[House Report 106-1004]
[From the U.S. Government Publishing Office]





106th Congress                                                  Report
                        HOUSE OF REPRESENTATIVES   
 2d Session                                                     106-1004
_______________________________________________________________________

                                     



 
  ENACTMENT OF CERTAIN SMALL BUSINESS, HEALTH, TAX, AND MINIMUM WAGE 
                              PROVISIONS

                               __________

                           CONFERENCE REPORT

                              to accompany

                               H.R. 2614

               


 October 26 (legislative day, October 25), 2000.--Ordered to be printed




106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                    106-1004

======================================================================




  ENACTMENT OF CERTAIN SMALL BUSINESS, HEALTH, TAX, AND MINIMUM WAGE 
                               PROVISIONS

                                _______
                                

 October 26 (legislative day, October 25), 2000.--Ordered to be printed

                                _______
                                

  Mr. Armey, from the committee of conference, submitted the following

                           CONFERENCE REPORT

                        [To accompany H.R. 2614]

      The committee of conference on the disagreeing votes of 
the two Houses on the amendment of the Senate to the bill (H.R. 
2614) to amend the Small Business Investment Act to make 
improvements to the certified development company program, and 
for other purposes, having met, after full and free conference, 
have agreed to recommend and do recommend to their respective 
Houses as follows:
      That the House recede from its disagreement to the 
amendment of the Senate and agree to the same with an amendment 
as follows:
      In lieu of the matter proposed to be inserted by the 
Senate amendment, insert the following:

SECTION 1. ENACTMENT OF OTHER PROVISIONS OF LAW.

    The provisions of the following bills of the 106th Congress 
are hereby enacted into law:
            (1) H.R. 5538, as introduced on October 25, 2000 
        (the Minimum Wage Act of 2000).
            (2) H.R. 5542, as introduced on October 25, 2000 
        (the Taxpayer Relief Act of 2000).
            (3) H.R. 5543, as introduced on October 25, 2000 
        (the Medicare, Medicaid, and SCHIP Benefits Improvement 
        and Protection Act of 2000).
            (4) H.R. 5544, as introduced on October 25, 2000 
        (the Pain Relief Promotion Act of 2000).
            (5) H.R. 5545, as introduced on October 25, 2000 
        (the Small Business Reauthorization Act of 2000).

SEC. 2. PUBLICATION OF ACT.

    In publishing this Act in slip form and in the United 
States Statutes at Large pursuant to section 112 of title 1, 
United States Code, the Archivist of the United States shall 
include after the date of approval appendixes setting forth the 
texts of the bills referred to in section 1.
      And the Senate agree to the same.
                                   Jim Talent,
                                   Dick Armey,
                                 Managers on the Part of the House.

                                   Christopher Bond,
                                   Conrad Burns,
                                Managers on the Part of the Senate.
       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

    The managers on the part of the House and the Senate at the 
conference on the disagreeing votes of the two Houses on the 
amendment of the Senate to the bill (H.R. 2614) to amend the 
Small Business Investment Act to make improvements to the 
certified development company program, and for other purposes, 
submit the following joint statement to the House and the 
Senate in explanation of the effect of the action agreed upon 
by the managers and recommended in the accompanying conference 
report:
    The Senate amendment struck all of the House bill after the 
enacting clause and inserted a substitute text.
    The House recedes from its disagreement to the amendment of 
the Senate with an amendment that is a substitute for the House 
bill and the Senate amendment.
    The conference agreement would enact by reference the 
provisions of five bills introduced on October 25, 2000. Those 
bills are the following:
            (1) H.R. 5538, the Minimum Wage Act of 2000.
            (2) H.R. 5542, the Taxpayer Relief Act of 2000.
            (3) H.R. 5543, the Medicare, Medicaid, and SCHIP 
        Benefits Improvement and Protection Act of 2000.
            (4) H.R. 5544, the Pain Relief Promotion Act of 
        2000.
            (5) H.R. 5545, the Small Business Reauthorization 
        Act of 2000.
    This joint statement sets out for convenience the text of 
each bill that would be enacted in the conference report by 
reference.

                        minimum wage act of 2000

      The conference agreement would enact the provisions of 
H.R. 5538, as introduced on October 25, 2000. The text of that 
bill follows:

SECTION 1. SHORT TITLE.

      This Act may be cited as the ``Minimum Wage Act of 
2000''.

SEC. 2. MINIMUM WAGE INCREASE.

      Paragraph (1) of section 6(a) of the Fair Labor Standards 
Act of 1938 (29 U.S.C. 206(a)) is amended to read as follows:
            ``(1) except as otherwise provided in this section. 
        Not less than $5.15 an hour during the period ending 
        June 30, 2000, not less than $5.65 an hour during the 
        year beginning January 1, 2001, and not less than $6.15 
        an hour beginning January 1, 2002;''.

                      taxpayer relief act of 2000

      The conference agreement would enact the provisions of 
H.R. 5542, as introduced on October 25, 2000. The text of that 
bill follows:

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

      (a) Short Title.--This Act may be cited as the ``Taxpayer 
Relief Act of 2000''.
      (b) Amendment of 1986 Code.--Except as otherwise 
expressly provided, whenever in this Act an amendment or repeal 
is expressed in terms of an amendment to, or repeal of, a 
section or other provision, the reference shall be considered 
to be made to a section or other provision of the Internal 
Revenue Code of 1986.
      (c) Table of Contents.--

Sec. 1. Short title; amendment of 1986 Code.

        TITLE I--FSC REPEAL AND EXTRATERRITORIAL INCOME EXCLUSION

Sec. 101. Repeal of foreign sales corporation rules.
Sec. 102. Treatment of extraterritorial income.
Sec. 103. Technical and conforming amendments.
Sec. 104. Effective date.

                   TITLE II--SMALL BUSINESS TAX RELIEF

Sec. 201. Extension of work opportunity tax credit.
Sec. 202. Increase in amortizable reforestation expenditures, etc.
Sec. 203. Increase in expense treatment for small businesses.
Sec. 204. Increased deduction for meal expenses.
Sec. 205. Increased deductibility of business meal expenses for 
          individuals subject to Federal limitations on hours of 
          service.
Sec. 206. Repeal of modification of installment method.
Sec. 207. Income averaging not to increase alternative minimum tax 
          liability; income averaging for fishermen.
Sec. 208. Repeal of occupational taxes relating to distilled spirits, 
          wine, and beer.
Sec. 209. Exclusion from gross income for certain forgiven mortgage 
          obligations.
Sec. 210. Clarification of cash accounting rules for small business.
Sec. 211. Amendments relating to demand deposit accounts at depository 
          institutions.

   TITLE III--HEALTH INSURANCE AND LONG-TERM CARE INSURANCE PROVISIONS

Sec. 301. Deduction for 100 percent of health insurance costs of self-
          employed individuals.
Sec. 302. Deduction for health and long-term care insurance costs of 
          individuals not participating in employer-subsidized health 
          plans.
Sec. 303. 2-year extension of availability of medical savings accounts.
Sec. 304. Additional consumer protections for long-term care insurance.
Sec. 305. Deduction for providing long-term care in the home to 
          household members.

   TITLE IV--PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS

Sec. 400. Short title.

               Subtitle A--Individual Retirement Accounts

Sec. 401. Modification of IRA contribution limits.
Sec. 402. Deemed IRAs under employer plans.
Sec. 403. Tax-free distributions from individual retirement accounts for 
          charitable purposes.
Sec. 404. Modification of AGI limits for Roth IRAs.

                     Subtitle B--Expanding Coverage

Sec. 411. Increase in benefit and contribution limits.
Sec. 412. Plan loans for subchapter S owners, partners, and sole 
          proprietors.
Sec. 413. Modification of top-heavy rules.
Sec. 414. Elective deferrals not taken into account for purposes of 
          deduction limits.
Sec. 415. Repeal of coordination requirements for deferred compensation 
          plans of State and local governments and tax-exempt 
          organizations.
Sec. 416. Elimination of user fee for requests to IRS regarding pension 
          plans.
Sec. 417. Deduction limits.
Sec. 418. Option to treat elective deferrals as after-tax Roth 
          contributions.

                Subtitle C--Enhancing Fairness for Women

Sec. 421. Catch-up contributions for individuals age 50 or over.
Sec. 422. Equitable treatment for contributions of employees to defined 
          contribution plans.
Sec. 423. Faster vesting of certain employer matching contributions.
Sec. 424. Simplify and update the minimum distribution rules.
Sec. 425. Clarification of tax treatment of division of section 457 plan 
          benefits upon divorce.
Sec. 426. Provisions relating to hardship distributions.
Sec. 427. Waiver of tax on nondeductible contributions for domestic or 
          similar workers.

           Subtitle D--Increasing Portability for Participants

Sec. 431. Rollovers allowed among various types of plans.
Sec. 432. Rollovers of IRAs into workplace retirement plans.
Sec. 433. Rollovers of after-tax contributions.
Sec. 434. Hardship exception to 60-day rule.
Sec. 435. Treatment of forms of distribution.
Sec. 436. Rationalization of restrictions on distributions.
Sec. 437. Purchase of service credit in governmental defined benefit 
          plans.
Sec. 438. Employers may disregard rollovers for purposes of cash-out 
          amounts.
Sec. 439. Minimum distribution and inclusion requirements for section 
          457 plans.

       Subtitle E--Strengthening Pension Security and Enforcement

Sec. 441. Repeal of 155 percent of current liability funding limit.
Sec. 442. Maximum contribution deduction rules modified and applied to 
          all defined benefit plans.
Sec. 443. Excise tax relief for sound pension funding.
Sec. 444. Excise tax on failure to provide notice by defined benefit 
          plans significantly reducing future benefit accruals.
Sec. 445. Treatment of multiemployer plans under section 415.
Sec. 446. Protection of investment of employee contributions to 401(k) 
          plans.
Sec. 447. Periodic pension benefits statements.
Sec. 448. Prohibited allocations of stock in S corporation ESOP.

                 Subtitle F--Reducing Regulatory Burdens

Sec. 451. Modification of timing of plan valuations.
Sec. 452. ESOP dividends may be reinvested without loss of dividend 
          deduction.
Sec. 453. Repeal of transition rule relating to certain highly 
          compensated employees.
Sec. 454. Employees of tax-exempt entities.
Sec. 455. Clarification of treatment of employer-provided retirement 
          advice.
Sec. 456. Reporting simplification.
Sec. 457. Improvement of employee plans compliance resolution system.
Sec. 458. Repeal of the multiple use test.
Sec. 459. Flexibility in nondiscrimination, coverage, and line of 
          business rules.
Sec. 460. Extension to all governmental plans of moratorium on 
          application of certain nondiscrimination rules applicable to 
          State and local plans.
Sec. 461. Notice and consent period regarding distributions.
Sec. 462. Annual report dissemination.
Sec. 463. Technical corrections to SAVER Act.
Sec. 464. Study of pension coverage.

                   Subtitle G--Other ERISA Provisions

Sec. 471. Missing participants.
Sec. 472. Reduced PBGC premium for new plans of small employers.
Sec. 473. Reduction of additional PBGC premium for new and small plans.
Sec. 474. Authorization for PBGC to pay interest on premium overpayment 
          refunds.
Sec. 475. Substantial owner benefits in terminated plans.
Sec. 476. Multiemployer plan benefits guarantee.
Sec. 477. Civil penalties for breach of fiduciary responsibility.
Sec. 478. Benefit suspension notice.

                       Subtitle H--Plan Amendments

Sec. 481. Provisions relating to plan amendments.

                 TITLE V--SCHOOL CONSTRUCTION PROVISIONS

Sec. 501. Additional increase in arbitrage rebate exception for 
          governmental bonds used to finance educational facilities.
Sec. 502. Modification of arbitrage rebate rules applicable to public 
          school construction bonds.
Sec. 503. Modification of special arbitrage rule for certain funds.
Sec. 504. Treatment of qualified public educational facility bonds as 
          exempt facility bonds.
Sec. 505. Expansion of qualified zone academy bond program.

                   TITLE VI--COMMUNITY REVITALIZATION

           Subtitle A--Tax Incentives for Renewal Communities

Sec. 601. Designation of and tax incentives for renewal communities.
Sec. 602. Work opportunity credit for hiring youth residing in renewal 
          communities.

   Subtitle B--Extension and Expansion of Empowerment Zone Incentives

Sec. 611. Authority to designate 9 additional empowerment zones.
Sec. 612. Extension of empowerment zone treatment through 2009.
Sec. 613. 20 percent employment credit for all empowerment zones.
Sec. 614. Increased expensing under section 179.
Sec. 615. Higher limits on tax-exempt empowerment zone facility bonds.
Sec. 616. Nonrecognition of gain on rollover of empowerment zone 
          investments.
Sec. 617. Increased exclusion of gain on sale of empowerment zone stock.

                   Subtitle C--New Markets Tax Credit

Sec. 621. New markets tax credit.

          Subtitle D--Improvements in Low-Income Housing Credit

Sec. 631. Modification of State ceiling on low-income housing credit.
Sec. 632. Modification of criteria for allocating housing credits among 
          projects.
Sec. 633. Additional responsibilities of housing credit agencies.
Sec. 634. Modifications to rules relating to basis of building which is 
          eligible for credit.
Sec. 635. Other modifications.
Sec. 636. Carryforward rules.
Sec. 637. Effective date.

     Subtitle E--Other Community Renewal and New Markets Assistance

Sec. 641. Transfer of unoccupied and substandard HUD-held housing to 
          local governments and community development corporations.
Sec. 642. Transfer of HUD assets in revitalization areas.
Sec. 643. Risk-sharing demonstration.
Sec. 644. Prevention and treatment of substance abuse; services provided 
          through religious organizations.

                      Subtitle F--Other Provisions

Sec. 651. Acceleration of phase-in of increase in volume cap on private 
          activity bonds.
Sec. 652. Modifications to expensing of environmental remediation costs.
Sec. 653. Extension of DC homebuyer tax credit.

   TITLE VII--ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL PROVISIONS

                  Subtitle A--Administrative Provisions

Sec. 701. Exemption of certain reporting requirements.
Sec. 702. Extension of deadlines for IRS compliance with certain notice 
          requirements.
Sec. 703. Extension of authority for undercover operations.
Sec. 704. Confidentiality of certain documents relating to closing and 
          similar agreements and to agreements with foreign governments.
Sec. 705. Increase in threshold for Joint Committee reports on refunds 
          and credits.
Sec. 706. Treatment of missing children with respect to certain tax 
          benefits.
Sec. 707. Amendments to statutes referencing yield on 52-week Treasury 
          bills.
Sec. 708. Adjustments for Consumer Price Index error.
Sec. 709. Prevention of duplication of loss through assumption of 
          liabilities giving rise to a deduction.

                  Subtitle B--Miscellaneous Provisions

Sec. 710. Repeal of 4.3-cent motor fuel excise taxes on railroads and 
          inland waterway transportation which remain in general fund.
Sec. 711. Repeal of reduction of deductions for mutual life insurance 
          companies.
Sec. 712. Repeal of policyholders surplus account provisions.
Sec. 713. Credit to holders of qualified Amtrak bonds.
Sec. 714. Farm, fishing, and ranch risk management accounts.
Sec. 715. Extension of enhanced deduction for corporate donations of 
          computer technology.
Sec. 716. Relief from Federal tax liability arising with respect to 
          certain claims against the Department of Agriculture for 
          discrimination in farm credit and benefit programs.
Sec. 717. Expansion of credit for adoption expenses.
Sec. 718. Study concerning United States insurance companies with 
          certain offshore reinsurance affiliates.
Sec. 719. Treatment of Indian tribal governments under Federal 
          Unemployment Tax Act.

                    Subtitle C--Technical Corrections

Sec. 721. Amendments related to Ticket to Work and Work Incentives 
          Improvement Act of 1999.
Sec. 722. Amendments related to Tax and Trade Relief Extension Act of 
          1998.
Sec. 723. Amendments related to Internal Revenue Service Restructuring 
          and Reform Act of 1998.
Sec. 724. Amendments related to Taxpayer Relief Act of 1997.
Sec. 725. Amendments related to Balanced Budget Act of 1997.
Sec. 726. Amendments related to Small Business Job Protection Act of 
          1996.
Sec. 727. Amendment related to Revenue Reconciliation Act of 1990.
Sec. 728. Other technical corrections.
Sec. 729. Clerical changes.

                     Subtitle D--Pay-Go Adjustments

Sec. 731. Avoidance of a Pay-Go sequestration for fiscal year 2001.

       TITLE I--FSC REPEAL AND EXTRATERRITORIAL INCOME EXCLUSION

SEC. 101. REPEAL OF FOREIGN SALES CORPORATION RULES.

    Subpart C of part III of subchapter N of chapter 1 
(relating to taxation of foreign sales corporations) is hereby 
repealed.

SEC. 102. TREATMENT OF EXTRATERRITORIAL INCOME.

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

``SEC. 114. EXTRATERRITORIAL INCOME.

    ``(a) Exclusion.--Gross income does not include 
extraterritorial income.
    ``(b) Exception.--Subsection (a) shall not apply to 
extraterritorial income which is not qualifying foreign trade 
income as determined under subpart E of part III of subchapter 
N.
    ``(c) Disallowance of Deductions.--
            ``(1) In general.--Any deduction of a taxpayer 
        allocated under paragraph (2) to extraterritorial 
        income of the taxpayer excluded from gross income under 
        subsection (a) shall not be allowed.
            ``(2) Allocation.--Any deduction of the taxpayer 
        properly apportioned and allocated to the 
        extraterritorial income derived by the taxpayer from 
        any transaction shall be allocated on a proportionate 
        basis between--
                    ``(A) the extraterritorial income derived 
                from such transaction which is excluded from 
                gross income under subsection (a), and
                    ``(B) the extraterritorial income derived 
                from such transaction which is not so excluded.
    ``(d) Denial of Credits for Certain Foreign Taxes.--
Notwithstanding any other provision of this chapter, no credit 
shall be allowed under this chapter for any income, war 
profits, and excess profits taxes paid or accrued to any 
foreign country or possession of the United States with respect 
to extraterritorial income which is excluded from gross income 
under subsection (a).
    ``(e) Extraterritorial Income.--For purposes of this 
section, the term `extraterritorial income' means the gross 
income of the taxpayer attributable to foreign trading gross 
receipts (as defined in section 942) of the taxpayer.''.
    (b) Qualifying Foreign Trade Income.--Part III of 
subchapter N of chapter 1 is amended by inserting after subpart 
D the following new subpart:

              ``Subpart E--Qualifying Foreign Trade Income

        ``Sec. 941. Qualifying foreign trade income.
        ``Sec. 942. Foreign trading gross receipts.
        ``Sec. 943. Other definitions and special rules.

``SEC. 941. QUALIFYING FOREIGN TRADE INCOME.

    ``(a) Qualifying Foreign Trade Income.--For purposes of 
this subpart and section 114--
            ``(1) In general.--The term `qualifying foreign 
        trade income' means, with respect to any transaction, 
        the amount of gross income which, if excluded, will 
        result in a reduction of the taxable income of the 
        taxpayer from such transaction equal to the greatest 
        of--
                    ``(A) 30 percent of the foreign sale and 
                leasing income derived by the taxpayer from 
                such transaction,
                    ``(B) 1.2 percent of the foreign trading 
                gross receipts derived by the taxpayer from the 
                transaction, or
                    ``(C) 15 percent of the foreign trade 
                income derived by the taxpayer from the 
                transaction.
        In no event shall the amount determined under 
        subparagraph (B) exceed 200 percent of the amount 
        determined under subparagraph (C).
            ``(2) Alternative computation.--A taxpayer may 
        compute its qualifying foreign trade income under a 
        subparagraph of paragraph (1) other than the 
        subparagraph which results in the greatest amount of 
        such income.
            ``(3) Limitation on use of foreign trading gross 
        receipts method.--If any person computes its qualifying 
        foreign trade income from any transaction with respect 
        to any property under paragraph (1)(B), the qualifying 
        foreign trade income of such person (or any related 
        person) with respect to any other transaction involving 
        such property shall be zero.
            ``(4) Rules for marginal costing.--The Secretary 
        shall prescribe regulations setting forth rules for the 
        allocation of expenditures in computing foreign trade 
        income under paragraph (1)(C) in those cases where a 
        taxpayer is seeking to establish or maintain a market 
        for qualifying foreign trade property.
            ``(5) Participation in international boycotts, 
        etc.--Under regulations prescribed by the Secretary, 
        the qualifying foreign trade income of a taxpayer for 
        any taxable year shall be reduced (but not below zero) 
        by the sum of--
                    ``(A) an amount equal to such income 
                multiplied by the international boycott factor 
                determined under section 999, and
                    ``(B) any illegal bribe, kickback, or other 
                payment (within the meaning of section 162(c)) 
                paid by or on behalf of the taxpayer directly 
                or indirectly to an official, employee, or 
                agent in fact of a government.
    ``(b) Foreign Trade Income.--For purposes of this subpart--
            ``(1) In general.--The term `foreign trade income' 
        means the taxable income of the taxpayer attributable 
        to foreign trading gross receipts of the taxpayer.
            ``(2) Special rule for cooperatives.--In any case 
        in which an organization to which part I of subchapter 
        T applies which is engaged in the marketing of 
        agricultural or horticultural products sells qualifying 
        foreign trade property, in computing the taxable income 
        of such cooperative, there shall not be taken into 
        account any deduction allowable under subsection (b) or 
        (c) of section 1382 (relating to patronage dividends, 
        per-unit retain allocations, and nonpatronage 
        distributions).
    ``(c) Foreign Sale and Leasing Income.--For purposes of 
this section--
            ``(1) In general.--The term `foreign sale and 
        leasing income' means, with respect to any 
        transaction--
                    ``(A) foreign trade income properly 
                allocable to activities which--
                            ``(i) are described in paragraph 
                        (2)(A)(i) or (3) of section 942(b), and
                            ``(ii) are performed by the 
                        taxpayer (or any person acting under a 
                        contract with such taxpayer) outside 
                        the United States, or
                    ``(B) foreign trade income derived by the 
                taxpayer in connection with the lease or rental 
                of qualifying foreign trade property for use by 
                the lessee outside the United States.
            ``(2) Special rules for leased property.--
                    ``(A) Sales income.--The term `foreign sale 
                and leasing income' includes any foreign trade 
                income derived by the taxpayer from the sale of 
                property described in paragraph (1)(B).
                    ``(B) Limitation in certain cases.--Except 
                as provided in regulations, in the case of 
                property which--
                            ``(i) was manufactured, produced, 
                        grown, or extracted by the taxpayer, or
                            ``(ii) was acquired by the taxpayer 
                        from a related person for a price which 
                        was not determined in accordance with 
                        the rules of section 482,
                the amount of foreign trade income which may be 
                treated as foreign sale and leasing income 
                under paragraph (1)(B) or subparagraph (A) of 
                this paragraph with respect to any transaction 
                involving such property shall not exceed the 
                amount which would have been determined if the 
                taxpayer had acquired such property for the 
                price determined in accordance with the rules 
                of section 482.
            ``(3) Special rules.--
                    ``(A) Excluded property.--Foreign sale and 
                leasing income shall not include any income 
                properly allocable to excluded property 
                described in subparagraph (B) of section 
                943(a)(3) (relating to intangibles).
                    ``(B) Only direct expenses taken into 
                account.--For purposes of this subsection, any 
                expense other than a directly allocable expense 
                shall not be taken into account in computing 
                foreign trade income.

``SEC. 942. FOREIGN TRADING GROSS RECEIPTS.

    ``(a) Foreign Trading Gross Receipts.--
            ``(1) In general.--Except as otherwise provided in 
        this section, for purposes of this subpart, the term 
        `foreign trading gross receipts' means the gross 
        receipts of the taxpayer which are--
                    ``(A) from the sale, exchange, or other 
                disposition of qualifying foreign trade 
                property,
                    ``(B) from the lease or rental of 
                qualifying foreign trade property for use by 
                the lessee outside the United States,
                    ``(C) for services which are related and 
                subsidiary to--
                            ``(i) any sale, exchange, or other 
                        disposition of qualifying foreign trade 
                        property by such taxpayer, or
                            ``(ii) any lease or rental of 
                        qualifying foreign trade property 
                        described in subparagraph (B) by such 
                        taxpayer,
                    ``(D) for engineering or architectural 
                services for construction projects located (or 
                proposed for location) outside the United 
                States, or
                    ``(E) for the performance of managerial 
                services for a person other than a related 
                person in furtherance of the production of 
                foreign trading gross receipts described in 
                subparagraph (A), (B), or (C).
        Subparagraph (E) shall not apply to a taxpayer for any 
        taxable year unless at least 50 percent of its foreign 
        trading gross receipts (determined without regard to 
        this sentence) for such taxable year is derived from 
        activities described in subparagraph (A), (B), or (C).
            ``(2) Certain receipts excluded on basis of use; 
        subsidized receipts excluded.--The term `foreign 
        trading gross receipts' shall not include receipts of a 
        taxpayer from a transaction if--
                    ``(A) the qualifying foreign trade property 
                or services--
                            ``(i) are for ultimate use in the 
                        United States, or
                            ``(ii) are for use by the United 
                        States or any instrumentality thereof 
                        and such use of qualifying foreign 
                        trade property or services is required 
                        by law or regulation, or
                    ``(B) such transaction is accomplished by a 
                subsidy granted by the government (or any 
                instrumentality thereof) of the country or 
                possession in which the property is 
                manufactured, produced, grown, or extracted.
            ``(3) Election to exclude certain receipts.--The 
        term `foreign trading gross receipts' shall not include 
        gross receipts of a taxpayer from a transaction if the 
        taxpayer elects not to have such receipts taken into 
        account for purposes of this subpart.
    ``(b) Foreign Economic Process Requirements.--
            ``(1) In general.--Except as provided in subsection 
        (c), a taxpayer shall be treated as having foreign 
        trading gross receipts from any transaction only if 
        economic processes with respect to such transaction 
        take place outside the United States as required by 
        paragraph (2).
            ``(2) Requirement.--
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to the gross 
                receipts of a taxpayer derived from any 
                transaction if--
                            ``(i) such taxpayer (or any person 
                        acting under a contract with such 
                        taxpayer) has participated outside the 
                        United States in the solicitation 
                        (other than advertising), the 
                        negotiation, or the making of the 
                        contract relating to such transaction, 
                        and
                            ``(ii) the foreign direct costs 
                        incurred by the taxpayer attributable 
                        to the transaction equal or exceed 50 
                        percent of the total direct costs 
                        attributable to the transaction.
                    ``(B) Alternative 85-percent test.--A 
                taxpayer shall be treated as satisfying the 
                requirements of subparagraph (A)(ii) with 
                respect to any transaction if, with respect to 
                each of at least 2 subparagraphs of paragraph 
                (3), the foreign direct costs incurred by such 
                taxpayer attributable to activities described 
                in such subparagraph equal or exceed 85 percent 
                of the total direct costs attributable to 
                activities described in such subparagraph.
                    ``(C) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Total direct costs.--The term 
                        `total direct costs' means, with 
                        respect to any transaction, the total 
                        direct costs incurred by the taxpayer 
                        attributable to activities described in 
                        paragraph (3) performed at any location 
                        by the taxpayer or any person acting 
                        under a contract with such taxpayer.
                            ``(ii) Foreign direct costs.--The 
                        term `foreign direct costs' means, with 
                        respect to any transaction, the portion 
                        of the total direct costs which are 
                        attributable to activities performed 
                        outside the United States.
            ``(3) Activities relating to qualifying foreign 
        trade property.--The activities described in this 
        paragraph are any of the following with respect to 
        qualifying foreign trade property--
                    ``(A) advertising and sales promotion,
                    ``(B) the processing of customer orders and 
                the arranging for delivery,
                    ``(C) transportation outside the United 
                States in connection with delivery to the 
                customer,
                    ``(D) the determination and transmittal of 
                a final invoice or statement of account or the 
                receipt of payment, and
                    ``(E) the assumption of credit risk.
            ``(4) Economic processes performed by related 
        persons.--A taxpayer shall be treated as meeting the 
        requirements of this subsection with respect to any 
        sales transaction involving any property if any related 
        person has met such requirements in such transaction or 
        any other sales transaction involving such property.
    ``(c) Exception From Foreign Economic Process 
Requirement.--
            ``(1) In general.--The requirements of subsection 
        (b) shall be treated as met for any taxable year if the 
        foreign trading gross receipts of the taxpayer for such 
        year do not exceed $5,000,000.
            ``(2) Receipts of related persons aggregated.--All 
        related persons shall be treated as one person for 
        purposes of paragraph (1), and the limitation under 
        paragraph (1) shall be allocated among such persons in 
        a manner provided in regulations prescribed by the 
        Secretary.
            ``(3) Special rule for pass-thru entities.--In the 
        case of a partnership, S corporation, or other pass-
        thru entity, the limitation under paragraph (1) shall 
        apply with respect to the partnership, S corporation, 
        or entity and with respect to each partner, 
        shareholder, or other owner.

``SEC. 943. OTHER DEFINITIONS AND SPECIAL RULES.

    ``(a) Qualifying Foreign Trade Property.--For purposes of 
this subpart--
            ``(1) In general.--The term `qualifying foreign 
        trade property' means property--
                    ``(A) manufactured, produced, grown, or 
                extracted within or outside the United States,
                    ``(B) held primarily for sale, lease, or 
                rental, in the ordinary course of trade or 
                business for direct use, consumption, or 
                disposition outside the United States, and
                    ``(C) not more than 50 percent of the fair 
                market value of which is attributable to--
                            ``(i) articles manufactured, 
                        produced, grown, or extracted outside 
                        the United States, and
                            ``(ii) direct costs for labor 
                        (determined under the principles of 
                        section 263A) performed outside the 
                        United States.
        For purposes of subparagraph (C), the fair market value 
        of any article imported into the United States shall be 
        its appraised value, as determined by the Secretary 
        under section 402 of the Tariff Act of 1930 (19 U.S.C. 
        1401a) in connection with its importation, and the 
        direct costs for labor under clause (ii) do not include 
        costs that would be treated under the principles of 
        section 263A as direct labor costs attributable to 
        articles described in clause (i).
            ``(2) U.S. taxation to ensure consistent 
        treatment.--Property which (without regard to this 
        paragraph) is qualifying foreign trade property and 
        which is manufactured, produced, grown, or extracted 
        outside the United States shall be treated as 
        qualifying foreign trade property only if it is 
        manufactured, produced, grown, or extracted by--
                    ``(A) a domestic corporation,
                    ``(B) an individual who is a citizen or 
                resident of the United States,
                    ``(C) a foreign corporation with respect to 
                which an election under subsection (e) 
                (relating to foreign corporations electing to 
                be subject to United States taxation) is in 
                effect, or
                    ``(D) a partnership or other pass-thru 
                entity all of the partners or owners of which 
                are described in subparagraph (A), (B), or (C).
        Except as otherwise provided by the Secretary, tiered 
        partnerships or pass-thru entities shall be treated as 
        described in subparagraph (D) if each of the 
        partnerships or entities is directly or indirectly 
        wholly owned by persons described in subparagraph (A), 
        (B), or (C).
            ``(3) Excluded property.--The term `qualifying 
        foreign trade property' shall not include--
                    ``(A) property leased or rented by the 
                taxpayer for use by any related person,
                    ``(B) patents, inventions, models, designs, 
                formulas, or processes whether or not patented, 
                copyrights (other than films, tapes, records, 
                or similar reproductions, and other than 
                computer software (whether or not patented), 
                for commercial or home use), goodwill, 
                trademarks, trade brands, franchises, or other 
                like property,
                    ``(C) oil or gas (or any primary product 
                thereof),
                    ``(D) products the transfer of which is 
                prohibited or curtailed to effectuate the 
                policy set forth in paragraph (2)(C) of section 
                3 of Public Law 96-72, or
                    ``(E) any unprocessed timber which is a 
                softwood.
        For purposes of subparagraph (E), the term `unprocessed 
        timber' means any log, cant, or similar form of timber.
            ``(4) Property in short supply.--If the President 
        determines that the supply of any property described in 
        paragraph (1) is insufficient to meet the requirements 
        of the domestic economy, the President may by Executive 
        order designate the property as in short supply. Any 
        property so designated shall not be treated as 
        qualifying foreign trade property during the period 
        beginning with the date specified in the Executive 
        order and ending with the date specified in an 
        Executive order setting forth the President's 
        determination that the property is no longer in short 
        supply.
    ``(b) Other Definitions and Rules.--For purposes of this 
subpart--
            ``(1) Transaction.--
                    ``(A) In general.--The term `transaction' 
                means--
                            ``(i) any sale, exchange, or other 
                        disposition,
                            ``(ii) any lease or rental, and
                            ``(iii) any furnishing of services.
                    ``(B) Grouping of transactions.--To the 
                extent provided in regulations, any provision 
                of this subpart which, but for this 
                subparagraph, would be applied on a 
                transaction-by-transaction basis may be applied 
                by the taxpayer on the basis of groups of 
                transactions based on product lines or 
                recognized industry or trade usage. Such 
                regulations may permit different groupings for 
                different purposes.
            ``(2) United states defined.--The term `United 
        States' includes the Commonwealth of Puerto Rico. The 
        preceding sentence shall not apply for purposes of 
        determining whether a corporation is a domestic 
        corporation.
            ``(3) Related person.--A person shall be related to 
        another person if such persons are treated as a single 
        employer under subsection (a) or (b) of section 52 or 
        subsection (m) or (o) of section 414, except that 
        determinations under subsections (a) and (b) of section 
        52 shall be made without regard to section 1563(b).
            ``(4) Gross and taxable income.--Section 114 shall 
        not be taken into account in determining the amount of 
        gross income or foreign trade income from any 
        transaction.
    ``(c) Source Rule.--Under regulations, in the case of 
qualifying foreign trade property manufactured, produced, 
grown, or extracted within the United States, the amount of 
income of a taxpayer from any sales transaction with respect to 
such property which is treated as from sources without the 
United States shall not exceed--
            ``(1) in the case of a taxpayer computing its 
        qualifying foreign trade income under section 
        941(a)(1)(B), the amount of the taxpayer's foreign 
        trade income which would (but for this subsection) be 
        treated as from sources without the United States if 
        the foreign trade income were reduced by an amount 
        equal to 4 percent of the foreign trading gross 
        receipts with respect to the transaction, and
            ``(2) in the case of a taxpayer computing its 
        qualifying foreign trade income under section 
        941(a)(1)(C), 50 percent of the amount of the 
        taxpayer's foreign trade income which would (but for 
        this subsection) be treated as from sources without the 
        United States.
    ``(d) Treatment of Withholding Taxes.--
            ``(1) In general.--For purposes of section 114(d), 
        any withholding tax shall not be treated as paid or 
        accrued with respect to extraterritorial income which 
        is excluded from gross income under section 114(a). For 
        purposes of this paragraph, the term `withholding tax' 
        means any tax which is imposed on a basis other than 
        residence and for which credit is allowable under 
        section 901 or 903.
            ``(2) Exception.--Paragraph (1) shall not apply to 
        any taxpayer with respect to extraterritorial income 
        from any transaction if the taxpayer computes its 
        qualifying foreign trade income with respect to the 
        transaction under section 941(a)(1)(A).
    ``(e) Election To Be Treated as Domestic Corporation.--
            ``(1) In general.--An applicable foreign 
        corporation may elect to be treated as a domestic 
        corporation for all purposes of this title if such 
        corporation waives all benefits to such corporation 
        granted by the United States under any treaty. No 
        election under section 1362(a) may be made with respect 
        to such corporation.
            ``(2) Applicable foreign corporation.--For purposes 
        of paragraph (1), the term `applicable foreign 
        corporation' means any foreign corporation if--
                    ``(A) such corporation manufactures, 
                produces, grows, or extracts property in the 
                ordinary course of such corporation's trade or 
                business, or
                    ``(B) substantially all of the gross 
                receipts of such corporation are foreign 
                trading gross receipts.
            ``(3) Period of election.--
                    ``(A) In general.--Except as otherwise 
                provided in this paragraph, an election under 
                paragraph (1) shall apply to the taxable year 
                for which made and all subsequent taxable years 
                unless revoked by the taxpayer. Any revocation 
                of such election shall apply to taxable years 
                beginning after such revocation.
                    ``(B) Termination.--If a corporation which 
                made an election under paragraph (1) for any 
                taxable year fails to meet the requirements of 
                subparagraph (A) or (B) of paragraph (2) for 
                any subsequent taxable year, such election 
                shall not apply to any taxable year beginning 
                after such subsequent taxable year.
                    ``(C) Effect of revocation or 
                termination.--If a corporation which made an 
                election under paragraph (1) revokes such 
                election or such election is terminated under 
                subparagraph (B), such corporation (and any 
                successor corporation) may not make such 
                election for any of the 5 taxable years 
                beginning with the first taxable year for which 
                such election is not in effect as a result of 
                such revocation or termination.
            ``(4) Special rules.--
                    ``(A) Requirements.--This subsection shall 
                not apply to an applicable foreign corporation 
                if such corporation fails to meet the 
                requirements (if any) which the Secretary may 
                prescribe to ensure that the taxes imposed by 
                this chapter on such corporation are paid.
                    ``(B) Effect of election, revocation, and 
                termination.--
                            ``(i) Election.--For purposes of 
                        section 367, a foreign corporation 
                        making an election under this 
                        subsection shall be treated as 
                        transferring (as of the first day of 
                        the first taxable year to which the 
                        election applies) all of its assets to 
                        a domestic corporation in connection 
                        with an exchange to which section 354 
                        applies.
                            ``(ii) Revocation and 
                        termination.--For purposes of section 
                        367, if--
                                    ``(I) an election is made 
                                by a corporation under 
                                paragraph (1) for any taxable 
                                year, and
                                    ``(II) such election ceases 
                                to apply for any subsequent 
                                taxable year,
                such corporation shall be treated as a domestic 
                corporation transferring (as of the 1st day of 
                the first such subsequent taxable year to which 
                such election ceases to apply) all of its 
                property to a foreign corporation in connection 
                with an exchange to which section 354 applies.
                    ``(C) Eligibility for election.--The 
                Secretary may by regulation designate one or 
                more classes of corporations which may not make 
                the election under this subsection.
    ``(f) Rules Relating to Allocations of Qualifying Foreign 
Trade Income From Shared Partnerships.--
            ``(1) In general.--If--
                    ``(A) a partnership maintains a separate 
                account for transactions (to which this subpart 
                applies) with each partner,
                    ``(B) distributions to each partner with 
                respect to such transactions are based on the 
                amounts in the separate account maintained with 
                respect to such partner, and
                    ``(C) such partnership meets such other 
                requirements as the Secretary may by 
                regulations prescribe,
        then such partnership shall allocate to each partner 
        items of income, gain, loss, and deduction (including 
        qualifying foreign trade income) from any transaction 
        to which this subpart applies on the basis of such 
        separate account.
            ``(2) Special rules.--For purposes of this subpart, 
        in the case of a partnership to which paragraph (1) 
        applies--
                    ``(A) any partner's interest in the 
                partnership shall not be taken into account in 
                determining whether such partner is a related 
                person with respect to any other partner, and
                    ``(B) the election under section 942(a)(3) 
                shall be made separately by each partner with 
                respect to any transaction for which the 
                partnership maintains separate accounts for 
                each partner.
    ``(g) Exclusion for Patrons of Agricultural and 
Horticultural Cooperatives.--Any amount described in paragraph 
(1) or (3) of section 1385(a)--
            ``(1) which is received by a person from an 
        organization to which part I of subchapter T applies 
        which is engaged in the marketing of agricultural or 
        horticultural products, and
            ``(2) which is allocable to qualifying foreign 
        trade income and designated as such by the organization 
        in a written notice mailed to its patrons during the 
        payment period described in section 1382(d),
shall be treated as qualifying foreign trade income of such 
person for purposes of section 114. The taxable income of the 
organization shall not be reduced under section 1382 by reason 
of any amount to which the preceding sentence applies.
    ``(h) Special Rule for DISCs.--Section 114 shall not apply 
to any taxpayer for any taxable year if, at any time during the 
taxable year, the taxpayer is a member of any controlled group 
of corporations (as defined in section 927(d)(4), as in effect 
before the date of the enactment of this subsection) of which a 
DISC is a member.''

