[House Report 104-38]
[From the U.S. Government Publishing Office]



104th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                     104-38
_______________________________________________________________________


 
PROVIDING FOR THE CONSIDERATION OF H.R. 831, PERMANENTLY EXTENDING THE 
            HEALTH INSURANCE DEDUCTION FOR THE SELF-EMPLOYED

                                _______


 February 16, 1995.--Referred to the House Calendar and ordered to be 
                                printed

_______________________________________________________________________


   Mr. Quillen, from the Committee on Rules, submitted the following

                              R E P O R T

                       [To accompany H. Res. 88]

    The Committee on Rules, having had under consideration 
House Resolution 88, by a nonrecord vote, report the same to 
the House with the recommendation that the resolution be 
adopted.

               Brief Summary of Provisions of Resolution

    The resolution provides for the consideration of H.R. 831, 
permanently extending the health insurance deduction for the 
self-employed, under a modified closed rule. The rule provides 
for one hour of general debate equally divided between the 
chairman and ranking minority member of the Ways and Means 
Committee. All points of order are waived against consideration 
of the bill. The Committee is advised that the bill at least 
needs waivers of section 303(a) of the Budget Act, prohibiting 
revenue changes prior to the adoption of the budget resolution, 
and section 311(a) of the Budget Act, prohibiting legislation 
which breaches the revenue floor in the most recent budget 
resolution. While the bill breaches this level for fiscal 1995, 
over five-years the bill is paid for by the offsetting tax 
provisions and outlay reductions in the bill. The Committee is 
aware of no other points of order that would lie against the 
bill, but has included a blanket waiver only as a safeguard.
    The amendment recommended by the Ways and Means Committee 
is considered as adopted in the House and the Committee of the 
Whole. The amendment simply strikes the introduced section 4, 
which would have denied persons earning in excess of $2,500 in 
taxable interest and dividend income the benefits of the Earned 
Income Tax Credit (EITC) and replaces it with a new section 4 
which denies EITC to persons earning in excess of $3,150 in 
taxable interest and dividend income, and phases-out EITC 
benefits for those with such income in excess of $2,500.
    No other amendment is in order except an amendment in the 
nature of a substitute printed in this report if offered only 
by Rep. Gibbons or a designee. The amendment is not subject to 
amendment, and is debatable for one-hour. All points of order 
are waived against the amendment since it contains the same 
Budget Act violations as the committee bill. Finally, the rule 
provides one motion to recommit, with or without instructions.

                            Committee Votes

    Pursuant to clause 2(l)(2)(B) of House rule XI the results 
of each rollcall vote on an amendment or motion to report, 
together with the names of those voting for and against, are 
printed below:

                    rules committee rollcall no. 36

    Date: February 16, 1995.
    Measure: H.R. 831, Extending the health insurance deduction 
for the self-employed.
    Motion By: Mr. Moakley.
    Summary of Motion: Make in order Cardin amendment to 
increase health insurance deductibility from 25% to 80% for 
self-employed.
    Results: Rejected, 4 to 9.
    Vote by Member: Quillen--Nay; Dreier--Nay; Goss--Nay; 
Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; McInnis--Nay; 
Waldholtz--Nay; Moakley--Yea; Beilenson--Yea; Frost--Yea; 
Hall--Yea; Solomon--Nay.

                    rules committee roll call no. 37

    Date: February 16, 1995.
    Measure: H.R. 831. Extending the health insurance deduction 
for the self-employed.
    Motion By: Mr. Beilenson.
    Summary of Motion: Make in order Mfume amendment to 
increase from 25% to 100% the deductibility of health insurance 
for the self-employed and offset with reduction in estate and 
gift tax exemption.
    Results: Rejected, 4 to 9.
    Vote by Member: Quillin--Nay; Dreier--Nay; Goss--Nay; 
Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; McInnis--Nay; 
Waldholtz--Nay; Moakley--Yea; Beilenson--Yea; Frost--Yea; 
Hall--Yea; Solomon--Nay.

                    rules committee roll call no. 38

    Date: February 16, 1995.
    Measure: H.R. 831. Extending the health insurance deduction 
for the self-employed.
    Motion By: Mr. Frost.
    Summary of Motion: Make in order Rangel amendment to strike 
section 2 from bill and insert provision to ensure continued 
taxation of individuals who renounce their U.S. citizenship.
    Results: Rejected, 5 to 8.
    Vote by Member: Quillin--Nay; Dreier--Nay; Goss--Nay; 
Linder--Nay; Pryce--Nay; Diaz-Balart--Yea; McInnis--Nay; 
Waldholtz--Nay; Moakley--Yea; Beilenson--Yea; Frost--Yea; 
Hall--Yea; Solomon--Nay.

                    rules committee roll call no. 39

    Date: February 16, 1995.
    Measure: H.R. 831. Extending the health insurance deduction 
for the self-employed.
    Motion By: Mr. Hall.
    Summary of Motion: Make in order Stark amendment to add new 
title to allow employees to buy health insurance on the plan of 
their former employers.
    Results: Rejected, 4 to 9.
    Vote by Member: Quillin--Nay; Dreier--Nay; Goss--Nay; 
Linder--Nay; Pryce--Nay; Diaz-Balart--Nay; McInnis--Nay; 
Waldholtz--Nay; Moakley--Yea; Beilenson--Yea; Frost--Yea; 
Hall--Yea; Solomon--Nay.

                Amendment in the Nature of a Substitute

    The text of the amendment in the nature of a substitute 
made in order by the resolution, which may be offered only by 
Representative Gibbons of Florida or a designee, is printed 
below:
  Strike all after the enacting clause and insert the 
following:

              TITLE I--PROVISIONS RELATING TO HEALTH CARE

SEC. 101. RETROACTIVE RESTORATION OF DEDUCTION FOR HEALTH INSURANCE 
                    COSTS OF SELF-EMPLOYED INDIVIDUALS.

  (a) In General.--Paragraph (6) of section 162(l) of the 
Internal Revenue Code of 1986 (relating to special rules for 
health insurance costs of self-employed individuals) is amended 
by striking ``December 31, 1993'' and inserting ``December 31, 
1995''.
  (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1993.

SEC. 102. PERMANENT DEDUCTION FOR HEALTH INSURANCE COSTS OF EMPLOYEES 
                    AND SELF-EMPLOYED INDIVIDUALS.

  (a) In General.--Part VII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to additional itemized 
deductions) is amended by redesignating section 220 as section 
221 and by inserting after section 219 the following new 
section:

``SEC. 220. HEALTH INSURANCE COSTS.

  ``(a) In General.--In the case of an individual, there shall 
be allowed as a deduction an amount equal to 25 percent of the 
amount paid during the taxable year for insurance which 
constitutes medical care for the taxpayer, his spouse, and 
dependents.
  ``(b) Limitation Based on Earned Income.--No deduction shall 
be allowed under subsection (a) to the extent that the amount 
of such deduction exceeds the sum of--
          ``(1) the taxpayer's wages, salaries, tips, and other 
        employee compensation includible in gross income, plus
          ``(2) the taxpayer's earned income (as defined in 
        section 401(c)(2)).
  ``(c) Other Coverage.--Subsection (a) shall not apply to any 
taxpayer for any calendar month for which the taxpayer is 
eligible to participate in any subsidized health plan 
maintained by any employer of the taxpayer or of the spouse of 
the taxpayer.
  ``(d) Phasein of Deduction for Employees.--In the case of 
taxable years beginning before January 1, 2000, to the extent 
that the amount paid for insurance referred to in subsection 
(a) is allocable to coverage for a month for which the 
individual has no earned income (as defined in section 
401(c)(2)), subsection (a) shall be applied with respect to 
such amount by substituting the percentage determined in 
accordance with the following table for `25 percent'.

