contrast over the past eight years 
between agricultural spending and total federal spending. Since 
1986, Commodity Credit Corporation (CCC) spending has been 
reduced by 60 percent, while total federal spending increased 
nearly 50 percent. The Congressional Budget Office (CBO) 
baseline projects CCC will decline another 20 percent by 1998 
and stay at that level until 2002, while all federal spending 
will continue its upward spiral, rising another 50 percent by 
2002.
    It is further projected that extensive reorganization of 
USDA will save as much as $4.1 billion through fiscal year 1999 
as more than 1,200 field offices are closed, over 13,000 
employees terminated and 43 agencies consolidated into 29.
    If all federal spending had followed the pattern of 
agricultural spending over the past eight years, the federal 
budget would be in a very substantial surplus position.
    Under the recent Uruguay Round of GATT Agreement, the U.S. 
along with other countries is required to reduce its support 
for domestic farm programs by 20 percent by the year 2000 from 
the 1986-88 base period. However, the U.S. has already more 
than achieved these reductions. To make further reductions in 
such programs without requiring similar corresponding reduction 
by the European Union (EU) and other foreign competitors would 
be unfair to U.S. farmers.
    History has shown that our foreign competitors will utilize 
every possible resource to maintain and expand their share of 
the world market. The EU, for example, continues to 
significantly outspend the U.S. in terms of its support for 
agriculture and in competing for foreign markets. In 1994, 
outlays for domestic farm programs by the EU amounted to more 
than $30 billion--nearly three times the U.S. level of outlays.
    U.S. agriculture currently faces a subsidy disadvantage. 
Further cuts in U.S. agriculture spending will worsen the 
situation: large, disproportionate cuts will be devastating. 
Not only will our farmers be disadvantaged, but American 
consumers will share in their loss. American jobs are also at 
stake. Our agriculture and food industries alone employ one out 
of every six Americans and nearly one million U.S. citizens 
depend on agricultural exports for their jobs.
    The fundamental objective of domestic farm subsidies is to 
compensate farmers at a level sufficient to attract financing 
for what, by nature, is a high risk investment, yet allow 
agricultural products to be sold at lower market prices. The 
U.S. farm policy is offset by EU subsidies, the extent to which 
the global system of agriculture subsidies buys down consumer 
prices. The inescapable conclusion is that these relationships 
bear some relation to comparative production costs in the U.S. 
and the EU. If agricultural products from the U.S. the EU--and 
virtually every other exporting nation--were marketed at prices 
sufficiently to fully cover production costs and provide a 
reasonable return on a risky investment, retail prices would be 
much higher!
    The record of federal spending for agricultural programs 
and the return on taxpayers' investment should be held up as a 
model for other budget items, not singled out for 
disproportionate cuts. We do not object to the principle of 
requiring justification for federal spending. However, we do 
object to having agriculture singled out for what constitutes 
rebuttable presumption that its programs are either not 
justified or should take bigger cuts than other budget items, 
especially when the Agriculture Committee could not justify the 
policy behind the cuts.
    It is ridiculous to argue that a $13.4 billion cut in farm 
programs will allow farmers in the United States to be 
competitive in the world market. It is simply impossible to 
build an adequate farm program given the amount of 
disproportionate cuts that the Republican Budget Committee has 
directed toward agriculture.
    The policy surrounding the 1995 farm bill is seriously 
flawed. There has been no discussion at the Agriculture 
committee level and zero input from the very capable farmers in 
this great country. The Freedom to Farm Act, which cuts $13.4 
billion from agriculture spending, severs the link between 
price supports to farmers and the market prices they receive 
for their crops. The safety net has been removed and the risk 
of farming has been piled upon the shoulders of America's 
Heartland.
    The result is clear, when prices are high, farmers will 
continue to receive from payments--making good times even 
better. Of course, the good times of strong market prices 
aren't the problem. The problem is when prices fall to levels 
where the amounts farmers are paid for their crops don't cover 
the cost of growing them. Providing help during the bad times 
of low market prices should be the major goal of farm programs, 
yet under the Freedom to Farm Act, this goal is seriously 
overlooked and the $13.4 billion cut to agriculture eliminates 
the price support safety net for farmers.
    The Republican plan for agriculture produces the curious 
result of paying farmers when times are good and when help is 
generally not needed; it then turns it back on farmers when 
prices collapse and when farmers are unable to cover their 
costs of production.
    In our view, this government ought to help the American 
farmer when times are bad and provide less assistance when 
times are good.

                                   Earl Pomeroy.
                                   Charles Stenholm.