SEC. 103. TECHNICAL AND CONFORMING AMENDMENTS.

            (1) The second sentence of section 56(g)(4)(B)(i) 
        is amended by inserting before the period ``or under 
        section 114''.
            (2) Section 275(a) is amended--
                    (A) by striking ``or'' at the end of 
                paragraph (4)(A), by striking the period at the 
                end of paragraph (4)(B) and inserting ``, or'', 
                and by adding at the end of paragraph (4) the 
                following new subparagraph:
                    ``(C) such taxes are paid or accrued with 
                respect to qualifying foreign trade income (as 
                defined in section 941).''; and
                    (B) by adding at the end the following the 
                following new sentence: ``A rule similar to the 
                rule of section 943(d) shall apply for purposes 
                of paragraph (4)(C).''.
            (3) Paragraph (3) of section 864(e) is amended--
                    (A) by striking ``For purposes of'' and 
                inserting:
                    ``(A) In general.--For purposes of''; and
                    (B) by adding at the end the following new 
                subparagraph:
                    ``(B) Assets producing exempt 
                extraterritorial income.--For purposes of 
                allocating and apportioning any interest 
                expense, there shall not be taken into account 
                any qualifying foreign trade property (as 
                defined in section 943(a)) which is held by the 
                taxpayer for lease or rental in the ordinary 
                course of trade or business for use by the 
                lessee outside the United States (as defined in 
                section 943(b)(2)).''.
            (4) Section 903 is amended by striking ``164(a)'' 
        and inserting ``114, 164(a),''.
            (5) Section 999(c)(1) is amended by inserting 
        ``941(a)(5),'' after ``908(a),''.
            (6) The table of sections for part III of 
        subchapter B of chapter 1 is amended by inserting 
        before the item relating to section 115 the following 
        new item:

        ``Sec. 114. Extraterritorial income.''.

            (7) The table of subparts for part III of 
        subchapter N of chapter 1 is amended by striking the 
        item relating to subpart E and inserting the following 
        new item:

        ``Subpart E. Qualifying foreign trade income.''.

            (8) The table of subparts for part III of 
        subchapter N of chapter 1 is amended by striking the 
        item relating to subpart C.

SEC. 104. EFFECTIVE DATE.

    (a) In General.--The amendments made by this title shall 
apply to transactions after September 30, 2000.
    (b) No New FSCs; Termination of Inactive FSCs.--
            (1) No new fscs.--No corporation may elect after 
        September 30, 2000, to be a FSC (as defined in section 
        922 of the Internal Revenue Code of 1986, as in effect 
        before the amendments made by this Act).
            (2) Termination of inactive fscs.--If a FSC has no 
        foreign trade income (as defined in section 923(b) of 
        such Code, as so in effect) for any period of 5 
        consecutive taxable years beginning after December 31, 
        2001, such FSC shall cease to be treated as a FSC for 
        purposes of such Code for any taxable year beginning 
        after such period.
    (c) Transition Period for Existing Foreign Sales 
Corporations.--
            (1) In general.--In the case of a FSC (as so 
        defined) in existence on September 30, 2000, and at all 
        times thereafter, the amendments made by this Act shall 
        not apply to any transaction in the ordinary course of 
        trade or business involving a FSC which occurs--
                    (A) before January 1, 2002; or
                    (B) after December 31, 2001, pursuant to a 
                binding contract--
                            (i) which is between the FSC (or 
                        any related person) and any person 
                        which is not a related person; and
                            (ii) which is in effect on 
                        September 30, 2000, and at all times 
                        thereafter.
        For purposes of this paragraph, a binding contract 
        shall include a purchase option, renewal option, or 
        replacement option which is included in such contract 
        and which is enforceable against the seller or lessor.
            (2) Election to have amendments apply earlier.--A 
        taxpayer may elect to have the amendments made by this 
        Act apply to any transaction by a FSC or any related 
        person to which such amendments would apply but for the 
        application of paragraph (1). Such election shall be 
        effective for the taxable year for which made and all 
        subsequent taxable years, and, once made, may be 
        revoked only with the consent of the Secretary of the 
        Treasury.
            (3) Exception for old earnings and profits of 
        certain corporations.--
                    (A) In general.--In the case of a foreign 
                corporation to which this paragraph applies--
                            (i) earnings and profits of such 
                        corporation accumulated in taxable 
                        years ending before October 1, 2000, 
                        shall not be included in the gross 
                        income of the persons holding stock in 
                        such corporation by reason of section 
                        943(e)(4)(B)(i), and
                            (ii) rules similar to the rules of 
                        clauses (ii), (iii), and (iv) of 
                        section 953(d)(4)(B) shall apply with 
                        respect to such earnings and profits.
                The preceding sentence shall not apply to 
                earnings and profits acquired in a transaction 
                after September 30, 2000, to which section 381 
                applies unless the distributor or transferor 
                corporation was immediately before the 
                transaction a foreign corporation to which this 
                paragraph applies.
                    (B) Existing fscs.--This paragraph shall 
                apply to any controlled foreign corporation (as 
                defined in section 957) if--
                            (i) such corporation is a FSC (as 
                        so defined) in existence on September 
                        30, 2000,
                            (ii) such corporation is eligible 
                        to make the election under section 
                        943(e) by reason of being described in 
                        paragraph (2)(B) of such section, and
                            (iii) such corporation makes such 
                        election not later than for its first 
                        taxable year beginning after December 
                        31, 2001.
                    (C) Other corporations.--This paragraph 
                shall apply to any controlled foreign 
                corporation (as defined in section 957), and 
                such corporation shall (notwithstanding any 
                provision of section 943(e)) be treated as an 
                applicable foreign corporation for purposes of 
                section 943(e), if--
                            (i) such corporation is in 
                        existence on September 30, 2000,
                            (ii) as of such date, such 
                        corporation is wholly owned (directly 
                        or indirectly) by a domestic 
                        corporation (determined without regard 
                        to any election under section 943(e)),
                            (iii) for each of the 3 taxable 
                        years preceding the first taxable year 
                        to which the election under section 
                        943(e) by such controlled foreign 
                        corporation applies--
                                    (I) all of the gross income 
                                of such corporation is subpart 
                                F income (as defined in section 
                                952), including by reason of 
                                section 954(b)(3)(B), and
                                    (II) in the ordinary course 
                                of such corporation's trade or 
                                business, such corporation 
                                regularly sold (or paid 
                                commissions) to a FSC which on 
                                September 30, 2000, was a 
                                related person to such 
                                corporation,
                            (iv) such corporation has never 
                        made an election under section 
                        922(a)(2) (as in effect before the date 
                        of the enactment of this paragraph) to 
                        be treated as a FSC, and
                            (v) such corporation makes the 
                        election under section 943(e) not later 
                        than for its first taxable year 
                        beginning after December 31, 2001.
                The preceding sentence shall cease to apply as 
                of the date that the domestic corporation 
                referred to in clause (ii) ceases to wholly own 
                (directly or indirectly) such controlled 
                foreign corporation.
            (4) Related person.--For purposes of this 
        subsection, the term ``related person'' has the meaning 
        given to such term by section 943(b)(3).
            (5) Section references.--Except as otherwise 
        expressly provided, any reference in this subsection to 
        a section or other provision shall be considered to be 
        a reference to a section or other provision of the 
        Internal Revenue Code of 1986, as amended by this 
        title.
    (d) Special Rules Relating to Leasing Transactions.--
            (1) Sales income.--If foreign trade income in 
        connection with the lease or rental of property 
        described in section 927(a)(1)(B) of such Code (as in 
        effect before the amendments made by this Act) is 
        treated as exempt foreign trade income for purposes of 
        section 921(a) of such Code (as so in effect), such 
        property shall be treated as property described in 
        section 941(c)(1)(B) of such Code (as added by this 
        Act) for purposes of applying section 941(c)(2) of such 
        Code (as so added) to any subsequent transaction 
        involving such property to which the amendments made by 
        this Act apply.
            (2) Limitation on use of gross receipts method.--If 
        any person computed its foreign trade income from any 
        transaction with respect to any property on the basis 
        of a transfer price determined under the method 
        described in section 925(a)(1) of such Code (as in 
        effect before the amendments made by this Act), then 
        the qualifying foreign trade income (as defined in 
        section 941(a) of such Code, as in effect after such 
        amendment) of such person (or any related person) with 
        respect to any other transaction involving such 
        property (and to which the amendments made by this Act 
        apply) shall be zero.

                  TITLE II--SMALL BUSINESS TAX RELIEF

SEC. 201. EXTENSION OF WORK OPPORTUNITY TAX CREDIT.

    (a) In General.--Section 51(c)(4)(B) is amended by striking 
``December 31, 2001'' and inserting ``June 30, 2004''.
    (b) Effective Date.--The amendment made by this section 
shall apply to individuals who begin work for the employer 
after December 31, 2001.

SEC. 202. INCREASE IN AMORTIZABLE REFORESTATION EXPENDITURES, ETC.

    (a) Increase in Dollar Limitation.--Paragraph (1) of 
section 194(b) (relating to amortization of reforestation 
expenditures) is amended by striking ``$10,000 ($5,000'' and 
inserting ``$25,000 ($12,500''.
    (b) Temporary Suspension of Increased Dollar Limitation.--
            (1) In general.--Subsection (b) of section 194 
        (relating to amortization of reforestation 
        expenditures) is amended by adding at the end the 
        following new paragraph:
            ``(5) Suspension of dollar limitation.--Paragraph 
        (1) shall not apply to taxable years beginning after 
        December 31, 2000, and before January 1, 2004.''.
            (2) Conforming amendment.--Paragraph (1) of section 
        48(b) is amended by striking ``section 194(b)(1)'' and 
        inserting ``section 194(b)(1) and without regard to 
        section 194(b)(5)''.
    (c) Capital Gain Treatment Under Section 631(b) To Apply to 
Outright Sales by Land Owner.--
            (1) In general.--The first sentence of section 
        631(b) (relating to disposal of timber with a retained 
        economic interest) is amended by striking ``retains an 
        economic interest in such timber'' and inserting 
        ``either retains an economic interest in such timber or 
        makes an outright sale of such timber''.
            (2) Conforming amendment.--The third sentence of 
        section 631(b) is amended by striking ``The date of 
        disposal'' and inserting ``In the case of disposal of 
        timber with a retained economic interest, the date of 
        disposal''.
    (d) Effective Dates.--
            (1) Subsections (a) and (b).--The amendments made 
        by subsections (a) and (b) shall apply to taxable years 
        beginning after December 31, 2000.
            (2) Subsection (c).--The amendment made by 
        subsection (c) shall apply to sales after the date of 
        the enactment of this Act.

SEC. 203. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.

    (a) In General.--Paragraph (1) of section 179(b) (relating 
to dollar limitation) is amended to read as follows:
            ``(1) Dollar limitation.--The aggregate cost which 
        may be taken into account under subsection (a) for any 
        taxable year shall not exceed $35,000.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 204. INCREASED DEDUCTION FOR MEAL EXPENSES.

    (a) In General.--Paragraph (1) of section 274(n) (relating 
to only 50 percent of meal and entertainment expenses allowed 
as deduction) is amended by striking ``50 percent'' in the text 
and inserting ``the allowable percentage''.
    (b) Allowable Percentage.--Subsection (n) of section 274 is 
amended by redesignating paragraphs (2) and (3) as paragraphs 
(3) and (4), respectively, and by inserting after paragraph (1) 
the following new paragraph:
            ``(2) Allowable percentage.--For purposes of 
        paragraph (1), the allowable percentage is--
                    ``(A) in the case of amounts for items 
                described in paragraph (1)(B), 50 percent, and
                    ``(B) in the case of expenses for food or 
                beverages, 70 percent.''.
    (c) Conforming Amendment.--The heading for subsection (n) 
of section 274 is amended by striking ``50 Percent'' and 
inserting ``Limited Percentages''.
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 205. INCREASED DEDUCTIBILITY OF BUSINESS MEAL EXPENSES FOR 
                    INDIVIDUALS SUBJECT TO FEDERAL LIMITATIONS ON HOURS 
                    OF SERVICE.

    (a) In General.--Paragraph (4) of section 274(n) (relating 
to limited percentages of meal and entertainment expenses 
allowed as deduction), as redesignated by section 204, is 
amended to read as follows:
            ``(4) Special rule for individuals subject to 
        federal hours of service.--In the case of any expenses 
        for food or beverages consumed while away from home 
        (within the meaning of section 162(a)(2)) by an 
        individual during, or incident to, the period of duty 
        subject to the hours of service limitations of the 
        Department of Transportation, paragraph (2)(B) shall be 
        applied by substituting `80 percent' for `70 
        percent'.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 206. REPEAL OF MODIFICATION OF INSTALLMENT METHOD.

    (a) In General.--Subsection (a) of section 536 of the 
Ticket to Work and Work Incentives Improvement Act of 1999 
(relating to modification of installment method and repeal of 
installment method for accrual method taxpayers) is repealed 
effective with respect to sales and other dispositions 
occurring on or after the date of the enactment of such Act.
    (b) Applicability.--The Internal Revenue Code of 1986 shall 
be applied and administered as if that subsection (and the 
amendments made by that subsection) had not been enacted.

SEC. 207. INCOME AVERAGING NOT TO INCREASE ALTERNATIVE MINIMUM TAX 
                    LIABILITY; INCOME AVERAGING FOR FISHERMEN.

    (a) In General.--Section 55(c) (defining regular tax) is 
amended by redesignating paragraph (2) as paragraph (3) and by 
inserting after paragraph (1) the following:
            ``(2) Coordination with income averaging for 
        farmers and fishermen.--Solely for purposes of this 
        section, section 1301 (relating to averaging of farm 
        and fishing income) shall not apply in computing the 
        regular tax.''.
    (b) Allowing Income Averaging for Fishermen.--
            (1) In general.--Section 1301(a) is amended by 
        striking ``farming business'' and inserting ``farming 
        business or fishing business''.
            (2) Definition of elected farm income.--
                    (A) In general.--Clause (i) of section 
                1301(b)(1)(A) is amended by inserting ``or 
                fishing business'' before the semicolon.
                    (B) Conforming amendment.--Subparagraph (B) 
                of section 1301(b)(1) is amended by inserting 
                ``or fishing business'' after ``farming 
                business'' both places it occurs.
            (3) Definition of fishing business.--Section 
        1301(b) is amended by adding at the end the following 
        new paragraph:
            ``(4) Fishing business.--The term `fishing 
        business' means the conduct of commercial fishing as 
        defined in section 3 of the Magnuson-Stevens Fishery 
        Conservation and Management Act (16 U.S.C. 1802).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 208. REPEAL OF OCCUPATIONAL TAXES RELATING TO DISTILLED SPIRITS, 
                    WINE, AND BEER.

    (a) Repeal of Occupational Taxes.--
            (1) In general.--The following provisions of part 
        II of subchapter A of chapter 51 (relating to 
        occupational taxes) are hereby repealed:
                    (A) Subpart A (relating to proprietors of 
                distilled spirits plants, bonded wine cellars, 
                etc.).
                    (B) Subpart B (relating to brewer).
                    (C) Subpart D (relating to wholesale 
                dealers) (other than sections 5114 and 5116).
                    (D) Subpart E (relating to retail dealers) 
                (other than section 5124).
                    (E) Subpart G (relating to general 
                provisions) (other than sections 5142, 5143, 
                5145, and 5146).
            (2) Nonbeverage domestic drawback.--Section 5131 is 
        amended by striking ``, on payment of a special tax per 
        annum,''.
            (3) Industrial use of distilled spirits.--Section 
        5276 is hereby repealed.
    (b) Conforming Amendments.--
            (1)(A) The heading for part II of subchapter A of 
        chapter 51 and the table of subparts for such part are 
        amended to read as follows:

                  ``PART II--MISCELLANEOUS PROVISIONS

        ``Subpart A. Manufacturers of stills.
        ``Subpart B. Nonbeverage domestic drawback claimants.
        ``Subpart C. Recordkeeping by dealers.
        ``Subpart D. Other provisions.''.

            (B) The table of parts for such subchapter A is 
        amended by striking the item relating to part II and 
        inserting the following new item:

        ``Part II. Miscellaneous provisions.''.

            (2) Subpart C of part II of such subchapter 
        (relating to manufacturers of stills) is redesignated 
        as subpart A.
            (3)(A) Subpart F of such part II (relating to 
        nonbeverage domestic drawback claimants), as amended by 
        paragraph (5), is redesignated as subpart B and 
        sections 5131 through 5134 are redesignated as sections 
        5111 through 5114, respectively.
            (B) The table of sections for such subpart B, as so 
        redesignated, is amended--
                    (i) by redesignating the items relating to 
                sections 5131 through 5134 as relating to 
                sections 5111 through 5114, respectively, and
                    (ii) by striking ``and rate of tax'' in the 
                item relating to section 5111, as so 
                redesignated.
            (C) Section 5111, as redesignated by subparagraph 
        (A), is amended--
                    (i) by striking ``AND RATE OF TAX'' in the 
                section heading,
                    (ii) by striking ``(a) Eligibility for 
                Drawback.--'', and
                    (iii) by striking subsection (b).
            (4) Part II of subchapter A of chapter 51 is 
        amended by adding after subpart B, as redesignated by 
        paragraph (3), the following new subpart:

                 ``Subpart C--Recordkeeping by Dealers

        ``Sec. 5121. Recordkeeping by wholesale dealers.
        ``Sec. 5122. Recordkeeping by retail dealers.
        ``Sec. 5123. Preservation and inspection of records, and entry 
                  of premises for inspection.''.

            (5)(A) Section 5114 (relating to records) is moved 
        to subpart C of such part II and inserted after the 
        table of sections for such subpart.
            (B) Section 5114 is amended--
                    (i) by striking the section heading and 
                inserting the following new heading:

``SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.'',

                and
                    (ii) by redesignating subsection (c) as 
                subsection (d) and by inserting after 
                subsection (b) the following new subsection:
    ``(c) Wholesale Dealers.--For purposes of this part--
            ``(1) Wholesale dealer in liquors.--The term 
        `wholesale dealer in liquors' means any dealer (other 
        than a wholesale dealer in beer) who sells, or offers 
        for sale, distilled spirits, wines, or beer, to another 
        dealer.
            ``(2) Wholesale dealer in beer.--The term 
        `wholesale dealer in beer' means any dealer who sells, 
        or offers for sale, beer, but not distilled spirits or 
        wines, to another dealer.
            ``(3) Dealer.--The term `dealer' means any person 
        who sells, or offers for sale, any distilled spirits, 
        wines, or beer.
            ``(4) Presumption in case of sale of 20 wine 
        gallons or more.--The sale, or offer for sale, of 
        distilled spirits, wines, or beer, in quantities of 20 
        wine gallons or more to the same person at the same 
        time, shall be presumptive evidence that the person 
        making such sale, or offer for sale, is engaged in or 
        carrying on the business of a wholesale dealer in 
        liquors or a wholesale dealer in beer, as the case may 
        be. Such presumption may be overcome by evidence 
        satisfactorily showing that such sale, or offer for 
        sale, was made to a person other than a dealer.''.
            (C) Paragraph (3) of section 5121(d), as so 
        redesignated, is amended by striking ``section 5146'' 
        and inserting ``section 5123''.
            (6)(A) Section 5124 (relating to records) is moved 
        to subpart C of part II of subchapter A of chapter 51 
        and inserted after section 5121.
            (B) Section 5124 is amended--
                    (i) by striking the section heading and 
                inserting the following new heading:

``SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.'',

                    (ii) by striking ``section 5146'' in 
                subsection (c) and inserting ``section 5123'', 
                and
                    (iii) by redesignating subsection (c) as 
                subsection (d) and inserting after subsection 
                (b) the following new subsection:
    ``(c) Retail Dealers.--For purposes of this section--
            ``(1) Retail dealer in liquors.--The term `retail 
        dealer in liquors' means any dealer (other than a 
        retail dealer in beer) who sells, or offers for sale, 
        distilled spirits, wines, or beer, to any person other 
        than a dealer.
            ``(2) Retail dealer in beer.--The term `retail 
        dealer in beer' means any dealer who sells, or offers 
        for sale, beer, but not distilled spirits or wines, to 
        any person other than a dealer.
            ``(3) Dealer.--The term `dealer' has the meaning 
        given such term by section 5121(c)(3).''.
            (7) Section 5146 is moved to subpart C of part II 
        of subchapter A of chapter 51, inserted after section 
        5122, and redesignated as section 5123.
            (8) Part II of subchapter A of chapter 51 is 
        amended by inserting after subpart C the following new 
        subpart:

                     ``Subpart D--Other Provisions

        ``Sec. 5131. Packaging distilled spirits for industrial uses.
        ``Sec. 5132. Prohibited purchases by dealers.''.

            (9) Section 5116 is moved to subpart D of part II 
        of subchapter A of chapter 51, inserted after the table 
        of sections, redesignated as section 5131, and amended 
        by inserting ``(as defined in section 5121(c))'' after 
        ``dealer'' in subsection (a).
            (10) Subpart D of part II of subchapter A of 
        chapter 51 is amended by adding at the end the 
        following new section:

``SEC. 5132. PROHIBITED PURCHASES BY DEALERS.

    ``(a) In General.--Except as provided in regulations 
prescribed by the Secretary, it shall be unlawful for a dealer 
to purchase distilled spirits from any person other than a 
wholesale dealer in liquors who is required to keep the records 
prescribed by section 5121.
    ``(b) Penalty and Forfeiture.--

          ``For penalty and forfeiture provisions applicable to 
        violations of subsection (a), see sections 5687 and 7302.''.

            (11) Subsection (b) of section 5002 is amended--
                    (A) by striking ``section 5112(a)'' and 
                inserting ``section 5121(c)(3)'',
                    (B) by striking ``section 5112'' and 
                inserting ``section 5121(c)'', and
                    (C) by striking ``section 5122'' and 
                inserting ``section 5122(c)''.
            (12) Subparagraph (A) of section 5010(c)(2) is 
        amended by striking ``section 5134'' and inserting 
        ``section 5114''.
            (13) Subsection (d) of section 5052 is amended to 
        read as follows:
    ``(d) Brewer.--For purposes of this chapter, the term 
`brewer' means any person who brews beer or produces beer for 
sale. Such term shall not include any person who produces only 
beer exempt from tax under section 5053(e).''.
            (14) The text of section 5182 is amended to read as 
        follows:

          ``For provisions requiring recordkeeping by wholesale liquor 
        dealers, see section 5112, and by retail liquor dealers, see 
        section 5122.''.

            (15) Subsection (b) of section 5402 is amended by 
        striking ``section 5092'' and inserting ``section 
        5052(d)''.
            (16) Section 5671 is amended by striking ``or 
        5091''.
            (17)(A) Part V of subchapter J of chapter 51 is 
        hereby repealed.
            (B) The table of parts for such subchapter J is 
        amended by striking the item relating to part V.
            (18)(A) Sections 5142, 5143, and 5145 are moved to 
        subchapter D of chapter 52, inserted after section 
        5731, redesignated as sections 5732, 5733, and 5734, 
        respectively, and amended--
                    (i) by striking ``this part'' each place it 
                appears and inserting ``this subchapter'', and
                    (ii) by striking ``this subpart'' in 
                section 5732(c)(2) (as so redesignated) and 
                inserting ``this subchapter''.
            (B) Section 5732, as redesignated by subparagraph 
        (A), is amended by striking ``(except the tax imposed 
        by section 5131)'' each place it appears.
            (C) Subsection (c) of section 5733, as redesignated 
        by subparagraph (A), is amended by striking paragraph 
        (2) and by redesignating paragraph (3) as paragraph 
        (2).
            (D) The table of sections for subchapter D of 
        chapter 52 is amended by adding at the end thereof the 
        following:

        ``Sec. 5732. Payment of tax.
        ``Sec. 5733. Provisions relating to liability for occupational 
                  taxes.
        ``Sec. 5734. Application of State laws.''.

            (E) Section 5731 is amended by striking subsection 
        (c) and by redesignating subsection (d) as subsection 
        (c).
            (19) Subsection (c) of section 6071 is amended by 
        striking ``section 5142'' and inserting ``section 
        5732''.
            (20) Paragraph (1) of section 7652(g) is amended--
                    (A) by striking ``subpart F'' and inserting 
                ``subpart B'', and
                    (B) by striking ``section 5131(a)'' and 
                inserting ``section 5111(a)''.
            (21) The table of sections for subchapter D of 
        chapter 51 is amended by striking the item relating to 
        section 5276.
    (c) Effective Date.--The amendments made by this section 
shall take effect on July 1, 2001, but shall not apply to taxes 
imposed for periods before such date.

SEC. 209. EXCLUSION FROM GROSS INCOME FOR CERTAIN FORGIVEN MORTGAGE 
                    OBLIGATIONS.

    (a) In General.--Paragraph (1) of section 108(a) (relating 
to exclusion from gross income) is amended by striking ``or'' 
at the end of both subparagraphs (A) and (C), by striking the 
period at the end of subparagraph (D) and inserting ``, or'', 
and by inserting after subparagraph (D) the following new 
subparagraph:
                    ``(E) in the case of an individual, the 
                indebtedness discharged is qualified 
                residential indebtedness.''.
    (b) Qualified Residential Indebtedness.--Section 108 
(relating to discharge of indebtedness) is amended by adding at 
the end the following new subsection:
    ``(h) Qualified Residential Indebtedness.--
            ``(1) Limitations.--The amount excluded under 
        subparagraph (E) of subsection (a)(1) with respect to 
        any qualified residential indebtedness shall not exceed 
        the excess (if any) of--
                    ``(A) the outstanding principal amount of 
                such indebtedness (immediately before the 
                discharge), over
                    ``(B) the sum of--
                            ``(i) the amount realized from the 
                        sale of the real property securing such 
                        indebtedness reduced by the cost of 
                        such sale, and
                            ``(ii) the outstanding principal 
                        amount of any other indebtedness 
                        secured by such property.
            ``(2) Qualified residential indebtedness.--
                    ``(A) In general.--The term `qualified 
                residential indebtedness' means indebtedness 
                which--
                            ``(i) was incurred or assumed by 
                        the taxpayer in connection with real 
                        property used as the principal 
                        residence (within the meaning of 
                        section 121) of the taxpayer and is 
                        secured by such real property,
                            ``(ii) was incurred or assumed to 
                        acquire, construct, reconstruct, or 
                        substantially improve such real 
                        property, and
                            ``(iii) with respect to which such 
                        taxpayer makes an election to have this 
                        paragraph apply.
                    ``(B) Refinanced indebtedness.--Such term 
                shall include indebtedness resulting from the 
                refinancing of indebtedness under subparagraph 
                (A)(ii), but only to the extent the amount of 
                the indebtedness resulting from such 
                refinancing does not exceed the amount of the 
                refinanced indebtedness.
                    ``(C) Exceptions.--Such term shall not 
                include qualified farm indebtedness or 
                qualified real property business 
                indebtedness.''.
    (c) Conforming Amendments.--
            (1) Paragraph (2) of section 108(a) is amended--
                    (A) in subparagraph (A) by striking ``and 
                (D)'' and inserting ``(D), and (E)'', and
                    (B) by amending subparagraph (B) to read as 
                follows:
                    ``(B) Insolvency exclusion takes precedence 
                over qualified farm exclusion, qualified real 
                property business exclusion, and qualified 
                residential indebtedness exclusion.--
                Subparagraphs (C), (D), and (E) of paragraph 
                (1) shall not apply to a discharge to the 
                extent the taxpayer is insolvent.''.
            (2) Paragraph (1) of section 108(b) is amended by 
        striking ``or (C)'' and inserting ``(C), or (E)''.
            (3) Subsection (c) of section 121 is amended by 
        adding at the end the following new paragraph:
            ``(3) Special rule relating to discharge of 
        indebtedness.--The amount of gain which (but for this 
        paragraph) would be excluded from gross income under 
        subsection (a) with respect to a principal residence 
        shall be reduced by the amount excluded from gross 
        income under section 108(a)(1)(E) with respect to such 
        residence.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to discharges after December 31, 2000.

SEC. 210. CLARIFICATION OF CASH ACCOUNTING RULES FOR SMALL BUSINESS.

    (a) Cash Accounting Permitted.--Section 446 (relating to 
general rule for methods of accounting) is amended by adding at 
the end the following new subsection:
    ``(g) Small Business Taxpayers Permitted To Use Cash 
Accounting Method Without Limitation.--
            ``(1) In general.--Notwithstanding any other 
        provision of this title, an eligible taxpayer shall not 
        be required to use an accrual method of accounting for 
        any taxable year.
            ``(2) Eligible taxpayer.--For purposes of this 
        subsection--
                    ``(A) In general.--A taxpayer is an 
                eligible taxpayer with respect to any taxable 
                year if, for all prior taxable years beginning 
                after October 31, 1999, the taxpayer (or any 
                predecessor) met the gross receipts test of 
                subparagraph (B).
                    ``(B) Gross receipts test.--A taxpayer 
                meets the gross receipts test of this 
                subparagraph for any prior taxable year if the 
                average annual gross receipts of the taxpayer 
                (or any predecessor) for the 3-taxable-year 
                period ending with such prior taxable year does 
                not exceed $2,500,000. The rules of paragraphs 
                (2) and (3) of section 448(c) shall apply for 
                purposes of the preceding sentence.''
    (b) Clarification of Inventory Rules for Small Business.--
Section 471 (relating to general rule for inventories) is 
amended by redesignating subsection (c) as subsection (d) and 
by inserting after subsection (b) the following new subsection:
    ``(c) Small Business Taxpayers Not Required To Use 
Inventories.--
            ``(1) In general.--An eligible taxpayer shall not 
        be required to use inventories under this section for a 
        taxable year.
            ``(2) Treatment of taxpayers not using 
        inventories.--If an eligible taxpayer elects not to use 
        inventories with respect to any property for any 
        taxable year beginning after the date of the enactment 
        of this section, such property shall be treated as a 
        material or supply which is not incidental.
            ``(3) Eligible taxpayer.--For purposes of this 
        subsection, the term `eligible taxpayer' has the 
        meaning given such term by section 446(g)(2).''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years beginning after 
        the date of the enactment of this Act.
            (2) Change in method of accounting.--In the case of 
        any taxpayer required by the amendments made by this 
        section to change its method of accounting for any 
        taxable year--
                    (A) such change shall be treated as 
                initiated by the taxpayer,
                    (B) such change shall be treated as made 
                with the consent of the Secretary of the 
                Treasury, and
                    (C) the net amount of the adjustments 
                required to be taken into account by the 
                taxpayer under section 481 of the Internal 
                Revenue Code of 1986 shall be taken into 
                account over a period (not greater than 4 
                taxable years) beginning with such taxable 
                year.

SEC. 211. AMENDMENTS RELATING TO DEMAND DEPOSIT ACCOUNTS AT DEPOSITORY 
                    INSTITUTIONS.

    (a) Interest-Bearing Transaction Accounts Authorized.--
            (1) Federal reserve act.--Section 19(i) of the 
        Federal Reserve Act (12 U.S.C. 371a) is amended by 
        inserting at the end the following: ``Notwithstanding 
        any other provision of this section, a member bank may 
        permit the owner of any deposit, any account which is a 
        deposit, or any account on which interest or dividends 
        are paid to make up to 24 transfers per month (or such 
        greater number as the Board may determine by rule or 
        order), for any purpose, to a demand deposit account of 
        the owner in the same institution. With respect to an 
        escrow account maintained in connection with a loan, a 
        lender or servicer shall pay interest on such account 
        only if such payments are required by contract between 
        the lender or servicer and the borrower, or a specific 
        statutory provision of the law of the State in which 
        the security property is located requires the lender or 
        servicer to make such payments. Nothing in this 
        subsection shall be construed to prevent an account 
        offered pursuant to this subsection from being 
        considered a transaction account for purposes of this 
        Act.''.
            (2) Home owners' loan act.--
                    (A) In general.--Section 5(b)(1) of the 
                Home Owners' Loan Act (12 U.S.C. 1464 (b)(1)) 
                is amended by adding at the end the following 
                new subparagraph:
                    ``(G) Transfers.--Notwithstanding any other 
                provision of this paragraph, a Federal savings 
                association may permit the owner of any deposit 
                or share, any account which is a deposit or 
                share, or any account on which interest or 
                dividends are paid to make up to 24 transfers 
                per month (or such greater number as the Board 
                of Governors of the Federal Reserve System may 
                determine by rule or order under section 19(i) 
                to be permissible for member banks), for any 
                purpose, to a demand deposit account of the 
                owner in the same institution. With respect to 
                an escrow account maintained in connection with 
                a loan, a lender or servicer shall pay interest 
                on such account only if such payments are 
                required by contract between the lender or 
                servicer and the borrower, or a specific 
                statutory provision of the law of the State in 
                which the security property is located requires 
                the lender or servicer to make such payments. 
                Nothing in this subsection shall be construed 
                to prevent an account offered pursuant to this 
                subsection from being considered a transaction 
                account (as defined in section 19(b) of the 
                Federal Reserve Act) for purposes of the 
                Federal Reserve Act.''.
                    (B) Repeal.--Effective on at the end of the 
                2-year period beginning on the date of 
                enactment of this Act, section 5(b)(1) of the 
                Home Owners' Loan Act (12 U.S.C. 1464 (b)(1)) 
                is amended by striking subparagraph (G).
            (3) Federal deposit insurance act.--Section 18(g) 
        of the Federal Deposit Insurance Act (12 U.S.C. 
        1828(g)) is amended by adding at the end the following 
        new paragraph:
            ``(3) Transfers.--Notwithstanding any other 
        provision of this subsection, an insured nonmember bank 
        or insured State savings association may permit the 
        owner of any deposit or share, any account which is a 
        deposit or share, or any account on which interest or 
        dividends are paid to make up to 24 transfers per month 
        (or such greater number as the Board of Governors of 
        the Federal Reserve System may determine by rule or 
        order under section 19(i) to be permissible for member 
        banks), for any purpose, to a demand deposit account of 
        the owner in the same institution. With respect to an 
        escrow account maintained in connection with a loan, a 
        lender or servicer shall pay interest on such account 
        only if such payments are required by contract between 
        the lender or servicer and the borrower, or a specific 
        statutory provision of the law of the State in which 
        the security property is located requires the lender or 
        servicer to make such payments. Nothing in this 
        subsection shall be construed to prevent an account 
        offered pursuant to this subsection from being 
        considered a transaction account (as defined in section 
        19(b) of the Federal Reserve Act) for purposes of the 
        Federal Reserve Act.''.
    (b) Repeal of Prohibition on Payment of Interest on Demand 
Deposits.--
            (1) Federal reserve act.--Section 19(i) of the 
        Federal Reserve Act (12 U.S.C. 371a) is amended to read 
        as follows:
    ``(i) [Repealed]''.
            (2) Home owners' loan act.--The 1st sentence of 
        section 5(b)(1)(B) of the Home Owners' Loan Act (12 
        U.S.C. 1464(b)(1)(B)) is amended by striking ``savings 
        association may not--'' and all that follows through 
        ``(ii) permit any'' and inserting ``savings association 
        may not permit any''.
            (3) Federal deposit insurance act.--Section 18(g) 
        of the Federal Deposit Insurance Act (12 U.S.C. 
        1828(g)) is amended to read as follows:
    ``(g) [Repealed]''.
    (c) Effective Date.--The amendments made by subsection (b) 
shall take effect at the end of the 2-year period beginning on 
the date of the enactment of this Act.

  TITLE III--HEALTH INSURANCE AND LONG-TERM CARE INSURANCE PROVISIONS

SEC. 301. DEDUCTION FOR 100 PERCENT OF HEALTH INSURANCE COSTS OF SELF-
                    EMPLOYED INDIVIDUALS.

    (a) In General.--Paragraph (1) of section 162(l) is amended 
to read as follows:
            ``(1) Allowance of deduction.--In the case of an 
        individual who is an employee within the meaning of 
        section 401(c)(1), there shall be allowed as a 
        deduction under this section an amount equal to 100 
        percent of the amount paid during the taxable year for 
        insurance which constitutes medical care for the 
        taxpayer and the taxpayer's spouse and dependents.''.
    (b) Clarification of Limitations on Other Coverage.--The 
first sentence of section 162(l)(2)(B) is amended to read as 
follows: ``Paragraph (1) shall not apply to any taxpayer for 
any calendar month for which the taxpayer participates in any 
subsidized health plan maintained by any employer (other than 
an employer described in section 401(c)(4)) of the taxpayer or 
the spouse of the taxpayer.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 302. DEDUCTION FOR HEALTH AND LONG-TERM CARE INSURANCE COSTS OF 
                    INDIVIDUALS NOT PARTICIPATING IN EMPLOYER-
                    SUBSIDIZED HEALTH PLANS.

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

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

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

``For taxable years beginning                             The applicable
in calendar year--                                       percentage is--
    2001, 2002, and 2003......................................      25  
    2004......................................................      35  
    2005......................................................      65  
    2006 and thereafter.......................................    100.  