    ``In the case of taxable                              The percentage
    years beginning in calendar year:                            is:    
        1996............................................    15 percent  
        1997............................................    15 percent  
        1998............................................    20 percent  
        1999............................................   20 percent.  

  ``(e) Special Rules.--
          ``(1) Coordination with medical deduction, etc.--Any 
        amount paid by a taxpayer for insurance to which 
        subsection (a) applies shall not be taken into account 
        in computing the amount allowable to the taxpayer as a 
        deduction under section 213(a).
          ``(2) Treatment of certain s corporation 
        shareholders.--This section shall apply in the case of 
        any individual treated as a partner under section 
        1372(a), except that--
                  ``(A) for purposes of this section, such 
                individual's wages (as defined in section 3121) 
                from the S corporation shall be treated as such 
                individual's earned income (within the meaning 
                of section 401(c)(1)), and
                  ``(B) there shall be such adjustments in the 
                application of this section as the Secretary 
                may by regulations prescribe.
          ``(3) Deduction not allowed for self-employment tax 
        purposes.--The deduction allowable by reason of this 
        section shall not be taken into account in determining 
        an individual's net earnings from self-employment 
        (within the meaning of section 1402(a)) for purposes of 
        chapter 2.''
  (b) Conforming Amendments.--
          (1) Subsection (l) of section 162 of such Code is 
        hereby repealed.
          (2) Subsection (a) of section 62 of such Code is 
        amended by inserting after paragraph (15) the following 
        new item:
          ``(16) Health insurance costs of self-employed 
        individuals.--The deduction allowed by section 220 but 
        only to the extent that the amount of the deduction 
        does not exceed the taxpayer's earned income (as 
        defined in section 401(c)(2)) for the taxable year.''
          (3) The table of sections for part VII of subchapter 
        B of chapter 1 of such Code is amended by striking the 
        last item and inserting the following new items:

        ``Sec. 220. Health insurance costs.
        ``Sec. 221. Cross reference.''

  (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1995.

TITLE II--MODIFICATION OF RULES FOR NONRECOGNITION OF GAIN UNDER F.C.C. 
        TAX CERTIFICATE PROGRAM AND FOR INVOLUNTARY CONVERSIONS

SEC. 201. LIMITATIONS ON NONRECOGNITION OF GAIN UNDER F.C.C. TAX 
                    CERTIFICATE PROGRAM.

  (a) In General.--Section 1071 of the Internal Revenue Code of 
1986 (relating to gain from sale or exchange to effectuate 
policies of F.C.C.) is amended by redesignating subsection (b) 
as subsection (c) and by inserting after subsection (a) the 
following new subsection:
  ``(b) Limitations.--
          ``(1) In general.--Subsection (a) shall apply only if 
        the sale or exchange is a qualified telecommunications 
        transaction.
          ``(2) Limitation on amount of nonrecognition.--The 
        amount of gain which is not recognized under subsection 
        (a) with respect to a qualified telecommunications 
        transaction (or a series of related transactions) shall 
        not exceed $50,000,000.
          ``(3) Qualified telecommunications transaction.--For 
        purposes of this subsection, the term `qualified 
        telecommunications transaction' means any sale or 
        exchange of property if--
                  ``(A) the Commission certifies that the sale 
                or exchange is in furtherance of the 
                Commission's Minority Ownership Policy, and
                  ``(B)(i) such property is owned by an 
                eligible person at all times during the 3-year 
                period beginning on the date of such sale or 
                exchange, or
                  ``(ii) if the property sold or exchanged was 
                acquired by the taxpayer by reason of a 
                qualified contribution to the capital of an 
                eligible corporation or an eligible 
                partnership, such corporation or partnership 
                was an eligible person at all times during the 
                3-year period beginning on the date of such 
                contribution.
          ``(4) Eligible person.--For purposes of this 
        subsection--
                  ``(A) In general.--The term `eligible person' 
                means--
                          ``(i) any eligible individual,
                          ``(ii) any eligible corporation, and
                          ``(iii) any eligible partnership.
                  ``(B) Eligible individual.--The term 
                `eligible individual' means any individual if 
                an FCC tax certificate could have been issued 
                under the Commission's Minority Ownership 
                Policy for any sale or exchange of property to 
                such individual.
                  ``(C) Eligible corporation.--The term 
                `eligible corporation' means any corporation in 
                which eligible individuals directly or 
                indirectly own--
                          ``(i) stock possessing more than 50 
                        percent of the total voting power of 
                        the stock of such corporation, and
                          ``(ii) stock having a value equal to 
                        more than 20 percent of the total value 
                        of the stock of such corporation.
                  ``(D) Eligible partnership.--The term 
                `eligible partnership' means any partnership in 
                which eligible individuals directly or 
                indirectly--
                          ``(i) have actual control of the 
                        partnership, and
                          ``(ii) own partnership interests 
                        having a value equal to more than 20 
                        percent of the total value of the 
                        partnership interests of such 
                        partnership.
          ``(5) Treatment of buy-sell arrangements, etc.--For 
        purposes of paragraphs (3) and (4)--
                  ``(A) In general.--Property held by an 
                eligible person shall be treated as held by an 
                ineligible person if--
                          ``(i) an ineligible person has an 
                        option or other right to acquire such 
                        property, or
                          ``(ii) the eligible person has an 
                        option or other right to require an 
                        ineligible person to acquire such 
                        property.
                  ``(B) Treatment of warrants, etc.--If an 
                ineligible person holds a warrant, convertible 
                security, or similar instrument issued by any 
                entity, such person shall be treated as holding 
                the interest in the entity which such person 
                could have acquired on the exercise of his 
                rights under the instrument.
                  ``(C) Ineligible person.--For purposes of 
                this paragraph, the term `ineligible person' 
                means any person who is not an eligible person.
          ``(6) Other definitions.--For purposes of this 
        subsection--
                  ``(A) FCC tax certificate.--The term `FCC tax 
                certificate' means any certificate of the 
                Commission for the effectuation of this section 
                for purposes of carrying out the Commission's 
                Minority Ownership Policy.
                  ``(B) Minority ownership policy.--The term 
                `Minority Ownership Policy' means the 
                Commission's policy, as in effect on January 
                16, 1995, to encourage ownership of 
                telecommunications facilities and licenses by 
                women and members of minority groups.
                  ``(C) Qualified contribution to capital.--The 
                term `qualified contribution to capital' means 
                any contribution to the capital of an eligible 
                corporation or an eligible partnership pursuant 
                to the contribution to capital provisions of 
                the Commission's Minority Ownership Policy.
                  ``(D) Commission.--The term `Commission' 
                means the Federal Communications Commission.
          ``(7) Extension of statute of limitation.--
                  ``(A) Deficiencies.--The statutory period for 
                the assessment of any deficiency attributable 
                to any failure to meet the requirements of 
                paragraph (3)(B) shall not expire before the 
                close of the 3-year period beginning on the 
                date that the taxpayer certifies to the 
                Secretary that such requirements have been met, 
                and such deficiency may be assessed before the 
                expiration of such 3-year period 
                notwithstanding the provisions of any law or 
                rule of law which would otherwise prevent such 
                assessment.
                  ``(B) Overpayments.--A refund or credit of 
                any overpayment of tax attributable to any 
                failure to meet the requirements of paragraph 
                (3)(B) may be allowed or made (notwithstanding 
                the operation of any law or rule of law 
                (including res judicata)) if claim therefor is 
                filed before the close of the 3-year period 
                referred to in subparagraph (A).
          ``(8) Regulations.--The Secretary shall prescribe 
        such regulations as may be appropriate to carry out the 
        purposes of this subsection, including regulations 
        aggregating transactions for purposes of paragraph 
        (2).''
  (b) Effective Date.--
          (1) In general.--The amendments made by this section 
        shall apply to--
                  (A) sales and exchanges on or after January 
                17, 1995, and
                  (B) sales and exchanges before such date if 
                the FCC tax certificate with respect to such 
                sale or exchange is issued on or after such 
                date.
          (2) Binding contracts.--
                  (A) In general.--The amendments made by this 
                section shall not apply to any sale or exchange 
                pursuant to a written contract which was 
                binding on January 16, 1995, and at all times 
                thereafter before the sale or exchange, if the 
                FCC tax certificate with respect to such sale 
                or exchange was applied for, or issued, on or 
                before such date.
                  (B) Sales contingent on issuance of 
                certificate.--A contract shall be treated as 
                not binding for purposes of subparagraph (A) if 
                the sale or exchange pursuant to such contract, 
                or the material terms of such contract, were 
                contingent, at any time on January 16, 1995, on 
                the issuance of an FCC tax certificate. The 
                preceding sentence shall not apply if the FCC 
                tax certificate for such sale or exchange is 
                issued on or before January 16, 1995.
          (3) FCC tax certificate.--For purposes of this 
        subsection, the term ``FCC tax certificate'' has the 
        meaning given to such term by section 1071(b) of the 
        Internal Revenue Code of 1986, as amended by this 
        section.