             Additional Views--Medicaid, Hon. Earl Pomeroy

    I remain deeply concerned over the deep and debilitating 
cuts this budget makes in the Medicaid program. While I 
strongly believe that Medicaid must be reformed, regulations 
streamlined and spending restrained, the $182 billion cut 
proposed in this budget is reckless and irresponsible. If these 
cuts are enacted, it has been estimated that 1.7 million 
seniors will be denied long-term care benefits and an 
additional 7 million children will be without health insurance.
    In addition to the enormous cut in funding, the Medicaid 
plan reported by the Commerce Committee repeals many vital 
federal protections, including nursing home standards, 
guarantees of coverage for poor pregnant women, their children, 
and the disabled, as well as guarantees of adequate payments 
for rural hospitals and health clinics. Among the most 
disturbing provisions of the Commerce Committee plan is the 
repeal of the federal protection against the impoverishment of 
seniors whose spouse requires nursing home care and relies on 
Medicaid.
    During Committee markup, I offered a motion to direct the 
Chairman to request, on behalf of the Committee, that the rule 
for consideration of the Omnibus Budget Reconciliation Act 
(OBRA) of 1995 provide for an amendment to restore current 
spousal impoverishment protections.
    At that time, Rep. Shays requested that I withdraw my 
motion in exchange for his personal assurance to work with me 
on a bipartisan basis to reinstate the federal spousal 
impoverishment protection. Rep. Shays stated that he would 
actively lobby his Republican colleagues to restore the spousal 
impoverishment protections in the Chairman's mark of OBRA 1995. 
If this effort proved unsuccessful, Rep. Shays further promised 
to go with me to the Rules Committee to request that my 
amendment be made in order. Based on this commitment, I agreed 
to withdraw my motion.
    I look forward to working with Rep. Shays to restore this 
important federal protection.


                                                      Earl Pomeroy.

                       Dissenting Views--PMA Sale

    The Budget Reconciliation Bill includes the Resources 
Committee's recommendation to sell the Southeastern Power 
Agency and all the Army Corps of Engineers' locks, dams, 
reservoirs, electrical equipment and associated facilities, and 
real property around the reservoirs.
    On its face, the Resources Committee's proposal is absurd. 
To sell off all the Army Corps of Engineers facilities, the 
assumption is that the private purchaser would take over all 
operations currently underway at these facilities. The Corps of 
Engineers must carefully balance the competing interests of 
navigation, flood control, recreation and hydropower to 
determine water levels, drainage and storage. Often the needs 
for one purpose are in direct odds with another. Under the 
Resources Committee proposal, hydropower--never a primary 
purpose of these projects--would become king.
    Under this legislative package, we are left to assume that 
the majority believes deregulation is good at all costs--even 
if it means turning over the operation of flood control and 
navigation projects to a private entity. We are left to believe 
that the same private company driven by the need to make money 
from hydropower would carefully balance the public interest for 
flood control, navigation, recreation and domestic water 
supply--functions where revenue is unlikely. It may not be 
clear to the majority, but in this case, there is a vital role 
for the federal government in the operation of these projects.
    In its wisdom, the Transportation and Infrastructure 
Committee prohibited the sale of any Army Corps of Engineers 
facilities in its reconciliation legislation presented to this 
Committee. The two positions reported from the Budget Committee 
are in direct contradiction to one another. The CBO estimates 
that enacting both of these proposals--and therefore selling 
only the right to market SEPA power--would not result in any 
revenues from the sale. What's more, the analysis by the CBO 
indicates that selling SEPA would raise electric rates--by an 
amazing 25 to 75 percent.
    This legislative package leaves many questions unanswered. 
But one thing remains clear--the sale of Power Marketing 
Agencies will not save the government money, but it will lead 
to increased electric rates for millions of Americans.


                                   Earl Pomeroy.
                                   Harry Johnston.
                                   Glen Browder.