    ``(c) Limitation Based on Other Coverage.--
            ``(1) Coverage under certain subsidized employer 
        plans.--
                    ``(A) In general.--Subsection (a) shall not 
                apply to any taxpayer for any calendar month 
                for which the taxpayer participates in any 
                health plan maintained by any employer of the 
                taxpayer or of the spouse of the taxpayer if 
                for such month 50 percent or more of the cost 
                of coverage under such plan (determined under 
                section 4980B and without regard to payments 
                made with respect to any coverage described in 
                subsection (e)) is paid or incurred by the 
                employer.
                    ``(B) Employer contributions to cafeteria 
                plans, flexible spending arrangements, and 
                medical savings accounts.--Employer 
                contributions to a cafeteria plan, a flexible 
                spending or similar arrangement, or a medical 
                savings account which are excluded from gross 
                income under section 106 shall be treated for 
                purposes of subparagraph (A) as paid by the 
                employer.
                    ``(C) Aggregation of plans of employer.--A 
                health plan which is not otherwise described in 
                subparagraph (A) shall be treated as described 
                in such subparagraph if such plan would be so 
                described if all health plans of persons 
                treated as a single employer under subsection 
                (b), (c), (m), or (o) of section 414 were 
                treated as one health plan.
                    ``(D) Separate application to health 
                insurance and long-term care insurance.--
                Subparagraphs (A) and (C) shall be applied 
                separately with respect to--
                            ``(i) plans which include primarily 
                        coverage for qualified long-term care 
                        services or are qualified long-term 
                        care insurance contracts, and
                            ``(ii) plans which do not include 
                        such coverage and are not such 
                        contracts.
            ``(2) Coverage under certain federal programs.--
                    ``(A) In general.--Subsection (a) shall not 
                apply to any amount paid for any coverage for 
                an individual for any calendar month if, as of 
                the first day of such month, the individual is 
                covered under any medical care program 
                described in--
                            ``(i) title XVIII, XIX, or XXI of 
                        the Social Security Act,
                            ``(ii) chapter 55 of title 10, 
                        United States Code,
                            ``(iii) chapter 17 of title 38, 
                        United States Code,
                            ``(iv) chapter 89 of title 5, 
                        United States Code, or
                            ``(v) the Indian Health Care 
                        Improvement Act.
                    ``(B) Exceptions.--
                            ``(i) Qualified long-term care.--
                        Subparagraph (A) shall not apply to 
                        amounts paid for coverage under a 
                        qualified long-term care insurance 
                        contract.
                            ``(ii) Continuation coverage of 
                        fehbp.--Subparagraph (A)(iv) shall not 
                        apply to coverage which is comparable 
                        to continuation coverage under section 
                        4980B.
    ``(d) Long-Term Care Deduction Limited to Qualified Long-
Term Care Insurance Contracts.--In the case of a qualified 
long-term care insurance contract, only eligible long-term care 
premiums (as defined in section 213(d)(10)) may be taken into 
account under subsection (a).
    ``(e) Deduction Not Available for Payment of Ancillary 
Coverage Premiums.--Any amount paid as a premium for insurance 
which provides for--
            ``(1) coverage for accidents, disability, dental 
        care, vision care, or a specified illness, or
            ``(2) making payments of a fixed amount per day (or 
        other period) by reason of being hospitalized,
shall not be taken into account under subsection (a).
    ``(f ) Special Rules.--
            ``(1) Coordination with deduction for health 
        insurance costs of self-employed individuals.--The 
        amount taken into account by the taxpayer in computing 
        the deduction under section 162(l) shall not be taken 
        into account under this section.
            ``(2) Coordination with medical expense 
        deduction.--The amount taken into account by the 
        taxpayer in computing the deduction under this section 
        shall not be taken into account under section 213.
    ``(g) Regulations.--The Secretary shall prescribe such 
regulations as may be appropriate to carry out this section, 
including regulations requiring employers to report to their 
employees and the Secretary such information as the Secretary 
determines to be appropriate.''.
    (b) Deduction Allowed Whether or Not Taxpayer Itemizes 
Other Deductions.--Subsection (a) of section 62 is amended by 
inserting after paragraph (17) the following new item:
            ``(18) Health and long-term care insurance costs.--
        The deduction allowed by section 222.''.
    (c) Clerical Amendment.--The table of sections for part VII 
of subchapter B of chapter 1 is amended by striking the last 
item and inserting the following new items:

        ``Sec. 222. Health and long-term care insurance costs.
        ``Sec. 223. Cross reference.''.

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

SEC. 303. 2-YEAR EXTENSION OF AVAILABILITY OF MEDICAL SAVINGS ACCOUNTS.

    (a) In General.--Paragraphs (2) and (3)(B) of section 
220(i) (defining cut-off year) are each amended by striking 
``2000'' each place it appears and inserting ``2002''.
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 220(j) is amended--
                    (A) by striking ``1998 or 1999'' each place 
                it appears and inserting ``1998, 1999, 2000, or 
                2001'', and
                    (B) by striking ``600,000 (750,000 in the 
                case of 1999)'' and inserting ``750,000 
                (600,000 in the case of 1998)''.
            (2) Subparagraph (A) of section 220(j)(4) is 
        amended by striking ``, 1998, and 1999'' and inserting 
        ``and of each calendar year after 1997 and before 
        2002''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 304. ADDITIONAL CONSUMER PROTECTIONS FOR LONG-TERM CARE INSURANCE.

    (a) Additional Protections Applicable to Long-Term Care 
Insurance.--Subparagraph (A) of section 7702B(g)(2) (relating 
to requirements of model regulation and Act) is amended to read 
as follows:
                    ``(A) In general.--The requirements of this 
                paragraph are met with respect to any contract 
                if such contract meets--
                            ``(i) Model regulation.--The 
                        following requirements of the model 
                        regulation:
                                    ``(I) Section 6A (relating 
                                to guaranteed renewal or 
                                noncancellability), and the 
                                requirements of section 6B of 
                                the model Act relating to such 
                                section 6A.
                                    ``(II) Section 6B (relating 
                                to prohibitions on limitations 
                                and exclusions).
                                    ``(III) Section 6C 
                                (relating to extension of 
                                benefits).
                                    ``(IV) Section 6D (relating 
                                to continuation or conversion 
                                of coverage).
                                    ``(V) Section 6E (relating 
                                to discontinuance and 
                                replacement of policies).
                                    ``(VI) Section 7 (relating 
                                to unintentional lapse).
                                    ``(VII) Section 8 (relating 
                                to disclosure), other than 
                                section 8F thereof.
                                    ``(VIII) Section 11 
                                (relating to prohibitions 
                                against post-claims 
                                underwriting).
                                    ``(IX) Section 12 (relating 
                                to minimum standards).
                                    ``(X) Section 13 (relating 
                                to requirement to offer 
                                inflation protection), except 
                                that any requirement for a 
                                signature on a rejection of 
                                inflation protection shall 
                                permit the signature to be on 
                                an application or on a separate 
                                form.
                                    ``(XI) Section 25 (relating 
                                to prohibition against 
                                preexisting conditions and 
                                probationary periods in 
                                replacement policies or 
                                certificates).
                                    ``(XII) The provisions of 
                                section 26 relating to 
                                contingent nonforfeiture 
                                benefits, if the policyholder 
                                declines the offer of a 
                                nonforfeiture provision 
                                described in paragraph (4).
                            ``(ii) Model act.--The following 
                        requirements of the model Act:
                                    ``(I) Section 6C (relating 
                                to preexisting conditions).
                                    ``(II) Section 6D (relating 
                                to prior hospitalization).
                                    ``(III) The provisions of 
                                section 8 relating to 
                                contingent nonforfeiture 
                                benefits, if the policyholder 
                                declines the offer of a 
                                nonforfeiture provision 
                                described in paragraph (4).
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Model provisions.--The terms 
                        `model regulation' and `model Act' mean 
                        the long-term care insurance model 
                        regulation, and the long-term care 
                        insurance model Act, respectively, 
                        promulgated by the National Association 
                        of Insurance Commissioners (as adopted 
                        as of September 2000).
                            ``(ii) Coordination.--Any provision 
                        of the model regulation or model Act 
                        listed under clause (i) or (ii) of 
                        subparagraph (A) shall be treated as 
                        including any other provision of such 
                        regulation or Act necessary to 
                        implement the provision.
                            ``(iii) Determination.--For 
                        purposes of this section and section 
                        4980C, the determination of whether any 
                        requirement of a model regulation or 
                        the model Act has been met shall be 
                        made by the Secretary.''
    (b) Excise Tax.--Paragraph (1) of section 4980C(c) 
(relating to requirements of model provisions) is amended to 
read as follows:
            ``(1) Requirements of model provisions.--
                    ``(A) Model regulation.--The following 
                requirements of the model regulation must be 
                met:
                            ``(i) Section 9 (relating to 
                        required disclosure of rating practices 
                        to consumer).''
                            ``(ii) Section 14 (relating to 
                        application forms and replacement 
                        coverage).
                            ``(iii) Section 15 (relating to 
                        reporting requirements), except that 
                        the issuer shall also report at least 
                        annually the number of claims denied 
                        during the reporting period for each 
                        class of business (expressed as a 
                        percentage of claims denied), other 
                        than claims denied for failure to meet 
                        the waiting period or because of any 
                        applicable preexisting condition.
                            ``(iv) Section 22 (relating to 
                        filing requirements for marketing).
                            ``(v) Section 23 (relating to 
                        standards for marketing), including 
                        inaccurate completion of medical 
                        histories, other than paragraphs (1), 
                        (6), and (9) of section 23C, except 
                        that--
                                    ``(I) in addition to such 
                                requirements, no person shall, 
                                in selling or offering to sell 
                                a qualified long-term care 
                                insurance contract, 
                                misrepresent a material fact; 
                                and
                                    ``(II) no such requirements 
                                shall include a requirement to 
                                inquire or identify whether a 
                                prospective applicant or 
                                enrollee for long-term care 
                                insurance has accident and 
                                sickness insurance.
                            ``(vi) Section 24 (relating to 
                        suitability).
                            ``(vii) Section 29 (relating to 
                        standard format outline of coverage).
                            ``(viii) Section 30 (relating to 
                        requirement to deliver shopper's 
                        guide).
                The requirements referred to in clause (vi) 
                shall not include those portions of the 
                personal worksheet described in Appendix B 
                relating to consumer protection requirements 
                not imposed by section 4980C or 7702B.
                    ``(B) Model act.--The following 
                requirements of the model Act must be met:
                            ``(i) Section 6F (relating to right 
                        to return), except that such section 
                        shall also apply to denials of 
                        applications and any refund shall be 
                        made within 30 days of the return or 
                        denial.
                            ``(ii) Section 6G (relating to 
                        outline of coverage).
                            ``(iii) Section 6H (relating to 
                        requirements for certificates under 
                        group plans).
                            ``(iv) Section 6I (relating to 
                        policy summary).
                            ``(v) Section 6J (relating to 
                        monthly reports on accelerated death 
                        benefits).
                            ``(vi) Section 7 (relating to 
                        incontestability period).
                    ``(C) Definitions.--For purposes of this 
                paragraph, the terms `model regulation' and 
                `model Act' have the meanings given such terms 
                by section 7702B(g)(2)(B).''
    (c) Effective Date.--The amendments made by this section 
shall apply to policies issued more than 1 year after the date 
of the enactment of this Act.

SEC. 305. DEDUCTION FOR PROVIDING LONG-TERM CARE IN THE HOME TO 
                    HOUSEHOLD MEMBERS.

    (a) In General.--Part VII of subchapter B of chapter 1 is 
amended by redesignating section 223 as section 224 and by 
inserting after section 222 the following new section:

``SEC. 223. PROVISION OF LONG-TERM CARE IN THE HOME TO HOUSEHOLD 
                    MEMBERS.

    ``(a) Deduction Allowed.--
            ``(1) In general.--There shall be allowed as a 
        deduction for the taxable year an amount equal to the 
        applicable amount multiplied by the number of qualified 
        family members of the taxpayer for the taxable year.
            ``(2) Applicable amount.--For purposes of paragraph 
        (1), the applicable amount for a taxable year shall be 
        the amount determined in accordance with the following 
        table:

        ``For taxable years                               The applicable
            beginning in:                                   amount is:  
            2001..............................................   $3,000 
            2002..............................................   $4,000 
            2003..............................................   $5,000 
            2004..............................................   $6,000 
            2005..............................................   $7,000 
            2006..............................................   $8,000 
            2007..............................................   $9,000 
            2008 and thereafter...............................  $10,000.

    ``(b) Limitations.--
            ``(1) Reduction for amounts received under long-
        term care insurance policy.--The amount of the 
        deduction allowable under subsection (a) with respect 
        to a qualified family member shall be reduced (but not 
        below zero) by the amount received for the taxable year 
        under a long-term care insurance policy (whether or not 
        such policy is a qualified long-term care insurance 
        contract under section 7702B) with respect to which the 
        insured is the qualified family member.
            ``(2) Phaseout.--The amount of the deduction 
        allowable under subsection (a) (after the application 
        of paragraph (1)) shall be reduced in the same manner 
        as the exemption amount is reduced under section 
        151(d)(3).
    ``(c) Qualified family member.--For purposes of this 
section--
            ``(1) In general.--The term `qualified family 
        member' means, with respect to any taxable year, any 
        individual--
                    ``(A) who is--
                            ``(i) the taxpayer's spouse, or
                            ``(ii) an individual who bears a 
                        relationship to the taxpayer described 
                        in any of paragraphs (1) through (8) of 
                        section 152(a),
                    ``(B) who is a member for the entire 
                taxable year of the household maintained by the 
                taxpayer,
                    ``(C) whose gross income for the calendar 
                year in which the taxable year of the taxpayer 
                begins is less than the sum of--
                            ``(i) the exemption amount (as 
                        defined in section 151(d)), and
                            ``(ii) the standard deduction, and
                    ``(D) who has been certified, before the 
                due date for filing the return of tax for the 
                taxable year (without extensions), by a 
                physician (as defined in section 1861(r)(1) of 
                the Social Security Act) as being an individual 
                described in paragraph (3) for a period--
                            ``(i) which is at least 180 
                        consecutive days, and
                            ``(ii) a portion of which occurs 
                        within the taxable year.
            ``(2) Special rules.--
                    ``(A) Frequency of certification.--The term 
                `qualified family member' shall not include any 
                individual otherwise meeting the requirements 
                of paragraph (1)(D) unless the certification is 
                made within the 39\1/2\ month period ending on 
                the due date (or such other period as the 
                Secretary prescribes).
                    ``(B) Gross income test not to apply to 
                certain individuals.--Paragraph (1)(C) shall 
                not apply to--
                            ``(i) the spouse of the taxpayer,
                            ``(ii) any child of the taxpayer 
                        described in section 151(c)(1)(B), and
                            ``(iii) any gross income which is 
                        not taken into account under paragraph 
                        (1)(B) of section 151(c) by reason of 
                        paragraph (5) thereof.
            ``(3) Individuals with long-term care needs.--An 
        individual is described in this paragraph if the 
        individual meets any of the following requirements:
                    ``(A) The individual is at least 6 years of 
                age and--
                            ``(i) is unable to perform (without 
                        substantial assistance from another 
                        individual) at least 3 activities of 
                        daily living (as defined in section 
                        7702B(c)(2)(B)) due to a loss of 
                        functional capacity, or
                            ``(ii) requires substantial 
                        supervision to protect such individual 
                        from threats to health and safety due 
                        to severe cognitive impairment, and
                                    ``(I) is unable to perform, 
                                without reminding or cuing 
                                assistance, at least 1 activity 
                                of daily living (as so 
                                defined), or
                                    ``(II) to the extent 
                                provided in regulations 
                                prescribed by the Secretary (in 
                                consultation with the Secretary 
                                of Health and Human Services), 
                                is unable to engage in age 
                                appropriate activities.
                    ``(B) The individual is at least 2 but not 
                6 years of age and is unable due to a loss of 
                functional capacity to perform (without 
                substantial assistance from another individual) 
                at least 2 of the following activities: eating, 
                transferring, or mobility.
                    ``(C) The individual is under 2 years of 
                age and requires specific durable medical 
                equipment by reason of a severe health 
                condition or requires a skilled practitioner 
                trained to address the individual's condition 
                to be available if the individual's parents or 
                guardians are absent.
    ``(d) Special Rules.--
            ``(1) Identification requirement.--No deduction 
        shall be allowed under this section to a taxpayer with 
        respect to any qualified family member unless the 
        taxpayer includes the name and taxpayer identification 
        number of such member, and the identification number of 
        the physician certifying such member, on the return of 
        tax for the taxable year.
            ``(2) Taxable year must be full taxable year.--No 
        deduction shall be allowable under this section in the 
        case of a taxable year covering a period of less than 
        12 months, except that in the case of a taxable year 
        closed by the death of a taxpayer a ratable portion of 
        the deduction shall be allowable.
            ``(3) Special rules.--Rules similar to the rules of 
        paragraphs (1), (2), (3), (4), and (5) of section 21(e) 
        shall apply for purposes of this subsection.''.
    (b) Deduction Allowable Whether or Not Taxpayer Itemizes 
Other Deductions.--
            (1) Subsection (b) of section 63 is amended by 
        striking ``and'' at the end of paragraph (1), by 
        striking the period at the end of paragraph (2) and 
        inserting ``, and'', and by adding at the end the 
        following new paragraph:
            ``(3) the deduction allowed by section 223.''
            (2) Subsection (d) of section 63 is amended by 
        striking ``and'' at the end of paragraph (1), by 
        striking the period at the end of paragraph (2) and 
        inserting ``, and'', and by adding at the end the 
        following new paragraph:
            ``(3) the deduction allowed by section 223.''
    (c) Conforming Amendments.--
            (1) Section 6213(g)(2) is amended by striking 
        ``and'' at the end of subparagraph (K), by striking the 
        period at the end of subparagraph (L) and inserting ``, 
        and'', and by inserting after subparagraph (L) the 
        following new subparagraph:
                    ``(M) an omission of a correct TIN or 
                physician identification number required under 
                section 223(d)(1) (relating to deduction for 
                provision of long-term care in the home to 
                household members) to be included on a 
                return.''
            (2) The table of sections for part VII of 
        subchapter B of chapter 1 is amended by striking the 
        last item and inserting the following new items:

        ``Sec. 223. Provision of long-term care in the home to household 
                  members.
        ``Sec. 224. Cross reference.''

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

   TITLE IV--PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS

SEC. 400. SHORT TITLE.

    This title may be cited as the ``Retirement Savings and 
Pension Coverage Act of 2000''.

               Subtitle A--Individual Retirement Accounts

SEC. 401. MODIFICATION OF IRA CONTRIBUTION LIMITS.

    (a) Increase in Contribution Limit.--
            (1) In general.--Paragraph (1)(A) of section 219(b) 
        (relating to maximum amount of deduction) is amended by 
        striking ``$2,000'' and inserting ``the deductible 
        amount''.
            (2) Deductible amount.--Section 219(b) is amended 
        by adding at the end the following new paragraph:
            ``(5) Deductible amount.--For purposes of paragraph 
        (1)(A)--
                    ``(A) In general.--The deductible amount 
                shall be determined in accordance with the 
                following table:

        ``For taxable years                               The deductible
            beginning in:                                   amount is:  
            2001..............................................   $3,000 
            2002..............................................   $4,000 
            2003 and thereafter...............................   $5,000.

                    ``(B) Catch-up contributions for 
                individuals 50 or older.--
                            ``(i) In general.--In the case of 
                        an individual who has attained the age 
                        of 50 before the close of the taxable 
                        year, the deductible amount for such 
                        taxable year (determined without regard 
                        to this subparagraph) shall be 
                        increased by the applicable catch-up 
                        amount.
                            ``(ii) Applicable catch-up 
                        amount.--For purposes of clause (i), 
                        the applicable catch-up amount shall be 
                        the amount determined in accordance 
                        with the following table:

        ``For taxable years                      The applicable catch-up
            beginning in:                                   amount is:  
            2001..............................................     $500 
            2002..............................................   $1,000 
            2003 and thereafter...............................   $1,500.

                    ``(C) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of 
                        any taxable year beginning in a 
                        calendar year after 2003, the $5,000 
                        amount under subparagraph (A) and the 
                        $1,500 amount under subparagraph (B) 
                        shall each be increased by an amount 
                        equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under 
                                section 1(f)(3) for the 
                                calendar year in which the 
                                taxable year begins, determined 
                                by substituting `calendar year 
                                2002' for `calendar year 1992' 
                                in subparagraph (B) thereof.
                            ``(ii) Rounding rules.--If any 
                        amount after adjustment under clause 
                        (i) is not a multiple of $500, such 
                        amount shall be rounded to the next 
                        lower multiple of $500.''.
    (b) Increase in AGI Limits for Active Participants.--
            (1) Joint returns.--The table in clause (i) of 
        section 219(g)(3)(B) (relating to applicable dollar 
        amount) is amended to read as follows:

        ``For taxable years                               The applicable
          beginning in                                    dollar amount:
          calendar year:
            2001..............................................  $56,000 
            2002..............................................  $60,000 
            2003..............................................  $64,000 
            2004..............................................  $68,000 
            2005..............................................  $72,000 
            2006..............................................  $76,000 
            2007 or thereafter...............................$80,000.''.

            (2) Other taxpayers.--Section 219(g)(3)(B) 
        (relating to applicable dollar amount) is amended by 
        striking clauses (ii) and (iii) and inserting the 
        following:
                            ``(ii) In the case of any other 
                        taxpayer:

        ``For taxable years                               The applicable
          beginning in                                    dollar amount:
          calendar year:
            2001..............................................  $36,000 
            2002..............................................  $40,000 
            2003..............................................  $44,000 
            2004..............................................  $48,000 
            2005 or thereafter...............................$50,000.''.

    (c) Conforming Amendments.--
            (1) Section 408(a)(1) is amended by striking ``in 
        excess of $2,000 on behalf of any individual'' and 
        inserting ``on behalf of any individual in excess of 
        the amount in effect for such taxable year under 
        section 219(b)(1)(A)''.
            (2) Section 408(b)(2)(B) is amended by striking 
        ``$2,000'' and inserting ``the dollar amount in effect 
        under section 219(b)(1)(A)''.
            (3) Section 408(b) is amended by striking 
        ``$2,000'' in the matter following paragraph (4) and 
        inserting ``the dollar amount in effect under section 
        219(b)(1)(A)''.
            (4) Section 408(j) is amended by striking 
        ``$2,000''.
            (5) Section 408(p)(8) is amended by striking 
        ``$2,000'' and inserting ``the dollar amount in effect 
        under section 219(b)(1)(A)''.
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 402. DEEMED IRAS UNDER EMPLOYER PLANS.

    (a) In General.--Section 408 (relating to individual 
retirement accounts) is amended by redesignating subsection (q) 
as subsection (r) and by inserting after subsection (p) the 
following new subsection:
    ``(q) Deemed IRAs Under Qualified Employer Plans.--
            ``(1) General rule.--If--
                    ``(A) a qualified employer plan elects to 
                allow employees to make voluntary employee 
                contributions to a separate account or annuity 
                established under the plan, and
                    ``(B) under the terms of the qualified 
                employer plan, such account or annuity meets 
                the applicable requirements of this section or 
                section 408A for an individual retirement 
                account or annuity,
        then such account or annuity shall be treated for 
        purposes of this title in the same manner as an 
        individual retirement plan and not as a qualified 
        employer plan (and contributions to such account or 
        annuity as contributions to an individual retirement 
        plan and not to the qualified employer plan). For 
        purposes of subparagraph (B), the requirements of 
        subsection (a)(5) shall not apply.
            ``(2) Special rules for qualified employer plans.--
        For purposes of this title, a qualified employer plan 
        shall not fail to meet any requirement of this title 
        solely by reason of establishing and maintaining a 
        program described in paragraph (1).
            ``(3) Definitions.--For purposes of this 
        subsection--
                    ``(A) Qualified employer plan.--The term 
                `qualified employer plan' has the meaning given 
                such term by section 72(p)(4); except such term 
                shall only include an eligible deferred 
                compensation plan (as defined in section 
                457(b)) which is maintained by an eligible 
                employer described in section 457(e)(1)(A).
                    ``(B) Voluntary employee contribution.--The 
                term `voluntary employee contribution' means 
                any contribution (other than a mandatory 
                contribution within the meaning of section 
                411(c)(2)(C))--
                            ``(i) which is made by an 
                        individual as an employee under a 
                        qualified employer plan which allows 
                        employees to elect to make 
                        contributions described in paragraph 
                        (1), and
                            ``(ii) with respect to which the 
                        individual has designated the 
                        contribution as a contribution to which 
                        this subsection applies.''.
    (b) Amendment of ERISA.--
            (1) In general.--Section 4 of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 1003) 
        is amended by adding at the end the following new 
        subsection:
    ``(c) If a pension plan allows an employee to elect to make 
voluntary employee contributions to accounts and annuities as 
provided in section 408(q) of the Internal Revenue Code of 
1986, such accounts and annuities (and contributions thereto) 
shall not be treated as part of such plan (or as a separate 
pension plan) for purposes of any provision of this title other 
than section 403(c), 404, or 405 (relating to exclusive 
benefit, and fiduciary and co-fiduciary responsibilities).''.
            (2) Conforming amendment.--Section 4(a) of such Act 
        (29 U.S.C. 1003(a)) is amended by inserting ``or (c)'' 
        after ``subsection (b)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to plan years beginning after December 31, 2001.

SEC. 403. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS 
                    FOR CHARITABLE PURPOSES.

    (a) In General.--Subsection (d) of section 408 (relating to 
individual retirement accounts) is amended by adding at the end 
the following new paragraph:
            ``(8) Distributions for charitable purposes.--
                    ``(A) In general.--In the case of a 
                qualified charitable distribution, no amount 
                shall be includible in the gross income of the 
                account holder or beneficiary.
                    ``(B) Qualified charitable distribution.--
                For purposes of this paragraph, the term 
                `qualified charitable distribution' means any 
                distribution from an individual retirement 
                account--
                            ``(i) which is made on or after the 
                        date that the individual for whose 
                        benefit the account is maintained has 
                        attained age 70\1/2\, and
                            ``(ii) which is a charitable 
                        contribution (as defined in section 
                        170(c)) made directly from the account 
                        to an organization or entity described 
                        in section 170(c).
                    ``(C) Denial of deduction.--The amount 
                allowable as a deduction to the taxpayer for 
                the taxable year under section 170 (before the 
                application of section 170(b)) for qualified 
                charitable distributions shall be reduced (but 
                not below zero) by the sum of the amounts of 
                the qualified charitable distributions during 
                such year which (but for this paragraph) would 
                have been includible in the gross income of the 
                taxpayer for such year.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 2000.

SEC. 404. MODIFICATION OF AGI LIMITS FOR ROTH IRAS.

    (a) Increase in AGI Limit for Roth IRA Contributions.--
            (1) In general.--Section 408A(c)(3)(C)(ii) 
        (relating to limits based on modified adjusted gross 
        income) is amended to read as follows:
                            ``(ii) the applicable dollar amount 
                        is--
                                    ``(I) in the case of a 
                                taxpayer filing a joint return, 
                                $190,000, and
                                    ``(II) in the case of any 
                                other taxpayer, $95,000.''.
            (2) Phaseout amount.--Clause (ii) of section 
        408A(c)(3)(A) is amended to read as follows:
                            ``(ii) $15,000 ($30,000 in the case 
                        of a joint return).''.
    (b) Increase in AGI Limit for Roth IRA Conversions.--
Section 408A(c)(3)(B) (relating to rollover from IRA) is 
amended by striking ``relates'' and all that follows and 
inserting ``relates, the taxpayer's adjusted gross income 
exceeds $100,000 ($200,000 in the case of a joint return).''.
    (c) Conforming Amendment.--Section 408A(c)(3) is amended by 
striking subparagraph (D).
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

                     Subtitle B--Expanding Coverage

SEC. 411. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

    (a) Defined Benefit Plans.--
            (1) Dollar limit.--
                    (A) Subparagraph (A) of section 415(b)(1) 
                (relating to limitation for defined benefit 
                plans) is amended by striking ``$90,000'' and 
                inserting ``$160,000''.
                    (B) Subparagraphs (C) and (D) of section 
                415(b)(2) are each amended by striking 
                ``$90,000'' each place it appears in the 
                headings and the text and inserting 
                ``$160,000''.
                    (C) Paragraph (7) of section 415(b) 
                (relating to benefits under certain 
                collectively bargained plans) is amended by 
                striking ``the greater of $68,212 or one-half 
                the amount otherwise applicable for such year 
                under paragraph (1)(A) for `$90,000' '' and 
                inserting ``one-half the amount otherwise 
                applicable for such year under paragraph (1)(A) 
                for `$160,000' ''.
            (2) Limit reduced when benefit begins before age 
        62.--Subparagraph (C) of section 415(b)(2) is amended 
        by striking ``the social security retirement age'' each 
        place it appears in the heading and text and inserting 
        ``age 62'' and by striking the second sentence.
            (3) Limit increased when benefit begins after age 
        65.--Subparagraph (D) of section 415(b)(2) is amended 
        by striking ``the social security retirement age'' each 
        place it appears in the heading and text and inserting 
        ``age 65''.
            (4) Cost-of-living adjustments.--Subsection (d) of 
        section 415 (related to cost-of-living adjustments) is 
        amended--
                    (A) by striking ``$90,000'' in paragraph 
                (1)(A) and inserting ``$160,000''; and
                    (B) in paragraph (3)(A)--
                            (i) by striking ``$90,000'' in the 
                        heading and inserting ``$160,000''; and
                            (ii) by striking ``October 1, 
                        1986'' and inserting ``July 1, 2000''.
            (5) Conforming amendments.--
                    (A) Section 415(b)(2) is amended by 
                striking subparagraph (F).
                    (B) Section 415(b)(9) is amended to read as 
                follows:
                    ``(9) Special rule for commercial airline 
                pilots.--In the case of any participant who is 
                a commercial airline pilot, if, as of the time 
                of the participant's retirement, regulations 
                prescribed by the Federal Aviation 
                Administration require an individual to 
                separate from service as a commercial airline 
                pilot after attaining any age occurring on or 
                after age 60 and before age 62, paragraph 
                (2)(C) shall be applied by substituting such 
                age for age 62.''.
                    (C) Section 415(b)(10)(C)(i) is amended by 
                striking ``applied without regard to paragraph 
                (2)(F)''.
    (b) Defined Contribution Plans.--
            (1) Dollar limit.--Subparagraph (A) of section 
        415(c)(1) (relating to limitation for defined 
        contribution plans) is amended by striking ``$30,000'' 
        and inserting ``$40,000''.
            (2) Cost-of-living adjustments.--Subsection (d) of 
        section 415 (related to cost-of-living adjustments) is 
        amended--
                    (A) by striking ``$30,000'' in paragraph 
                (1)(C) and inserting ``$40,000''; and
                    (B) in paragraph (3)(D)--
                            (i) by striking ``$30,000'' in the 
                        heading and inserting ``$40,000''; and
                            (ii) by striking ``October 1, 
                        1993'' and inserting ``July 1, 2000''.
            (3) Conforming amendments.--
                    (A) In general.--Section 664(g)(3)(E) 
                (relating to plan requirements) is amended by 
                striking ``limitations under section 
                415(c)(1)'' and inserting ``applicable 
                limitation under paragraph (7)''.
                    (B) Applicable limitation.--Section 664(g) 
                (relating to qualified gratuitous transfer of 
                qualified employer securities) is amended by 
                adding at the end the following new paragraph:
            ``(7) Applicable limitation.--
                    ``(A) In general.--For purposes of 
                paragraph (3)(E), the applicable limitation 
                under this paragraph with respect to a 
                participant is an amount equal to the lesser 
                of--
                            ``(i) $30,000, or
                            ``(ii) 25 percent of the 
                        participant's compensation (as defined 
                        in section 415(c)(3)).
                    ``(B) Cost-of-living adjustment.--The 
                Secretary shall adjust annually the $30,000 
                amount under subparagraph (A)(i) at the same 
                time and in the same manner as under section 
                415(d), except that the base period shall be 
                the calendar quarter beginning October 1, 1993, 
                and any increase under this subparagraph which 
                is not a multiple of $5,000 shall be rounded to 
                the next lowest multiple of $5,000.''.
    (c) Qualified Trusts.--
            (1) Compensation limit.--Sections 401(a)(17), 
        404(l), 408(k), and 505(b)(7) are each amended by 
        striking ``$150,000'' each place it appears and 
        inserting ``$200,000''.
            (2) Base period and rounding of cost-of-living 
        adjustment.--Subparagraph (B) of section 401(a)(17) is 
        amended--
                    (A) by striking ``October 1, 1993'' and 
                inserting ``July 1, 2000''; and
                    (B) by striking ``$10,000'' both places it 
                appears and inserting ``$5,000''.
    (d) Elective Deferrals.--
            (1) In general.--Paragraph (1) of section 402(g) 
        (relating to limitation on exclusion for elective 
        deferrals) is amended to read as follows:
            ``(1) In general.--
                    ``(A) Limitation.--Notwithstanding 
                subsections (e)(3) and (h)(1)(B), the elective 
                deferrals of any individual for any taxable 
                year shall be included in such individual's 
                gross income to the extent the amount of such 
                deferrals for the taxable year exceeds the 
                applicable dollar amount.
                    ``(B) Applicable dollar amount.--For 
                purposes of subparagraph (A), the applicable 
                dollar amount shall be the amount determined in 
                accordance with the following table:

        ``For taxable years                               The applicable
          beginning in                                    dollar amount:
          calendar year:
            2001..............................................  $11,000 
            2002..............................................  $12,000 
            2003..............................................  $13,000 
            2004..............................................  $14,000 
            2005 or thereafter...............................$15,000.''.

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

        ``For taxable years                               The applicable
          beginning in                                    dollar amount:
          calendar year:
            2001..............................................  $11,000 
            2002..............................................  $12,000 
            2003..............................................  $13,000 
            2004..............................................  $14,000 
            2005 or thereafter................................  $15,000.

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

        ``For taxable years                               The applicable
          beginning in                                    dollar amount:
          calendar year:
              2001............................................   $7,000 
              2002............................................   $8,000 
              2003............................................   $9,000 
              2004 or thereafter..............................  $10,000.

                            ``(ii) Cost-of-living adjustment.--
                        In the case of a year beginning after 
                        December 31, 2004, the Secretary shall 
                        adjust the $10,000 amount under clause 
                        (i) at the same time and in the same 
                        manner as under section 415(d), except 
                        that the base period taken into account 
                        shall be the calendar quarter beginning 
                        July 1, 2003, and any increase under 
                        this subparagraph which is not a 
                        multiple of $500 shall be rounded to 
                        the next lower multiple of $500.''.
            (3) Conforming amendments.--
                    (A) Subclause (I) of section 
                401(k)(11)(B)(i) is amended by striking 
                ``$6,000'' and inserting ``the amount in effect 
                under section 408(p)(2)(A)(ii)''.
                    (B) Section 401(k)(11) is amended by 
                striking subparagraph (E).
    (g) Rounding Rule Relating to Defined Benefit Plans and 
Defined Contribution Plans.--Paragraph (4) of section 415(d) is 
amended to read as follows:
            ``(4) Rounding.--
                    ``(A) $160,000 amount.--Any increase under 
                subparagraph (A) of paragraph (1) which is not 
                a multiple of $5,000 shall be rounded to the 
                next lowest multiple of $5,000.
                    ``(B) $40,000 amount.--Any increase under 
                subparagraph (C) of paragraph (1) which is not 
                a multiple of $1,000 shall be rounded to the 
                next lowest multiple of $1,000.''.
    (h) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 412. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND SOLE 
                    PROPRIETORS.

    (a) In General.--Subparagraph (B) of section 4975(f)(6) 
(relating to exemptions not to apply to certain transactions) 
is amended by adding at the end the following new clause:
                            ``(iii) Loan exception.--For 
                        purposes of subparagraph (A)(i), the 
                        term `owner-employee' shall only 
                        include a person described in subclause 
                        (II) or (III) of clause (i).''.
    (b) Amendment of ERISA.--Section 408(d)(2) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1108(d)(2)) 
is amended by adding at the end the following new subparagraph:
    ``(C) For purposes of paragraph (1)(A), the term `owner-
employee' shall only include a person described in clause (ii) 
or (iii) of subparagraph (A).''.
    (c) Effective Date.--The amendment made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 413. MODIFICATION OF TOP-HEAVY RULES.