SEC. 202. NONRECOGNITION ON INVOLUNTARY CONVERSIONS NOT TO APPLY IF 
                    REPLACEMENT PROPERTY ACQUIRED FROM RELATED PERSON.

  (a) In General.--Section 1033 of the Internal Revenue Code of 
1986 (relating to involuntary conversions) is amended by 
redesignating subsection (i) as subsection (j) and by inserting 
after subsection (h) the following new subsection:
  ``(i) Nonrecognition Not To Apply if Replacement Property 
Acquired From Related Person.--Subsection (a) shall not apply 
if the replacement property or stock acquired is acquired from 
a related person. For purposes of the preceding sentence, a 
person is related to another person if the relationship between 
such persons would result in a disallowance of losses under 
section 267 or 707(b).''
  (b) Effective Date.--The amendment made by subsection (a) 
shall apply to replacement property or stock acquired on or 
after February 6, 1995.

                      TITLE III--REVENUE INCREASES

Subtitle A--Denial of Earned Income Credit for Individuals Having More 
                    Than $2,500 of Investment Income

SEC. 301. DENIAL OF EARNED INCOME CREDIT FOR INDIVIDUALS HAVING MORE 
                    THAN $2,500 OF INVESTMENT INCOME.

  (a) In General.--Section 32 of the Internal Revenue Code of 
1986 is amended by redesignating subsections (i) and (j) as 
subsections (j) and (k), respectively, and by inserting after 
subsection (h) the following new subsection:
  ``(i) Denial of Credit for Individuals Having More Than 
$2,500 of Investment Income.--
          ``(1) In general.--No credit shall be allowed under 
        subsection (a) for the taxable year if the aggregate 
        amount of disqualified income of the taxpayer for such 
        taxable year exceeds $2,500.
          ``(2) Disqualified income.--For purposes of paragraph 
        (1), the term `disqualified income' means--
                  ``(A) interest, dividends, rents, and 
                royalties to the extent includible in gross 
                income for the taxable year, and
                  ``(B) interest which is received or accrued 
                during the taxable year and which is exempt 
                from tax.''
  (b) Effective Date.--The amendment made by this section shall 
apply to taxable years beginning after December 31, 1995.

       Subtitle B--Provisions Relating to International Taxation

SEC. 311. REVISION OF TAX RULES ON EXPATRIATION.

  (a) In General.--Subpart A of part II of subchapter N of 
chapter 1 of the Internal Revenue Code of 1986 is amended by 
inserting after section 877 the following new section:

``SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.