          Dissenting Views of Representative Jerry F. Costello

    The process of this reconciliation bill is such that I have 
not witnessed during my tenure on the Budget Committee. It is 
disgraceful the committee did not meet their reconciliation 
instructions as directed under the budget resolution. How can 
we have meaningful debate on the consolidation of the budget 
blueprint if more than half of the required spending and 
revenue changes from the committees have not been developed and 
submitted to the Budget Committee? This process is an outrage! 
The markup of the budget reconciliation bill should have been 
postponed until all spending measures were completed and 
received by this committee.
    While I was thoroughly disappointed with the process of 
reporting the budget reconciliation legislation, I also 
disagree with several parts of the package. This month, the 
Census Bureau released data for 1994 showing the income-gap 
between the affluent and all other Americans is large and still 
growing. I am distressed that the Leadership's agenda is to 
reinforce this growing disparity in economic equality. The $245 
billion tax cut will benefit primarily wealthy Americans. More 
than fifty percent of the benefit of the tax cut will go to the 
less than three percent of households with incomes over 
$200,000. We must get our fiscal house in order before we 
dismantle critical programs to pay for a tax cut. I fully 
support a tax cut for American taxpayers; however, such relief 
should come after we reach a balanced budget. A tax cut that is 
financed on the backs of the elderly, poor and vulnerable in 
our society will not benefit our nation. It is not good 
economic practice and it is clearly harmful public policy.
    Additionally, I am concerned about a provision adopted by 
the Ways and Means Committee during consideration of their 
spending legislation regarding retiree health benefits. The 
Coal Industry Retiree Health Benefit Act of 1992, enacted with 
bipartisan support and signed into law by President Bush, 
guarantees lifetime medical coverage for over 100,000 retired 
coal miners and their survivors and dependents--workers who 
were promised health coverage in a series of collective 
bargaining agreements dating back to 1950. The Coal Act of 1992 
has helped stabilize the industry while securing earned 
benefits for individuals whose labor fueled the economic growth 
of this nation.
    Unfortunately, the Ways and Means Committee's action to 
reverse this progress threatens both the future health care of 
retirees and the competitive balance in the coal industry. The 
Committee's legislation shifts the responsibility for all 
premium payments back to the small number of companies that 
paid prior to the passage of the Coal Act. In most cases, this 
shift means an increase in premium payments for such companies 
by as much as 60 percent. I believe this action is unfair to 
the thousands of retirees and their families as well as 
inequitable to the coal industry.

                                                 Jerry F. Costello.

          Dissenting Views of Representative Louise Slaughter

    The Budget Reconciliation Act as reported out this 
Committee is seriously flawed and a major assault on working 
families, children, and the disabled and senior citizens.
    I am deeply concerned about the radical changes being made 
to Medicaid. Ending the entitlement status of this program 
seriously jeopardizes health care for 36 million Americans, 
including 18 million children, 8 million women, 6 million 
disabled and 4 million senior citizens. If the States simply 
runs out of money, will senior citizens be thrown out of 
nursing homes? Will pregnant women no longer receive coverage 
for the remaining months of their pregnancy? Or will States be 
forced to raise taxes? All of these events are possible under 
the Medicaid changes called for in the Budget Reconciliation 
Act. By fiscal year 2002, states will receive 30 percent less 
than the amount that they would now receive under current law. 
Any effort to expand coverage for the growing number of low-
income children living in poverty or the rapidly increasing 
elderly population will be impossible.
    The simple reductions alone are frightening, however, the 
proposed changes go much further. The plan contained in this 
Budget Reconciliation Act will eliminate eligibility standards, 
basic benefit packages and there is no requirement that the 
States guarantee coverage to the disabled or pregnant women. 
Uniform eligibility and benefit requirements guarantees that 
health care does not become an accident of birth.
    The provisions calling for the dismantling of the 
Department of Commerce are also flawed and misguided. Not only 
Committees acted on the comprehensive dismantling proposal? 
Despite the fact that the legislation was referred to 6 
different Committees, only two reported their reconciliation 
recommendations back to the Budget Committee. The remaining 
provisions will simply be added, at a later date. The 
dismantling will save nothing and has little budgetary impact 
as CBO's analysis was based on authorized levels, not outlays 
and did not reflect reforms and reductions already undertaken 
at Commerce. The bill eliminates one agency and creates at 
least 8 separate agencies. What this dismantling legislation 
will do is jeopardize our ability to effectively compete in a 
global economy. American business has been dealt a significant 
blow in the Budget Reconciliation Act.

                                                  Louise Slaughter.

                   Dissenting Views of Carrie P. Meek

    We all know that cutting the Federal budget deficit is 
painful, but we also all know that most of the cuts in the bill 
reported by the Committee on the Budget fall on low income 
Americans. The Committee approved $221 billion in cuts in 
entitlements, and $192 billion of these--87 percent--are in two 
Federal programs that help poor and low income Americans: 
Medicaid and student loans.
    The Committee also approved $53 billion in increased taxes, 
and $27 billion--51 percent--are reductions in the earned 
income tax credit for working Americans and low-income housing 
credits.
    Why are poor Americans being asked to shoulder most of the 
pain in balancing the Federal budget? The answer is that they 
are a convenient target. Poor people can't afford to hire 
lobbyists to protect their interests.
    Why are such huge cuts needed in programs to help the poor? 
Not to balance the budget. The answer is because the Republican 
majority wants to give a $245 billion tax break to wealthy 
Americans.