    (a) Simplification of Definition of Key Employee.--
            (1) In general.--Section 416(i)(1)(A) (defining key 
        employee) is amended--
                    (A) by striking ``or any of the 4 preceding 
                plan years'' in the matter preceding clause 
                (i);
                    (B) by striking clause (i) and inserting 
                the following:
                            ``(i) an officer of the employer 
                        having an annual compensation greater 
                        than $115,000,'';
                    (C) by striking clause (ii) and 
                redesignating clauses (iii) and (iv) as clauses 
                (ii) and (iii), respectively; and
                    (D) by striking the second sentence in the 
                matter following clause (iii), as redesignated 
                by subparagraph (C).
            (2) Cost-of-living adjustment.--Section 416(i)(1) 
        is amended by adding at the end the following new 
        subparagraph:
                    ``(E) Cost-of-living adjustment.--In the 
                case of a year beginning after December 31, 
                2001, the Secretary shall adjust the $115,000 
                amount under subparagraph (A)(i) at the same 
                time and in the same manner as under section 
                415(d), except that the base period taken into 
                account shall be the calendar quarter beginning 
                July 1, 2000, and any increase under this 
                subparagraph which is not a multiple of $5,000 
                shall be rounded to the next lower multiple of 
                $5,000.''.
            (3) Conforming amendment.--Section 
        416(i)(1)(B)(iii) is amended by striking ``and 
        subparagraph (A)(ii)''.
    (b) Matching Contributions Taken Into Account for Minimum 
Contribution Requirements.--Section 416(c)(2)(A) (relating to 
defined contribution plans) is amended by adding at the end the 
following: ``Employer matching contributions (as defined in 
section 401(m)(4)(A)) shall be taken into account for purposes 
of this subparagraph.''.
    (c) Distributions During Last Year Before Determination 
Date Taken Into Account.--
            (1) In general.--Paragraph (3) of section 416(g) is 
        amended to read as follows:
            ``(3) Distributions during last year before 
        determination date taken into account.--
                    ``(A) In general.--For purposes of 
                determining--
                            ``(i) the present value of the 
                        cumulative accrued benefit for any 
                        employee, or
                            ``(ii) the amount of the account of 
                        any employee,
                such present value or amount shall be increased 
                by the aggregate distributions made with 
                respect to such employee under the plan during 
                the 1-year period ending on the determination 
                date. The preceding sentence shall also apply 
                to distributions under a terminated plan which 
                if it had not been terminated would have been 
                required to be included in an aggregation 
                group.
                    ``(B) 5-year period in case of in-service 
                distribution.--In the case of any distribution 
                made for a reason other than separation from 
                service, death, or disability, subparagraph (A) 
                shall be applied by substituting `5-year 
                period' for `1-year period'.''.
            (2) Benefits not taken into account.--Subparagraph 
        (E) of section 416(g)(4) is amended--
                    (A) by striking ``last 5 years'' in the 
                heading and inserting ``last year before 
                determination date''; and
                    (B) by striking ``5-year period'' and 
                inserting ``1-year period''.
    (d) Definition of Top-Heavy Plans.--Paragraph (4) of 
section 416(g) (relating to other special rules for top-heavy 
plans) is amended by adding at the end the following new 
subparagraph:
                    ``(H) Cash or deferred arrangements using 
                alternative methods of meeting 
                nondiscrimination requirements.--The term `top-
                heavy plan' shall not include a plan which 
                consists solely of--
                            ``(i) a cash or deferred 
                        arrangement which meets the 
                        requirements of section 401(k)(12), and
                            ``(ii) matching contributions with 
                        respect to which the requirements of 
                        section 401(m)(11) are met.
                If, but for this subparagraph, a plan would be 
                treated as a top-heavy plan because it is a 
                member of an aggregation group which is a top-
                heavy group, contributions under the plan may 
                be taken into account in determining whether 
                any other plan in the group meets the 
                requirements of subsection (c)(2).''.
    (e) Frozen Plan Exempt From Minimum Benefit Requirement.--
Subparagraph (C) of section 416(c)(1) (relating to defined 
benefit plans) is amended--
                    (A) by striking ``clause (ii)'' in clause 
                (i) and inserting ``clause (ii) or (iii)''; and
                    (B) by adding at the end the following:
                            ``(iii) Exception for frozen 
                        plan.--For purposes of determining an 
                        employee's years of service with the 
                        employer, any service with the employer 
                        shall be disregarded to the extent that 
                        such service occurs during a plan year 
                        when the plan benefits (within the 
                        meaning of section 410(b)) no key 
                        employee or former key employee.''.
    (f) Elimination of Family Attribution.--Section 
416(i)(1)(B) (defining 5-percent owner) is amended by adding at 
the end the following new clause:
                            ``(iv) Family attribution 
                        disregarded.--Solely for purposes of 
                        applying this paragraph (and not for 
                        purposes of any provision of this title 
                        which incorporates by reference the 
                        definition of a key employee or 5-
                        percent owner under this paragraph), 
                        section 318 shall be applied without 
                        regard to subsection (a)(1) thereof in 
                        determining whether any person is a 5-
                        percent owner.''.
    (g) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 414. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF 
                    DEDUCTION LIMITS.

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

SEC. 415. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED COMPENSATION 
                    PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT 
                    ORGANIZATIONS.

    (a) In General.--Subsection (c) of section 457 (relating to 
deferred compensation plans of State and local governments and 
tax-exempt organizations), as amended by section 411, is 
amended to read as follows:
    ``(c) Limitation.--The maximum amount of the compensation 
of any one individual which may be deferred under subsection 
(a) during any taxable year shall not exceed the amount in 
effect under subsection (b)(2)(A) (as modified by any 
adjustment provided under subsection (b)(3)).''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to years beginning after December 31, 2000.

SEC. 416. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING PENSION 
                    PLANS.

    (a) Elimination of Certain User Fees.--The Secretary of the 
Treasury or the Secretary's delegate shall not require payment 
of user fees under the program established under section 10511 
of the Revenue Act of 1987 for requests to the Internal Revenue 
Service for determination letters with respect to the qualified 
status of a pension benefit plan maintained solely by one or 
more eligible employers or any trust which is part of the plan. 
The preceding sentence shall not apply to any request--
            (1) made after the later of--
                    (A) the fifth plan year the pension benefit 
                plan is in existence; or
                    (B) the end of any remedial amendment 
                period with respect to the plan beginning 
                within the first 5 plan years; or
            (2) made by the sponsor of any prototype or similar 
        plan which the sponsor intends to market to 
        participating employers.
    (b) Pension Benefit Plan.--For purposes of this section, 
the term ``pension benefit plan'' means a pension, profit-
sharing, stock bonus, annuity, or employee stock ownership 
plan.
    (c) Eligible Employer.--For purposes of this section, the 
term ``eligible employer'' has the same meaning given such term 
in section 408(p)(2)(C)(i)(I) of the Internal Revenue Code of 
1986. The determination of whether an employer is an eligible 
employer under this section shall be made as of the date of the 
request described in subsection (a).
    (d) Determination of Average Fees Charged.--For purposes of 
any determination of average fees charged, any request to which 
subsection (a) applies shall not be taken into account.
    (e) Effective Date.--The provisions of this section shall 
apply with respect to requests made after December 31, 2000.

SEC. 417. DEDUCTION LIMITS.

    (a) Modification of Limits.--
            (1) Stock bonus and profit sharing trusts.--
                    (A) In general.--Subclause (I) of section 
                404(a)(3)(A)(i) (relating to stock bonus and 
                profit sharing trusts) is amended by striking 
                ``15 percent'' and inserting ``25 percent''.
                    (B) Conforming amendment.--Subparagraph (C) 
                of section 404(h)(1) is amended by striking 
                ``15 percent'' each place it appears and 
                inserting ``25 percent''.
            (2) Defined contribution plans.--
                    (A) In general.--Clause (v) of section 
                404(a)(3)(A) (relating to stock bonus and 
                profit sharing trusts) is amended to read as 
                follows:
                            ``(v) Defined contribution plans 
                        subject to the funding standards.--
                        Except as provided by the Secretary, a 
                        defined contribution plan which is 
                        subject to the funding standards of 
                        section 412 shall be treated in the 
                        same manner as a stock bonus or profit-
                        sharing plan for purposes of this 
                        subparagraph.''.
                    (B) Conforming amendments.--
                            (i) Section 404(a)(1)(A) is amended 
                        by inserting ``(other than a trust to 
                        which paragraph (3) applies)'' after 
                        ``pension trust''.
                            (ii) Section 404(h)(2) is amended 
                        by striking ``stock bonus or profit-
                        sharing trust'' and inserting ``trust 
                        subject to subsection (a)(3)(A)''.
                            (iii) The heading of section 
                        404(h)(2) is amended by striking 
                        ``stock bonus and profit-sharing 
                        trust'' and inserting ``certain 
                        trusts''.
    (b) Compensation.--
            (1) In general.--Section 404(a) (relating to 
        general rule) is amended by adding at the end the 
        following:
            ``(12) Definition of compensation.--For purposes of 
        paragraphs (3), (7), (8), and (9), the term 
        `compensation' shall include amounts treated as 
        participant's compensation under subparagraph (C) or 
        (D) of section 415(c)(3).''.
            (2) Conforming amendments.--
                    (A) Subparagraph (B) of section 404(a)(3) 
                is amended by striking the last sentence 
                thereof.
                    (B) Clause (i) of section 4972(c)(6)(B) is 
                amended by striking ``(within the meaning of 
                section 404(a))'' and inserting ``(within the 
                meaning of section 404(a) and as adjusted under 
                section 404(a)(12))''.
    (c) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 418. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX ROTH 
                    CONTRIBUTIONS.

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

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

    ``(a) General Rule.--If an applicable retirement plan 
includes a qualified Roth contribution program--
            ``(1) any designated Roth contribution made by an 
        employee pursuant to the program shall be treated as an 
        elective deferral for purposes of this chapter, except 
        that such contribution shall not be excludable from 
        gross income, and
            ``(2) such plan (and any arrangement which is part 
        of such plan) shall not be treated as failing to meet 
        any requirement of this chapter solely by reason of 
        including such program.
    ``(b) Qualified Roth Contribution Program.--For purposes of 
this section--
            ``(1) In general.--The term `qualified Roth 
        contribution program' means a program under which an 
        employee may elect to make designated Roth 
        contributions in lieu of all or a portion of elective 
        deferrals the employee is otherwise eligible to make 
        under the applicable retirement plan.
            ``(2) Separate accounting required.--A program 
        shall not be treated as a qualified Roth contribution 
        program unless the applicable retirement plan--
                    ``(A) establishes separate accounts 
                (`designated Roth accounts') for the designated 
                Roth contributions of each employee and any 
                earnings properly allocable to the 
                contributions, and
                    ``(B) maintains separate recordkeeping with 
                respect to each account.
    ``(c) Definitions and Rules Relating to Designated Roth 
Contributions.--For purposes of this section--
            ``(1) Designated Roth contribution.--The term 
        `designated Roth contribution' means any elective 
        deferral which--
                    ``(A) is excludable from gross income of an 
                employee without regard to this section, and
                    ``(B) the employee designates (at such time 
                and in such manner as the Secretary may 
                prescribe) as not being so excludable.
            ``(2) Designation limits.--The amount of elective 
        deferrals which an employee may designate under 
        paragraph (1) shall not exceed the excess (if any) of--
                    ``(A) the maximum amount of elective 
                deferrals excludable from gross income of the 
                employee for the taxable year (without regard 
                to this section), over
                    ``(B) the aggregate amount of elective 
                deferrals of the employee for the taxable year 
                which the employee does not designate under 
                paragraph (1).
            ``(3) Rollover contributions.--
                    ``(A) In general.--A rollover contribution 
                of any payment or distribution from a 
                designated Roth account which is otherwise 
                allowable under this chapter may be made only 
                if the contribution is to--
                            ``(i) another designated Roth 
                        account of the individual from whose 
                        account the payment or distribution was 
                        made, or
                            ``(ii) a Roth IRA of such 
                        individual.
                    ``(B) Coordination with limit.--Any 
                rollover contribution to a designated Roth 
                account under subparagraph (A) shall not be 
                taken into account for purposes of paragraph 
                (1).
    ``(d) Distribution Rules.--For purposes of this title--
            ``(1) Exclusion.--Any qualified distribution from a 
        designated Roth account shall not be includible in 
        gross income.
            ``(2) Qualified distribution.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified 
                distribution' has the meaning given such term 
                by section 408A(d)(2)(A) (without regard to 
                clause (iv) thereof).
                    ``(B) Distributions within nonexclusion 
                period.--A payment or distribution from a 
                designated Roth account shall not be treated as 
                a qualified distribution if such payment or 
                distribution is made within the 5-taxable-year 
                period beginning with the earlier of--
                            ``(i) the first taxable year for 
                        which the individual made a designated 
                        Roth contribution to any designated 
                        Roth account established for such 
                        individual under the same applicable 
                        retirement plan, or
                            ``(ii) if a rollover contribution 
                        was made to such designated Roth 
                        account from a designated Roth account 
                        previously established for such 
                        individual under another applicable 
                        retirement plan, the first taxable year 
                        for which the individual made a 
                        designated Roth contribution to such 
                        previously established account.
                    ``(C) Distributions of excess deferrals and 
                contributions and earnings thereon.--The term 
                `qualified distribution' shall not include any 
                distribution of any excess deferral under 
                section 402(g)(2) or any excess contribution 
                under section 401(k)(8), and any income on the 
                excess deferral or contribution.
            ``(3) Treatment of distributions of certain excess 
        deferrals.--Notwithstanding section 72, if any excess 
        deferral under section 402(g)(2) attributable to a 
        designated Roth contribution is not distributed on or 
        before the 1st April 15 following the close of the 
        taxable year in which such excess deferral is made, the 
        amount of such excess deferral shall--
                    ``(A) not be treated as investment in the 
                contract, and
                    ``(B) be included in gross income for the 
                taxable year in which such excess is 
                distributed.
            ``(4) Aggregation rules.--Section 72 shall be 
        applied separately with respect to distributions and 
        payments from a designated Roth account and other 
        distributions and payments from the plan.
    ``(e) Other Definitions.--For purposes of this section--
            ``(1) Applicable retirement plan.--The term 
        `applicable retirement plan' means--
                    ``(A) an employees' trust described in 
                section 401(a) which is exempt from tax under 
                section 501(a), and
                    ``(B) a plan under which amounts are 
                contributed by an individual's employer for an 
                annuity contract described in section 403(b).
            ``(2) Elective deferral.--The term `elective 
        deferral' means any elective deferral described in 
        subparagraph (A) or (C) of section 402(g)(3).''.
    (b) Excess Deferrals.--Section 402(g) (relating to 
limitation on exclusion for elective deferrals) is amended--
            (1) by adding at the end of paragraph (1)(A) (as 
        added by section 201(d)(1)) the following new sentence: 
        ``The preceding sentence shall not apply to the portion 
        of such excess as does not exceed the designated Roth 
        contributions of the individual for the taxable 
        year.''; and
            (2) by inserting ``(or would be included but for 
        the last sentence thereof)'' after ``paragraph (1)'' in 
        paragraph (2)(A).
    (c) Rollovers.--Subparagraph (B) of section 402(c)(8) is 
amended by adding at the end the following:
                ``If any portion of an eligible rollover 
                distribution is attributable to payments or 
                distributions from a designated Roth account 
                (as defined in section 402A), an eligible 
                retirement plan with respect to such portion 
                shall include only another designated Roth 
                account and a Roth IRA.''.
    (d) Reporting Requirements.--
            (1) W-2 information.--Section 6051(a)(8) is amended 
        by inserting ``, including the amount of designated 
        Roth contributions (as defined in section 402A)'' 
        before the comma at the end.
            (2) Information.--Section 6047 is amended by 
        redesignating subsection (f) as subsection (g) and by 
        inserting after subsection (e) the following new 
        subsection:
    ``(f) Designated Roth Contributions.--The Secretary shall 
require the plan administrator of each applicable retirement 
plan (as defined in section 402A) to make such returns and 
reports regarding designated Roth contributions (as defined in 
section 402A) to the Secretary, participants and beneficiaries 
of the plan, and such other persons as the Secretary may 
prescribe.''.
    (e) Conforming Amendments.--
            (1) Section 408A(e) is amended by adding after the 
        first sentence the following new sentence: ``Such term 
        includes a rollover contribution described in section 
        402A(c)(3)(A).''.
            (2) The table of sections for subpart A of part I 
        of subchapter D of chapter 1 is amended by inserting 
        after the item relating to section 402 the following 
        new item:

        ``Sec. 402A. Optional treatment of elective deferrals as Roth 
                  contributions.''.

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

                Subtitle C--Enhancing Fairness For Women

SEC. 421. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.

    (a) In General.--Section 414 (relating to definitions and 
special rules) is amended by adding at the end the following 
new subsection:
    ``(v) Catch-up Contributions for Individuals Age 50 or 
Over.--
            ``(1) In general.--An applicable employer plan 
        shall not be treated as failing to meet any requirement 
        of this title solely because the plan permits an 
        eligible participant to make additional elective 
        deferrals in any plan year.
            ``(2) Limitation on amount of additional 
        deferrals.--
                    ``(A) In general.--A plan shall not permit 
                additional elective deferrals under paragraph 
                (1) for any year in an amount greater than the 
                lesser of--
                            ``(i) the applicable deferral 
                        amount, or
                            ``(ii) the excess (if any) of--
                                    ``(I) the participant's 
                                compensation for the year, over
                                    ``(II) any other elective 
                                deferrals of the participant 
                                for such year which are made 
                                without regard to this 
                                subsection.
                    ``(B) Applicable deferral amount; cost-of-
                living adjustment.--
                            ``(i) In general.--For purposes of 
                        subparagraph (A)(i), the applicable 
                        deferral amount shall be the amount 
                        determined in accordance with the 
                        following table:

        ``For taxable years                               The applicable
          beginning in                                  deferral amount:
          calendar year:
              2001............................................   $1,000 
              2002............................................   $2,000 
              2003............................................   $3,000 
              2004............................................   $4,000 
              2005 or thereafter..............................   $5,000.

                            ``(ii) Cost-of-living adjustment.--
                        In the case of a year beginning after 
                        December 31, 2005, the Secretary shall 
                        adjust the $5,000 amount under clause 
                        (i) at the same time and in the same 
                        manner as under section 415(d), except 
                        that the base period taken into account 
                        shall be the calendar quarter beginning 
                        July 1, 2004, and any increase under 
                        this subparagraph which is not a 
                        multiple of $500 shall be rounded to 
                        the next lower multiple of $500.
            ``(3) Treatment of contributions.--In the case of 
        any contribution to a plan under paragraph (1), such 
        contribution shall not, with respect to the year in 
        which the contribution is made--
                    ``(A) be subject to any otherwise 
                applicable limitation contained in section 
                402(g), 402(h)(2), 404(a), 404(h), 
                408(p)(2)(A)(ii), 415, or 457, or
                    ``(B) be taken into account in applying 
                such limitations to other contributions or 
                benefits under such plan or any other such 
                plan.
            ``(4) Application of nondiscrimination rules.--
                    ``(A) In general.--An applicable employer 
                plan shall not be treated as failing to meet 
                the nondiscrimination requirements under 
                section 401(a)(4) with respect to benefits, 
                rights, and features if the plan allows all 
                eligible participants to make the same election 
                with respect to the additional elective 
                deferrals under this subsection.
                    ``(B) Aggregation.--For purposes of 
                subparagraph (A), all plans maintained by 
                employers who are treated as a single employer 
                under subsection (b), (c), (m), or (o) of 
                section 414 shall be treated as 1 plan.
            ``(5) Eligible participant.--For purposes of this 
        subsection, the term `eligible participant' means, with 
        respect to any plan year, a participant in a plan--
                    ``(A) who has attained the age of 50 before 
                the close of the plan year, and
                    ``(B) with respect to whom no other 
                elective deferrals may (without regard to this 
                subsection) be made to the plan for the plan 
                year by reason of the application of any 
                limitation or other restriction described in 
                paragraph (3) or any comparable limitation 
                contained in the terms of the plan.
            ``(6) Other definitions and rules.--For purposes of 
        this subsection--
                    ``(A) Applicable employer plan.--The term 
                `applicable employer plan' means--
                            ``(i) an employees' trust described 
                        in section 401(a) which is exempt from 
                        tax under section 501(a),
                            ``(ii) a plan under which amounts 
                        are contributed by an individual's 
                        employer for an annuity contract 
                        described in section 403(b),
                            ``(iii) an eligible deferred 
                        compensation plan under section 457 of 
                        an eligible employer as defined in 
                        section 457(e)(1)(A), and
                            ``(iv) an arrangement meeting the 
                        requirements of section 408 (k) or (p).
                    ``(B) Elective deferral.--The term 
                `elective deferral' has the meaning given such 
                term by subsection (u)(2)(C).
                    ``(C) Exception for section 457 plans.--
                This subsection shall not apply to an 
                applicable employer plan described in 
                subparagraph (A)(iii) for any year to which 
                section 457(b)(3) applies.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to contributions in taxable years beginning after 
December 31, 2000.

SEC. 422. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED 
                    CONTRIBUTION PLANS.

    (a) Equitable Treatment.--
            (1) In general.--Subparagraph (B) of section 
        415(c)(1) (relating to limitation for defined 
        contribution plans) is amended by striking ``25 
        percent'' and inserting ``100 percent''.
            (2) Application to section 403(b).--Section 403(b) 
        is amended--
                    (A) by striking ``the exclusion allowance 
                for such taxable year'' in paragraph (1) and 
                inserting ``the applicable limit under section 
                415'';
                    (B) by striking paragraph (2); and
                    (C) by inserting ``or any amount received 
                by a former employee after the fifth taxable 
                year following the taxable year in which such 
                employee was terminated'' before the period at 
                the end of the second sentence of paragraph 
                (3).
            (3) Conforming amendments.--
                    (A) Subsection (f) of section 72 is amended 
                by striking ``section 403(b)(2)(D)(iii))'' and 
                inserting ``section 403(b)(2)(D)(iii), as in 
                effect before the enactment of the Retirement 
                Savings and Pension Coverage Act of 2000)''.
                    (B) Section 404(a)(10)(B) is amended by 
                striking ``, the exclusion allowance under 
                section 403(b)(2),''.
                    (C) Section 415(a)(2) is amended by 
                striking ``, and the amount of the contribution 
                for such portion shall reduce the exclusion 
                allowance as provided in section 403(b)(2)''.
                    (D) Section 415(c)(3) is amended by adding 
                at the end the following new subparagraph:
                    ``(E) Annuity contracts.--In the case of an 
                annuity contract described in section 403(b), 
                the term `participant's compensation' means the 
                participant's includible compensation 
                determined under section 403(b)(3).''.
                    (E) Section 415(c) is amended by striking 
                paragraph (4).
                    (F) Section 415(c)(7) is amended to read as 
                follows:
            ``(7) Certain contributions by church plans not 
        treated as exceeding limit.--
                    ``(A) In general.--Notwithstanding any 
                other provision of this subsection, at the 
                election of a participant who is an employee of 
                a church or a convention or association of 
                churches, including an organization described 
                in section 414(e)(3)(B)(ii), contributions and 
                other additions for an annuity contract or 
                retirement income account described in section 
                403(b) with respect to such participant, when 
                expressed as an annual addition to such 
                participant's account, shall be treated as not 
                exceeding the limitation of paragraph (1) if 
                such annual addition is not in excess of 
                $10,000.
                    ``(B) $40,000 aggregate limitation.--The 
                total amount of additions with respect to any 
                participant which may be taken into account for 
                purposes of this subparagraph for all years may 
                not exceed $40,000.
                    ``(C) Annual addition.--For purposes of 
                this paragraph, the term `annual addition' has 
                the meaning given such term by paragraph 
                (2).''.
                    (G) Subparagraph (B) of section 402(g)(7) 
                (as redesignated by section 201(d)(3)(A)) is 
                amended by inserting before the period at the 
                end the following: ``(as in effect before the 
                enactment of the Retirement Savings and Pension 
                Coverage Act of 2000)''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to years beginning after 
        December 31, 2000.
    (b) Special Rules for Sections 403(b) and 408.--
            (1) In general.--Subsection (k) of section 415 is 
        amended by adding at the end the following new 
        paragraph:
            ``(4) Special rules for sections 403(b) and 408.--
        For purposes of this section, any annuity contract 
        described in section 403(b) for the benefit of a 
        participant shall be treated as a defined contribution 
        plan maintained by each employer with respect to which 
        the participant has the control required under 
        subsection (b) or (c) of section 414 (as modified by 
        subsection (h)). For purposes of this section, any 
        contribution by an employer to a simplified employee 
        pension plan for an individual for a taxable year shall 
        be treated as an employer contribution to a defined 
        contribution plan for such individual for such year.''.
            (2) Effective date.--
                    (A) In general.--The amendment made by 
                paragraph (1) shall apply to limitation years 
                beginning after December 31, 1999.
                    (B) Exclusion allowance.--Effective for 
                limitation years beginning in 2000, in the case 
                of any annuity contract described in section 
                403(b) of the Internal Revenue Code of 1986, 
                the amount of the contribution disqualified by 
                reason of section 415(g) of such Code shall 
                reduce the exclusion allowance as provided in 
                section 403(b)(2) of such Code.
            (3) Modification of 403(b) exclusion allowance to 
        conform to 415 modification.--The Secretary of the 
        Treasury shall modify the regulations regarding the 
        exclusion allowance under section 403(b)(2) of the 
        Internal Revenue Code of 1986 to render void the 
        requirement that contributions to a defined benefit 
        pension plan be treated as previously excluded amounts 
        for purposes of the exclusion allowance. For taxable 
        years beginning after December 31, 1999, such 
        regulations shall be applied as if such requirement 
        were void.
    (c) Deferred Compensation Plans of State and Local 
Governments and Tax-Exempt Organizations.--
            (1) In general.--Subparagraph (B) of section 
        457(b)(2) (relating to salary limitation on eligible 
        deferred compensation plans) is amended by striking 
        ``33\1/3\ percent'' and inserting ``100 percent''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply to years beginning after 
        December 31, 2000.

SEC. 423. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.

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

                                                      The nonforfeitable
        ``Years of service:                             percentage is:  
            2.................................................      20  
            3.................................................      40  
            4.................................................      60  
            5.................................................      80  
            6.................................................   100.''.

    (b) Amendment of ERISA.--Section 203(a) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1053(a)) is 
amended--
            (1) in paragraph (2), by striking ``A plan'' and 
        inserting ``Except as provided in paragraph (4), a 
        plan'', and
            (2) by adding at the end the following:
            ``(4) In the case of matching contributions (as 
        defined in section 401(m)(4)(A) of the Internal Revenue 
        Code of 1986), paragraph (2) shall be applied--
                    ``(A) by substituting `3 years' for `5 
                years' in subparagraph (A), and
                    ``(B) by substituting the following table 
                for the table contained in subparagraph (B):

                                                      The nonforfeitable
        ``Years of service:                             percentage is:  
            2.................................................      20  
            3.................................................      40  
            4.................................................      60  
            5.................................................      80  
            6.................................................   100.''.

    (c) Effective Dates.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        contributions for plan years beginning after December 
        31, 2000.
            (2) Collective bargaining agreements.--In the case 
        of a plan maintained pursuant to one or more collective 
        bargaining agreements between employee representatives 
        and one or more employers ratified by the date of the 
        enactment of this Act, the amendments made by this 
        section shall not apply to contributions on behalf of 
        employees covered by any such agreement for plan years 
        beginning before the earlier of--
                    (A) the later of--
                            (i) the date on which the last of 
                        such collective bargaining agreements 
                        terminates (determined without regard 
                        to any extension thereof on or after 
                        such date of the enactment); or
                            (ii) January 1, 2001; or
                    (B) January 1, 2005.
            (3) Service required.--With respect to any plan, 
        the amendments made by this section shall not apply to 
        any employee before the date that such employee has 1 
        hour of service under such plan in any plan year to 
        which the amendments made by this section apply.

SEC. 424. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBUTION RULES.

    (a) Simplification and Finalization of Minimum Distribution 
Requirements.--
            (1) In general.--The Secretary of the Treasury 
        shall--
                    (A) simplify and finalize the regulations 
                relating to minimum distribution requirements 
                under sections 401(a)(9), 408(a)(6) and (b)(3), 
                403(b)(10), and 457(d)(2) of the Internal 
                Revenue Code of 1986; and
                    (B) modify such regulations to--
                            (i) reflect current life 
                        expectancy; and
                            (ii) revise the required 
                        distribution methods so that, under 
                        reasonable assumptions, the amount of 
                        the required minimum distribution does 
                        not decrease over a participant's life 
                        expectancy.
            (2) Fresh start.--Notwithstanding subparagraph (D) 
        of section 401(a)(9) of such Code, during the first 
        year that regulations are in effect under this 
        subsection, required distributions for future years may 
        be redetermined to reflect changes under such 
        regulations. Such redetermination shall include the 
        opportunity to choose a new designated beneficiary and 
        to elect a new method of calculating life expectancy.
            (3) Date for regulations.--Not later than December 
        31, 2001, the Secretary shall issue final regulations 
        described in paragraph (1) and such regulations shall 
        apply without regard to whether an individual had 
        previously begun receiving minimum distributions.
    (b) Repeal of Rule Where Distributions Had Begun Before 
Death Occurs.--
            (1) In general.--Subparagraph (B) of section 
        401(a)(9) is amended by striking clause (i) and 
        redesignating clauses (ii), (iii), and (iv) as clauses 
        (i), (ii), and (iii), respectively.
            (2) Conforming changes.--
                    (A) Clause (i) of section 401(a)(9)(B) (as 
                so redesignated) is amended--
                            (i) by striking ``for other cases'' 
                        in the heading; and
                            (ii) by striking ``the distribution 
                        of the employee's interest has begun in 
                        accordance with subparagraph (A)(ii)'' 
                        and inserting ``his entire interest has 
                        been distributed to him''.
                    (B) Clause (ii) of section 401(a)(9)(B) (as 
                so redesignated) is amended by striking 
                ``clause (ii)'' and inserting ``clause (i)''.
                    (C) Clause (iii) of section 401(a)(9)(B) 
                (as so redesignated) is amended--
                            (i) by striking ``clause (iii)(I)'' 
                        and inserting ``clause (ii)(I)'';
                            (ii) by striking ``clause 
                        (iii)(III)'' in subclause (I) and 
                        inserting ``clause (ii)(III)'';
                            (iii) by striking ``the date on 
                        which the employee would have attained 
                        age 70\1/2\,'' in subclause (I) and 
                        inserting ``April 1 of the calendar 
                        year following the calendar year in 
                        which the spouse attains 70\1/2\,''; 
                        and
                            (iv) by striking ``the 
                        distributions to such spouse begin,'' 
                        in subclause (II) and inserting ``his 
                        entire interest has been distributed to 
                        him,''.
            (3) Effective date.--
                    (A) In general.--Except as provided in 
                subparagraph (B), the amendments made by this 
                subsection shall apply to years beginning after 
                December 31, 2000.
                    (B) Distributions to surviving spouse.--
                            (i) In general.--In the case of an 
                        employee described in clause (ii), 
                        distributions to the surviving spouse 
                        of the employee shall not be required 
                        to commence prior to the date on which 
                        such distributions would have been 
                        required to begin under section 
                        401(a)(9)(B) of the Internal Revenue 
                        Code of 1986 (as in effect on the day 
                        before the date of the enactment of 
                        this Act).
                            (ii) Certain employees.--An 
                        employee is described in this clause if 
                        such employee dies before--
                                    (I) the date of the 
                                enactment of this Act, and
                                    (II) the required beginning 
                                date (within the meaning of 
                                section 401(a)(9)(C) of the 
                                Internal Revenue Code of 1986) 
                                of the employee.
    (c) Reduction in Excise Tax.--
            (1) In general.--Subsection (a) of section 4974 is 
        amended by striking ``50 percent'' and inserting ``10 
        percent''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply to years beginning after 
        December 31, 2000.

SEC. 425. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457 
                    PLAN BENEFITS UPON DIVORCE.

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

SEC. 426. PROVISIONS RELATING TO HARDSHIP DISTRIBUTIONS.

    (a) Safe Harbor Relief.--
            (1) In general.--The Secretary of the Treasury 
        shall revise the regulations relating to hardship 
        distributions under section 401(k)(2)(B)(i)(IV) of the 
        Internal Revenue Code of 1986 to provide that the 
        period an employee is prohibited from making elective 
        and employee contributions in order for a distribution 
        to be deemed necessary to satisfy financial need shall 
        be equal to 6 months.
            (2) Effective date.--The revised regulations under 
        this subsection shall apply to years beginning after 
        December 31, 2000.
    (b) Hardship Distributions Not Treated as Eligible Rollover 
Distributions.--
            (1) Modification of definition of eligible 
        rollover.--Section 402(c)(4)(C) (relating to eligible 
        rollover distribution) is amended by striking 
        ``described in section 401(k)(2)(B)(i)(IV)'' and 
        inserting ``under the terms of the plan''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply to distributions made after 
        December 31, 2001, unless a plan administrator elects 
        to apply such amendment to distributions made after 
        December 31, 2000.

SEC. 427. WAIVER OF TAX ON NONDEDUCTIBLE CONTRIBUTIONS FOR DOMESTIC OR 
                    SIMILAR WORKERS.

    (a) In General.--Section 4972(c)(6) (relating to exceptions 
to nondeductible contributions), as amended by section 442(b), 
is amended by striking ``or'' at the end of subparagraph (A), 
by striking the period and inserting ``, or'' at the end of 
subparagraph (B), and by inserting after subparagraph (B) the 
following new subparagraph:
                    ``(C) so much of the contributions to a 
                qualified employer plan which are not 
                deductible when contributed solely because such 
                contributions are not made in connection with a 
                trade or business of the employer.''.
    (b) Exclusion of Certain Contributions.--Section 
4972(c)(6), as amended by subsection (a), is amended by adding 
at the end the following new sentence: ``Subparagraph (C) shall 
not apply to contributions made on behalf of the employer or a 
member of the employer's family (as defined in section 
447(e)(1)).''.
    (c) No Inference.--Nothing in the amendments made by this 
section shall be construed to infer the proper treatment of 
nondeductible contributions under the laws in effect before 
such amendments.
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

          Subtitle D--Increasing Portability For Participants

SEC. 431. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.

    (a) Rollovers From and to Section 457 Plans.--
            (1) Rollovers from section 457 plans.--
                    (A) In general.--Section 457(e) (relating 
                to other definitions and special rules) is 
                amended by adding at the end the following:
            ``(16) Rollover amounts.--
                    ``(A) General rule.--In the case of an 
                eligible deferred compensation plan established 
                and maintained by an employer described in 
                subsection (e)(1)(A), if--
                            ``(i) any portion of the balance to 
                        the credit of an employee in such plan 
                        is paid to such employee in an eligible 
                        rollover distribution (within the 
                        meaning of section 402(c)(4) without 
                        regard to subparagraph (C) thereof),
                            ``(ii) the employee transfers any 
                        portion of the property such employee 
                        receives in such distribution to an 
                        eligible retirement plan described in 
                        section 402(c)(8)(B), and
                            ``(iii) in the case of a 
                        distribution of property other than 
                        money, the amount so transferred 
                        consists of the property distributed,
                then such distribution (to the extent so 
                transferred) shall not be includible in gross 
                income for the taxable year in which paid.
                    ``(B) Certain rules made applicable.--The 
                rules of paragraphs (2) through (7) and (9) of 
                section 402(c) and section 402(f) shall apply 
                for purposes of subparagraph (A).
                    ``(C) Reporting.--Rollovers under this 
                paragraph shall be reported to the Secretary in 
                the same manner as rollovers from qualified 
                retirement plans (as defined in section 
                4974(c)).''.
                    (B) Deferral limit determined without 
                regard to rollover amounts.--Section 457(b)(2) 
                (defining eligible deferred compensation plan) 
                is amended by inserting ``(other than rollover 
                amounts)'' after ``taxable year''.
                    (C) Direct rollover.--Paragraph (1) of 
                section 457(d) is amended by striking ``and'' 
                at the end of subparagraph (A), by striking the 
                period at the end of subparagraph (B) and 
                inserting ``, and'', and by inserting after 
                subparagraph (B) the following:
                    ``(C) in the case of a plan maintained by 
                an employer described in subsection (e)(1)(A), 
                the plan meets requirements similar to the 
                requirements of section 401(a)(31).
        Any amount transferred in a direct trustee-to-trustee 
        transfer in accordance with section 401(a)(31) shall 
        not be includible in gross income for the taxable year 
        of transfer.''.
                    (D) Withholding.--
                            (i) Paragraph (12) of section 
                        3401(a) is amended by adding at the end 
                        the following:
                    ``(E) under or to an eligible deferred 
                compensation plan which, at the time of such 
                payment, is a plan described in section 457(b) 
                maintained by an employer described in section 
                457(e)(1)(A), or''.
                            (ii) Paragraph (3) of section 
                        3405(c) is amended to read as follows:
            ``(3) Eligible rollover distribution.--For purposes 
        of this subsection, the term `eligible rollover 
        distribution' has the meaning given such term by 
        section 402(f)(2)(A).''.
                            (iii) Liability for withholding.--
                        Subparagraph (B) of section 3405(d)(2) 
                        is amended by striking ``or'' at the 
                        end of clause (ii), by striking the 
                        period at the end of clause (iii) and 
                        inserting ``, or'', and by adding at 
                        the end the following:
                            ``(iv) section 457(b) and which is 
                        maintained by an eligible employer 
                        described in section 457(e)(1)(A).''.
            (2) Rollovers to section 457 plans.--
                    (A) In general.--Section 402(c)(8)(B) 
                (defining eligible retirement plan) is amended 
                by striking ``and'' at the end of clause (iii), 
                by striking the period at the end of clause 
                (iv) and inserting ``, and'', and by inserting 
                after clause (iv) the following new clause:
                            ``(v) an eligible deferred 
                        compensation plan described in section 
                        457(b) which is maintained by an 
                        eligible employer described in section 
                        457(e)(1)(A).''.
                    (B) Separate accounting.--Section 402(c) is 
                amended by adding at the end the following new 
                paragraph:
            ``(11) Separate accounting.--Unless a plan 
        described in clause (v) of paragraph (8)(B) agrees to 
        separately account for amounts rolled into such plan 
        from eligible retirement plans not described in such 
        clause, the plan described in such clause may not 
        accept transfers or rollovers from such retirement 
        plans.''.
                    (C) 10 percent additional tax.--Subsection 
                (t) of section 72 (relating to 10-percent 
                additional tax on early distributions from 
                qualified retirement plans) is amended by 
                adding at the end the following new paragraph:
            ``(9) Special rule for rollovers to section 457 
        plans.--For purposes of this subsection, a distribution 
        from an eligible deferred compensation plan (as defined 
        in section 457(b)) of an eligible employer described in 
        section 457(e)(1)(A) shall be treated as a distribution 
        from a qualified retirement plan described in 
        4974(c)(1) to the extent that such distribution is 
        attributable to an amount transferred to an eligible 
        deferred compensation plan from a qualified retirement 
        plan (as defined in section 4974(c)).''.
    (b) Allowance of Rollovers From and to 403(b) Plans.--
            (1) Rollovers from section 403(b) plans.--Section 
        403(b)(8)(A)(ii) (relating to rollover amounts) is 
        amended by striking ``such distribution'' and all that 
        follows and inserting ``such distribution to an 
        eligible retirement plan described in section 
        402(c)(8)(B), and''.
            (2) Rollovers to section 403(b) plans.--Section 
        402(c)(8)(B) (defining eligible retirement plan), as 
        amended by subsection (a), is amended by striking 
        ``and'' at the end of clause (iv), by striking the 
        period at the end of clause (v) and inserting ``, 
        and'', and by inserting after clause (v) the following 
        new clause:
                            ``(vi) an annuity contract 
                        described in section 403(b).''.
    (c) Expanded Explanation to Recipients of Rollover 
Distributions.--Paragraph (1) of section 402(f) (relating to 
written explanation to recipients of distributions eligible for 
rollover treatment) is amended by striking ``and'' at the end 
of subparagraph (C), by striking the period at the end of 
subparagraph (D) and inserting ``, and'', and by adding at the 
end the following new subparagraph:
                    ``(E) of the provisions under which 
                distributions from the eligible retirement plan 
                receiving the distribution may be subject to 
                restrictions and tax consequences which are 
                different from those applicable to 
                distributions from the plan making such 
                distribution.''.
    (d) Spousal Rollovers.--Section 402(c)(9) (relating to 
rollover where spouse receives distribution after death of 
employee) is amended by striking ``; except that'' and all that 
follows up to the end period.
    (e) Conforming Amendments.--
            (1) Section 72(o)(4) is amended by striking ``and 
        408(d)(3)'' and inserting ``403(b)(8), 408(d)(3), and 
        457(e)(16)''.
            (2) Section 219(d)(2) is amended by striking ``or 
        408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
            (3) Section 401(a)(31)(B) is amended by striking 
        ``and 403(a)(4)'' and inserting ``, 403(a)(4), 
        403(b)(8), and 457(e)(16)''.
            (4) Subparagraph (A) of section 402(f)(2) is 
        amended by striking ``or paragraph (4) of section 
        403(a)'' and inserting ``, paragraph (4) of section 
        403(a), subparagraph (A) of section 403(b)(8), or 
        subparagraph (A) of section 457(e)(16)''.
            (5) Paragraph (1) of section 402(f) is amended by 
        striking ``from an eligible retirement plan''.
            (6) Subparagraphs (A) and (B) of section 402(f)(1) 
        are amended by striking ``another eligible retirement 
        plan'' and inserting ``an eligible retirement plan''.
            (7) Subparagraph (B) of section 403(b)(8) is 
        amended to read as follows:
                    ``(B) Certain rules made applicable.--The 
                rules of paragraphs (2) through (7) and (9) of 
                section 402(c) and section 402(f) shall apply 
                for purposes of subparagraph (A), except that 
                section 402(f) shall be applied to the payor in 
                lieu of the plan administrator.''.
            (8) Section 408(a)(1) is amended by striking ``or 
        403(b)(8),'' and inserting ``403(b)(8), or 
        457(e)(16)''.
            (9) Subparagraphs (A) and (B) of section 415(b)(2) 
        are each amended by striking ``and 408(d)(3)'' and 
        inserting ``403(b)(8), 408(d)(3), and 457(e)(16)''.
            (10) Section 415(c)(2) is amended by striking ``and 
        408(d)(3)'' and inserting ``408(d)(3), and 
        457(e)(16)''.
            (11) Section 4973(b)(1)(A) is amended by striking 
        ``or 408(d)(3)'' and inserting ``408(d)(3), or 
        457(e)(16)''.
    (f) Effective Date; Special Rules.--
            (1) Effective date.--Except as provided in 
        paragraph (2), the amendments made by this section 
        shall apply to distributions after December 31, 2000.
            (2) Reasonable notice.--No penalty shall be imposed 
        on a plan for the failure to provide the information 
        required by the amendment made by subsection (c) with 
        respect to any distribution made before January 1, 
        2002, if the administrator of such plan makes a 
        reasonable attempt to comply with such requirement.
            (3) Special rule.--Notwithstanding any other 
        provision of law, subsections (h)(3) and (h)(5) of 
        section 1122 of the Tax Reform Act of 1986 shall not 
        apply to any distribution from an eligible retirement 
        plan (as defined in clause (iii) or (iv) of section 
        402(c)(8)(B) of the Internal Revenue Code of 1986) on 
        behalf of an individual if there was a rollover to such 
        plan on behalf of such individual which is permitted 
        solely by reason of any amendment made by this section.