  ``(a) General Rules.--For purposes of this subtitle--
          ``(1) Citizens.--If any United States citizen 
        relinquishes his citizenship during a taxable year, all 
        property held by such citizen at the time immediately 
        before such relinquishment shall be treated as sold at 
        such time for its fair market value and any gain or 
        loss shall be taken into account for such taxable year.
          ``(2) Certain residents.--If any long-term resident 
        of the United States ceases to be subject to tax as a 
        resident of the United States for any portion of any 
        taxable year, all property held by such resident at the 
        time of such cessation shall be treated as sold at such 
        time for its fair market value and any gain or loss 
        shall be taken into account for the taxable year which 
        includes the date of such cessation.
  ``(b) Exclusion for Certain Gain.--The amount which would 
(but for this subsection) be includible in the gross income of 
any taxpayer by reason of subsection (a) shall be reduced (but 
not below zero) by $600,000.
  ``(c) Property Treated as Held.--For purposes of this 
section, except as otherwise provided by the Secretary, an 
individual shall be treated as holding--
          ``(1) all property which would be includible in his 
        gross estate under chapter 11 were such individual to 
        die at the time the property is treated as sold,
          ``(2) any other interest in a trust which the 
        individual is treated as holding under the rules of 
        section 679(e) (determined by treating such section as 
        applying to foreign and domestic trusts), and
          ``(3) any other interest in property specified by the 
        Secretary as necessary or appropriate to carry out the 
        purposes of this section.
  ``(d) Exceptions.--The following property shall not be 
treated as sold for purposes of this section:
          ``(1) United states real property interests.--Any 
        United States real property interest (as defined in 
        section 897(c)(1)), other than stock of a United States 
        real property holding corporation which does not, on 
        the date the individual relinquishes his citizenship or 
        ceases to be subject to tax as a resident, meet the 
        requirements of section 897(c)(2).
          ``(2) Interest in certain retirement plans.--
                  ``(A) In general.--Any interest in a 
                qualified retirement plan (as defined in 
                section 4974(d)), other than any interest 
                attributable to contributions which are in 
                excess of any limitation or which violate any 
                condition for tax-favored treatment.
                  ``(B) Foreign pension plans.--
                          ``(i) In general.--Under regulations 
                        prescribed by the Secretary, interests 
                        in foreign pension plans or similar 
                        retirement arrangements or programs.
                          ``(ii) Limitation.--The value of 
                        property which is treated as not sold 
                        by reason of this subparagraph shall 
                        not exceed $500,000.
  ``(e) Definitions.--For purposes of this section--
          ``(1) Relinquishment of citizenship.--A citizen shall 
        be treated as relinquishing his United States 
        citizenship on the date the United States Department of 
        State issues to the individual a certificate of loss of 
        nationality or on the date a court of the United States 
        cancels a naturalized citizen's certificate of 
        naturalization.
          ``(2) Long-term resident.--
                  ``(A) In general.--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 and, as 
                a result of such status, has been subject to 
                tax as a resident in at least 10 taxable years 
                during the period of 15 taxable years ending 
                with the taxable year during which the sale 
                under subsection (a) is treated as occurring.
                  ``(B) Special rule.--For purposes of 
                subparagraph (A), there shall not be taken into 
                account--
                          ``(i) any taxable year during which 
                        any prior sale is treated under 
                        subsection (a) as occurring, or
                          ``(ii) any taxable year prior to the 
                        taxable year referred to in clause (i).
  ``(f) Termination of Deferrals, Etc.--On the date any 
property held by an individual is treated as sold under 
subsection (a)--
          ``(1) any period deferring recognition of income or 
        gain shall terminate, and
          ``(2) any extension of time for payment of tax shall 
        cease to apply and the unpaid portion of such tax shall 
        be due and payable.
  ``(g) Election by Expatriating Residents.--Solely for 
purposes of determining gain under subsection (a)--
          ``(1) In general.--At the election of a resident not 
        a citizen of the United States, property--
                  ``(A) which was held by such resident on the 
                date the individual first became a resident of 
                the United States during the period of long-
                term residency to which the treatment under 
                subsection (a) relates, and
                  ``(B) which is treated as sold under 
                subsection (a),
        shall be treated as having a basis on such date of not 
        less than the fair market value of such property on 
        such date.
          ``(2) Election.--Such an election shall apply to all 
        property described in paragraph (1), and, once made, 
        shall be irrevocable.
  ``(h) Deferral of Tax on Closely Held Business Interests.--
The District Director may enter into an agreement with any 
individual which permits such individual to defer payment for 
not more than 5 years of any tax imposed by subsection (a) by 
reason of holding any interest in a closely held business (as 
defined in section 6166(b)) other than a United States real 
property interest described in subsection (d)(1).
  ``(i) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.
  ``(j) Cross Reference.--

          ``For termination of United States citizenship for tax 
        purposes, see section 7701(a)(47).''

  (b) Definition of Termination of United States Citizenship.--
Section 7701(a) of such Code is amended by adding at the end 
the following new paragraph:
          ``(47) Termination of united states citizenship.--An 
        individual shall not cease to be treated as a United 
        States citizen before the date on which the 
        individual's citizenship is treated as relinquished 
        under section 877A(e)(1).''
  (c) Conforming Amendments.--
          (1) Section 877 of such Code is amended by adding at 
        the end the following new subsection:
  ``(f) Termination.--This section shall not apply to any 
individual who is subject to the provisions of section 877A.''
          (2) Paragraph (10) of section 7701(b) of such Code is 
        amended by adding at the end the following new 
        sentence: ``This paragraph shall not apply to any 
        individual who is subject to the provisions of section 
        877A.''
  (d) Clerical Amendment.--The table of sections for subpart A 
of part II of subchapter N of chapter 1 of such Code is amended 
by inserting after the item relating to section 877 the 
following new item:

        ``Sec. 877A. Tax responsibilities of expatriation.''

  (e) Effective Date.--The amendments made by this section 
shall apply to--
          (1) United States citizens who relinquish (within the 
        meaning of section 877A(e)(1) of the Internal Revenue 
        Code of 1986, as added by this section) United States 
        citizenship on or after February 6, 1995, and
          (2) long-term residents (as defined in such section) 
        who cease to be subject to tax as residents of the 
        United States on or after such date.

SEC. 312. IMPROVED INFORMATION REPORTING ON FOREIGN TRUSTS.

  (a) In General.--Section 6048 of the Internal Revenue Code of 
1986 (relating to returns as to certain foreign trusts) is 
amended to read as follows:

``SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOREIGN TRUSTS.

  ``(a) Notice of Certain Events.--
          ``(1) General rule.--On or before the 90th day (or 
        such later day as the Secretary may prescribe) after 
        any reportable event, the responsible party shall--
                  ``(A) notify each trustee of the trust of the 
                requirements of subsection (b), and
                  ``(B) provide written notice of such event to 
                the Secretary in accordance with paragraph (2).
          ``(2) Contents of notice.--The notice required by 
        paragraph (1)(B) shall contain such information as the 
        Secretary may prescribe, including--
                  ``(A) the amount of money or other property 
                (if any) transferred to the trust in connection 
                with the reportable event,
                  ``(B) the identity of the trust and of each 
                trustee and beneficiary (or class of 
                beneficiaries) of the trust, and
                  ``(C) a statement that each trustee of the 
                trust has been informed of the requirements of 
                subsection (b).
          ``(3) Reportable event.--For purposes of this 
        subsection, the term `reportable event' means--
                  ``(A) the creation of any foreign trust by a 
                United States person,
                  ``(B) the transfer of any money or property 
                to a foreign trust by a United States person, 
                including a transfer by reason of death,
                  ``(C) a domestic trust becoming a foreign 
                trust,
                  ``(D) the death of a citizen or resident of 
                the United States who is a grantor of a foreign 
                trust, and
                  ``(E) the residency starting date (within the 
                meaning of section 7701(b)(2)(A)) of a grantor 
                of a foreign trust subject to tax under section 
                679(a)(3).
        Subparagraphs (A) and (B) shall not apply with respect 
        to a trust described in section 404(a)(4) or 404A.
          ``(4) Responsible party.--For purposes of this 
        subsection, the term `responsible party' means--
                  ``(A) the grantor in the case of a reportable 
                event described in subparagraph (A) or (E) of 
                paragraph (3),
                  ``(B) the transferor in the case of a 
                reportable event described in paragraph (3)(B) 
                other than a transfer by reason of death,
                  ``(C) the trustee of the domestic trust in 
                the case of a reportable event described in 
                paragraph (3)(C), and
                  ``(D) the executor of the decedent's estate 
                in the case of a transfer by reason of death.
  ``(b) Trust Reporting Requirements.--If a foreign trust, at 
any time during a taxable year of such trust--
          ``(1) has a grantor who is a United States person 
        and--
                  ``(A) such grantor is treated as the owner of 
                any portion of such trust under the rules of 
                subpart E of part I of subchapter J of chapter 
                1, or
                  ``(B) any portion of such trust would be 
                included in the gross estate of such grantor if 
                the grantor were to die at such time, or
          ``(2) directly or indirectly distributes, credits, or 
        allocates money or property to any United States person 
        (whether or not the trust has a grantor described in 
        paragraph (1)),
then such trust shall meet the requirements of subsection (c) 
(relating to trust information and agent) and subsection (d) 
(relating to annual return).
  ``(c) Contents of Section 6048 Statement.--
          ``(1) In general.--The requirements of this 
        subsection are met if the trust files with the 
        Secretary a statement which contains such information 
        as the Secretary may prescribe and which--
                  ``(A) identifies a United States person who 
                is the trust's limited agent to provide the 
                Secretary with such information that reasonably 
                should be available to the trust for purposes 
                of applying sections 7602, 7603, and 7604 with 
                respect to any request by the Secretary to 
                examine trust records or produce testimony 
                related to any transaction by the trust or with 
                respect to any summons by the Secretary for 
                such records or testimony, and
                  ``(B) contains an agreement to comply with 
                the requirements of subsection (d).
          ``(2) Special rule.--A foreign trust which appoints 
        an agent described in paragraph (1)(A) shall not be 
        considered to have an office or a permanent 
        establishment in the United States solely because of 
        the activities of such agent pursuant to this section. 
        For purposes of this section, the appearance of persons 
        or production of records by reason of the creation of 
        the agency shall not subject such persons or records to 
        legal process for any purpose other than determining 
        the correct treatment under this title of the 
        activities and operations of the trust.
  ``(d) Annual Returns and Statements.--The requirements of 
this subsection are met if--
          ``(1) the trust makes a return for the taxable year 
        which sets forth a full and complete accounting of all 
        trust activities and operations for the taxable year, 
        and contains such other information as the Secretary 
        may prescribe; and
          ``(2) the trust furnishes such information as the 
        Secretary may prescribe to each United States person--
                  ``(A) who is treated as the owner of any 
                portion of such trust under the rules of 
                subpart E of part I of subchapter J of chapter 
                1,
                  ``(B) to whom any item with respect to the 
                taxable year is credited or allocated, or
                  ``(C) who receives a distribution from such 
                trust with respect to the taxable year.
  ``(e) Time and Manner of Filing Information.--Any notice, 
statement, or return required under this section shall be made 
at such time and in such manner as the Secretary shall 
prescribe.
  ``(f) Modification of Return Requirements.--Secretary is 
authorized to suspend or modify any requirement of this section 
if the Secretary determines that the United States has no 
significant tax interest in obtaining the required 
information.''
  (b) Penalties.--Section 6677 of such Code (relating to 
failure to file information returns with respect to certain 
foreign trusts) is amended to read as follows:

``SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT TO CERTAIN 
                    FOREIGN TRUSTS.

  ``(a) Failure To Report Certain Events.--
          ``(1) In general.--In the case of a reportable event 
        described in any subparagraph of section 6048(a)(3) for 
        which a responsible party does not file a written 
        notice meeting the requirements of section 6048(a)(2) 
        within the time specified in section 6048(a)(1), the 
        responsible party shall pay a penalty of $10,000. If 
        any failure described in the preceding sentence 
        continues for more than 90 days after the day on which 
        the Secretary mails notice of such failure to the 
        responsible party, such party shall pay a penalty (in 
        addition to the $10,000 amount) of $10,000 for each 30-
        day period (or fraction thereof) during which such 
        failure continues after the expiration of such 90-day 
        period.
          ``(2) 35-percent penalty.--In the case of a 
        reportable event described in subparagraph (A), (B), or 
        (C) of section 6048(a)(3) (other than a transfer by 
        reason of death), the aggregate amount of the penalties 
        under paragraph (1) shall not be less than an amount 
        equal to 35 percent of the gross value of the property 
        involved in such event (determined as of the date of 
        the event).
          ``(3) Responsible Party.--For purposes of this 
        subsection, the term `responsible party' has the 
        meaning given to such term by section 6048(a)(4).
  ``(b) Failure To Make Certain Statements and Returns.--
          ``(1) In general.--In the case of any failure to meet 
        the requirements of section 6048(b), the appropriate 
        tax treatment of any trust transactions or operations 
        shall be determined by the Secretary in the Secretary's 
        sole discretion from the Secretary's own knowledge or 
        from such information as the Secretary may obtain 
        through testimony or otherwise.
          ``(2) Monetary penalty.--In the case of any failure 
        to meet the requirements of section 6048(b) with 
        respect to a trust described in such section by reason 
        of paragraph (1) thereof, the grantor described in such 
        paragraph (1) shall pay a penalty of $10,000 for each 
        taxable year with respect to which the foreign trust 
        fails to meet such requirements. If any failure 
        described in the preceding sentence continues for more 
        than 90 days after the day on which the Secretary mails 
        notice of such failure to such grantor, such grantor 
        shall pay a penalty (in addition to any other penalty) 
        of $10,000 for each 30-day period (or fraction thereof) 
        during which such failure continues after the 
        expiration of such 90-day period.
  ``(c) Reasonable Cause Exception.--No penalty shall be 
imposed by this section on any failure which is shown to be due 
to reasonable cause and not due to willful neglect. The fact 
that a foreign jurisdiction would impose a civil or criminal 
penalty on the taxpayer (or any other person) for disclosing 
the requested documentation is not reasonable cause.
  ``(d) Deficiency Procedures Not To Apply.--Subchapter B of 
chapter 63 (relating to deficiency procedures for income, 
estate, gift, and certain excise taxes) shall not apply in 
respect of the assessment or collection of any penalty imposed 
by this section.''
  (c) Clerical Amendments.--
          (1) The table of sections for subpart B of part III 
        of subchapter A of chapter 61 of such Code is amended 
        by striking the item relating to section 6048 and 
        inserting the following new item:

        ``Sec. 6048. Information with respect to certain foreign 
                  trusts.''

          (2) The table of sections for part I of subchapter B 
        of chapter 68 of such Code is amended by striking the 
        item relating to section 6677 and inserting the 
        following new item:

        ``Sec. 6677. Failure to file information with respect to certain 
                  foreign trusts.''

  (d) Effective Dates.--
          (1) In general.--The amendments made by this section 
        shall apply--
                  (A) to reportable events occurring on or 
                after February 6, 1995, and
                  (B) to the extent such amendments require 
                reporting for any taxable year under section 
                6048(b) of the Internal Revenue Code of 1986 
                (as added by this section), to taxable years 
                beginning after the date of the enactment of 
                this Act.
          (2) Notices.--For purposes of section 6048(a) of such 
        Code, the 90th day referred to therein shall in no 
        event be treated as being earlier than the 90th day 
        after the date of the enactment of this Act.

SEC. 313. MODIFICATION OF RULES RELATING TO FOREIGN TRUSTS HAVING ONE 
                    OR MORE UNITED STATES BENEFICIARIES.

  (a) In General.--Section 679 of the Internal Revenue Code of 
1986 (relating to foreign trusts having one or more United 
States beneficiaries) is amended to read as follows:

``SEC. 679. FOREIGN TRUSTS HAVING ONE OR MORE UNITED STATES 
                    BENEFICIARIES.