                                medicaid

    The Committee on the Budget approved the Committee on 
Commerce's decision to establish Federal block grants to the 
States to replace the current Medicaid program. I oppose these 
block grants for many reasons. For example, what will happen to 
health care for the poor if a State miscalculates and runs out 
of Medicaid money before the end of the year? Will we stop 
vaccinating children in November and December?
    But opponents and supporters of these block grants both 
agree on the need for a fair formula to allocate Medicaid money 
among the States.
    The House Commerce Committee's formula does some strange 
things as it distributes the $182 billion in cuts among the 50 
States. For example, under the Commerce Committee's formula New 
Hampshire and Missouri actually get more money than they would 
under current law. Yet each of the other 48 States gets 
considerably less money than they would under current law. My 
own state of Florida, for example, faces a cut of 26 percent 
over seven years under the Commerce Committee's formula.
    The Republicans tell us that they are merely slowing the 
rate of growth of Medicaid. But under the Commerce Committee's 
formula Florida will get the same amount of Medicaid money in 
1996 that it is getting this year despite the growing numbers 
of Floridians who need Medicaid services. That's not fair.
    Florida already has one of the lowest per patient Medicaid 
costs of any State in the country. We have already squeezed 
down our Medicaid costs, unlike many other States. But the need 
for Medicaid continues to grow--not from illegal immigration 
from the South, but from legal immigration from the northern 
states. The House Commerce Committee's formula would make 
Florida suffer because of its Medicaid efficiency, and because 
it is the destination of choice for many Americans.
    The formula approved by the Commerce Committee is not a 
fair one. Let me quote from the recent op ed piece in the Miami 
Herald supporting Medicaid block grants. The author is Jeb 
Bush, the son of President George Bush. Jeb Bush was the 
Republican candidate for governor of Florida. He says that 
``States--such as Florida--that have the fastest growing 
welfare and Medicaid population will receive disproportionately 
less in the out years, creating a serious budget crises in 
those States.'' Jeb Bush goes on to say that ``a bipartisan 
effort needs to be made to change the allocation formula.''
    Despite this plea, every Republican on the Budget Committee 
opposed my motion to replace the Commerce Committee's 
allocation formula with the one approved by the Senate 
Committee on Finance.
    Both the House Commerce Committee's formula and the Senate 
Finance Committee's formula cut $182 billion in Medicaid from 
the amount the States would receive under current law. The 
Senate formula, however, distributes the remaining $772 billion 
in Medicaid funds more fairly.
    A major reason for the unfair results in the House Commerce 
Committee's formula is that it arbitrarily uses 1994 as its 
base year. The Senate Finance Committee acted after the House 
Commerce Committee and corrected the inequities in its formula. 
The Senate Finance Committee's formula permits a State to use 
either 1994 or 1995 as its base year. The accompanying table 
show how much money each State would get under the two 
formulas.


    I note that in May this Committee's own report on the 
budget resolution used 1995--not 1994--as the base year in its 
illustration of how a Medicaid block grant program might work.

                        Earned Income Tax Credit

    I strongly oppose the Republican plan to increase income 
taxes on America's working poor to help pay for a cut in income 
taxes for the wealthy.
    The Committee approved the proposal by the Committee on 
Ways and Means to change the Earned Income Tax Credit (EITC) so 
as to raise income taxes on some workers by $23 billion over 
the next seven years. Few of us can truly comprehend what an 
income tax increase of $23 billion means.
    The Chairman of the Committee on Ways and Means justified 
the changes in the EITC by arguing--Simply put, the EITC is 
going to people with incomes that are too high. Let's look at 
his argument from the point of view of an individual tax payer.
    Consider a single person with no children now earning 
$8,200 a year, or about $4 an hour. That person now pays a 
Federal income tax of $139. Under the Republican plan his 
annual income tax will increase by $101, to $240 a year. That's 
because the EITC of $101 he now receives will be eliminated 
under the Republican plan.
    Consider also a single woman with one child who now earns 
$20,000 a year. She now pays a Federal income tax of $533. 
Under the Republican plan her annual Federal income tax will 
increase by $169, as her earned income tax credit will fall by 
$169.
    Has the Republican majority already forgotten the promise 
it made on January 4, 1995 when it changed the Rules of the 
House? House Rule XXI(5)(c) says that no bill carrying a 
Federal income tax rate increase shall be considered as passed 
or agreed to unless so determined by a vote of not less than 
three-fifths of the Members voting.
    Will the Republican leadership hide behind a legal 
subterfuge when this bill comes to the floor and decide that 
only a majority vote--not a three-fifth's vote--is needed to 
pass this bill? The people of this country were told in January 
by the Republicans that it is too easy and too tempting to 
raise income taxes. Make it hard to raise taxes, the 
Republicans said. Now--when the Republicans want to raise 
income taxes on poor people--it is clear that Republicans are 
more interested in ramming through their radical program than 
they are in keeping faith with low-income, working Americans. 
Does the Republican's three-fifths voting rule apply only to 
income tax increases for the wealthy?

                               conclusion

    I hope that at some point we can work in a bipartisan 
fashion to solve our Federal fiscal problems. But the bill 
reported by the Committee reflects sharply different agendas 
between those who want to bring Americans together and those 
who are asking the poor to pay for tax cuts for the wealthy.
    I dissent.
                                                    Carrie P. Meek.

                                
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