SEC. 432. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.

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

SEC. 433. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

    (a) Rollovers From Exempt Trusts.--Paragraph (2) of section 
402(c) (relating to maximum amount which may be rolled over) is 
amended by adding at the end the following: ``The preceding 
sentence shall not apply to such distribution to the extent--
                    ``(A) such portion is transferred in a 
                direct trustee-to-trustee transfer to a 
                qualified trust which is part of a plan which 
                is a defined contribution plan and which agrees 
                to separately account for amounts so 
                transferred, including separately accounting 
                for the portion of such distribution which is 
                includible in gross income and the portion of 
                such distribution which is not so includible, 
                or
                    ``(B) such portion is transferred to an 
                eligible retirement plan described in clause 
                (i) or (ii) of paragraph (8)(B).''.
    (b) Optional Direct Transfer of Eligible Rollover 
Distributions.--Subparagraph (B) of section 401(a)(31) 
(relating to limitation) is amended by adding at the end the 
following: ``The preceding sentence shall not apply to such 
distribution if the plan to which such distribution is 
transferred--
                            ``(i) agrees to separately account 
                        for amounts so transferred, including 
                        separately accounting for the portion 
                        of such distribution which is 
                        includible in gross income and the 
                        portion of such distribution which is 
                        not so includible, or
                            ``(ii) is an eligible retirement 
                        plan described in clause (i) or (ii) of 
                        section 402(c)(8)(B).''.
    (c) Rules for Applying Section 72 to IRAs.--Paragraph (3) 
of section 408(d) (relating to special rules for applying 
section 72) is amended by inserting at the end the following:
                    ``(H) Application of section 72.--
                            ``(i) In general.--If--
                                    ``(I) a distribution is 
                                made from an individual 
                                retirement plan, and
                                    ``(II) a rollover 
                                contribution is made to an 
                                eligible retirement plan 
                                described in section 
                                402(c)(8)(B)(iii), (iv), (v), 
                                or (vi) with respect to all or 
                                part of such distribution,
                        then, notwithstanding paragraph (2), 
                        the rules of clause (ii) shall apply 
                        for purposes of applying section 72.
                            ``(ii) Applicable rules.--In the 
                        case of a distribution described in 
                        clause (i)--
                                    ``(I) section 72 shall be 
                                applied separately to such 
                                distribution,
                                    ``(II) notwithstanding the 
                                pro rata allocation of income 
                                on, and investment in, the 
                                contract to distributions under 
                                section 72, the portion of such 
                                distribution rolled over to an 
                                eligible retirement plan 
                                described in clause (i) shall 
                                be treated as from income on 
                                the contract (to the extent of 
                                the aggregate income on the 
                                contract from all individual 
                                retirement plans of the 
                                distributee), and
                                    ``(III) appropriate 
                                adjustments shall be made in 
                                applying section 72 to other 
                                distributions in such taxable 
                                year and subsequent taxable 
                                years.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to distributions made after December 31, 2001.

SEC. 434. HARDSHIP EXCEPTION TO 60-DAY RULE.

    (a) Exempt Trusts.--Paragraph (3) of section 402(c) 
(relating to transfer must be made within 60 days of receipt) 
is amended to read as follows:
            ``(3) Transfer must be made within 60 days of 
        receipt.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), paragraph (1) shall not apply 
                to any transfer of a distribution made after 
                the 60th day following the day on which the 
                distributee received the property distributed.
                    ``(B) Hardship exception.--The Secretary 
                may waive the 60-day requirement under 
                subparagraph (A) where the failure to waive 
                such requirement would be against equity or 
                good conscience, including casualty, disaster, 
                or other events beyond the reasonable control 
                of the individual subject to such 
                requirement.''.
    (b) IRAs.--Paragraph (3) of section 408(d) (relating to 
rollover contributions), as amended by section 433, is amended 
by adding after subparagraph (H) the following new 
subparagraph:
                    ``(I) Waiver of 60-day requirement.--The 
                Secretary may waive the 60-day requirement 
                under subparagraphs (A) and (D) where the 
                failure to waive such requirement would be 
                against equity or good conscience, including 
                casualty, disaster, or other events beyond the 
                reasonable control of the individual subject to 
                such requirement.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to distributions after December 31, 2000.

SEC. 435. TREATMENT OF FORMS OF DISTRIBUTION.

    (a) Plan Transfers.--
            (1) Amendment of internal revenue code.--Paragraph 
        (6) of section 411(d) (relating to accrued benefit not 
        to be decreased by amendment) is amended by adding at 
        the end the following:
                    ``(D) Plan transfers.--
                            ``(i) In general.--A defined 
                        contribution plan (in this subparagraph 
                        referred to as the `transferee plan') 
                        shall not be treated as failing to meet 
                        the requirements of this subsection 
                        merely because the transferee plan does 
                        not provide some or all of the forms of 
                        distribution previously available under 
                        another defined contribution plan (in 
                        this subparagraph referred to as the 
                        `transferor plan') to the extent that--
                                    ``(I) the forms of 
                                distribution previously 
                                available under the transferor 
                                plan applied to the account of 
                                a participant or beneficiary 
                                under the transferor plan that 
                                was transferred from the 
                                transferor plan to the 
                                transferee plan pursuant to a 
                                direct transfer rather than 
                                pursuant to a distribution from 
                                the transferor plan,
                                    ``(II) the terms of both 
                                the transferor plan and the 
                                transferee plan authorize the 
                                transfer described in subclause 
                                (I),
                                    ``(III) the transfer 
                                described in subclause (I) was 
                                made pursuant to a voluntary 
                                election by the participant or 
                                beneficiary whose account was 
                                transferred to the transferee 
                                plan,
                                    ``(IV) the election 
                                described in subclause (III) 
                                was made after the participant 
                                or beneficiary received a 
                                notice describing the 
                                consequences of making the 
                                election, and
                                    ``(V) the transferee plan 
                                allows the participant or 
                                beneficiary described in 
                                subclause (III) to receive any 
                                distribution to which the 
                                participant or beneficiary is 
                                entitled under the transferee 
                                plan in the form of a single 
                                sum distribution.
                            ``(ii) Special rule for mergers; 
                        etc.--Clause (i) shall apply to plan 
                        mergers and other transactions having 
                        the effect of a direct transfer, 
                        including consolidations of benefits 
                        attributable to different employers 
                        within a multiple employer plan.
                    ``(E) Elimination of form of 
                distribution.--Except to the extent provided in 
                regulations, a defined contribution plan shall 
                not be treated as failing to meet the 
                requirements of this section merely because of 
                the elimination of a form of distribution 
                previously available thereunder. This 
                subparagraph shall not apply to the elimination 
                of a form of distribution with respect to any 
                participant unless--
                            ``(i) a single sum payment is 
                        available to such participant at the 
                        same time or times as the form of 
                        distribution being eliminated, and
                            ``(ii) such single sum payment is 
                        based on the same or greater portion of 
                        the participant's account as the form 
                        of distribution being eliminated.''.
            (2) Amendment of erisa.--Section 204(g) of the 
        Employee Retirement Income Security Act of 1974 (29 
        U.S.C. 1054(g)) is amended by adding at the end the 
        following:
    ``(4)(A) A defined contribution plan (in this subparagraph 
referred to as the `transferee plan') shall not be treated as 
failing to meet the requirements of this subsection merely 
because the transferee plan does not provide some or all of the 
forms of distribution previously available under another 
defined contribution plan (in this subparagraph referred to as 
the `transferor plan') to the extent that--
            ``(i) the forms of distribution previously 
        available under the transferor plan applied to the 
        account of a participant or beneficiary under the 
        transferor plan that was transferred from the 
        transferor plan to the transferee plan pursuant to a 
        direct transfer rather than pursuant to a distribution 
        from the transferor plan;
            ``(ii) the terms of both the transferor plan and 
        the transferee plan authorize the transfer described in 
        clause (i);
            ``(iii) the transfer described in clause (i) was 
        made pursuant to a voluntary election by the 
        participant or beneficiary whose account was 
        transferred to the transferee plan;
            ``(iv) the election described in clause (iii) was 
        made after the participant or beneficiary received a 
        notice describing the consequences of making the 
        election; and
            ``(v) the transferee plan allows the participant or 
        beneficiary described in clause (iii) to receive any 
        distribution to which the participant or beneficiary is 
        entitled under the transferee plan in the form of a 
        single sum distribution.
    ``(B) Subparagraph (A) shall apply to plan mergers and 
other transactions having the effect of a direct transfer, 
including consolidations of benefits attributable to different 
employers within a multiple employer plan.
    ``(5) Except to the extent provided in regulations 
promulgated by the Secretary of the Treasury, a defined 
contribution plan shall not be treated as failing to meet the 
requirements of this subsection merely because of the 
elimination of a form of distribution previously available 
thereunder. This paragraph shall not apply to the elimination 
of a form of distribution with respect to any participant 
unless--
            ``(A) a single sum payment is available to such 
        participant at the same time or times as the form of 
        distribution being eliminated; and
            ``(B) such single sum payment is based on the same 
        or greater portion of the participant's account as the 
        form of distribution being eliminated.''.
            (3) Effective date.--The amendments made by this 
        subsection shall apply to years beginning after 
        December 31, 2000.
    (b) Regulations.--
            (1) Amendment of internal revenue code.--Paragraph 
        (6)(B) of section 411(d) (relating to accrued benefit 
        not to be decreased by amendment) is amended by 
        inserting after the second sentence the following new 
        sentence: ``The Secretary shall by regulations provide 
        that this subparagraph shall not apply to any plan 
        amendment which reduces or eliminates benefits or 
        subsidies which create significant burdens or 
        complexities for the plan and plan participants and 
        does not adversely affect the rights of any participant 
        in a more than de minimis manner.''.
            (2) Amendment of erisa.--Section 204(g)(2) of the 
        Employee Retirement Income Security Act of 1974 (29 
        U.S.C. 1054(g)(2)) is amended by inserting before the 
        last sentence the following new sentence: ``The 
        Secretary of the Treasury shall by regulations provide 
        that this paragraph shall not apply to any plan 
        amendment which reduces or eliminates benefits or 
        subsidies which create significant burdens or 
        complexities for the plan and plan participants and 
        does not adversely affect the rights of any participant 
        in a more than de minimis manner.''.
            (3) Secretary directed.--Not later than December 
        31, 2002, the Secretary of the Treasury is directed to 
        issue regulations under section 411(d)(6) of the 
        Internal Revenue Code of 1986 and section 204(g) of the 
        Employee Retirement Income Security Act of 1974, 
        including the regulations required by the amendment 
        made by this subsection. Such regulations shall apply 
        to plan years beginning after December 31, 2002, or 
        such earlier date as is specified by the Secretary of 
        the Treasury.

SEC. 436. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

    (a) Modification of Same Desk Exception.--
            (1) Section 401(k).--
                    (A) Section 401(k)(2)(B)(i)(I) (relating to 
                qualified cash or deferred arrangements) is 
                amended by striking ``separation from service'' 
                and inserting ``severance from employment''.
                    (B) Subparagraph (A) of section 401(k)(10) 
                (relating to distributions upon termination of 
                plan or disposition of assets or subsidiary) is 
                amended to read as follows:
                    ``(A) In general.--An event described in 
                this subparagraph is the termination of the 
                plan without establishment or maintenance of 
                another defined contribution plan (other than 
                an employee stock ownership plan as defined in 
                section 4975(e)(7)).''.
                    (C) Section 401(k)(10) is amended--
                            (i) in subparagraph (B)--
                                    (I) by striking ``An 
                                event'' in clause (i) and 
                                inserting ``A termination''; 
                                and
                                    (II) by striking ``the 
                                event'' in clause (i) and 
                                inserting ``the termination'';
                            (ii) by striking subparagraph (C); 
                        and
                            (iii) by striking ``or disposition 
                        of assets or subsidiary'' in the 
                        heading.
            (2) Section 403(b).--
                    (A) Paragraphs (7)(A)(ii) and (11)(A) of 
                section 403(b) are each amended by striking 
                ``separates from service'' and inserting ``has 
                a severance from employment''.
                    (B) The heading for paragraph (11) of 
                section 403(b) is amended by striking 
                ``separation from service'' and inserting 
                ``severance from employment''.
            (3) Section 457.--Clause (ii) of section 
        457(d)(1)(A) is amended by striking ``is separated from 
        service'' and inserting ``has a severance from 
        employment''.
    (b) Effective Date.--The amendments made by this section 
shall apply to distributions after December 31, 2000.

SEC. 437. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT 
                    PLANS.

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

SEC. 438. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT 
                    AMOUNTS.

    (a) Qualified Plans.--
            (1) Amendment of internal revenue code.--Section 
        411(a)(11) (relating to restrictions on certain 
        mandatory distributions) is amended by adding at the 
        end the following:
                    ``(D) Special rule for rollover 
                contributions.--A plan shall not fail to meet 
                the requirements of this paragraph if, under 
                the terms of the plan, the present value of the 
                nonforfeitable accrued benefit is determined 
                without regard to that portion of such benefit 
                which is attributable to rollover contributions 
                (and earnings allocable thereto). For purposes 
                of this subparagraph, the term `rollover 
                contributions' means any rollover contribution 
                under sections 402(c), 403(a)(4), 403(b)(8), 
                408(d)(3)(A)(ii), and 457(e)(16).''.
            (2) Amendment of erisa.--Section 203(e) of the 
        Employee Retirement Income Security Act of 1974 (29 
        U.S.C. 1053(c)) is amended by adding at the end the 
        following:
    ``(4) A plan shall not fail to meet the requirements of 
this subsection if, under the terms of the plan, the present 
value of the nonforfeitable accrued benefit is determined 
without regard to that portion of such benefit which is 
attributable to rollover contributions (and earnings allocable 
thereto). For purposes of this subparagraph, the term `rollover 
contributions' means any rollover contribution under sections 
402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) 
of the Internal Revenue Code of 1986.''.
    (b) Eligible Deferred Compensation Plans.--Clause (i) of 
section 457(e)(9)(A) is amended by striking ``such amount'' and 
inserting ``the portion of such amount which is not 
attributable to rollover contributions (as defined in section 
411(a)(11)(D))''.
    (c) Effective Date.--The amendments made by this section 
shall apply to distributions after December 31, 2000.

SEC. 439. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION 
                    457 PLANS.

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

       Subtitle E--Strengthening Pension Security and Enforcement

SEC. 441. REPEAL OF 155 PERCENT OF CURRENT LIABILITY FUNDING LIMIT.

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

``In the case of any plan                                 The applicable
year beginning in--                                      percentage is--
            2001..............................................     160  
            2002..............................................     165  
            2003..............................................   170.''.

    (b) Amendment of ERISA.--Section 302(c)(7) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) 
is amended--
            (1) by striking ``the applicable percentage'' in 
        subparagraph (A)(i)(I) and inserting ``in the case of 
        plan years beginning before January 1, 2004, the 
        applicable percentage''; and
            (2) by amending subparagraph (F) to read as 
        follows:
                    ``(F) Applicable percentage.--For purposes 
                of subparagraph (A)(i)(I), the applicable 
                percentage shall be determined in accordance 
                with the following table:

``In the case of any plan                                 The applicable
year beginning in--                                      percentage is--
            2001..............................................     160  
            2002..............................................     165  
            2003..............................................   170.''.

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

SEC. 442. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO 
                    ALL DEFINED BENEFIT PLANS.

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

SEC. 443. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.

    (a) In General.--Subsection (c) of section 4972 (relating 
to nondeductible contributions) is amended by adding at the end 
the following new paragraph:
            ``(7) Defined benefit plan exception.--In 
        determining the amount of nondeductible contributions 
        for any taxable year, an employer may elect for such 
        year not to take into account any contributions to a 
        defined benefit plan except to the extent that such 
        contributions exceed the full-funding limitation (as 
        defined in section 412(c)(7), determined without regard 
        to subparagraph (A)(i)(I) thereof). For purposes of 
        this paragraph, the deductible limits under section 
        404(a)(7) shall first be applied to amounts contributed 
        to defined contribution plans and then to amounts 
        described in this paragraph. If an employer makes an 
        election under this paragraph for a taxable year, 
        paragraph (6) shall not apply to such employer for such 
        taxable year.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 444. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED BENEFIT 
                    PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT 
                    ACCRUALS.

    (a) Amendment of Internal Revenue Code.--
            (1) In general.--Chapter 43 (relating to qualified 
        pension, etc., plans) is amended by adding at the end 
        the following new section:

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

    ``(a) Imposition of Tax.--There is hereby imposed a tax on 
the failure of any applicable pension plan to meet the 
requirements of subsection (e) with respect to any applicable 
individual.
    ``(b) Amount of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) on any failure with respect to any 
        applicable individual shall be $100 for each day in the 
        noncompliance period with respect to such failure.
            ``(2) Noncompliance period.--For purposes of this 
        section, the term `noncompliance period' means, with 
        respect to any failure, the period beginning on the 
        date the failure first occurs and ending on the date 
        the notice to which the failure relates is provided or 
        the failure is otherwise corrected.
    ``(c) Limitations on Amount of Tax.--
            ``(1) Tax not to apply where failure not discovered 
        and reasonable diligence exercised.--No tax shall be 
        imposed by subsection (a) on any failure during any 
        period for which it is established to the satisfaction 
        of the Secretary that any person subject to liability 
        for the tax under subsection (d) did not know that the 
        failure existed and exercised reasonable diligence to 
        meet the requirements of subsection (e).
            ``(2) Tax not to apply to failures corrected within 
        30 days.--No tax shall be imposed by subsection (a) on 
        any failure if--
                    ``(A) any person subject to liability for 
                the tax under subsection (d) exercised 
                reasonable diligence to meet the requirements 
                of subsection (e), and
                    ``(B) such person provides the notice 
                described in subsection (e) during the 30-day 
                period beginning on the first date such person 
                knew, or exercising reasonable diligence would 
                have known, that such failure existed.
            ``(3) Overall limitation for unintentional 
        failures.--
                    ``(A) In general.--If the person subject to 
                liability for tax under subsection (d) 
                exercised reasonable diligence to meet the 
                requirements of subsection (e), the tax imposed 
                by subsection (a) for failures during the 
                taxable year of the employer (or, in the case 
                of a multiemployer plan, the taxable year of 
                the trust forming part of the plan) shall not 
                exceed $500,000. For purposes of the preceding 
                sentence, all multiemployer plans of which the 
                same trust forms a part shall be treated as 1 
                plan.
                    ``(B) Taxable years in the case of certain 
                controlled groups.--For purposes of this 
                paragraph, if all persons who are treated as a 
                single employer for purposes of this section do 
                not have the same taxable year, the taxable 
                years taken into account shall be determined 
                under principles similar to the principles of 
                section 1561.
            ``(4) Waiver by secretary.--In the case of a 
        failure which is due to reasonable cause and not to 
        willful neglect, the Secretary may waive part or all of 
        the tax imposed by subsection (a) to the extent that 
        the payment of such tax would be excessive or otherwise 
        inequitable relative to the failure involved.
    ``(d) Liability for Tax.--The following shall be liable for 
the tax imposed by subsection (a):
            ``(1) In the case of a plan other than a 
        multiemployer plan, the employer.
            ``(2) In the case of a multiemployer plan, the 
        plan.
    ``(e) Notice Requirements for Plans Significantly Reducing 
Benefit Accruals.--
            ``(1) In general.--If an applicable pension plan is 
        amended to provide for a significant reduction in the 
        rate of future benefit accrual, the plan administrator 
        shall provide written notice to each applicable 
        individual (and to each employee organization 
        representing applicable individuals).
            ``(2) Notice.--The notice required by paragraph (1) 
        shall be written in a manner calculated to be 
        understood by the average plan participant and shall 
        provide sufficient information (as determined in 
        accordance with regulations prescribed by the 
        Secretary) to allow applicable individuals to 
        understand the effect of the plan amendment. The 
        Secretary may provide a simplified form of notice for, 
        or exempt from any notice requirement, a plan--
                    ``(A) which has fewer than 100 participants 
                who have accrued a benefit under the plan, or
                    ``(B) which offers participants the option 
                to choose between the new benefit formula and 
                the old benefit formula.
            ``(3) Timing of notice.--Except as provided in 
        regulations, the notice required by paragraph (1) shall 
        be provided within a reasonable time before the 
        effective date of the plan amendment.
            ``(4) Designees.--Any notice under paragraph (1) 
        may be provided to a person designated, in writing, by 
        the person to which it would otherwise be provided.
            ``(5) Notice before adoption of amendment.--A plan 
        shall not be treated as failing to meet the 
        requirements of paragraph (1) merely because notice is 
        provided before the adoption of the plan amendment if 
        no material modification of the amendment occurs before 
        the amendment is adopted.
    ``(f) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Applicable individual.--The term `applicable 
        individual' means, with respect to any plan amendment--
                    ``(A) each participant in the plan, and
                    ``(B) any beneficiary who is an alternate 
                payee (within the meaning of section 414(p)(8)) 
                under an applicable qualified domestic 
                relations order (within the meaning of section 
                414(p)(1)(A)),
                whose rate of future benefit accrual under the 
                plan may reasonably be expected to be 
                significantly reduced by such plan amendment.
            ``(2) Applicable pension plan.--The term 
        `applicable pension plan' means--
                    ``(A) any defined benefit plan, or
                    ``(B) an individual account plan which is 
                subject to the funding standards of section 
                412.
        Such term shall not include a governmental plan (within 
        the meaning of section 414(d)) or a church plan (within 
        the meaning of section 414(e)) with respect to which 
        the election provided by section 410(d) has not been 
        made.
            ``(3) Early retirement.--A plan amendment which 
        eliminates or significantly reduces any early 
        retirement benefit or retirement-type subsidy (within 
        the meaning of section 411(d)(6)(B)(i)) shall be 
        treated as having the effect of significantly reducing 
        the rate of future benefit accrual.
    ``(g) New Technologies.--The Secretary may by regulations 
allow any notice under paragraph (1) or (2) of subsection (e) 
to be provided by using new technologies.''
            (2) Clerical amendment.--The table of sections for 
        chapter 43 is amended by adding at the end the 
        following new item:

         ``Sec. 4980F. Failure of applicable plans reducing benefit 
                  accruals to satisfy notice requirements.''.

    (b) Amendment of ERISA.--Section 204(h) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1054(h)) is 
amended by adding at the end the following new paragraphs:
    ``(3)(A) An applicable pension plan to which paragraph (1) 
applies shall not be treated as meeting the requirements of 
such paragraph unless, in addition to any notice required to be 
provided to an individual or organization under such paragraph, 
the plan administrator provides the notice described in 
subparagraph (B) to each applicable individual (and to each 
employee organization representing applicable individuals).
    ``(B) The notice required by subparagraph (A) shall be 
written in a manner calculated to be understood by the average 
plan participant and shall provide sufficient information (as 
determined in accordance with regulations prescribed by the 
Secretary of the Treasury) to allow applicable individuals to 
understand the effect of the plan amendment. The Secretary of 
the Treasury may provide a simplified form of notice for, or 
exempt from any notice requirement, a plan--
            ``(i) which has fewer than 100 participants who 
        have accrued a benefit under the plan, or
            ``(ii) which offers participants the option to 
        choose between the new benefit formula and the old 
        benefit formula.
    ``(C) Except as provided in regulations prescribed by the 
Secretary of the Treasury, the notice required by subparagraph 
(A) shall be provided within a reasonable time before the 
effective date of the plan amendment.
    ``(D) Any notice under subparagraph (A) may be provided to 
a person designated, in writing, by the person to which it 
would otherwise be provided.
    ``(E) A plan shall not be treated as failing to meet the 
requirements of subparagraph (A) merely because notice is 
provided before the adoption of the plan amendment if no 
material modification of the amendment occurs before the 
amendment is adopted.
    ``(F) The Secretary of the Treasury may by regulations 
allow any notice under subparagraph (A) or (B) to be provided 
by using new technologies.
    ``(4) For purposes of paragraph (3)--
            ``(A) The term `applicable individual' means, with 
        respect to any plan amendment--
                    ``(i) each participant in the plan; and
                    ``(ii) any beneficiary who is an alternate 
                payee (within the meaning of section 
                206(d)(3)(K)) under an applicable qualified 
                domestic relations order (within the meaning of 
                section 206(d)(3)(B)(i)),
        whose rate of future benefit accrual under the plan may 
        reasonably be expected to be significantly reduced by 
        such plan amendment.
            ``(B) The term `applicable pension plan' means--
                    ``(i) any defined benefit plan; or
                    ``(ii) an individual account plan which is 
                subject to the funding standards of section 412 
                of the Internal Revenue Code of 1986.
            ``(C) A plan amendment which eliminates or 
        significantly reduces any early retirement benefit or 
        retirement-type subsidy (within the meaning of 
        subsection (g)(2)(A)) shall be treated as having the 
        effect of significantly reducing the rate of future 
        benefit accrual.''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to plan amendments taking effect on 
        or after the date of the enactment of this Act.
            (2) Transition.--Until such time as the Secretary 
        of the Treasury issues regulations under sections 
        4980F(e)(2) and (3) of the Internal Revenue Code of 
        1986 and section 204(h)(3) of the Employee Retirement 
        Income Security Act of 1974 (as added by the amendments 
        made by this section), a plan shall be treated as 
        meeting the requirements of such sections if it makes a 
        good faith effort to comply with such requirements.
            (3) Special notice rules.--
                    (A) In general.--The period for providing 
                any notice required by the amendments made by 
                this section shall not end before the date 
                which is 3 months after the date of the 
                enactment of this Act.
                    (B) Reasonable notice.--The amendments made 
                by this section shall not apply to any plan 
                amendment taking effect on or after the date of 
                the enactment of this Act if, before October 
                25, 2000, notice was provided to participants 
                and beneficiaries adversely affected by the 
                plan amendment (or their representatives) which 
                was reasonably expected to notify them of the 
                nature and effective date of the plan 
                amendment.
    (d) Study.--The Secretary of the Treasury shall prepare a 
report on the effects of conversions of traditional defined 
benefit plans to cash balance or hybrid formula plans. Such 
study shall examine the effect of such conversions on longer 
service participants, including the incidence and effects of 
``wear away'' provisions under which participants earn no 
additional benefits for a period of time after the conversion. 
As soon as practicable, but not later than 60 days after the 
date of the enactment of this Act, the Secretary shall submit 
such report, together with recommendations thereon, to the 
Committee on Ways and Means and the Committee on Education and 
the Workforce of the House of Representatives and the Committee 
on Finance and the Committee on Health, Education, Labor, and 
Pensions of the Senate.

SEC. 445. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

    (a) Compensation Limit.--
            (1) In general.--Paragraph (11) of section 415(b) 
        (relating to limitation for defined benefit plans) is 
        amended to read as follows:
            ``(11) Special limitation rule for governmental and 
        multiemployer plans.--In the case of a governmental 
        plan (as defined in section 414(d)) or a multiemployer 
        plan (as defined in section 414(f)), subparagraph (B) 
        of paragraph (1) shall not apply.''.
            (2) Conforming amendment.--Section 415(b)(7) 
        (relating to benefits under certain collectively 
        bargained plans) is amended by inserting ``(other than 
        a multiemployer plan)'' after ``defined benefit plan'' 
        in the matter preceding subparagraph (A).
    (b) Combining and Aggregation of Plans.--
            (1) Combining of plans.--Subsection (f) of section 
        415 (relating to combining of plans) is amended by 
        adding at the end the following:
            ``(3) Exception for multiemployer plans.--
        Notwithstanding paragraph (1) and subsection (g), a 
        multiemployer plan (as defined in section 414(f)) shall 
        not be combined or aggregated--
                    ``(A) with any other plan which is not a 
                multiemployer plan for purposes of applying 
                subsection (b)(1)(B) to such other plan, or
                    ``(B) with any other multiemployer plan for 
                purposes of applying the limitations 
                established in this section.''.
            (2) Conforming amendment for aggregation of 
        plans.--Subsection (g) of section 415 (relating to 
        aggregation of plans) is amended by striking ``The 
        Secretary'' and inserting ``Except as provided in 
        subsection (f)(3), the Secretary''.
    (c) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 446. PROTECTION OF INVESTMENT OF EMPLOYEE CONTRIBUTIONS TO 401(K) 
                    PLANS.

    (a) In General.--Section 1524(b) of the Taxpayer Relief Act 
of 1997 is amended to read as follows:
    ``(b) Effective Date.--
            ``(1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        elective deferrals for plan years beginning after 
        December 31, 1998.
            ``(2) Nonapplication to previously acquired 
        property.--The amendments made by this section shall 
        not apply to any elective deferral which is invested in 
        assets consisting of qualifying employer securities, 
        qualifying employer real property, or both, if such 
        assets were acquired before January 1, 1999.''.
    (b) Effective Date.--The amendment made by this section 
shall apply as if included in the provision of the Taxpayer 
Relief Act of 1997 to which it relates.

SEC. 447. PERIODIC PENSION BENEFITS STATEMENTS.

    (a) In General.--Section 105(a) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1025 (a)) is amended to 
read as follows:
    ``(a)(1) Except as provided in paragraph (2)--
            ``(A) the administrator of an individual account 
        plan shall furnish a pension benefit statement--
                    ``(i) to a plan participant at least once 
                annually, and
                    ``(ii) to a plan beneficiary upon written 
                request, and
            ``(B) the administrator of a defined benefit plan 
        shall furnish a pension benefit statement--
                    ``(i) at least once every 3 years to each 
                participant with a nonforfeitable accrued 
                benefit who is employed by the employer 
                maintaining the plan at the time the statement 
                is furnished to participants, and
                    ``(ii) to a plan participant or plan 
                beneficiary of the plan upon written request.
    ``(2) Notwithstanding paragraph (1), the administrator of a 
plan to which more than 1 unaffiliated employer is required to 
contribute shall only be required to furnish a pension benefit 
statement under paragraph (1) upon the written request of a 
participant or beneficiary of the plan.
    ``(3) A pension benefit statement under paragraph (1)--
            ``(A) shall indicate, on the basis of the latest 
        available information--
                    ``(i) the total benefits accrued, and
                    ``(ii) the nonforfeitable pension benefits, 
                if any, which have accrued, or the earliest 
                date on which benefits will become 
                nonforfeitable,
            ``(B) shall be written in a manner calculated to be 
        understood by the average plan participant, and
            ``(C) may be provided in written, electronic, 
        telephonic, or other appropriate form.
    ``(4)(A) In the case of a defined benefit plan, the 
requirements of paragraph (1)(B)(i) shall be treated as met 
with respect to a participant if the administrator provides the 
participant at least once each year with notice of the 
availability of the pension benefit statement and the ways in 
which the participant may obtain such statement. Such notice 
shall be provided in written, electronic, telephonic, or other 
appropriate form, and may be included with other communications 
to the participant if done in a manner reasonably designed to 
attract the attention of the participant.
    ``(B) The Secretary may provide that years in which no 
employee or former employee benefits (within the meaning of 
section 410(b) of the Internal Revenue Code of 1986) under the 
plan need not be taken into account in determining the 3-year 
period under paragraph (1)(B)(i).''.
    (b) Conforming Amendments.--
            (1) Section 105 of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1025) is amended by 
        striking subsection (d).
            (2) Section 105(b) of such Act (29 U.S.C. 1025(b)) 
        is amended to read as follows:
    ``(b) In no case shall a participant or beneficiary of a 
plan be entitled to more than one statement described in 
subsection (a)(1)(A) or (a)(1)(B)(ii), whichever is applicable, 
in any 12-month period.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to plan years beginning after December 31, 2001.

SEC. 448. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION ESOP.

    (a) In General.--Section 409 (relating to qualifications 
for tax credit employee stock ownership plans) is amended by 
redesignating subsection (p) as subsection (q) and by inserting 
after subsection (o) the following new subsection:
    ``(p) Prohibited Allocations of Securities in an S 
Corporation.--
            ``(1) In general.--An employee stock ownership plan 
        holding employer securities consisting of stock in an S 
        corporation shall provide that no portion of the assets 
        of the plan attributable to (or allocable in lieu of) 
        such employer securities may, during a nonallocation 
        year, accrue (or be allocated directly or indirectly 
        under any plan of the employer meeting the requirements 
        of section 401(a)) for the benefit of any disqualified 
        person.
            ``(2) Failure to meet requirements.--
                    ``(A) In general.--If a plan fails to meet 
                the requirements of paragraph (1), the plan 
                shall be treated as having distributed to any 
                disqualified person the amount allocated to the 
                account of such person in violation of 
                paragraph (1) at the time of such allocation.
                    ``(B) Cross reference.--

          ``For excise tax relating to violations of paragraph (1) and 
        ownership of synthetic equity, see section 4979A.