  ``(a) Transferor Treated as Owner.--
          ``(1) In general.--A United States person who 
        directly or indirectly transfers property to a foreign 
        trust (other than a trust described in section 
        404(a)(4) or section 404A) shall be treated as the 
        owner for his taxable year of the portion of such trust 
        attributable to such property if for such year there is 
        a United States beneficiary of such trust.
          ``(2) Exception.--
                  ``(A) In general.--Paragraph (1) shall not 
                apply to any sale or exchange of property to a 
                trust if--
                          ``(i) the trust pays fair market 
                        value for such property, and
                          ``(ii) all of the gain to the 
                        transferor is recognized at the time of 
                        transfer.
                  ``(B) Certain obligations not taken into 
                account.--For purposes of subparagraph (A), in 
                determining whether the transferor received 
                fair market value, there shall not be taken 
                into account--
                          ``(i) any obligation of--
                                  ``(I) the trust,
                                  ``(II) any grantor or 
                                beneficiary of the trust, or
                                  ``(III) any person who is 
                                related (within the meaning of 
                                section 643(i)(3)) to any 
                                grantor or beneficiary of the 
                                trust, and
                          ``(ii) except as provided in 
                        regulations, any obligation which is 
                        guaranteed by a person described in 
                        clause (i).
                  ``(C) Treatment of deemed sale election under 
                section 1057.--For purposes of subparagraph 
                (A), a transfer with respect to which an 
                election under section 1057 is made shall not 
                be treated as a sale or exchange.
          ``(3) Special rules applicable to foreign grantor who 
        later becomes a united states person.--A nonresident 
        alien individual who becomes a United States resident 
        within 5 years after directly or indirectly 
        transferring property to a foreign trust shall be 
        treated for purposes of this section and section 6048 
        as having transferred such property, and any 
        undistributed income (including all realized and 
        unrealized gains) attributable thereto, to the foreign 
        trust immediately after becoming a United States 
        resident. For this purpose, a nonresident alien shall 
        be treated as becoming a resident of the United States 
        on the residency starting date (within the meaning of 
        section 7701(b)(2)(A)).
  ``(b) Beneficiaries Treated as Transferors in Certain 
Cases.--For purposes of this section and section 6048, if--
          ``(1) a citizen or resident of the United States who 
        is treated as the owner of any portion of a trust under 
        subsection (a) dies,
          ``(2) property is transferred to a foreign trust by 
        reason of the death of a citizen or resident of the 
        United States, or
          ``(3) a domestic trust to which any United States 
        person made a transfer becomes a foreign trust,
then, except as otherwise provided in regulations, the trust 
beneficiaries shall be treated as having transferred to such 
trust (as of the date of the applicable event under paragraph 
(1), (2), or (3)) their respective interests (as determined 
under subsection (e)) in the property involved.
  ``(c) Trusts Acquiring United States Beneficiaries.--If--
          ``(1) subsection (a) applies to a trust for the 
        transferor's taxable year, and
          ``(2) subsection (a) would have applied to the trust 
        for the transferor's immediately preceding taxable year 
        but for the fact that for such preceding taxable year 
        there was no United States beneficiary for any portion 
        of the trust,
then, for purposes of this subtitle, the transferor shall be 
treated as having received as an accumulation distribution 
taxable under subpart D an amount equal to the undistributed 
net income (as determined under section 665(a) as of the close 
of such immediately preceding taxable year) attributable to the 
portion of the trust referred to in subsection (a).
  ``(d) Trusts Treated as Having a United States Beneficiary.--
          ``(1) In general.--For purposes of this section, a 
        trust shall be treated as having a United States 
        beneficiary for the taxable year unless--
                  ``(A) under the terms of the trust, no part 
                of the income or corpus of the trust may be 
                paid or accumulated during the taxable year to 
                or for the benefit of a United States person, 
                and
                  ``(B) if the trust were terminated at any 
                time during the taxable year, no part of the 
                income or corpus of such trust could be paid to 
                or for the benefit of a United States person.
        To the extent provided by the Secretary, for purposes 
        of this subsection, the term `United States person' 
        includes any person who was a United States person at 
        any time during the existence of the trust.
          ``(2) Attribution of ownership.--For purposes of 
        paragraph (1), an amount shall be treated as paid or 
        accumulated to or for the benefit of a United States 
        person if such amount is paid to or accumulated for a 
        foreign corporation, foreign partnership, or foreign 
        trust or estate, and--
                  ``(A) in the case of a foreign corporation, 
                more than 50 percent of the total combined 
                voting power of all classes of stock of such 
                corporation entitled to vote is owned (within 
                the meaning of section 958(a)) or is considered 
                to be owned (within the meaning of section 
                958(b)) by United States shareholders (as 
                defined in section 951(b)),
                  ``(B) in the case of a foreign partnership, a 
                United States person is a partner of such 
                partnership, or
                  ``(C) in the case of a foreign trust or 
                estate, such trust or estate has a United 
                States beneficiary (within the meaning of 
                paragraph (1)).
  ``(e) Determination of Beneficiaries' Interests in Trust.--
          ``(1) General rule.--For purposes of this section, a 
        beneficiary's interest in a foreign trust shall be 
        based upon all relevant facts and circumstances, 
        including the terms of the trust instrument and any 
        letter of wishes or similar document, historical 
        patterns of trust distributions, and the existence of 
        and functions performed by a trust protector or any 
        similar advisor.
          ``(2) Special rule.--In the case of beneficiaries 
        whose interests in a trust cannot be determined under 
        paragraph (1)--
                  ``(A) the beneficiary having the closest 
                degree of kinship to the grantor shall be 
                treated as holding the remaining interests in 
                the trust not determined under paragraph (1) to 
                be held by any other beneficiary, and
                  ``(B) if 2 or more beneficiaries have the 
                same degree of kinship to the grantor, such 
                remaining interests shall be treated as held 
                equally by such beneficiaries.
          ``(3) Constructive ownership.--If a beneficiary of a 
        foreign trust is a corporation, partnership, trust, or 
        estate, the shareholders, partners, or beneficiaries 
        shall be deemed to be the trust beneficiaries for 
        purposes of this section.
          ``(4) Taxpayer return position.--A taxpayer shall 
        clearly indicate on its income tax return--
                  ``(A) the methodology used to determine that 
                taxpayer's trust interest under this section, 
                and
                  ``(B) if the taxpayer knows (or has reason to 
                know) that any other beneficiary of such trust 
                is using a different methodology to determine 
                such beneficiary's trust interest under this 
                section.
  ``(f) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.''
  (b) Effective Date.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall 
        apply to taxable years ending on or after February 6, 
        1995.
          (2) Section 679(a).--Paragraphs (2) and (3) of 
        section 679(a) of the Internal Revenue Code of 1986 (as 
        added by this section) shall apply to--
                  (A) any trust created on or after February 6, 
                1995, and
                  (B) the portion of any trust created before 
                such date which is attributable to actual 
                transfers of property to the trust on or after 
                such date.
          (3) Section 679(b).--
                  (A) In general.--Paragraphs (1) and (2) of 
                section 679(b) of such Code (as so added) shall 
                apply to--
                          (i) any trust created on or after the 
                        date of the enactment of this Act, and
                          (ii) the portion of any trust created 
                        before such date which is attributable 
                        to actual transfers of property to the 
                        trust on or after such date.
                  (B) Section 679(b)(3).--Section 679(b)(3) of 
                such Code (as so added) shall take effect on 
                February 6, 1995, without regard to when the 
                property was transferred to the trust.

SEC. 314. FOREIGN PERSONS NOT TO BE TREATED AS OWNERS UNDER GRANTOR 
                    TRUST RULES.

  (a) In General.--So much of section 672(f) of the Internal 
Revenue Code of 1986 (relating to special rule where grantor is 
foreign person) as precedes paragraph (2) is amended to read as 
follows:
  ``(f) Subpart Not To Result in Foreign Ownership.--
          ``(1) In general.--Notwithstanding any other 
        provision of this subpart, this subpart shall apply 
        only to the extent such application results in an 
        amount being included (directly or through 1 or more 
        entities) in the gross income of a citizen or resident 
        of the United States or a domestic corporation. The 
        preceding sentence shall not apply to any portion of an 
        investment trust if such trust is treated as a trust 
        for purposes of this title and the grantor of such 
        portion is the sole beneficiary of such portion.''
  (b) Credit for Certain Taxes.--Paragraph (2) of section 
665(d) of such Code is amended by adding at the end the 
following new sentence: ``Under rules or regulations prescribed 
by the Secretary, in the case of any foreign trust of which the 
settlor or another person would be treated as owner of any 
portion of the trust under subpart E but for section 672(f), 
the term `taxes imposed on the trust' includes the allocable 
amount of any income, war profits, and excess profits taxes 
imposed by any foreign country or possession of the United 
States on the settlor or such other person in respect of trust 
income.''
  (c) Distributions by Certain Foreign Trusts Through 
Nominees.--
          (1) Section 643 of such Code is amended by adding at 
        the end the following new subsection:
  ``(h) Distributions by Certain Foreign Trusts Through 
Nominees.--For purposes of this part, any amount paid to a 
United States person which is derived directly or indirectly 
from a foreign trust of which the payor is not the grantor 
shall be deemed in the year of payment to have been directly 
paid by the foreign trust to such United States person.''
          (2) Section 665 of such Code is amended by striking 
        subsection (c).
  (d) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.
  (e) Transitional Rule.--If--
          (1) by reason of the amendments made by this section, 
        any person other than a United States person ceases to 
        be treated as the owner of a portion of a domestic 
        trust, and
          (2) before January 1, 1996, such trust becomes a 
        foreign trust, or the assets of such trust are 
        transferred to a foreign trust,
no tax shall be imposed by section 1491 of the Internal Revenue 
Code of 1986 by reason of such trust becoming a foreign trust 
or the assets of such trust being transferred to a foreign 
trust.

SEC. 315. GRATUITOUS TRANSFERS BY PARTNERSHIPS AND FOREIGN 
                    CORPORATIONS.

  (a) In General.--Subchapter C of chapter 80 of the Internal 
Revenue Code of 1986 (relating to provisions affecting more 
than one subtitle) is amended by adding at the end the 
following new section:

``SEC. 7874. PURPORTED GIFTS BY PARTNERSHIPS AND FOREIGN CORPORATIONS.

  ``(a) In General.--Any property (including money) that is 
purportedly a direct or indirect gift by a partnership or a 
foreign corporation to a person who is not a partner of the 
partnership or a shareholder of the corporation, respectively, 
may be recharacterized by the Secretary to prevent the 
avoidance of tax. The Secretary may not recharacterize gifts 
made for bona fide business or charitable purposes.
  ``(b) Statements on Recipient's Return.--A taxpayer who 
receives a purported gift subject to subsection (a) shall 
attach a statement to his income tax return for the year of 
receipt that identifies the property received and describes 
fully the circumstances surrounding the purported gift.
  ``(c) Exemption.--Subsection (a) shall not apply to purported 
gifts received by any person during any taxable year if the 
amount thereof is less than $2,500.
  ``(d) Regulations.--The Secretary may prescribe such rules as 
may be necessary or appropriate to carry out the purposes of 
this section.''
  (b) Clerical Amendment.--The table of sections for such 
subchapter C of such Code is amended by adding at the end the 
following new item:

        ``Sec. 7874. Purported gifts by partnerships and foreign 
                  corporations.''

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

SEC. 316. INFORMATION REPORTING REGARDING LARGE FOREIGN GIFTS.

  (a) In General.--Subpart A of part III of subchapter A of 
chapter 61 of the Internal Revenue Code of 1986 is amended by 
inserting after section 6039E the following new section:

``SEC. 6039F. NOTICE OF LARGE GIFTS RECEIVED FROM FOREIGN PERSONS.

  ``(a) In General.--If the value of the aggregate foreign 
gifts received by a United States person (other than an 
organization described in section 501(c) and exempt from tax 
under section 501(a)) during any taxable year exceeds $100,000, 
such United States person shall furnish (at such time and in 
such manner as the Secretary shall prescribe) such information 
as the Secretary may prescribe regarding each foreign gift 
received during such year.
  ``(b) Foreign Gift.--For purposes of this section, the term 
`foreign gift' means any amount received from a person other 
than a United States person which the recipient treats as a 
gift or bequest. Such term shall not include any qualified 
transfer (within the meaning of section 2503(e)(2)).
  ``(c) Penalty For Failure To File Information.--
          ``(1) In general.--If a United States person fails to 
        furnish the information required by subsection (a) with 
        respect to any foreign gift within the time prescribed 
        therefor (including extensions)--
                  ``(A) the tax consequences of the receipt of 
                such gift shall be determined by the Secretary 
                in the Secretary's sole discretion from the 
                Secretary's own knowledge or from such 
                information as the Secretary may obtain through 
                testimony or otherwise, and
                  ``(B) such United States person shall pay 
                (upon notice and demand by the Secretary and in 
                the same manner as tax) an amount equal to 5 
                percent of the amount of such foreign gift for 
                each month for which the failure continues (not 
                to exceed 25 percent of such amount in the 
                aggregate).
          ``(2) Reasonable cause exception.--Paragraph (1) 
        shall not apply to any failure to report a foreign gift 
        if the United States person shows that the failure is 
        due to reasonable cause and not due to willful neglect.
  ``(d) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary to carry out the purposes of 
this section.''.
  (b) Clerical Amendment.--The table of sections for such 
subpart is amended by inserting after the item relating to 
section 6039E the following new item:

        ``Sec. 6039F. Notice of large gifts received from foreign 
                  persons.''

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

SEC. 317. MODIFICATION OF RULES RELATING TO FOREIGN TRUSTS WHICH ARE 
                    NOT GRANTOR TRUSTS.