            ``(3) Nonallocation year.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `nonallocation 
                year' means any plan year of an employee stock 
                ownership plan if, at any time during such plan 
                year--
                            ``(i) such plan holds employer 
                        securities consisting of stock in an S 
                        corporation, and
                            ``(ii) disqualified persons own at 
                        least 50 percent of the number of 
                        shares of stock in the S corporation.
                    ``(B) Attribution rules.--For purposes of 
                subparagraph (A)--
                            ``(i) In general.--The rules of 
                        section 318(a) shall apply for purposes 
                        of determining ownership, except that--
                                    ``(I) in applying paragraph 
                                (1) thereof, the members of an 
                                individual's family shall 
                                include members of the family 
                                described in paragraph (4)(D), 
                                and
                                    ``(II) paragraph (4) 
                                thereof shall not apply.
                            ``(ii) Deemed-owned shares.--
                        Notwithstanding the employee trust 
                        exception in section 318(a)(2)(B)(i), 
                        an individual shall be treated as 
                        owning deemed-owned shares of the 
                        individual.
                Solely for purposes of applying paragraph (5), 
                this subparagraph shall be applied after the 
                attribution rules of paragraph (5) have been 
                applied.
            ``(4) Disqualified person.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `disqualified 
                person' means any person if--
                            ``(i) the aggregate number of 
                        deemed-owned shares of such person and 
                        the members of such person's family is 
                        at least 20 percent of the number of 
                        deemed-owned shares of stock in the S 
                        corporation, or
                            ``(ii) in the case of a person not 
                        described in clause (i), the number of 
                        deemed-owned shares of such person is 
                        at least 10 percent of the number of 
                        deemed-owned shares of stock in such 
                        corporation.
                    ``(B) Treatment of family members.--In the 
                case of a disqualified person described in 
                subparagraph (A)(i), any member of such 
                person's family with deemed-owned shares shall 
                be treated as a disqualified person if not 
                otherwise treated as a disqualified person 
                under subparagraph (A).
                    ``(C) Deemed-owned shares.--
                            ``(i) In general.--The term 
                        `deemed-owned shares' means, with 
                        respect to any person--
                                    ``(I) the stock in the S 
                                corporation constituting 
                                employer securities of an 
                                employee stock ownership plan 
                                which is allocated to such 
                                person under the plan, and
                                    ``(II) such person's share 
                                of the stock in such 
                                corporation which is held by 
                                such plan but which is not 
                                allocated under the plan to 
                                participants.
                            ``(ii) Person's share of 
                        unallocated stock.--For purposes of 
                        clause (i)(II), a person's share of 
                        unallocated S corporation stock held by 
                        such plan is the amount of the 
                        unallocated stock which would be 
                        allocated to such person if the 
                        unallocated stock were allocated to all 
                        participants in the same proportions as 
                        the most recent stock allocation under 
                        the plan.
                    ``(D) Member of family.--For purposes of 
                this paragraph, the term `member of the family' 
                means, with respect to any individual--
                            ``(i) the spouse of the individual,
                            ``(ii) an ancestor or lineal 
                        descendant of the individual or the 
                        individual's spouse,
                            ``(iii) a brother or sister of the 
                        individual or the individual's spouse 
                        and any lineal descendant of the 
                        brother or sister, and
                            ``(iv) the spouse of any individual 
                        described in clause (ii) or (iii).
                A spouse of an individual who is legally 
                separated from such individual under a decree 
                of divorce or separate maintenance shall not be 
                treated as such individual's spouse for 
                purposes of this subparagraph.
            ``(5) Treatment of synthetic equity.--For purposes 
        of paragraphs (3) and (4), in the case of a person who 
        owns synthetic equity in the S corporation, except to 
        the extent provided in regulations, the shares of stock 
        in such corporation on which such synthetic equity is 
        based shall be treated as outstanding stock in such 
        corporation and deemed-owned shares of such person if 
        such treatment of synthetic equity of 1 or more such 
        persons results in--
                    ``(A) the treatment of any person as a 
                disqualified person, or
                    ``(B) the treatment of any year as a 
                nonallocation year.
        For purposes of this paragraph, synthetic equity shall 
        be treated as owned by a person in the same manner as 
        stock is treated as owned by a person under the rules 
        of paragraphs (2) and (3) of section 318(a). If, 
        without regard to this paragraph, a person is treated 
        as a disqualified person or a year is treated as a 
        nonallocation year, this paragraph shall not be 
        construed to result in the person or year not being so 
        treated.
            ``(6) Definitions.--For purposes of this 
        subsection--
                    ``(A) Employee stock ownership plan.--The 
                term `employee stock ownership plan' has the 
                meaning given such term by section 4975(e)(7).
                    ``(B) Employer securities.--The term 
                `employer security' has the meaning given such 
                term by section 409(l).
                    ``(C) Synthetic equity.--The term 
                `synthetic equity' means any stock option, 
                warrant, restricted stock, deferred issuance 
                stock right, or similar interest or right that 
                gives the holder the right to acquire or 
                receive stock of the S corporation in the 
                future. Except to the extent provided in 
                regulations, synthetic equity also includes a 
                stock appreciation right, phantom stock unit, 
                or similar right to a future cash payment based 
                on the value of such stock or appreciation in 
                such value.
            ``(7) Regulations.--The Secretary shall prescribe 
        such regulations as may be necessary to carry out the 
        purposes of this subsection.''.
    (b) Coordination With Section 4975(e)(7).--The last 
sentence of section 4975(e)(7) (defining employee stock 
ownership plan) is amended by inserting ``, section 409(p),'' 
after ``409(n)''.
    (c) Excise Tax.--
            (1) Application of tax.--Subsection (a) of section 
        4979A (relating to tax on certain prohibited 
        allocations of employer securities) is amended--
                    (A) by striking ``or'' at the end of 
                paragraph (1); and
                    (B) by striking all that follows paragraph 
                (2) and inserting the following:
            ``(3) there is any allocation of employer 
        securities which violates the provisions of section 
        409(p), or a nonallocation year described in subsection 
        (e)(2)(C) with respect to an employee stock ownership 
        plan, or
            ``(4) any synthetic equity is owned by a 
        disqualified person in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership 
equal to 50 percent of the amount involved.''.
            (2) Liability.--Section 4979A(c) (defining 
        liability for tax) is amended to read as follows:
    ``(c) Liability for Tax.--The tax imposed by this section 
shall be paid--
            ``(1) in the case of an allocation referred to in 
        paragraph (1) or (2) of subsection (a), by--
                    ``(A) the employer sponsoring such plan, or
                    ``(B) the eligible worker-owned 
                cooperative,
        which made the written statement described in section 
        664(g)(1)(E) or in section 1042(b)(3)(B) (as the case 
        may be), and
            ``(2) in the case of an allocation or ownership 
        referred to in paragraph (3) or (4) of subsection (a), 
        by the S corporation the stock in which was so 
        allocated or owned.''.
            (3) Definitions.--Section 4979A(e) (relating to 
        definitions) is amended to read as follows:
    ``(e) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Definitions.--Except as provided in paragraph 
        (2), terms used in this section have the same 
        respective meanings as when used in sections 409 and 
        4978.
            ``(2) Special rules relating to tax imposed by 
        reason of paragraph (3) or (4) of subsection (a).--
                    ``(A) Prohibited allocations.--The amount 
                involved with respect to any tax imposed by 
                reason of subsection (a)(3) is the amount 
                allocated to the account of any person in 
                violation of section 409(p)(1).
                    ``(B) Synthetic equity.--The amount 
                involved with respect to any tax imposed by 
                reason of subsection (a)(4) is the value of the 
                shares on which the synthetic equity is based.
                    ``(C) Special rule during first 
                nonallocation year.--For purposes of 
                subparagraph (A), the amount involved for the 
                first nonallocation year of any employee stock 
                ownership plan shall be determined by taking 
                into account the total value of all the deemed-
                owned shares of all disqualified persons with 
                respect to such plan.
                    ``(D) Statute of limitations.--The 
                statutory period for the assessment of any tax 
                imposed by this section by reason of paragraph 
                (3) or (4) of subsection (a) shall not expire 
                before the date which is 3 years from the later 
                of--
                            ``(i) the allocation or ownership 
                        referred to in such paragraph giving 
                        rise to such tax, or
                            ``(ii) the date on which the 
                        Secretary is notified of such 
                        allocation or ownership.''.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to plan years beginning after 
        December 31, 2001.
            (2) Exception for certain plans.--In the case of 
        any--
                    (A) employee stock ownership plan 
                established after July 11, 2000; or
                    (B) employee stock ownership plan 
                established on or before such date if employer 
                securities held by the plan consist of stock in 
                a corporation with respect to which an election 
                under section 1362(a) of the Internal Revenue 
                Code of 1986 is not in effect on such date,
        the amendments made by this section shall apply to plan 
        years ending after July 11, 2000.

                Subtitle F--Reducing Regulatory Burdens

SEC. 451. MODIFICATION OF TIMING OF PLAN VALUATIONS.

    (a) In General.--Paragraph (9) of section 412(c) (relating 
to annual valuation) is amended to read as follows:
            ``(9) Annual valuation.--
                    ``(A) In general.--For purposes of this 
                section, a determination of experience gains 
                and losses and a valuation of the plan's 
                liability shall be made not less frequently 
                than once every year, except that such 
                determination shall be made more frequently to 
                the extent required in particular cases under 
                regulations prescribed by the Secretary.
                    ``(B) Valuation date.--
                            ``(i) Current year.--Except as 
                        provided in clause (ii), the valuation 
                        referred to in subparagraph (A) shall 
                        be made as of a date within the plan 
                        year to which the valuation refers or 
                        within one month prior to the beginning 
                        of such year.
                            ``(ii) Election to use prior year 
                        valuation.--The valuation referred to 
                        in subparagraph (A) may be made as of a 
                        date within the plan year prior to the 
                        year to which the valuation refers if--
                                    ``(I) an election is in 
                                effect under this clause with 
                                respect to the plan, and
                                    ``(II) as of such date, the 
                                value of the assets of the plan 
                                are not less than 125 percent 
                                of the plan's current liability 
                                (as defined in paragraph 
                                (7)(B)).
                            ``(iii) Adjustments.--Information 
                        under clause (ii) shall, in accordance 
                        with regulations, be actuarially 
                        adjusted to reflect significant 
                        differences in participants.
                            ``(iv) Election.--An election under 
                        clause (ii), once made, shall be 
                        irrevocable without the consent of the 
                        Secretary.''.
    (b) Amendment of ERISA.--Paragraph (9) of section 302(c) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1053(c)) is amended--
            (1) by inserting ``(A)'' after ``(9)''; and
            (2) by adding at the end the following:
    ``(B)(i) Except as provided in clause (ii), the valuation 
referred to in subparagraph (A) shall be made as of a date 
within the plan year to which the valuation refers or within 
one month prior to the beginning of such year.
    ``(ii) The valuation referred to in subparagraph (A) may be 
made as of a date within the plan year prior to the year to 
which the valuation refers if--
            ``(I) an election is in effect under this clause 
        with respect to the plan; and
            ``(II) as of such date, the value of the assets of 
        the plan are not less than 125 percent of the plan's 
        current liability (as defined in paragraph (7)(B)).
    ``(iii) Information under clause (ii) shall, in accordance 
with regulations, be actuarially adjusted to reflect 
significant differences in participants.
    ``(iv) An election under clause (ii), once made, shall be 
irrevocable without the consent of the Secretary of the 
Treasury.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to plan years beginning after December 31, 2000.

SEC. 452. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND 
                    DEDUCTION.

    (a) In General.--Section 404(k)(2)(A) (defining applicable 
dividends) is amended by striking ``or'' at the end of clause 
(ii), by redesignating clause (iii) as clause (iv), and by 
inserting after clause (ii) the following new clause:
                            ``(iii) is, at the election of such 
                        participants or their beneficiaries--
                                    ``(I) payable as provided 
                                in clause (i) or (ii), or
                                    ``(II) paid to the plan and 
                                reinvested in qualifying 
                                employer securities, or''.
    (b) Standard for Disallowance.--Section 404(k)(5)(A) 
(relating to disallowance of deduction) is amended by inserting 
``avoidance or'' before ``evasion''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 453. REPEAL OF TRANSITION RULE RELATING TO CERTAIN HIGHLY 
                    COMPENSATED EMPLOYEES.

    (a) In General.--Paragraph (4) of section 1114(c) of the 
Tax Reform Act of 1986 is hereby repealed.
    (b) Effective Date.--The repeal made by subsection (a) 
shall apply to plan years beginning after December 31, 2000.

SEC. 454. EMPLOYEES OF TAX-EXEMPT ENTITIES.

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

SEC. 455. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT 
                    ADVICE.

    (a) In General.--Subsection (a) of section 132 (relating to 
exclusion from gross income) is amended by striking ``or'' at 
the end of paragraph (5), by striking the period at the end of 
paragraph (6) and inserting ``, or'', and by adding at the end 
the following new paragraph:
            ``(7) qualified retirement planning services.''.
    (b) Qualified Retirement Planning Services Defined.--
Section 132 is amended by redesignating subsection (m) as 
subsection (n) and by inserting after subsection (l) the 
following:
    ``(m) Qualified Retirement Planning Services.--
            ``(1) In general.--For purposes of this section, 
        the term `qualified retirement planning services' means 
        any retirement planning advice or information provided 
        to an employee and his spouse by an employer 
        maintaining a qualified employer plan.
            ``(2) Nondiscrimination rule.--Subsection (a)(7) 
        shall apply in the case of highly compensated employees 
        only if such services are available on substantially 
        the same terms to each member of the group of employees 
        normally provided education and information regarding 
        the employer's qualified employer plan.
            ``(3) Qualified employer plan.--For purposes of 
        this subsection, the term `qualified employer plan' 
        means a plan, contract, pension, or account described 
        in section 219(g)(5).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 456. REPORTING SIMPLIFICATION.

    (a) Simplified Annual Filing Requirement for Owners and 
Their Spouses.--
            (1) In general.--The Secretary of the Treasury 
        shall modify the requirements for filing annual returns 
        with respect to one-participant retirement plans to 
        ensure that such plans with assets of $250,000 or less 
        as of the close of the plan year need not file a return 
        for that year.
            (2) One-participant retirement plan defined.--For 
        purposes of this subsection, the term ``one-participant 
        retirement plan'' means a retirement plan that--
                    (A) on the first day of the plan year--
                            (i) covered only the employer (and 
                        the employer's spouse) and the employer 
                        owned the entire business (whether or 
                        not incorporated); or
                            (ii) covered only one or more 
                        partners (and their spouses) in a 
                        business partnership (including 
                        partners in an S or C corporation);
                    (B) meets the minimum coverage requirements 
                of section 410(b) of the Internal Revenue Code 
                of 1986 without being combined with any other 
                plan of the business that covers the employees 
                of the business;
                    (C) does not provide benefits to anyone 
                except the employer (and the employer's spouse) 
                or the partners (and their spouses);
                    (D) does not cover a business that is a 
                member of an affiliated service group, a 
                controlled group of corporations, or a group of 
                businesses under common control; and
                    (E) does not cover a business that leases 
                employees.
            (3) Other definitions.--Terms used in paragraph (2) 
        which are also used in section 414 of the Internal 
        Revenue Code of 1986 shall have the respective meanings 
        given such terms by such section.
    (b) Simplified Annual Filing Requirement for Plans With 
Fewer Than 25 Employees.--In the case of plan years beginning 
after December 31, 2001, the Secretary of the Treasury shall 
provide for the filing of a simplified annual return for any 
retirement plan which covers less than 25 employees on the 
first day of a plan year and meets the requirements described 
in subparagraphs (B), (D), and (E) of subsection (a)(2).
    (c) Effective Date.--The provisions of this section shall 
take effect on January 1, 2001.

SEC. 457. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.

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

SEC. 458. REPEAL OF THE MULTIPLE USE TEST.

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

SEC. 459. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND LINE OF 
                    BUSINESS RULES.

    (a) Nondiscrimination.--
            (1) In general.--The Secretary of the Treasury 
        shall, by regulation, provide that a plan shall be 
        deemed to satisfy the requirements of section 401(a)(4) 
        of the Internal Revenue Code of 1986 if such plan 
        satisfies the facts and circumstances test under 
        section 401(a)(4) of such Code, as in effect before 
        January 1, 1994, but only if--
                    (A) the plan satisfies conditions 
                prescribed by the Secretary to appropriately 
                limit the availability of such test; and
                    (B) the plan is submitted to the Secretary 
                for a determination of whether it satisfies 
                such test.
        Subparagraph (B) shall only apply to the extent 
        provided by the Secretary.
            (2) Effective dates.--
                    (A) Regulations.--The regulation required 
                by paragraph (1) shall apply to years beginning 
                after December 31, 2002.
                    (B) Conditions of availability.--Any 
                condition of availability prescribed by the 
                Secretary under paragraph (1)(A) shall not 
                apply before the first year beginning not less 
                than 120 days after the date on which such 
                condition is prescribed.
    (b) Coverage Test.--
            (1) In general.--Section 410(b)(1) (relating to 
        minimum coverage requirements) is amended by adding at 
        the end the following:
                    ``(D) In the case that the plan fails to 
                meet the requirements of subparagraphs (A), (B) 
                and (C), the plan--
                            ``(i) satisfies subparagraph (B), 
                        as in effect immediately before the 
                        enactment of the Tax Reform Act of 
                        1986,
                            ``(ii) is submitted to the 
                        Secretary for a determination of 
                        whether it satisfies the requirement 
                        described in clause (i), and
                            ``(iii) satisfies conditions 
                        prescribed by the Secretary by 
                        regulation that appropriately limit the 
                        availability of this subparagraph.
                Clause (ii) shall apply only to the extent 
                provided by the Secretary.''.
            (2) Effective dates.--
                    (A) In general.--The amendment made by 
                paragraph (1) shall apply to years beginning 
                after December 31, 2002.
                    (B) Conditions of availability.--Any 
                condition of availability prescribed by the 
                Secretary under regulations prescribed by the 
                Secretary under section 410(b)(1)(D) of the 
                Internal Revenue Code of 1986 shall not apply 
                before the first year beginning not less than 
                120 days after the date on which such condition 
                is prescribed.
    (c) Line of Business Rules.--The Secretary of the Treasury 
shall, on or before December 31, 2002, modify the existing 
regulations issued under section 414(r) of the Internal Revenue 
Code of 1986 in order to expand (to the extent that the 
Secretary determines appropriate) the ability of a pension plan 
to demonstrate compliance with the line of business 
requirements based upon the facts and circumstances surrounding 
the design and operation of the plan, even though the plan is 
unable to satisfy the mechanical tests currently used to 
determine compliance.

SEC. 460. EXTENSION TO ALL GOVERNMENTAL PLANS OF MORATORIUM ON 
                    APPLICATION OF CERTAIN NONDISCRIMINATION RULES 
                    APPLICABLE TO STATE AND LOCAL PLANS.

    (a) In General.--
            (1) Subparagraph (G) of section 401(a)(5) and 
        subparagraph (H) of section 401(a)(26) are each amended 
        by striking ``section 414(d))'' and all that follows 
        and inserting ``section 414(d)).''.
            (2) Subparagraph (G) of section 401(k)(3) and 
        paragraph (2) of section 1505(d) of the Taxpayer Relief 
        Act of 1997 are each amended by striking ``maintained 
        by a State or local government or political subdivision 
        thereof (or agency or instrumentality thereof)''.
    (b) Conforming Amendments.--
            (1) The heading for subparagraph (G) of section 
        401(a)(5) is amended to read as follows: ``Governmental 
        plans''.
            (2) The heading for subparagraph (H) of section 
        401(a)(26) is amended to read as follows: ``Exception 
        for governmental plans''.
            (3) Subparagraph (G) of section 401(k)(3) is 
        amended by inserting ``Governmental plans.--'' after 
        ``(G)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to years beginning after December 31, 2000.

SEC. 461. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.

    (a) Expansion of Period.--
            (1) Amendment of internal revenue code.--
                    (A) In general.--Subparagraph (A) of 
                section 417(a)(6) is amended by striking ``90-
                day'' and inserting ``180-day''.
                    (B) Modification of regulations.--The 
                Secretary of the Treasury shall modify the 
                regulations under sections 402(f), 411(a)(11), 
                and 417 of the Internal Revenue Code of 1986 to 
                substitute ``180 days'' for ``90 days'' each 
                place it appears in Treasury Regulations 
                sections 1.402(f)-1, 1.411(a)-11(c), and 
                1.417(e)-1(b).
            (2) Amendment of erisa.--Section 205(c)(7)(A) of 
        the Employee Retirement Income Security Act of 1974 (29 
        U.S.C. 1055(c)(7)(A)) is amended by striking ``90-day'' 
        and inserting ``180-day''.
            (3) Effective date.--The amendments made by 
        paragraph (1)(A) and (2) and the modifications required 
        by paragraph (1)(B) shall apply to years beginning 
        after December 31, 2000.
    (b) Consent Regulation Inapplicable to Certain 
Distributions.--
            (1) In general.--The Secretary of the Treasury 
        shall modify the regulations under section 411(a)(11) 
        of the Internal Revenue Code of 1986 to provide that 
        the description of a participant's right, if any, to 
        defer receipt of a distribution shall also describe the 
        consequences of failing to defer such receipt.
            (2) Effective date.--The modifications required by 
        paragraph (1) shall apply to years beginning after 
        December 31, 2000.
    (c) Disclosure of Optional Forms of Benefits.--
            (1) Regulations.--
                    (A) In general.--The Secretary of the 
                Treasury shall, not later than December 31, 
                2001, issue final regulations under section 
                417(a)(3) of the Internal Revenue Code of 1986 
                which provide that if--
                            (i) a defined benefit plan offers 
                        both a qualified joint and survivor 
                        annuity and a single sum optional form 
                        of benefit, and
                            (ii) the distributable amount under 
                        such single sum option is less than the 
                        present value (determined in accordance 
                        with section 417(e) of such Code) of 
                        the qualified joint and survivor 
                        annuity commencing as of the same 
                        annuity starting date, the written 
                        explanation required by section 
                        417(a)(3)(A) of such Code shall include 
                        sufficient information to allow the 
                        participant to understand the 
                        difference between the amount of the 
                        single sum and such present value.
                    (B) Unmarried participants.--If the plan 
                offers an unmarried participant one or more 
                annuity options that are substantially more 
                valuable than the qualified joint and survivor 
                annuity offered by the plan, the comparison 
                required under subparagraph (A) shall be made 
                between the single sum option and the most 
                valuable of the other annuity options offered 
                by the plan.
                    (C) Form.--Any information required under 
                this paragraph shall be provided in a manner 
                calculated to be reasonably understood by the 
                average plan participant.
            (2) Effective date.--Regulations issued under 
        paragraph (1) shall only apply to distributions made 
        not earlier than 6 months after the date such 
        regulations are issued.

SEC. 462. ANNUAL REPORT DISSEMINATION.

    (a) Report Available Through Electronic Means.--Section 
104(b)(3) of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1024(b)(3)) is amended by adding at the end the 
following new sentence: ``The requirement to furnish 
information under the previous sentence shall be satisfied if 
the administrator makes such information reasonably available 
through electronic means or other new technology.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to reports for years beginning after December 31, 
1999.

SEC. 463. TECHNICAL CORRECTIONS TO SAVER ACT.

    Section 517 of the Employee Retirement Income Security Act 
of 1974 (29 U.S.C. 1147) is amended--
            (1) in subsection (a), by striking ``2001 and 2005 
        on or after September 1 of each year involved'' and 
        inserting ``2001, 2005, and 2009 in the month of 
        September of each year involved'';
            (2) in subsection (b), by adding at the end the 
        following new sentence: ``To effectuate the purposes of 
        this paragraph, the Secretary may enter into a 
        cooperative agreement, pursuant to the Federal Grant 
        and Cooperative Agreement Act of 1977 (31 U.S.C. 6301 
        et seq.), with the American Savings Education 
        Council.'';
            (3) in subsection (e)(2)--
                    (A) by striking ``Committee on Labor and 
                Human Resources'' in subparagraph (D) and 
                inserting ``Committee on Health, Education, 
                Labor, and Pensions'';
                    (B) by striking subparagraph (F) and 
                inserting the following:
                    ``(F) the Chairman and Ranking Member of 
                the Subcommittee on Labor, Health and Human 
                Services, and Education of the Committee on 
                Appropriations of the House of Representatives 
                and the Chairman and Ranking Member of the 
                Subcommittee on Labor, Health and Human 
                Services, and Education of the Committee on 
                Appropriations of the Senate;'';
                    (C) by redesignating subparagraph (G) as 
                subparagraph (J); and
                    (D) by inserting after subparagraph (F) the 
                following new subparagraphs:
                    ``(G) the Chairman and Ranking Member of 
                the Committee on Finance of the Senate;
                    ``(H) the Chairman and Ranking Member of 
                the Committee on Ways and Means of the House of 
                Representatives;
                    ``(I) the Chairman and Ranking Member of 
                the Subcommittee on Employer-Employee Relations 
                of the Committee on Education and the Workforce 
                of the House of Representatives; and'';
            (4) in subsection (e)(3)(A)--
                    (A) by striking ``There shall be no more 
                than 200 additional participants.'' and 
                inserting ``The participants in the National 
                Summit shall also include additional 
                participants appointed under this 
                subparagraph.'';
                    (B) by striking ``one-half shall be 
                appointed by the President,'' in clause (i) and 
                inserting ``not more than 100 participants 
                shall be appointed under this clause by the 
                President,'', and by striking ``and'' at the 
                end of clause (i);
                    (C) by striking ``one-half shall be 
                appointed by the elected leaders of Congress'' 
                in clause (ii) and inserting ``not more than 
                100 participants shall be appointed under this 
                clause by the elected leaders of Congress'', 
                and by striking the period at the end of clause 
                (ii) and inserting ``; and'';
                    (D) by adding at the end the following new 
                clause:
                            ``(iii) The President, in 
                        consultation with the elected leaders 
                        of Congress referred to in subsection 
                        (a), may appoint under this clause 
                        additional participants to the National 
                        Summit. The number of such additional 
                        participants appointed under this 
                        clause may not exceed the lesser of 3 
                        percent of the total number of all 
                        additional participants appointed under 
                        this paragraph, or 10. Such additional 
                        participants shall be appointed from 
                        persons nominated by the organization 
                        referred to in subsection (b)(2) which 
                        is made up of private sector businesses 
                        and associations partnered with 
                        Government entities to promote long 
                        term financial security in retirement 
                        through savings and with which the 
                        Secretary is required thereunder to 
                        consult and cooperate and shall not be 
                        Federal, State, or local government 
                        employees.'';
            (5) in subsection (e)(3)(B), by striking ``January 
        31, 1998'' in subparagraph (B) and inserting ``May 1, 
        2001, May 1, 2005, and May 1, 2009, for each of the 
        subsequent summits, respectively'';
            (6) in subsection (f)(1)(C), by inserting ``, no 
        later than 90 days prior to the date of the 
        commencement of the National Summit,'' after 
        ``comment'' in paragraph (1)(C);
            (7) in subsection (g), by inserting ``, in 
        consultation with the congressional leaders specified 
        in subsection (e)(2),'' after ``report'';
            (8) in subsection (i)--
                    (A) by striking ``beginning on or after 
                October 1, 1997'' in paragraph (1) and 
                inserting ``2001, 2005, and 2009''; and
                    (B) by adding at the end the following new 
                paragraph:
            ``(3) Reception and representation authority.--The 
        Secretary is hereby granted reception and 
        representation authority limited specifically to the 
        events at the National Summit. The Secretary shall use 
        any private contributions accepted in connection with 
        the National Summit prior to using funds appropriated 
        for purposes of the National Summit pursuant to this 
        paragraph.''; and
            (9) in subsection (k)--
                    (A) by striking ``shall enter into a 
                contract on a sole-source basis'' and inserting 
                ``may enter into a contract on a sole-source 
                basis''; and
                    (B) by striking ``fiscal year 1998'' and 
                inserting ``fiscal years 2001, 2005, and 
                2009''.

SEC. 464. STUDY OF PENSION COVERAGE.

    Not later than 5 years after the date of the enactment of 
this Act, the Secretary of the Treasury shall submit a report 
to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate a 
report on the effect of the provisions of the Retirement 
Savings and Pension Coverage Act of 2000 on pension coverage, 
including--
            (1) any expansion of coverage for low- and middle-
        income workers;
            (2) levels of pension benefits;
            (3) quality of pension coverage;
            (4) worker's access to and participation in plans; 
        and
            (5) retirement security.

                   Subtitle G--Other ERISA Provisions

SEC. 471. MISSING PARTICIPANTS.

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

SEC. 472. REDUCED PBGC PREMIUM FOR NEW PLANS OF SMALL EMPLOYERS.

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

SEC. 473. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR NEW AND SMALL PLANS.

    (a) New Plans.--Subparagraph (E) of section 4006(a)(3) of 
the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)(3)(E)) is amended by adding at the end the following 
new clause:
    ``(v) In the case of a new defined benefit plan, the amount 
determined under clause (ii) for any plan year shall be an 
amount equal to the product of the amount determined under 
clause (ii) and the applicable percentage. For purposes of this 
clause, the term `applicable percentage' means--
            ``(I) 0 percent, for the first plan year.
            ``(II) 20 percent, for the second plan year.
            ``(III) 40 percent, for the third plan year.
            ``(IV) 60 percent, for the fourth plan year.
            ``(V) 80 percent, for the fifth plan year.
For purposes of this clause, a defined benefit plan (as defined 
in section 3(35)) maintained by a contributing sponsor shall be 
treated as a new defined benefit plan for each of its first 5 
plan years if, during the 36-month period ending on the date of 
the adoption of the plan, the sponsor and each member of any 
controlled group including the sponsor (or any predecessor of 
either) did not establish or maintain a plan to which this 
title applies with respect to which benefits were accrued for 
substantially the same employees as are in the new plan.''.
    (b) Small Plans.--Paragraph (3) of section 4006(a) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1306(a)), as amended by section 472(b), is amended--
            (1) by striking ``The'' in subparagraph (E)(i) and 
        inserting ``Except as provided in subparagraph (G), 
        the'', and
            (2) by inserting after subparagraph (F) the 
        following new subparagraph:
    ``(G)(i) In the case of an employer who has 25 or fewer 
employees on the first day of the plan year, the additional 
premium determined under subparagraph (E) for each participant 
shall not exceed $5 multiplied by the number of participants in 
the plan as of the close of the preceding plan year.
    ``(ii) For purposes of clause (i), whether an employer has 
25 or fewer employees on the first day of the plan year is 
determined taking into consideration all of the employees of 
all members of the contributing sponsor's controlled group. In 
the case of a plan maintained by two or more contributing 
sponsors, the employees of all contributing sponsors and their 
controlled groups shall be aggregated for purposes of 
determining whether the 25-or-fewer-employees limitation has 
been satisfied.''.
    (c) Effective Dates.--
            (1) Subsection (a).--The amendments made by 
        subsection (a) shall apply to plans established after 
        December 31, 2000.
            (2) Subsection (b).--The amendments made by 
        subsection (b) shall apply to plan years beginning 
        after December 31, 2000.

SEC. 474. AUTHORIZATION FOR PBGC TO PAY INTEREST ON PREMIUM OVERPAYMENT 
                    REFUNDS.

    (a) In General.--Section 4007(b) of the Employment 
Retirement Income Security Act of 1974 (29 U.S.C. 1307(b)) is 
amended--
            (1) by striking ``(b)'' and inserting ``(b)(1)'', 
        and
            (2) by inserting at the end the following new 
        paragraph:
    ``(2) The corporation is authorized to pay, subject to 
regulations prescribed by the corporation, interest on the 
amount of any overpayment of premium refunded to a designated 
payor. Interest under this paragraph shall be calculated at the 
same rate and in the same manner as interest is calculated for 
underpayments under paragraph (1).''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to interest accruing for periods beginning not 
earlier than the date of the enactment of this Act.

SEC. 475. SUBSTANTIAL OWNER BENEFITS IN TERMINATED PLANS.

    (a) Modification of Phase-In of Guarantee.--Section 
4022(b)(5) of the Employee Retirement Income Security Act of 
1974 (29 U.S.C. 1322(b)(5)) is amended to read as follows:
    ``(5)(A) For purposes of this paragraph, the term `majority 
owner' means an individual who, at any time during the 60-month 
period ending on the date the determination is being made--
            ``(i) owns the entire interest in an unincorporated 
        trade or business,
            ``(ii) in the case of a partnership, is a partner 
        who owns, directly or indirectly, 50 percent or more of 
        either the capital interest or the profits interest in 
        such partnership, or
            ``(iii) in the case of a corporation, owns, 
        directly or indirectly, 50 percent or more in value of 
        either the voting stock of that corporation or all the 
        stock of that corporation.
For purposes of clause (iii), the constructive ownership rules 
of section 1563(e) of the Internal Revenue Code of 1986 shall 
apply (determined without regard to section 1563(e)(3)(C)).
    ``(B) In the case of a participant who is a majority owner, 
the amount of benefits guaranteed under this section shall 
equal the product of--
            ``(i) a fraction (not to exceed 1) the numerator of 
        which is the number of years from the later of the 
        effective date or the adoption date of the plan to the 
        termination date, and the denominator of which is 10, 
        and
            ``(ii) the amount of benefits that would be 
        guaranteed under this section if the participant were 
        not a majority owner.''.
    (b) Modification of Allocation of Assets.--
            (1) Section 4044(a)(4)(B) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 
        1344(a)(4)(B)) is amended by striking ``section 
        4022(b)(5)'' and inserting ``section 4022(b)(5)(B)''.
            (2) Section 4044(b) of such Act (29 U.S.C. 1344(b)) 
        is amended--
                    (A) by striking ``(5)'' in paragraph (2) 
                and inserting ``(4), (5),'', and
                    (B) by redesignating paragraphs (3) through 
                (6) as paragraphs (4) through (7), 
                respectively, and by inserting after paragraph 
                (2) the following new paragraph:
            ``(3) If assets available for allocation under 
        paragraph (4) of subsection (a) are insufficient to 
        satisfy in full the benefits of all individuals who are 
        described in that paragraph, the assets shall be 
        allocated first to benefits described in subparagraph 
        (A) of that paragraph. Any remaining assets shall then 
        be allocated to benefits described in subparagraph (B) 
        of that paragraph. If assets allocated to such 
        subparagraph (B) are insufficient to satisfy in full 
        the benefits described in that subparagraph, the assets 
        shall be allocated pro rata among individuals on the 
        basis of the present value (as of the termination date) 
        of their respective benefits described in that 
        subparagraph.''.
    (c) Conforming Amendments.--
            (1) Section 4021 of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1321) is amended--
                    (A) in subsection (b)(9), by striking ``as 
                defined in section 4022(b)(6)'', and
                    (B) by adding at the end the following new 
                subsection:
    ``(d) For purposes of subsection (b)(9), the term 
`substantial owner' means an individual who, at any time during 
the 60-month period ending on the date the determination is 
being made--
            ``(1) owns the entire interest in an unincorporated 
        trade or business,
            ``(2) in the case of a partnership, is a partner 
        who owns, directly or indirectly, more than 10 percent 
        of either the capital interest or the profits interest 
        in such partnership, or
            ``(3) in the case of a corporation, owns, directly 
        or indirectly, more than 10 percent in value of either 
        the voting stock of that corporation or all the stock 
        of that corporation.
For purposes of paragraph (3), the constructive ownership rules 
of section 1563(e) of the Internal Revenue Code of 1986 shall 
apply (determined without regard to section 1563(e)(3)(C)).''.
    (2) Section 4043(c)(7) of such Act (29 U.S.C. 1343(c)(7)) 
is amended by striking ``section 4022(b)(6)'' and inserting 
``section 4021(d)''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        plan terminations--
                    (A) under section 4041(c) of the Employee 
                Retirement Income Security Act of 1974 (29 
                U.S.C. 1341(c)) with respect to which notices 
                of intent to terminate are provided under 
                section 4041(a)(2) of such Act (29 U.S.C. 
                1341(a)(2)) after December 31, 2000, and
                    (B) under section 4042 of such Act (29 
                U.S.C. 1342) with respect to which proceedings 
                are instituted by the corporation after such 
                date.
            (2) Conforming amendments.--The amendments made by 
        subsection (c) shall take effect on January 1, 2001.

SEC. 476. MULTIEMPLOYER PLAN BENEFITS GUARANTEE.

    (a) In General.--Section 4022A(c) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1322A(c)) is 
amended--
            (1) by striking ``$5'' each place it appears in 
        paragraph (1) and inserting ``$11'',
            (2) by striking ``$15'' in paragraph (1) and 
        inserting ``$33'', and
            (3) by striking paragraphs (2), (5), and (6) and by 
        redesignating paragraphs (3) and (4) as paragraphs (2) 
        and (3), respectively.
    (b) Conforming Amendment.--Section 4244(e)(4) of such Act 
(29 U.S.C. 1424(e)(4)) is amended by striking ``and without 
regard to section 4022A(c)(2)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to benefits payable after the date of the enactment 
of this Act, except that such amendments shall not apply to any 
multiemployer plan that has received financial assistance 
(within the meaning of section 4261 of the Employee Retirement 
Income Security Act of 1974) within the 1-year period ending on 
the date of the enactment of this Act.

SEC. 477. CIVIL PENALTIES FOR BREACH OF FIDUCIARY RESPONSIBILITY.

    (a) Imposition and Amount of Penalty Made Discretionary.--
Section 502(l)(1) of the Employee Retirement Income Security 
Act of 1974 (29 U.S.C. 1132(l)(1)) is amended--
            (1) by striking ``shall'' and inserting ``may'', 
        and
            (2) by striking ``equal to'' and inserting ``not 
        greater than''.
    (b) Applicable Recovery Amount.--Section 502(l)(2) of such 
Act (29 U.S.C. 1132(l)(2)) is amended to read as follows:
    ``(2) For purposes of paragraph (1), the term `applicable 
recovery amount' means any amount which is recovered from any 
fiduciary or other person (or from any other person on behalf 
of any such fiduciary or other person) with respect to a breach 
or violation described in paragraph (1) on or after the 30th 
day following receipt by such fiduciary or other person of 
written notice from the Secretary of the violation, whether 
paid voluntarily or by order of a court in a judicial 
proceeding instituted by the Secretary under subsection (a)(2) 
or (a)(5). The Secretary may, in the Secretary's sole 
discretion, extend the 30-day period described in the preceding 
sentence.''.
    (c) Other Rules.--Section 502(l) of the Employee Retirement 
Income Security Act of 1974 (29 U.S.C. 1132(l)) is amended by 
adding at the end the following new paragraph:
    ``(5) A person shall be jointly and severally liable for 
the penalty described in paragraph (1) to the same extent that 
such person is jointly and severally liable for the applicable 
recovery amount on which the penalty is based.
    ``(6) No penalty shall be assessed under this subsection 
unless the person against whom the penalty is assessed is given 
notice and opportunity for a hearing with respect to the 
violation and applicable recovery amount.''.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to any breach of fiduciary 
        responsibility or other violation of part 4 of subtitle 
        B of title I of the Employee Retirement Income Security 
        Act of 1974 occurring on or after the date of enactment 
        of this Act.
            (2) Transition rule.--In applying the amendment 
        made by subsection (b) (relating to applicable recovery 
        amount), a breach or other violation occurring before 
        the date of enactment of this Act which continues after 
        the 180th day after such date (and which may have been 
        discontinued at any time during its existence) shall be 
        treated as having occurred after such date of 
        enactment.

SEC. 478. BENEFIT SUSPENSION NOTICE.

    (a) Modification of Regulation.--The Secretary of Labor 
shall modify the regulation under section 203(a)(3)(B) of the 
Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1053(a)(3)(B)) to provide that the notification required by 
such regulation--
            (1) in the case of an employee who returns to work 
        for a former employer after commencement of payment of 
        benefits under the plan shall--
                    (A) be made during the first calendar month 
                or payroll period in which the plan withholds 
                payments, and
                    (B) if a reduced rate of future benefit 
                accruals will apply to the returning employee 
                (as of the first date of participation in the 
                plan by the employee after returning to work), 
                include a statement that the rate of future 
                benefit accruals will be reduced, and
            (2) in the case of any employee who is not 
        described in paragraph (1)--
                    (A) may be included in the summary plan 
                description for the plan furnished in 
                accordance with section 104(b) of such Act (29 
                U.S.C. 1024(b)), rather than in a separate 
                notice, and
                    (B) need not include a copy of the relevant 
                plan provisions.
    (b) Effective Date.--The modification made under this 
section shall apply to plan years beginning after December 31, 
2000.

                      Subtitle H--Plan Amendments

SEC. 481. PROVISIONS RELATING TO PLAN AMENDMENTS.

    (a) In General.--If this section applies to any plan or 
contract amendment--
            (1) such plan or contract shall be treated as being 
        operated in accordance with the terms of the plan 
        during the period described in subsection (b)(2)(A); 
        and
            (2) except as provided by the Secretary of the 
        Treasury, such plan shall not fail to meet the 
        requirements of section 411(d)(6) of the Internal 
        Revenue Code of 1986 or section 204(g) of the Employee 
        Retirement Income Security Act of 1974 by reason of 
        such amendment.
    (b) Amendments to Which Section Applies.--
            (1) In general.--This section shall apply to any 
        amendment to any plan or annuity contract which is 
        made--
                    (A) pursuant to any amendment made by this 
                title, or pursuant to any regulation issued 
                under this title; and
                    (B) on or before the last day of the first 
                plan year beginning on or after January 1, 
                2003.
        In the case of a governmental plan (as defined in 
        section 414(d) of the Internal Revenue Code of 1986), 
        this paragraph shall be applied by substituting 
        ``2005'' for ``2003''.
            (2) Conditions.--This section shall not apply to 
        any amendment unless--
                    (A) during the period--
                            (i) beginning on the date the 
                        legislative or regulatory amendment 
                        described in paragraph (1)(A) takes 
                        effect (or in the case of a plan or 
                        contract amendment not required by such 
                        legislative or regulatory amendment, 
                        the effective date specified by the 
                        plan); and
                            (ii) ending on the date described 
                        in paragraph (1)(B) (or, if earlier, 
                        the date the plan or contract amendment 
                        is adopted),
                the plan or contract is operated as if such 
                plan or contract amendment were in effect; and
                    (B) such plan or contract amendment applies 
                retroactively for such period.