  (a) Modification of Interest Charge on Accumulation 
Distributions.--Subsection (a) of section 668 of the Internal 
Revenue Code of 1986 (relating to interest charge on 
accumulation distributions from foreign trusts) is amended to 
read as follows:
  ``(a) General Rule.--For purposes of the tax determined under 
section 667(a)--
          ``(1) Sum of interest charges for each throwback 
        year.--The interest charge (determined under paragraph 
        (2)) with respect to any distribution is the sum of the 
        interest charges for each of the throwback years to 
        which such distribution is allocated under section 
        666(a).
          ``(2) Interest charge for year.--Except as provided 
        in paragraph (6), the interest charge for any throwback 
        year on such year's allocable share of the partial tax 
        computed under section 667(b) with respect to any 
        distribution shall be determined for the period--
                  ``(A) beginning on the due date for the 
                throwback year, and
                  ``(B) ending on the due date for the taxable 
                year of the distribution,
        by using the rates and method applicable under section 
        6621 for underpayments of tax for such period. For 
        purposes of the preceding sentence, the term `due date' 
        means the date prescribed by law (determined without 
        regard to extensions) for filing the return of the tax 
        imposed by this chapter for the taxable year.
          ``(3) Allocable partial tax.--For purposes of 
        paragraph (2), a throwback year's allocable share of 
        the partial tax is an amount equal to such partial tax 
        multiplied by the fraction--
                  ``(A) the numerator of which is the amount 
                deemed by section 666(a) to be distributed on 
                the last day of such throwback year, and
                  ``(B) the denominator of which is the 
                accumulation distribution taken into account 
                under section 666(a).
          ``(4) Throwback year.--For purposes of this 
        subsection, the term `throwback year' means any taxable 
        year to which a distribution is allocated under section 
        666(a).
          ``(5) Periods of nonresidence.--The period under 
        paragraph (2) shall not include any portion thereof 
        during which the beneficiary was not a citizen or 
        resident of the United States.
          ``(6) Throwback years before 1996.--In the case of 
        any throwback year beginning before 1996--
                  ``(A) interest for the portion of the period 
                described in paragraph (2) which occurs before 
                the first taxable year beginning after 1995 
                shall be determined by using an interest rate 
                of 6 percent and no compounding, and
                  ``(B) interest for the remaining portion of 
                such period shall be determined as if the 
                partial tax computed under section 667(b) for 
                the throwback year were increased (as of the 
                beginning of such first taxable year) by the 
                amount of the interest determined under 
                subparagraph (A).''
  (b) Rule When Information Not Available.--Subsection (d) of 
section 666 of such Code is amended by adding at the end the 
following: ``In the case of a distribution from a foreign trust 
to which section 6048(b) applies, adequate records shall not be 
considered to be available for purposes of the preceding 
sentence unless such trust meets the requirements referred to 
in such section. If a taxpayer is not able to demonstrate when 
a trust was created, the Secretary may use any reasonable 
approximation based on available evidence.''
  (c) Abusive Transactions.--Section 643(a) of such Code is 
amended by inserting after paragraph (6) the following new 
paragraph:
          ``(7) Abusive transactions.--The Secretary shall 
        prescribe such regulations as may be necessary or 
        appropriate to carry out the purposes of this part, 
        including regulations to prevent avoidance of such 
        purposes.''
  (d) Treatment of Use of Trust Property.--Section 643 of such 
Code (relating to definitions applicable to subparts A, B, C, 
and D) is amended by adding at the end the following new 
subsection:
  ``(i) Use of Foreign Trust Property.--
          ``(1) General rule.--For purposes of subparts B, C, 
        and D, if, during a taxable year of a foreign trust a 
        trust participant of such trust directly or indirectly 
        uses any of the trust's property, the use value for 
        such taxable year shall be treated as an amount paid to 
        such participant (other than from income for the 
        taxable year) within the meaning of sections 661(a)(2) 
        and section 662(a)(2).
          ``(2) Exemption.--Paragraph (1) shall not apply to 
        any trust participant as to whom the aggregate use 
        value during the taxable year does not exceed $2,500.
          ``(3) Definitions and special rules.--For purposes of 
        this subsection--
                  ``(A) Use value.--Except as provided in 
                subparagraph (B), the term `use value' means 
                the fair market value of the use of property 
                reduced by any amount paid for such use by the 
                trust participant or by any person who is 
                related to such participant.
                  ``(B) Special rule for cash and cash 
                equivalent.--A direct or indirect loan of cash, 
                or cash equivalent, by a foreign trust shall be 
                treated as a use of trust property by the 
                borrower and the full amount of the loan 
                principal shall be the use value.
                  ``(C) Use by related party.--
                          ``(i) Use by a person who is related 
                        to a trust participant shall be treated 
                        as use by the participant.
                          ``(ii) If property is used by any 
                        person who is a related person with 
                        respect to more than one trust 
                        participant, then the property shall be 
                        treated as used by the trust 
                        participant most closely related, by 
                        blood or otherwise, to such person.
                  ``(D) Property includes cash and cash 
                equivalents.--The term `property' includes cash 
                and cash equivalents.
                  ``(E) Trust participant.--The term `trust 
                participant' means each grantor and beneficiary 
                of the trust.
                  ``(F) Related person.--A person is related to 
                a trust participant if the relationship between 
                such persons would result in a disallowance of 
                losses under section 267(b) or 707(b). In 
                applying section 267 for purposes of the 
                preceding sentence--
                          ``(i) section 267(e) shall be applied 
                        as if such person or the trust 
                        participant were a pass-thru entity,
                          ``(ii) section 267(b) shall be 
                        applied by substituting `at least 10 
                        percent' for `more than 50 percent' 
                        each place it appears, and
                          ``(iii) in determining the family of 
                        an individual under section 267(c)(4), 
                        such section shall be treated as 
                        including the spouse (and former 
                        spouse) of such individual and of each 
                        other person who is treated under such 
                        section as being a member of the family 
                        of such individual or spouse.
                  ``(G) Subsequent transactions regarding loan 
                principal.--If any loan described in 
                subparagraph (B) is taken into account under 
                paragraph (1), any subsequent transaction 
                between the trust and the original borrower 
                regarding the principal of the loan (by way of 
                complete or partial repayment, satisfaction, 
                cancellation, discharge, or otherwise) shall be 
                disregarded for purposes of this title.''
  (e) Effective Dates.--
          (1) In general.--Except as provided in paragraph (2), 
        the amendments made by this section shall apply to 
        taxable years beginning after the date of the enactment 
        of this Act.
          (2) Interest charge.--The amendment made by 
        subsection (a) shall apply to interest for throwback 
        years beginning before, on, or after the date of the 
        enactment of this Act.

SEC. 318. RESIDENCE OF ESTATES AND TRUSTS.

  (a) Treatment as United States Person.--Paragraph (30) of 
section 7701(a) of the Internal Revenue Code of 1986 is amended 
by striking subparagraph (D) and by inserting after 
subparagraph (C) the following:
                  ``(D) any estate or trust if--
                          ``(i) a court within the United 
                        States is able to exercise primary 
                        supervision over the administration of 
                        the estate or trust, and
                          ``(ii) in the case of a trust, one or 
                        more United States fiduciaries have the 
                        authority to control all substantial 
                        decisions of the trust.''
  (b) Conforming Amendment.--Paragraph (31) of section 7701(a) 
of such Code is amended to read as follows:
          ``(31) Foreign estate or trust.--The term `foreign 
        estate' or `foreign trust' means any estate or trust 
        other than an estate or trust described in section 
        7701(a)(30)(D).''
  (c) Effective Date.--The amendments made by this section 
shall apply--
          (1) to taxable years beginning after December 31, 
        1996, and
          (2) at the election of the trustee of a trust, to 
        taxable years beginning after the date of the enactment 
        of this Act and on or before December 31, 1996.
Such an election, once made, shall be irrevocable.