                TITLE V--SCHOOL CONSTRUCTION PROVISIONS

SEC. 501. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR 
                    GOVERNMENTAL BONDS USED TO FINANCE EDUCATIONAL 
                    FACILITIES.

    (a) In General.--Section 148(f )(4)(D)(vii) (relating to 
increase in exception for bonds financing public school capital 
expenditures) is amended by striking ``$5,000,000'' the second 
place it appears and inserting ``$10,000,000''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to obligations issued after December 31, 2000.

SEC. 502. MODIFICATION OF ARBITRAGE REBATE RULES APPLICABLE TO PUBLIC 
                    SCHOOL CONSTRUCTION BONDS.

    (a) In General.--Subparagraph (C) of section 148(f )(4) is 
amended by adding at the end the following new clause:
                            ``(xviii) 4-year spending 
                        requirement for public school 
                        construction issue.--
                                    ``(I) In general.--In the 
                                case of a public school 
                                construction issue, the 
                                spending requirements of clause 
                                (ii) shall be treated as met if 
                                at least 10 percent of the 
                                available construction proceeds 
                                of the construction issue are 
                                spent for the governmental 
                                purposes of the issue within 
                                the 1-year period beginning on 
                                the date the bonds are issued, 
                                30 percent of such proceeds are 
                                spent for such purposes within 
                                the 2-year period beginning on 
                                such date, 60 percent of such 
                                proceeds are spent for such 
                                purposes within the 3-year 
                                period beginning on such date, 
                                and 100 percent of such 
                                proceeds are spent for such 
                                purposes within the 4-year 
                                period beginning on such date.
                                    ``(II) Public school 
                                construction issue.--For 
                                purposes of this clause, the 
                                term `public school 
                                construction issue' means any 
                                construction issue if no bond 
                                which is part of such issue is 
                                a private activity bond and all 
                                of the available construction 
                                proceeds of such issue are to 
                                be used for the construction 
                                (as defined in clause (iv)) of 
                                public school facilities to 
                                provide education or training 
                                below the postsecondary level 
                                or for the acquisition of land 
                                that is functionally related 
                                and subordinate to such 
                                facilities.
                                    ``(III) Other rules to 
                                apply.--Rules similar to the 
                                rules of the preceding 
                                provisions of this subparagraph 
                                which apply to clause (ii) also 
                                apply to this clause.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to obligations issued after December 31, 2000.

SEC. 503. MODIFICATION OF SPECIAL ARBITRAGE RULE FOR CERTAIN FUNDS.

    (a) In General.--Paragraph (1) of section 648 of the Tax 
Reform Act of 1984 is amended to read as follows:
            ``(1) such securities or obligations are held in a 
        fund--
                    ``(A) which, except to the extent of the 
                investment earnings on such securities or 
                obligations, cannot be used, under State 
                constitutional or statutory restrictions 
                continuously in effect since October 9, 1969, 
                through the date of issue of the bond issue, to 
                pay debt service on the bond issue or to 
                finance the facilities that are to be financed 
                with the proceeds of the bonds, or
                    ``(B) the annual distributions from which 
                cannot exceed 7 percent of the average fair 
                market value of the assets held in such fund 
                except to the extent distributions are 
                necessary to pay debt service on the bond 
                issue,''.
    (b) Conforming Amendment.--Paragraph (3) of such section is 
amended by striking ``the investment earnings of'' and 
inserting ``distributions from''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on January 1, 2001.

SEC. 504. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL FACILITY BONDS AS 
                    EXEMPT FACILITY BONDS.

    (a) Treatment as Exempt Facility Bond.--Subsection (a) of 
section 142 (relating to exempt facility bond) 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:
            ``(13) qualified public educational facilities.''
    (b) Qualified Public Educational Facilities.--Section 142 
(relating to exempt facility bond) is amended by adding at the 
end the following new subsection:
    ``(k) Qualified Public Educational Facilities.--
            ``(1) In general.--For purposes of subsection 
        (a)(13), the term `qualified public educational 
        facility' means any school facility which is--
                    ``(A) part of a public elementary school or 
                a public secondary school, and
                    ``(B) owned by a private, for-profit 
                corporation pursuant to a public-private 
                partnership agreement with a State or local 
                educational agency described in paragraph (2).
            ``(2) Public-private partnership agreement 
        described.--A public-private partnership agreement is 
        described in this paragraph if it is an agreement--
                    ``(A) under which the corporation agrees--
                            ``(i) to do 1 or more of the 
                        following: construct, rehabilitate, 
                        refurbish, or equip a school facility, 
                        and
                            ``(ii) at the end of the term of 
                        the agreement, to transfer the school 
                        facility to such agency for no 
                        additional consideration, and
                    ``(B) the term of which does not exceed the 
                term of the issue to be used to provide the 
                school facility.
            ``(3) School facility.--For purposes of this 
        subsection, the term `school facility' means--
                    ``(A) school buildings,
                    ``(B) functionally related and subordinate 
                facilities and land with respect to such 
                buildings, including any stadium or other 
                facility primarily used for school events, and
                    ``(C) any property, to which section 168 
                applies (or would apply but for section 179), 
                for use in the facility.
            ``(4) Public schools.--For purposes of this 
        subsection, the terms `elementary school' and 
        `secondary school' have the meanings given such terms 
        by section 14101 of the Elementary and Secondary 
        Education Act of 1965 (20 U.S.C. 8801), as in effect on 
        the date of the enactment of this subsection.
            ``(5) Annual aggregate face amount of tax-exempt 
        financing.--
                    ``(A) In general.--An issue shall not be 
                treated as an issue described in subsection 
                (a)(13) if the aggregate face amount of bonds 
                issued by the State pursuant thereto (when 
                added to the aggregate face amount of bonds 
                previously so issued during the calendar year) 
                exceeds an amount equal to the greater of--
                            ``(i) $10 multiplied by the State 
                        population, or
                            ``(ii) $5,000,000.
                    ``(B) Allocation rules.--
                            ``(i) In general.--Except as 
                        otherwise provided in this 
                        subparagraph, the State may allocate in 
                        a calendar year the amount described in 
                        subparagraph (A) for such year in such 
                        manner as the State determines 
                        appropriate.
                            ``(ii) Rules for carryforward of 
                        unused amount.--With respect to any 
                        calendar year, a State may make an 
                        election under rules similar to the 
                        rules of section 146(f), except that 
                        the sole carryforward purpose with 
                        respect to such election is the 
                        issuance of exempt facility bonds 
                        described in section 142(a)(13).''
    (c) Exemption From General State Volume Caps.--Paragraph 
(3) of section 146(g) (relating to exception for certain bonds) 
is amended--
            (1) by striking ``or (12)'' and inserting ``(12), 
        or (13)'', and
            (2) by striking ``and environmental enhancements of 
        hydroelectric generating facilities'' and inserting 
        ``environmental enhancements of hydroelectric 
        generating facilities, and qualified public educational 
        facilities''.
    (d) Exemption From Limitation on Use for Land 
Acquisition.--Section 147(h) (relating to certain rules not to 
apply to mortgage revenue bonds, qualified student loan bonds, 
and qualified 501(c)(3) bonds) is amended by adding at the end 
the following new paragraph:
            ``(3) Exempt facility bonds for qualified public-
        private schools.--Subsection (c) shall not apply to any 
        exempt facility bond issued as part of an issue 
        described in section 142(a)(13) (relating to qualified 
        public-private schools).''
    (e) Conforming Amendment.--The heading of section 147(h) is 
amended by striking ``Mortgage Revenue Bonds, Qualified Student 
Loan Bonds, and Qualified 501(c)(3) Bonds'' in the heading and 
inserting ``Certain Bonds''.
    (f) Effective Date.--The amendments made by this section 
shall apply to obligations issued after December 31, 2000.

SEC. 505. EXPANSION OF QUALIFIED ZONE ACADEMY BOND PROGRAM.

    (a) In General.--So much of part IV of subchapter U of 
chapter 1 (relating to incentives for education zones) as 
precedes subsection (d) of section 1397E is amended to read as 
follows:

                  ``PART IV--EDUCATION BOND PROVISIONS

        ``Sec. 1397E. Credit to holders of qualified zone academy bonds.
        ``Sec. 1397F. Qualified zone academy bond defined.
        ``Sec. 1397G. Authorization of additional qualified zone academy 
                  bonds without targeting and private partnership 
                  requirements.

``SEC. 1397E. CREDIT TO HOLDERS OF QUALIFIED ZONE ACADEMY BONDS.

    ``(a) Allowance of Credit.--In the case of an eligible 
taxpayer who holds a qualified zone academy bond on a credit 
allowance date of such bond which occurs during the taxable 
year, there shall be allowed as a credit against the tax 
imposed by this chapter for such taxable year an amount equal 
to the sum of the credits determined under subsection (b) with 
respect to credit allowance dates during such year on which the 
taxpayer holds such bond.
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit 
        determined under this subsection with respect to any 
        credit allowance date for a qualified zone academy bond 
        is 25 percent of the annual credit determined with 
        respect to such bond.
            ``(2) Annual credit.--The annual credit determined 
        with respect to any qualified zone academy bond is the 
        product of--
                    ``(A) the applicable credit rate, 
                multiplied by
                    ``(B) the outstanding face amount of the 
                bond.
            ``(3) Applicable credit rate.--For purposes of 
        paragraph (1), the applicable credit rate with respect 
        to an issue is the rate equal to an average market 
        yield (as of the day before the day that the issue is 
        sold) on outstanding long-term corporate debt 
        obligations (determined under regulations prescribed by 
        the Secretary).
            ``(4) Special rule for issuance and redemption.--In 
        the case of a bond which is issued during the 3-month 
        period ending on a credit allowance date, the amount of 
        the credit determined under this subsection with 
        respect to such credit allowance date shall be a 
        ratable portion of the credit otherwise determined 
        based on the portion of the 3-month period during which 
        the bond is outstanding. A similar rule shall apply 
        when the bond is redeemed.
    ``(c) Limitation Based on Amount of Tax.--
            ``(1) In general.--The credit allowed under 
        subsection (a) for any taxable year shall not exceed 
        the excess of--
                    ``(A) the sum of the regular tax liability 
                (as defined in section 26(b)) plus the tax 
                imposed by section 55, over
                    ``(B) the sum of the credits allowable 
                under part IV of subchapter A (other than 
                subpart C thereof, relating to refundable 
                credits).
            ``(2) Carryover of unused credit.--If the credit 
        allowable under subsection (a) exceeds the limitation 
        imposed by paragraph (1) for such taxable year, such 
        excess shall be carried to the succeeding taxable year 
        and added to the credit allowable under subsection (a) 
        for such taxable year.
    ``(d) Definitions.--For purposes of this section--
            ``(1) Qualified zone academy bond.--The term 
        `qualified zone academy bond' has the meaning given to 
        such term by section 1397F; except that such term shall 
        also include any bond treated as a qualified zone 
        academy bond under section 1397G. Such term shall not 
        include any bond which is part of an issue unless such 
        issue meets the requirements of subsection (g).
            ``(2) Credit allowance date.--The term `credit 
        allowance date' means--
                    ``(A) March 15,
                    ``(B) June 15,
                    ``(C) September 15, and
                    ``(D) December 15.
        Such term includes the last day on which the bond is 
        outstanding.
            ``(3) Eligible taxpayer.--The term `eligible 
        taxpayer' means--
                    ``(A) a bank (within the meaning of section 
                581),
                    ``(B) an insurance company to which 
                subchapter L applies,
                    ``(C) a corporation actively engaged in the 
                business of lending money, and
                    ``(D) any other C corporation.
    ``(e) Other Definitions.--For purposes of this subchapter--
            ``(1) Local educational agency.--The term `local 
        educational agency' has the meaning given to such term 
        by section 14101 of the Elementary and Secondary 
        Education Act of 1965. Such term includes the local 
        educational agency that serves the District of 
        Columbia, but does not include any other State agency.
            ``(2) Bond.--The term `bond' includes any 
        obligation.
            ``(3) State.--The term `State' includes the 
        District of Columbia and any possession of the United 
        States.
            ``(4) Public school facility.--The term `public 
        school facility' shall not include--
                    ``(A) any stadium or other facility 
                primarily used for athletic contests or 
                exhibitions or other events for which admission 
                is charged to the general public, or
                    ``(B) any facility which is not owned by a 
                State or local government or any agency or 
                instrumentality of a State or local government.
            ``(5) Permitted purpose.--The term `permitted 
        purpose' means--
                    ``(A) in the case of a bond which is a 
                qualified zone academy bond without regard to 
                section 1397G, any qualified purpose (as 
                defined in section 1397F(a)(4)), and
                    ``(B) in the case of a bond which is a 
                qualified zone academy bond solely by reason of 
                section 1397G, the purpose described in section 
                1397G(a)(2).
    ``(f) Special Rules.--
            ``(1) Only certain refinancings permitted.--A 
        refinancing of indebtedness (other than a qualified 
        zone academy bond) shall be treated as a qualified zone 
        academy bond only if such indebtedness was originally 
        incurred by the issuer--
                    ``(A) after the date of the enactment of 
                this section,
                    ``(B) for a term of not more than 1 year,
                    ``(C) to finance an expenditure which is a 
                permitted purpose to be financed by a qualified 
                zone academy bond, and
                    ``(D) in anticipation of being refinanced 
                with proceeds of a qualified zone academy bond.
            ``(2) Sinking funds.--Rules similar to the rules 
        under section 148 on replacement proceeds shall apply 
        for purposes of this section. Such replacement proceeds 
        shall be invested in noninterest-bearing State and 
        Local Government Series obligations issued by the 
        Secretary.
    ``(g) Special Rules Relating to Arbitrage.--
            ``(1) In general.--Except as otherwise provided in 
        this subsection, an issue shall be treated as meeting 
        the requirements of this subsection if the issue meets 
        the spending requirements of subclause (I) of section 
        148(f)(4)(C)(xviii).
            ``(2) Rules regarding compliance during 4-year 
        period.--If an issue fails to meet such spending 
        requirements during the 4-year period beginning on the 
        date of issuance, the issuer shall pay to the United 
        States amounts which would be required to be paid to 
        the United States under section 148(f)(2) were such 
        issue required to meet the requirements of such 
        section. Rules similar to the rules of clause (iii) of 
        section 148(f)(4)(C) shall apply for purposes of the 
        preceding sentence.
            ``(3) Rules regarding continuing compliance after 
        4-year determination.--If at least 95 percent of the 
        proceeds of the issue is not expended for 1 or more 
        permitted purposes within the 4-year period beginning 
        on the date of issuance, an issue shall be treated as 
        continuing to meet the requirements of this subsection 
        if the issuer uses all unspent proceeds of the issue to 
        redeem bonds of the issue within 90 days after the end 
        of such 4-year period.
            ``(4) Small issuer exception.--Paragraph (1) shall 
        not apply to an issue issued by a governmental unit 
        with general taxing powers if the requirements of 
        paragraphs (2) and (3) of section 148(f) would be 
        treated as met by reason of subparagraph (D) of section 
        148(f)(4) if such issue were treated as a tax-exempt 
        bond and taken into account under such subparagraph, 
        and such issue shall be so treated for purposes of 
        determining whether such requirements are met with 
        respect to tax-exempt bonds.
    ``(h) Recapture of Portion of Credit Where Cessation of 
Compliance.--
            ``(1) In general.--If any bond which when issued 
        purported to be a qualified zone academy bond ceases to 
        be a qualified zone academy bond, the issuer shall pay 
        to the United States (at the time required by the 
        Secretary) an amount equal to the sum of--
                    ``(A) the aggregate of the credits 
                allowable under this section with respect to 
                such bond (determined without regard to 
                subsection (c)) for taxable years ending during 
                the calendar year in which such cessation 
                occurs and the 2 preceding calendar years, and
                    ``(B) interest at the underpayment rate 
                under section 6621 on the amount determined 
                under subparagraph (A) for each calendar year 
                for the period beginning on the first day of 
                such calendar year.
            ``(2) Failure to pay.--If the issuer fails to 
        timely pay the amount required by paragraph (1) with 
        respect to such bond, the tax imposed by this chapter 
        on each holder of any such bond which is part of such 
        issue shall be increased (for the taxable year of the 
        holder in which such cessation occurs) by the aggregate 
        decrease in the credits allowed under this section to 
        such holder for taxable years beginning in such 3 
        calendar years which would have resulted solely from 
        denying any credit under this section with respect to 
        such issue for such taxable years.
            ``(3) Special rules.--
                    ``(A) Tax benefit rule.--The tax for the 
                taxable year shall be increased under paragraph 
                (2) only with respect to credits allowed by 
                reason of this section which were used to 
                reduce tax liability. In the case of credits 
                not so used to reduce tax liability, the 
                carryforwards and carrybacks under section 39 
                shall be appropriately adjusted.
                    ``(B) No credits against tax.--Any increase 
                in tax under paragraph (2) shall not be treated 
                as a tax imposed by this chapter for purposes 
                of determining--
                            ``(i) the amount of any credit 
                        allowable under this part, or
                            ``(ii) the amount of the tax 
                        imposed by section 55.
    ``(i) Credit Included in Gross Income.--Gross income 
includes the amount of the credit allowed to the taxpayer under 
this section (determined without regard to subsection (c)) and 
the amount so included shall be treated as interest income.
    ``(j) Treatment for Estimated Tax Purposes.--Solely for 
purposes of sections 6654 and 6655, the credit allowed by this 
section to a taxpayer by reason of holding a qualified zone 
academy bond on a credit allowance date shall be treated as if 
it were a payment of estimated tax made by the taxpayer on such 
date.
    ``(k) Reporting.--Issuers of qualified zone academy bonds 
shall submit reports similar to the reports required under 
section 149(e).
    ``(l) Termination.--This section shall not apply to any 
bond issued after December 31, 2005.

``SEC. 1397F. QUALIFIED ZONE ACADEMY BONDS.''

    (b) Extension of Qualified Zone Academy Bond Provisions.--
            (1) Subsections (d) and (e) of section 1397E (as in 
        effect on the day before the date of the enactment of 
        this Act) are hereby moved and inserted after the 
        section heading for section 1397F (as added by 
        subsection (a)) and redesignated as subsections (a) and 
        (b).
            (2) Subsection (b) of section 1397F (as so 
        redesignated) is amended to read as follows:
    ``(b) Limitations on Amount of Bonds Designated.--
            ``(1) In general.--There is a national zone academy 
        bond limitation for each calendar year. Such limitation 
        is--
                    ``(A) $400,000,000 for 1998,
                    ``(B) $400,000,000 for 1999,
                    ``(C) $400,000,000 for 2000,
                    ``(D) $400,000,000 for 2001,
                    ``(E) $400,000,000 for 2002,
                    ``(F) $400,000,000 for 2003, and
                    ``(G) except as provided in paragraph (3), 
                zero after 2003.
            ``(2) Allocation of limitation.--
                    ``(A) In general.--The national zone 
                academy bond limitation for a calendar year 
                shall be allocated by the Secretary among the 
                States on the basis of their respective 
                populations of individuals below the poverty 
                line (as defined by the Office of Management 
                and Budget). The limitation amount allocated to 
                a State under the preceding sentence shall be 
                allocated by the State to qualified zone 
                academies within such State.
                    ``(B) Designation subject to limitation 
                amount.--The maximum aggregate face amount of 
                bonds issued during any calendar year which may 
                be designated under subsection (a) with respect 
                to any qualified zone academy shall not exceed 
                the limitation amount allocated to such academy 
                under subparagraph (A) for such calendar year.
            ``(3) Carryover of unused limitation.--If for any 
        calendar year--
                    ``(A) the limitation amount under this 
                subsection for any State, exceeds
                    ``(B) the amount of bonds issued during 
                such year which are designated under subsection 
                (a) (or the corresponding provisions of prior 
                law) with respect to qualified zone academies 
                within such State,
        the limitation amount under this subsection for such 
        State for the following calendar year shall be 
        increased by the amount of such excess. Any 
        carryforward of a limitation amount may be carried only 
        to the first 2 years (3 years for carryforwards from 
        1998 or 1999) following the unused limitation year. For 
        purposes of the preceding sentence, a limitation amount 
        shall be treated as used on a first-in first-out 
        basis.''
            (3) Subsection (a) of section 1397F (as so 
        redesignated) is amended--
                    (A) by striking ``For purposes of this 
                section--'' in the material preceding paragraph 
                (1) and inserting ``For purposes of this part--
                '',
                    (B) by striking ``an eligible local'' in 
                paragraphs (1)(A) and (3)(A) (as redesignated 
                by this paragraph) and inserting ``a local'',
                    (C) by striking ``the maximum term 
                permitted under paragraph (3)'' in paragraph 
                (1)(D) and inserting ``15 years'', and
                    (D) by striking paragraphs (3) and (6) and 
                by redesignating paragraphs (4) and (5) as 
                paragraphs (3) and (4), respectively.
            (4) Paragraph (3) of section 1397F(a) (as so 
        redesignated) is amended--
                    (A) by striking ``(4)'' and all that 
                follows through ``The term'' and inserting the 
                following:
            ``(4) Qualified zone academy.--The term'',
                    (B) by striking subparagraph (B),
                    (C) by redesignating clauses (i) through 
                (iv) as subparagraphs (A) through (D), 
                respectively, and
                    (D) by redesignating subclauses (I) and 
                (II) of subparagraph (D) (as so redesignated) 
                as clauses (i) and (ii), respectively.
    (c) Authorization of Additional Qualified Zone Academy 
Bonds Without Targeting and Private Partnership Requirements.--
Part IV of subchapter U of chapter 1 is amended by adding at 
the end the following new section:

``SEC. 1397G. AUTHORIZATION OF ADDITIONAL QUALIFIED ZONE ACADEMY BONDS 
                    WITHOUT TARGETING AND PRIVATE PARTNERSHIP 
                    REQUIREMENTS.

    ``(a) In General.--For purposes of this part, the term 
`qualified zone academy bond' also includes any bond issued by 
a State or local government as part of an issue if--
            ``(1) the issuer designates such bond for purpose 
        of this section, and
            ``(2) the requirements of subparagraphs (A), (B), 
        and (D) of paragraph (1) of section 1397F(a) are met 
        with respect to such issue, determined--
                    ``(A) by treating any public school 
                facility as being a qualified zone academy, and
                    ``(B) by applying paragraph (4) thereof as 
                if the only qualified purpose were 
                constructing, rehabilitating, or repairing a 
                public school facility or acquiring the land 
                which is functionally related and subordinate 
                to the public school facility which is to be 
                constructed with part of the proceeds of such 
                issue.
    ``(b) Limitation on Amount of Bonds Designated.--The 
maximum aggregate face amount of bonds issued during any 
calendar year which may be designated under subsection (a) by 
any issuer shall not exceed the limitation amount allocated 
under subsection (d) for such calendar year to such issuer.
    ``(c) National Limitation on Amount of Bonds Designated.--
There is a national additional qualified zone academy bond 
limitation for each calendar year. Such limitation is--
            ``(1) $5,000,000,000 for 2001,
            ``(2) $5,000,000,000 for 2002, and
            ``(3) $5,000,000,000 for 2003,
            ``(4) except as provided in subsection (e), zero 
        after 2003.
    ``(d) Limitation Allocated Among States.--
            ``(1) In general.--
                    ``(A) Allocation on the basis of 
                population.--50 percent of the limitation 
                applicable under subsection (c) for any 
                calendar year shall be allocated before such 
                calendar year by the Secretary among the States 
                on the basis of their respective populations.
                    ``(B) Allocation on the basis of poverty.--
                50 percent of the limitation applicable under 
                subsection (c) for any calendar year shall be 
                allocated before such calendar year by the 
                Secretary among the States on the basis of 
                their respective populations of individuals 
                below the poverty line (as defined by the 
                Office of Management and Budget).
                    ``(C) Minimum allocations to small 
                states.--The Secretary shall adjust the 
                allocations under this subsection for any 
                calendar year for each State to the extent 
                necessary to ensure that the amount allocated 
                to such State under this subsection for such 
                year is not less than $25,000,000.
                    ``(D) Use of census data.--Determinations 
                under this subsection shall be made on the 
                basis of the most recently available census 
                data.
            ``(2) Allocation within the state.--
                    ``(A) In general.--Except as otherwise 
                provided in subparagraph (B), the limitation 
                allocated to any State may be allocated among 
                governmental units in such State having 
                authority to issue such bonds as provided by 
                State law (or, in absence of State law, by the 
                Governor of such State).
                    ``(B) Minimum allocations to large local 
                educational agencies.--In no event may the 
                limitation for any calendar year allocated to 
                any large local educational agency in a State 
                be less than the sum of--
                            ``(i) an amount which bears the 
                        same ratio to 50 percent of such 
                        limitation as the population within the 
                        area under the jurisdiction of such 
                        agency bears to the population of the 
                        entire State, and
                            ``(ii) an amount which bears the 
                        same ratio to 50 percent of such 
                        limitation as the population within the 
                        area under the jurisdiction of such 
                        agency below the poverty line (as 
                        defined by the Office of Management and 
                        Budget) bears to such population of the 
                        entire State.
            ``(3) Allocations for indian schools.--In addition 
        to the amounts otherwise allocated under this 
        subsection, $200,000,000 (in the aggregate for calendar 
        years 2001, 2002, and 2003) shall be allocated by the 
        Secretary (after consultation with the Secretary of the 
        Interior) for purposes of the construction, 
        rehabilitation, and repair of schools operated by or on 
        behalf of an Indian tribal government (within the 
        meaning of section 7871). In the case of amounts 
        allocated under the preceding sentence, Indian tribal 
        governments (as so defined) shall be treated as 
        qualified issuers for purposes of this part.
            ``(4) Required state allocation plans.--
                    ``(A) In general.--Notwithstanding any 
                other provision of this section, the limitation 
                for any State shall be zero unless the 
                limitation is allocated within such State 
                pursuant to a qualified allocation plan.
                    ``(B) Qualified allocation plan.--For 
                purposes of subparagraph (A), the term 
                `qualified allocation plan' means any plan 
                which--
                            ``(i) identifies the State's needs 
                        for public school facilities (including 
                        descriptions of the capacity of public 
                        schools in the State to house projected 
                        enrollments), particular financing 
                        difficulties being encountered by local 
                        school districts in the State, and 
                        health and safety problems at existing 
                        facilities, and
                            ``(ii) describes how the State will 
                        allocate to local educational agencies, 
                        or otherwise use, its allocation under 
                        this section to address the needs 
                        identified under clause (i), including 
                        a description of how it will--
                                    ``(I) ensure that the needs 
                                of rural, urban, and suburban 
                                areas will be recognized,
                                    ``(II) ensure that the 
                                needs of localities with the 
                                greatest needs, as demonstrated 
                                by inadequate school facilities 
                                coupled with low level of 
                                resources, will be met, and
                                    ``(III) give priority to 
                                the role of charter schools in 
                                achieving State educational 
                                objectives.
                    ``(C) Application of paragraph.--This 
                paragraph shall apply to allocations after more 
                than 6 months after the date of the enactment 
                of this paragraph.
            ``(5) Large local educational agency.--For purposes 
        of this section, the term `large local educational 
        agency' means, with respect to a calendar year, any 
        local educational agency with at least 40,000 children 
        who have attained age 5 but not age 18 for the most 
        recent fiscal year ending before such calendar year.
    ``(e) Carryover of Unused Limitation.--
            ``(1) In general.--If for any calendar year--
                    ``(A) the amount allocated under subsection 
                (d) to any State, exceeds
                    ``(B) the amount of bonds issued during 
                such year which are designated under subsection 
                (a) pursuant to such allocation,
        the limitation amount under such subsection for such 
        State for the following calendar year shall be 
        increased by the amount of such excess.
            ``(2) 2-year carryforward.--Any carryforward of a 
        limitation amount may be carried only to the first 2 
        years following the unused limitation year. For 
        purposes of the preceding sentence, a limitation amount 
        shall be treated as used on a first-in first-out basis.
            ``(3) Allocations for indian schools.--Rules 
        similar to paragraphs (1) and (2) shall apply to the 
        amounts allocated under subsection (d)(3); except that 
        2003 shall be treated as the unused limitation year.''
    (d) Reporting.--Subsection (d) of section 6049 (relating to 
returns regarding payments of interest) is amended by adding at 
the end the following new paragraph:
            ``(8) Reporting of credit on qualified zone academy 
        bonds.--
                    ``(A) In general.--For purposes of 
                subsection (a), the term `interest' includes 
                amounts includible in gross income under 
                section 1397E(i) and such amounts shall be 
                treated as paid on the credit allowance date 
                (as defined in section 1397E(d)(2)).
                    ``(B) Reporting to corporations, etc.--
                Except as otherwise provided in regulations, in 
                the case of any interest described in 
                subparagraph (A) of this paragraph, subsection 
                (b)(4) of this section shall be applied without 
                regard to subparagraphs (A), (H), (I), (J), 
                (K), and (L)(i).
                    ``(C) Regulatory authority.--The Secretary 
                may prescribe such regulations as are necessary 
                or appropriate to carry out the purposes of 
                this paragraph, including regulations which 
                require more frequent or more detailed 
                reporting.''
    (e) Conforming Amendments.--
            (1) Subsections (f), (g), and (h) of section 1397E 
        (as in effect on the day before the date of the 
        enactment of this Act) are hereby repealed.
            (2) Subchapter U of chapter 1 of such Code is 
        amended by redesignating section 1397F (as in effect on 
        the day before the date of the enactment of this Act) 
        as section 1397H.
            (3) The table of parts of subchapter U of chapter 1 
        of such Code is amended by striking the item relating 
        to part IV and inserting the following item:

        ``Part IV. Education bond provisions.''

    (f) Effective Dates.--
            (1) In general.--Except as otherwise provided in 
        this subsection, the amendments made by this section 
        shall apply to obligations issued after December 31, 
        2000.
            (2) Modification of restriction on zone academy 
        bond holders.--In the case of bonds to which section 
        1397E of the Internal Revenue Code of 1986 (as in 
        effect before the date of the enactment of this Act) 
        applies, the limitation of such section to corporations 
        actively engaged in the business of lending money shall 
        not apply after the date of the enactment of this Act.

                   TITLE VI--COMMUNITY REVITALIZATION

           Subtitle A--Tax Incentives for Renewal Communities

SEC. 601. DESIGNATION OF AND TAX INCENTIVES FOR RENEWAL COMMUNITIES.

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

                  ``Subchapter X--Renewal Communities

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

                         ``PART I--DESIGNATION

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

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

    ``(a) Designation.--
            ``(1) Definitions.--For purposes of this title, the 
        term `renewal community' means any area--
                    ``(A) which is nominated by 1 or more local 
                governments and the State or States in which it 
                is located for designation as a renewal 
                community (hereafter in this section referred 
                to as a `nominated area'), and
                    ``(B) which the Secretary of Housing and 
                Urban Development designates as a renewal 
                community, after consultation with--
                            ``(i) the Secretaries of 
                        Agriculture, Commerce, Labor, and the 
                        Treasury; the Director of the Office of 
                        Management and Budget, and the 
                        Administrator of the Small Business 
                        Administration, and
                            ``(ii) in the case of an area on an 
                        Indian reservation, the Secretary of 
                        the Interior.
            ``(2) Number of designations.--
                    ``(A) In general.--Not more than 40 
                nominated areas may be designated as renewal 
                communities.
                    ``(B) Minimum designation in rural areas.--
                Of the areas designated under paragraph (1), at 
                least 12 must be areas--
                            ``(i) which are within a local 
                        government jurisdiction or 
                        jurisdictions with a population of less 
                        than 50,000,
                            ``(ii) which are outside of a 
                        metropolitan statistical area (within 
                        the meaning of section 143(k)(2)(B)), 
                        or
                            ``(iii) which are determined by the 
                        Secretary of Housing and Urban 
                        Development, after consultation with 
                        the Secretary of Commerce, to be rural 
                        areas.
                One of such 12 areas shall be an area within 
                Mississippi, to be designated by the State of 
                Mississippi, that includes at least 1 census 
                tract within Madison County, Mississippi.
            ``(3) Areas designated based on degree of poverty, 
        etc.--
                    ``(A) In general.--Except as otherwise 
                provided in this section, the nominated areas 
                designated as renewal communities under this 
                subsection shall be those nominated areas with 
                the highest average ranking with respect to the 
                criteria described in subparagraphs (B), (C), 
                and (D) of subsection (c)(3). For purposes of 
                the preceding sentence, an area shall be ranked 
                within each such criterion on the basis of the 
                amount by which the area exceeds such 
                criterion, with the area which exceeds such 
                criterion by the greatest amount given the 
                highest ranking.
                    ``(B) Exception where inadequate course of 
                action, etc.--An area shall not be designated 
                under subparagraph (A) if the Secretary of 
                Housing and Urban Development determines that 
                the course of action described in subsection 
                (d)(2) with respect to such area is inadequate.
                    ``(C) Preference for enterprise communities 
                and empowerment zones.--With respect to the 
                first 20 designations made under this section, 
                a preference shall be provided to those 
                nominated areas which are enterprise 
                communities or empowerment zones (and are 
                otherwise eligible for designation under this 
                section).
            ``(4) Limitation on designations.--
                    ``(A) Publication of regulations.--The 
                Secretary of Housing and Urban Development 
                shall prescribe by regulation no later than 4 
                months after the date of the enactment of this 
                section, after consultation with the officials 
                described in paragraph (1)(B)--
                            ``(i) the procedures for nominating 
                        an area under paragraph (1)(A),
                            ``(ii) the parameters relating to 
                        the size and population characteristics 
                        of a renewal community, and
                            ``(iii) the manner in which 
                        nominated areas will be evaluated based 
                        on the criteria specified in subsection 
                        (d).
                    ``(B) Time limitations.--The Secretary of 
                Housing and Urban Development may designate 
                nominated areas as renewal communities only 
                during the period beginning on the first day of 
                the first month following the month in which 
                the regulations described in subparagraph (A) 
                are prescribed and ending on December 31, 2001.
                    ``(C) Procedural rules.--The Secretary of 
                Housing and Urban Development shall not make 
                any designation of a nominated area as a 
                renewal community under paragraph (2) unless--
                            ``(i) the local governments and the 
                        States in which the nominated area is 
                        located have the authority--
                                    ``(I) to nominate such area 
                                for designation as a renewal 
                                community,
                                    ``(II) to make the State 
                                and local commitments described 
                                in subsection (d), and
                                    ``(III) to provide 
                                assurances satisfactory to the 
                                Secretary of Housing and Urban 
                                Development that such 
                                commitments will be fulfilled,
                            ``(ii) a nomination regarding such 
                        area is submitted in such a manner and 
                        in such form, and contains such 
                        information, as the Secretary of 
                        Housing and Urban Development shall by 
                        regulation prescribe, and
                            ``(iii) the Secretary of Housing 
                        and Urban Development determines that 
                        any information furnished is reasonably 
                        accurate.
            ``(5) Nomination process for indian reservations.--
        For purposes of this subchapter, in the case of a 
        nominated area on an Indian reservation, the 
        reservation governing body (as determined by the 
        Secretary of the Interior) shall be treated as being 
        both the State and local governments with respect to 
        such area.
    ``(b) Period for Which Designation Is in Effect.--
            ``(1) In general.--Any designation of an area as a 
        renewal community shall remain in effect during the 
        period beginning on January 1, 2002, and ending on the 
        earliest of--
                    ``(A) December 31, 2009,
                    ``(B) the termination date designated by 
                the State and local governments in their 
                nomination, or
                    ``(C) the date the Secretary of Housing and 
                Urban Development revokes such designation.
            ``(2) Revocation of designation.--The Secretary of 
        Housing and Urban Development may revoke the 
        designation under this section of an area if such 
        Secretary determines that the local government or the 
        State in which the area is located--
                    ``(A) has modified the boundaries of the 
                area, or
                    ``(B) is not complying substantially with, 
                or fails to make progress in achieving, the 
                State or local commitments, respectively, 
                described in subsection (d).
            ``(3) Earlier termination of certain benefits if 
        earlier termination of designation.--If the designation 
        of an area as a renewal community terminates before 
        December 31, 2009, the day after the date of such 
        termination shall be substituted for `January 1, 2010' 
        each place it appears in sections 1400F and 1400J with 
        respect to such area.
    ``(c) Area and Eligibility Requirements.--
            ``(1) In general.--The Secretary of Housing and 
        Urban Development may designate a nominated area as a 
        renewal community under subsection (a) only if the area 
        meets the requirements of paragraphs (2) and (3) of 
        this subsection.
            ``(2) Area requirements.--A nominated area meets 
        the requirements of this paragraph if--
                    ``(A) the area is within the jurisdiction 
                of one or more local governments,
                    ``(B) the boundary of the area is 
                continuous, and
                    ``(C) the area--
                            ``(i) has a population of not more 
                        than 200,000 and at least--
                                    ``(I) 4,000 if any portion 
                                of such area (other than a 
                                rural area described in 
                                subsection (a)(2)(B)(i)) is 
                                located within a metropolitan 
                                statistical area (within the 
                                meaning of section 
                                143(k)(2)(B)) which has a 
                                population of 50,000 or 
                                greater, or
                                    ``(II) 1,000 in any other 
                                case, or
                            ``(ii) is entirely within an Indian 
                        reservation (as determined by the 
                        Secretary of the Interior).
            ``(3) Eligibility requirements.--A nominated area 
        meets the requirements of this paragraph if the State 
        and the local governments in which it is located 
        certify in writing (and the Secretary of Housing and 
        Urban Development, after such review of supporting data 
        as he deems appropriate, accepts such certification) 
        that--
                    ``(A) the area is one of pervasive poverty, 
                unemployment, and general distress;
                    ``(B) the unemployment rate in the area, as 
                determined by the most recent available data, 
                was at least 1\1/2\ times the national 
                unemployment rate for the period to which such 
                data relate;
                    ``(C) the poverty rate for each population 
                census tract within the nominated area is at 
                least 20 percent; and
                    ``(D) in the case of an urban area, at 
                least 70 percent of the households living in 
                the area have incomes below 80 percent of the 
                median income of households within the 
                jurisdiction of the local government 
                (determined in the same manner as under section 
                119(b)(2) of the Housing and Community 
                Development Act of 1974).
            ``(4) Consideration of other factors.--The 
        Secretary of Housing and Urban Development, in 
        selecting any nominated area for designation as a 
        renewal community under this section--
                    ``(A) shall take into account--
                            ``(i) the extent to which such area 
                        has a high incidence of crime, or
                            ``(ii) if such area has census 
                        tracts identified in the May 12, 1998, 
                        report of the General Accounting Office 
                        regarding the identification of 
                        economically distressed areas, and
                    ``(B) with respect to 1 of the areas to be 
                designated under subsection (a)(2)(B), may, in 
                lieu of any criteria described in paragraph 
                (3), take into account the existence of 
                outmigration from the area.
    ``(d) Required State and Local Commitments.--
            ``(1) In general.--The Secretary of Housing and 
        Urban Development may designate any nominated area as a 
        renewal community under subsection (a) only if--
                    ``(A) the local government and the State in 
                which the area is located agree in writing 
                that, during any period during which the area 
                is a renewal community, such governments will 
                follow a specified course of action which meets 
                the requirements of paragraph (2) and is 
                designed to reduce the various burdens borne by 
                employers or employees in such area, and
                    ``(B) the economic growth promotion 
                requirements of paragraph (3) are met.
            ``(2) Course of action.--
                    ``(A) In general.--A course of action meets 
                the requirements of this paragraph if such 
                course of action is a written document, signed 
                by a State (or local government) and 
                neighborhood organizations, which evidences a 
                partnership between such State or government 
                and community-based organizations and which 
                commits each signatory to specific and 
                measurable goals, actions, and timetables. Such 
                course of action shall include at least 4 of 
                the following:
                            ``(i) A reduction of tax rates or 
                        fees applying within the renewal 
                        community.
                            ``(ii) An increase in the level of 
                        efficiency of local services within the 
                        renewal community.
                            ``(iii) Crime reduction strategies, 
                        such as crime prevention (including the 
                        provision of crime prevention services 
                        by nongovernmental entities).
                            ``(iv) Actions to reduce, remove, 
                        simplify, or streamline governmental 
                        requirements applying within the 
                        renewal community.
                            ``(v) Involvement in the program by 
                        private entities, organizations, 
                        neighborhood organizations, and 
                        community groups, particularly those in 
                        the renewal community, including a 
                        commitment from such private entities 
                        to provide jobs and job training for, 
                        and technical, financial, or other 
                        assistance to, employers, employees, 
                        and residents from the renewal 
                        community.
                            ``(vi) The gift (or sale at below 
                        fair market value) of surplus real 
                        property (such as land, homes, and 
                        commercial or industrial structures) in 
                        the renewal community to neighborhood 
                        organizations, community development 
                        corporations, or private companies.
                    ``(B) Recognition of past efforts.--For 
                purposes of this section, in evaluating the 
                course of action agreed to by any State or 
                local government, the Secretary of Housing and 
                Urban Development shall take into account the 
                past efforts of such State or local government 
                in reducing the various burdens borne by 
                employers and employees in the area involved.
            ``(3) Economic growth promotion requirements.--The 
        economic growth promotion requirements of this 
        paragraph are met with respect to a nominated area if 
        the local government and the State in which such area 
        is located certify in writing that such government and 
        State (respectively) have repealed or reduced, will not 
        enforce, or will reduce within the nominated area at 
        least 4 of the following:
                    ``(A) Licensing requirements for 
                occupations that do not ordinarily require a 
                professional degree.
                    ``(B) Zoning restrictions on home-based 
                businesses which do not create a public 
                nuisance.
                    ``(C) Permit requirements for street 
                vendors who do not create a public nuisance.
                    ``(D) Zoning or other restrictions that 
                impede the formation of schools or child care 
                centers.
                    ``(E) Franchises or other restrictions on 
                competition for businesses providing public 
                services, including taxicabs, jitneys, cable 
                television, or trash hauling.
        This paragraph shall not apply to the extent that such 
        regulation of businesses and occupations is necessary 
        for and well-tailored to the protection of health and 
        safety.
    ``(e) Coordination With Treatment of Empowerment Zones and 
Enterprise Communities.--For purposes of this title, the 
designation under section 1391 of any area as an empowerment 
zone or enterprise community shall cease to be in effect as of 
the date that the designation of any portion of such area as a 
renewal community takes effect.
    ``(f ) Definitions and Special Rules.--For purposes of this 
subchapter--
            ``(1) Governments.--If more than one government 
        seeks to nominate an area as a renewal community, any 
        reference to, or requirement of, this section shall 
        apply to all such governments.
            ``(2) Local government.--The term `local 
        government' means--
                    ``(A) any county, city, town, township, 
                parish, village, or other general purpose 
                political subdivision of a State, and
                    ``(B) any combination of political 
                subdivisions described in subparagraph (A) 
                recognized by the Secretary of Housing and 
                Urban Development.
            ``(3) Application of rules relating to census 
        tracts.--The rules of section 1392(b)(4) shall apply.
            ``(4) Census data.--Population and poverty rate 
        shall be determined by using 1990 census data.
    ``(g) Priority for District of Columbia Nominated Area.--
For purposes of this subchapter--
            ``(1) In general.--One nominated area within the 
        District of Columbia shall be treated for purposes of 
        subsection (a)(3) as having the highest average with 
        respect to the criteria described in subparagraphs (B), 
        (C), and (D) of subsection (c)(3).
            ``(2) Date of designation.--Notwithstanding 
        subsection (b)(1), the designation of a nominated area 
        within the District of Columbia as a renewal community 
        shall take effect on January 1, 2003.
            ``(3) Nomination.--The District of Columbia shall 
        be treated as being both a State and local government 
        with respect to such area.

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

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

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

    ``(a) General Rule.--Gross income does not include any 
qualified capital gain from the sale or exchange of a qualified 
community asset held for more than 5 years.
    ``(b) Qualified Community Asset.--For purposes of this 
section--
            ``(1) In general.--The term `qualified community 
        asset' means--
                    ``(A) any qualified community stock,
                    ``(B) any qualified community partnership 
                interest, and
                    ``(C) any qualified community business 
                property.
            ``(2) Qualified community stock.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `qualified community 
                stock' means any stock in a domestic 
                corporation if--
                            ``(i) such stock is acquired by the 
                        taxpayer after December 31, 2001, and 
                        before January 1, 2010, at its original 
                        issue (directly or through an 
                        underwriter) from the corporation 
                        solely in exchange for cash,
                            ``(ii) as of the time such stock 
                        was issued, such corporation was a 
                        renewal community business (or, in the 
                        case of a new corporation, such 
                        corporation was being organized for 
                        purposes of being a renewal community 
                        business), and
                            ``(iii) during substantially all of 
                        the taxpayer's holding period for such 
                        stock, such corporation qualified as a 
                        renewal community business.
                    ``(B) Redemptions.--A rule similar to the 
                rule of section 1202(c)(3) shall apply for 
                purposes of this paragraph.
            ``(3) Qualified community partnership interest.--
        The term `qualified community partnership interest' 
        means any capital or profits interest in a domestic 
        partnership if--
                    ``(A) such interest is acquired by the 
                taxpayer after December 31, 2001, and before 
                January 1, 2010, from the partnership solely in 
                exchange for cash,
                    ``(B) as of the time such interest was 
                acquired, such partnership was a renewal 
                community business (or, in the case of a new 
                partnership, such partnership was being 
                organized for purposes of being a renewal 
                community business), and
                    ``(C) during substantially all of the 
                taxpayer's holding period for such interest, 
                such partnership qualified as a renewal 
                community business.
        A rule similar to the rule of paragraph (2)(B) shall 
        apply for purposes of this paragraph.
            ``(4) Qualified community business property.--
                    ``(A) In general.--The term `qualified 
                community business property' means tangible 
                property if--
                            ``(i) such property was acquired by 
                        the taxpayer by purchase (as defined in 
                        section 179(d)(2)) after December 31, 
                        2001, and before January 1, 2010,
                            ``(ii) the original use of such 
                        property in the renewal community 
                        commences with the taxpayer, and
                            ``(iii) during substantially all of 
                        the taxpayer's holding period for such 
                        property, substantially all of the use 
                        of such property was in a renewal 
                        community business of the taxpayer.
                    ``(B) Special rule for substantial 
                improvements.--The requirements of clauses (i) 
                and (ii) of subparagraph (A) shall be treated 
                as satisfied with respect to--
                            ``(i) property which is 
                        substantially improved by the taxpayer 
                        before January 1, 2010, and
                            ``(ii) any land on which such 
                        property is located.
                The determination of whether a property is 
                substantially improved shall be made under 
                clause (ii) of section 1400B(b)(4)(B), except 
                that `December 31, 2001' shall be substituted 
                for `December 31, 1997' in such clause.
    ``(c) Qualified Capital Gain.--For purposes of this 
section--
            ``(1) In general.--Except as otherwise provided in 
        this subsection, the term `qualified capital gain` 
        means any gain recognized on the sale or exchange of--
                    ``(A) a capital asset, or
                    ``(B) property used in the trade or 
                business (as defined in section 1231(b)).
            ``(2) Gain before 2002 or after 2014 not 
        qualified.--The term `qualified capital gain' shall not 
        include any gain attributable to periods before January 
        1, 2002, or after December 31, 2014.
            ``(3) Certain rules to apply.--Rules similar to the 
        rules of paragraphs (3), (4), and (5) of section 
        1400B(e) shall apply for purposes of this subsection.
    ``(d) Certain Rules To Apply.--For purposes of this 
section, rules similar to the rules of paragraphs (5), (6), and 
(7) of subsection (b), and subsections (f ) and (g), of section 
1400B shall apply; except that for such purposes section 
1400B(g)(2) shall be applied by substituting `January 1, 2002' 
for `January 1, 1998' and `December 31, 2014' for `December 31, 
2007'.
    ``(e) Regulations.--The Secretary shall prescribe such 
regulations as may be appropriate to carry out the purposes of 
this section, including regulations to prevent the avoidance of 
the purposes of this section.

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

    ``For purposes of this subchapter, the term `renewal 
community business' means any entity or proprietorship which 
would be a qualified business entity or qualified 
proprietorship under section 1397C if references to renewal 
communities were substituted for references to empowerment 
zones in such section.

                   ``PART III--ADDITIONAL INCENTIVES

        ``Sec. 1400H. Renewal community employment credit.
        ``Sec. 1400I. Commercial revitalization deduction.
        ``Sec. 1400J. Increase in expensing under section 179.

``SEC. 1400H. RENEWAL COMMUNITY EMPLOYMENT CREDIT.

    ``(a) In General.--Subject to the modification in 
subsection (b), a renewal community shall be treated as an 
empowerment zone for purposes of section 1396 with respect to 
wages paid or incurred after December 31, 2001.
    ``(b) Modification.--In applying section 1396 with respect 
to renewal communities--
            ``(1) the applicable percentage shall be 15 
        percent, and
            ``(2) subsection (c) thereof shall be applied by 
        substituting `$10,000' for `$15,000' each place it 
        appears.

``SEC. 1400I. COMMERCIAL REVITALIZATION DEDUCTION.

    ``(a) General Rule.--At the election of the taxpayer, 
either--
            ``(1) one-half of any qualified revitalization 
        expenditures chargeable to capital account with respect 
        to any qualified revitalization building shall be 
        allowable as a deduction for the taxable year in which 
        the building is placed in service, or
            ``(2) a deduction for all such expenditures shall 
        be allowable ratably over the 120-month period 
        beginning with the month in which the building is 
        placed in service.
    ``(b) Qualified Revitalization Buildings and 
Expenditures.--For purposes of this section--
            ``(1) Qualified revitalization building.--The term 
        `qualified revitalization building' means any building 
        (and its structural components) if--
                    ``(A) the building is placed in service by 
                the taxpayer in a renewal community and the 
                original use of the building begins with the 
                taxpayer, or
                    ``(B) in the case of such building not 
                described in subparagraph (A), such building--
                            ``(i) is substantially 
                        rehabilitated (within the meaning of 
                        section 47(c)(1)(C)) by the taxpayer, 
                        and
                            ``(ii) is placed in service by the 
                        taxpayer after the rehabilitation in a 
                        renewal community.
            ``(2) Qualified revitalization expenditure.--
                    ``(A) In general.--The term `qualified 
                revitalization expenditure' means any amount 
                properly chargeable to capital account for 
                property for which depreciation is allowable 
                under section 168 (without regard to this 
                section) and which is--
                            ``(i) nonresidential real property 
                        (as defined in section 168(e)), or
                            ``(ii) section 1250 property (as 
                        defined in section 1250(c)) which is 
                        functionally related and subordinate to 
                        property described in clause (i).
                    ``(B) Certain expenditures not included.--
                            ``(i) Acquisition cost.--In the 
                        case of a building described in 
                        paragraph (1)(B), the cost of acquiring 
                        the building or interest therein shall 
                        be treated as a qualified 
                        revitalization expenditure only to the 
                        extent that such cost does not exceed 
                        30 percent of the aggregate qualified 
                        revitalization expenditures (determined 
                        without regard to such cost) with 
                        respect to such building.
                            ``(ii) Credits.--The term 
                        `qualified revitalization expenditure' 
                        does not include any expenditure which 
                        the taxpayer may take into account in 
                        computing any credit allowable under 
                        this title unless the taxpayer elects 
                        to take the expenditure into account 
                        only for purposes of this section.
    ``(c) Dollar limitation.--The aggregate amount which may be 
treated as qualified revitalization expenditures with respect 
to any qualified revitalization building shall not exceed the 
lesser of--
            ``(1) $10,000,000, or
            ``(2) the commercial revitalization expenditure 
        amount allocated to such building under this section by 
        the commercial revitalization agency for the State in 
        which the building is located.
    ``(d) Commercial Revitalization Expenditure Amount.--
            ``(1) In general.--The aggregate commercial 
        revitalization expenditure amount which a commercial 
        revitalization agency may allocate for any calendar 
        year is the amount of the State commercial 
        revitalization expenditure ceiling determined under 
        this paragraph for such calendar year for such agency.
            ``(2) State commercial revitalization expenditure 
        ceiling.--The State commercial revitalization 
        expenditure ceiling applicable to any State--
                    ``(A) for each calendar year after 2001 and 
                before 2010 is $12,000,000 for each renewal 
                community in the State, and
                    ``(B) for each calendar year thereafter is 
                zero.
            ``(3) Commercial revitalization agency.--For 
        purposes of this section, the term `commercial 
        revitalization agency' means any agency authorized by a 
        State to carry out this section.
            ``(4) Time and manner of allocations.--Allocations 
        under this section shall be made at the same time and 
        in the same manner as under paragraphs (1) and (7) of 
        section 42(h).
    ``(e) Responsibilities of Commercial Revitalization 
Agencies.--
            ``(1) Plans for allocation.--Notwithstanding any 
        other provision of this section, the commercial 
        revitalization expenditure amount with respect to any 
        building shall be zero unless--
                    ``(A) such amount was allocated pursuant to 
                a qualified allocation plan of the commercial 
                revitalization agency which is approved (in 
                accordance with rules similar to the rules of 
                section 147(f )(2) (other than subparagraph 
                (B)(ii) thereof)) by the governmental unit of 
                which such agency is a part; and
                    ``(B) such agency notifies the chief 
                executive officer (or its equivalent) of the 
                local jurisdiction within which the building is 
                located of such allocation and provides such 
                individual a reasonable opportunity to comment 
                on the allocation.
            ``(2) Qualified allocation plan.--For purposes of 
        this subsection, the term `qualified allocation plan' 
        means any plan--
                    ``(A) which sets forth selection criteria 
                to be used to determine priorities of the 
                commercial revitalization agency which are 
                appropriate to local conditions,
                    ``(B) which considers--
                            ``(i) the degree to which a project 
                        contributes to the implementation of a 
                        strategic plan that is devised for a 
                        renewal community through a citizen 
                        participation process,
                            ``(ii) the amount of any increase 
                        in permanent, full-time employment by 
                        reason of any project, and
                            ``(iii) the active involvement of 
                        residents and nonprofit groups within 
                        the renewal community, and
                    ``(C) which provides a procedure that the 
                agency (or its agent) will follow in monitoring 
                compliance with this section.
    ``(f) Special Rules.--
            ``(1) Deduction in lieu of depreciation.--The 
        deduction provided by this section for qualified 
        revitalization expenditures shall--
                    ``(A) with respect to the deduction 
                determined under subsection (a)(1), be in lieu 
                of any depreciation deduction otherwise 
                allowable on account of one-half of such 
                expenditures, and
                    ``(B) with respect to the deduction 
                determined under subsection (a)(2), be in lieu 
                of any depreciation deduction otherwise 
                allowable on account of all of such 
                expenditures.
            ``(2) Basis adjustment, etc.--For purposes of 
        sections 1016 and 1250, the deduction under this 
        section shall be treated in the same manner as a 
        depreciation deduction. For purposes of section 
        1250(b)(5), the straight line method of adjustment 
        shall be determined without regard to this section.
            ``(3) Substantial rehabilitations treated as 
        separate buildings.--A substantial rehabilitation 
        (within the meaning of section 47(c)(1)(C)) of a 
        building shall be treated as a separate building for 
        purposes of subsection (a).
            ``(4) Clarification of allowance of deduction under 
        minimum tax.--Notwithstanding section 56(a)(1), the 
        deduction under this section shall be allowed in 
        determining alternative minimum taxable income under 
        section 55.
    ``(g) Termination.--This section shall not apply to any 
building placed in service after December 31, 2009.

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

    ``(a) In General.--For purposes of section 1397A--
            ``(1) a renewal community shall be treated as an 
        empowerment zone,
            ``(2) a renewal community business shall be treated 
        as an enterprise zone business, and
            ``(3) qualified renewal property shall be treated 
        as qualified zone property.
    ``(b) Qualified Renewal Property.--For purposes of this 
section--
            ``(1) In general.--The term `qualified renewal 
        property' means any property to which section 168 
        applies (or would apply but for section 179) if--
                    ``(A) such property was acquired by the 
                taxpayer by purchase (as defined in section 
                179(d)(2)) after December 31, 2001, and before 
                January 1, 2010, and
                    ``(B) such property would be qualified zone 
                property (as defined in section 1397D) if 
                references to renewal communities were 
                substituted for references to empowerment zones 
                in section 1397D.
            ``(2) Certain rules to apply.--The rules of 
        subsections (a)(2) and (b) of section 1397D shall apply 
        for purposes of this section.''.
    (b) Exception for Commercial Revitalization Deduction From 
Passive Loss Rules.--
            (1) Paragraph (3) of section 469(i) is amended by 
        redesignating subparagraphs (C), (D), and (E) as 
        subparagraphs (D), (E), and (F), respectively, and by 
        inserting after subparagraph (B) the following new 
        subparagraph:
                    ``(C) Exception for commercial 
                revitalization deduction.--Subparagraph (A) 
                shall not apply to any portion of the passive 
                activity loss for any taxable year which is 
                attributable to the commercial revitalization 
                deduction under section 1400I.''.
            (2) Subparagraph (E) of section 469(i)(3), as 
        redesignated by subparagraph (A), is amended to read as 
        follows:
                    ``(E) Ordering rules to reflect exceptions 
                and separate phase-outs.--If subparagraph (B), 
                (C), or (D) applies for a taxable year, 
                paragraph (1) shall be applied--
                            ``(i) first to the portion of the 
                        passive activity loss to which 
                        subparagraph (C) does not apply,
                            ``(ii) second to the portion of the 
                        passive activity credit to which 
                        subparagraph (B) or (D) does not apply,
                            ``(iii) third to the portion of 
                        such credit to which subparagraph (B) 
                        applies,
                            ``(iv) fourth to the portion of 
                        such loss to which subparagraph (C) 
                        applies, and
                            ``(v) then to the portion of such 
                        credit to which subparagraph (D) 
                        applies.''.
            (3)(A) Subparagraph (B) of section 469(i)(6) 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) any deduction under section 
                        1400I (relating to commercial 
                        revitalization deduction).''.
            (B) The heading for such subparagraph (B) is 
        amended by striking ``or rehabilitation credit'' and 
        inserting ``, rehabilitation credit, or commercial 
        revitalization deduction''.
    (c) Audit and Report.--Not later than January 31 of 2004, 
2007, and 2010, the Comptroller General of the United States 
shall, pursuant to an audit of the renewal community program 
established under section 1400E of the Internal Revenue Code of 
1986 (as added by subsection (a)) and the empowerment zone and 
enterprise community program under subchapter U of chapter 1 of 
such Code, report to Congress on such program and its effect on 
poverty, unemployment, and economic growth within the 
designated renewal communities, empowerment zones, and 
enterprise communities.
    (d) Clerical Amendment.--The table of subchapters for 
chapter 1 is amended by adding at the end the following new 
item:

                 ``Subchapter X. Renewal Communities.''.

SEC. 602. WORK OPPORTUNITY CREDIT FOR HIRING YOUTH RESIDING IN RENEWAL 
                    COMMUNITIES.

    (a) High-Risk Youth.--Subparagraphs (A)(ii) and (B) of 
section 51(d)(5) are each amended by striking ``empowerment 
zone or enterprise community'' and inserting ``empowerment 
zone, enterprise community, or renewal community''.
    (b) Qualified Summer Youth Employee.--Clause (iv) of 
section 51(d)(7)(A) is amended by striking ``empowerment zone 
or enterprise community'' and inserting ``empowerment zone, 
enterprise community, or renewal community''.
    (c) Headings.--Paragraphs (5)(B) and (7)(C) of section 
51(d) are each amended by inserting ``or community'' in the 
heading after ``zone''.
    (d) Effective Date.--The amendments made by this section 
shall apply to individuals who begin work for the employer 
after December 31, 2001.

   Subtitle B--Extension and Expansion of Empowerment Zone Incentives

SEC. 611. AUTHORITY TO DESIGNATE 9 ADDITIONAL EMPOWERMENT ZONES.

    Section 1391 is amended by adding at the end the following 
new subsection:
    ``(h) Additional Designations Permitted.--
            ``(1) In general.--In addition to the areas 
        designated under subsections (a) and (g), the 
        appropriate Secretaries may designate in the aggregate 
        an additional 9 nominated areas as empowerment zones 
        under this section, subject to the availability of 
        eligible nominated areas. Of that number, not more than 
        seven may be designated in urban areas and not more 
        than 2 may be designated in rural areas.
            ``(2) Period designations may be made and take 
        effect.--A designation may be made under this 
        subsection after the date of the enactment of this 
        subsection and before January 1, 2002. Subject to 
        subparagraphs (B) and (C) of subsection (d)(1), such 
        designations shall remain in effect during the period 
        beginning on January 1, 2002, and ending on December 
        31, 2009.
            ``(3) Modifications to eligibility criteria, etc.--
        The rules of subsection (g)(3) shall apply to 
        designations under this subsection.''.

SEC. 612. EXTENSION OF EMPOWERMENT ZONE TREATMENT THROUGH 2009.

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

SEC. 613. 20 PERCENT EMPLOYMENT CREDIT FOR ALL EMPOWERMENT ZONES

    (a) 20 Percent Credit.--Subsection (b) of section 1396 
(relating to empowerment zone employment credit) is amended to 
read as follows:
    ``(b) Applicable Percentage.--For purposes of this section, 
the applicable percentage is 20 percent.''.
    (b) All Empowerment Zones Eligible for Credit.--Section 
1396 is amended by striking subsection (e).
    (c) Conforming Amendment.--Subsection (d) of section 1400 
is amended to read as follows:
    ``(d) Special Rule for Application of Employment Credit.--
With respect to the DC Zone, section 1396(d)(1)(B) (relating to 
empowerment zone employment credit) shall be applied by 
substituting `the District of Columbia' for `such empowerment 
zone'.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to wages paid or incurred after December 31, 2001.

SEC. 614. INCREASED EXPENSING UNDER SECTION 179.

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

SEC. 615. HIGHER LIMITS ON TAX-EXEMPT EMPOWERMENT ZONE FACILITY BONDS.

    (a) In General.--Paragraph (3) of section 1394(f) (relating 
to bonds for empowerment zones designated under section 
1391(g)) is amended to read as follows:
            ``(3) Empowerment zone facility bond.--For purposes 
        of this subsection, the term `empowerment zone facility 
        bond' means any bond which would be described in 
        subsection (a) if--
                    ``(A) in the case of obligations issued 
                before January 1, 2002, only empowerment zones 
                designated under section 1391(g) were taken 
                into account under sections 1397C and 1397D, 
                and
                    ``(B) in the case of obligations issued 
                after December 31, 2001, all empowerment zones 
                (other than the District of Columbia) were 
                taken into account under sections 1397C and 
                1397D.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to obligations issued after December 31, 2001.

SEC. 616. NONRECOGNITION OF GAIN ON ROLLOVER OF EMPOWERMENT ZONE 
                    INVESTMENTS.

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

  ``Subpart C--Nonrecognition of Gain on Rollover of Empowerment Zone 
                              Investments

        ``Sec. 1397B. Nonrecognition of Gain on Rollover of Empowerment 
                  Zone Investments.

``SEC. 1397B. NONRECOGNITION OF GAIN ON ROLLOVER OF EMPOWERMENT ZONE 
                    INVESTMENTS.

    ``(a) Nonrecognition of Gain.--In the case of any sale of a 
qualified empowerment zone asset held by the taxpayer for more 
than 1 year and with respect to which such taxpayer elects the 
application of this section, gain from such sale shall be 
recognized only to the extent that the amount realized on such 
sale exceeds--
            ``(1) the cost of any qualified empowerment zone 
        asset (with respect to the same zone as the asset sold) 
        purchased by the taxpayer during the 60-day period 
        beginning on the date of such sale, reduced by
            ``(2) any portion of such cost previously taken 
        into account under this section.
    ``(b) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified empowerment zone asset.--
                    ``(A) In general.--The term `qualified 
                empowerment zone asset' means any property 
                which would be a qualified community asset (as 
                defined in section 1400F) if in section 1400F--
                            ``(i) references to empowerment 
                        zones were substituted for references 
                        to renewal communities,
                            ``(ii) references to enterprise 
                        zone businesses (as defined in section 
                        1397C) were substituted for references 
                        to renewal community businesses, and
                            ``(iii) the date of the enactment 
                        of this paragraph were substituted for 
                        `December 31, 2001' each place it 
                        appears.
                    ``(B) Treatment of dc zone.--The District 
                of Columbia Enterprise Zone shall not be 
                treated as an empowerment zone for purposes of 
                this section.
            ``(2) Certain gain not eligible for rollover.--This 
        section shall not apply to--
                    ``(A) any gain which is treated as ordinary 
                income for purposes of this subtitle, and
                    ``(B) any gain which is attributable to 
                real property, or an intangible asset, which is 
                not an integral part of an enterprise zone 
                business.
            ``(3) Purchase.--A taxpayer shall be treated as 
        having purchased any property if, but for paragraph 
        (4), the unadjusted basis of such property in the hands 
        of the taxpayer would be its cost (within the meaning 
        of section 1012).
            ``(4) Basis adjustments.--If gain from any sale is 
        not recognized by reason of subsection (a), such gain 
        shall be applied to reduce (in the order acquired) the 
        basis for determining gain or loss of any qualified 
        empowerment zone asset which is purchased by the 
        taxpayer during the 60-day period described in 
        subsection (a). This paragraph shall not apply for 
        purposes of section 1202.
            ``(5) Holding period.--For purposes of determining 
        whether the nonrecognition of gain under subsection (a) 
        applies to any qualified empowerment zone asset which 
        is sold--
                    ``(A) the taxpayer's holding period for 
                such asset and the asset referred to in 
                subsection (a)(1) shall be determined without 
                regard to section 1223, and
                    ``(B) only the first year of the taxpayer's 
                holding period for the asset referred to in 
                subsection (a)(1) shall be taken into account 
                for purposes of paragraphs (2)(A)(iii), (3)(C), 
                and (4)(A)(iii) of section 1400F(b).''.
    (b) Conforming Amendments.--
            (1) Paragraph (23) of section 1016(a) is amended--
                    (A) by striking ``or 1045'' and inserting 
                ``1045, or 1397B'', and
                    (B) by striking ``or 1045(b)(4)'' and 
                inserting ``1045(b)(4), or 1397B(b)(4)''.
            (2) Paragraph (15) of section 1223 is amended to 
        read as follows:
            ``(15) Except for purposes of sections 1202(a)(2), 
        1202(c)(2)(A), 1400B(b), and 1400F(b), in determining 
        the period for which the taxpayer has held property the 
        acquisition of which resulted under section 1045 or 
        1397B in the nonrecognition of any part of the gain 
        realized on the sale of other property, there shall be 
        included the period for which such other property has 
        been held as of the date of such sale.''.
            (3) Paragraph (2) of section 1394(b) is amended--
                    (A) by striking ``section 1397C'' and 
                inserting ``section 1397D'', and
                    (B) by striking ``section 1397C(a)(2)'' and 
                inserting ``section 1397D(a)(2)''.
            (4) Paragraph (3) of section 1394(b) is amended--
                    (A) by striking ``section 1397B'' each 
                place it appears and inserting ``section 
                1397C'', and
                    (B) by striking ``section 1397B(d)'' and 
                inserting ``section 1397C(d)''.
            (5) Sections 1400(e) and 1400B(c) are each amended 
        by striking ``section 1397B'' each place it appears and 
        inserting ``section 1397C''.
            (6) The table of subparts for part III of 
        subchapter U of chapter 1 is amended by striking the 
        last item and inserting the following new items:

        ``Subpart C. Nonrecognition of gain on rollover of empowerment 
                  zone investments.
        ``Subpart D. General provisions.''.

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

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

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

SEC. 617. INCREASED EXCLUSION OF GAIN ON SALE OF EMPOWERMENT ZONE 
                    STOCK.

    (a) In General.--Subsection (a) of section 1202 is amended 
to read as follows:
    ``(a) Exclusion.--
            ``(1) In general.--In the case of a taxpayer other 
        than a corporation, gross income shall not include 50 
        percent of any gain from the sale or exchange of 
        qualified small business stock held for more than 5 
        years.
            ``(2) Empowerment zone businesses.--
                    ``(A) In general.--In the case of qualified 
                small business stock acquired after the date of 
                the enactment of this paragraph in a 
                corporation which is a qualified business 
                entity (as defined in section 1397C(b)) during 
                substantially all of the taxpayer's holding 
                period for such stock, paragraph (1) shall be 
                applied by substituting `60 percent' for `50 
                percent'.
                    ``(B) Certain rules to apply.--Rules 
                similar to the rules of paragraphs (5) and (7) 
                of section 1400B(b) shall apply for purposes of 
                this paragraph.
                    ``(C) Gain after 2014 not qualified.--
                Subparagraph (A) shall not apply to gain 
                attributable to periods after December 31, 
                2014.
                    ``(D) Treatment of dc zone.--The District 
                of Columbia Enterprise Zone shall not be 
                treated as an empowerment zone for purposes of 
                this paragraph.''.
    (b) Conforming Amendment.--Paragraph (8) of section 1(h) is 
amended by striking ``means'' and all that follows and 
inserting ``means the excess of--
                    ``(A) the gain which would be excluded from 
                gross income under section 1202 but for the 
                percentage limitation in section 1202(a), over
                    ``(B) the gain excluded from gross income 
                under section 1202.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to stock acquired after the date of the enactment 
of this Act.

                   Subtitle C--New Markets Tax Credit

SEC. 621. NEW MARKETS TAX CREDIT.

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

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

    ``(a) Allowance of Credit.--
            ``(1) In general.--For purposes of section 38, in 
        the case of a taxpayer who holds a qualified equity 
        investment on a credit allowance date of such 
        investment which occurs during the taxable year, the 
        new markets tax credit determined under this section 
        for such taxable year is an amount equal to the 
        applicable percentage of the amount paid to the 
        qualified community development entity for such 
        investment at its original issue.
            ``(2) Applicable percentage.--For purposes of 
        paragraph (1), the applicable percentage is--
                    ``(A) 5 percent with respect to the first 3 
                credit allowance dates, and
                    ``(B) 6 percent with respect to the 
                remainder of the credit allowance dates.
            ``(3) Credit allowance date.--For purposes of 
        paragraph (1), the term `credit allowance date' means, 
        with respect to any qualified equity investment--
                    ``(A) the date on which such investment is 
                initially made, and
                    ``(B) each of the 6 anniversary dates of 
                such date thereafter.
    ``(b) Qualified Equity Investment.--For purposes of this 
section--
            ``(1) In general.--The term `qualified equity 
        investment' means any equity investment in a qualified 
        community development entity if--
                    ``(A) such investment is acquired by the 
                taxpayer at its original issue (directly or 
                through an underwriter) solely in exchange for 
                cash,
                    ``(B) substantially all of such cash is 
                used by the qualified community development 
                entity to make qualified low-income community 
                investments, and
                    ``(C) such investment is designated for 
                purposes of this section by the qualified 
                community development entity.
        Such term shall not include any equity investment 
        issued by a qualified community development entity more 
        than 5 years after the date that such entity receives 
        an allocation under subsection (f). Any allocation not 
        used within such 5-year period may be reallocated by 
        the Secretary under subsection (f).
            ``(2) Limitation.--The maximum amount of equity 
        investments issued by a qualified community development 
        entity which may be designated under paragraph (1)(C) 
        by such entity shall not exceed the portion of the 
        limitation amount allocated under subsection (f) to 
        such entity.
            ``(3) Safe harbor for determining use of cash.--The 
        requirement of paragraph (1)(B) shall be treated as met 
        if at least 85 percent of the aggregate gross assets of 
        the qualified community development entity are invested 
        in qualified low-income community investments.
            ``(4) Treatment of subsequent purchasers.--The term 
        `qualified equity investment' includes any equity 
        investment which would (but for paragraph (1)(A)) be a 
        qualified equity investment in the hands of the 
        taxpayer if such investment was a qualified equity 
        investment in the hands of a prior holder.
            ``(5) Redemptions.--A rule similar to the rule of 
        section 1202(c)(3) shall apply for purposes of this 
        subsection.
            ``(6) Equity investment.--The term `equity 
        investment' means--
                    ``(A) any stock (other than nonqualified 
                preferred stock as defined in section 
                351(g)(2)) in an entity which is a corporation, 
                and
                    ``(B) any capital interest in an entity 
                which is a partnership.
    ``(c) Qualified Community Development Entity.--For purposes 
of this section--
            ``(1) In general.--The term `qualified community 
        development entity' means any domestic corporation or 
        partnership if--
                    ``(A) the primary mission of the entity is 
                serving, or providing investment capital for, 
                low-income communities or low-income persons,
                    ``(B) the entity maintains accountability 
                to residents of low-income communities through 
                their representation on any governing board of 
                the entity or on any advisory board to the 
                entity, and
                    ``(C) the entity is certified by the 
                Secretary for purposes of this section as being 
                a qualified community development entity.
            ``(2) Special rules for certain organizations.--The 
        requirements of paragraph (1) shall be treated as met 
        by--
                    ``(A) any specialized small business 
                investment company (as defined in section 
                1044(c)(3)), and
                    ``(B) any community development financial 
                institution (as defined in section 103 of the 
                Community Development Banking and Financial 
                Institutions Act of 1994 (12 U.S.C. 4702)).
    ``(d) Qualified Low-Income Community Investments.--For 
purposes of this section--
            ``(1) In general.--The term `qualified low-income 
        community investment' means--
                    ``(A) any equity investment in, or loan to, 
                any qualified active low-income community 
                business,
                    ``(B) the purchase from another community 
                development entity of any loan made by such 
                entity which is a qualified low-income 
                community investment,
                    ``(C) financial counseling and other 
                services specified in regulations prescribed by 
                the Secretary to businesses located in, and 
                residents of, low-income communities, and
                    ``(D) any equity investment in, or loan to, 
                any qualified community development entity.
            ``(2) Qualified active low-income community 
        business.--
                    ``(A) In general.--For purposes of 
                paragraph (1), the term `qualified active low-
                income community business' means, with respect 
                to any taxable year, any corporation (including 
                a nonprofit corporation) or partnership if for 
                such year--
                            ``(i) at least 50 percent of the 
                        total gross income of such entity is 
                        derived from the active conduct of a 
                        qualified business within any low-
                        income community,
                            ``(ii) a substantial portion of the 
                        use of the tangible property of such 
                        entity (whether owned or leased) is 
                        within any low-income community,
                            ``(iii) a substantial portion of 
                        the services performed for such entity 
                        by its employees are performed in any 
                        low-income community,
                            ``(iv) less than 5 percent of the 
                        average of the aggregate unadjusted 
                        bases of the property of such entity is 
                        attributable to collectibles (as 
                        defined in section 408(m)(2)) other 
                        than collectibles that are held 
                        primarily for sale to customers in the 
                        ordinary course of such business, and
                            ``(v) less than 5 percent of the 
                        average of the aggregate unadjusted 
                        bases of the property of such entity is 
                        attributable to nonqualified financial 
                        property (as defined in section 
                        1397C(e)).
                    ``(B) Proprietorship.--Such term shall 
                include any business carried on by an 
                individual as a proprietor if such business 
                would meet the requirements of subparagraph (A) 
                were it incorporated.
                    ``(C) Portions of business may be qualified 
                active low-income community business.--The term 
                `qualified active low-income community 
                business' includes any trades or businesses 
                which would qualify as a qualified active low-
                income community business if such trades or 
                businesses were separately incorporated.
            ``(3) Qualified business.--For purposes of this 
        subsection, the term `qualified business' has the 
        meaning given to such term by section 1397C(d); except 
        that--
                    ``(A) in lieu of applying paragraph (2)(B) 
                thereof, the rental to others of real property 
                located in any low-income community shall be 
                treated as a qualified business if there are 
                substantial improvements located on such 
                property, and
                    ``(B) paragraph (3) thereof shall not 
                apply.
    ``(e) Low-Income Community.--For purposes of this section--
            ``(1) In general.--The term `low-income community' 
        means any population census tract if--
                    ``(A) the poverty rate for such tract is at 
                least 20 percent, or
                    ``(B)(i) in the case of a tract not located 
                within a metropolitan area, the median family 
                income for such tract does not exceed 80 
                percent of statewide median family income, or
                    ``(ii) in the case of a tract located 
                within a metropolitan area, the median family 
                income for such tract does not exceed 80 
                percent of the greater of statewide median 
                family income or the metropolitan area median 
                family income.
            ``(2) Targeted areas.--The Secretary may designate 
        any area within any census tract as a low-income 
        community if--
                    ``(A) the boundary of such area is 
                continuous,
                    ``(B) the area would satisfy the 
                requirements of paragraph (1) if it were a 
                census tract, and
                    ``(C) an inadequate access to investment 
                capital exists in such area.
            ``(3) Areas not within census tracts.--In the case 
        of an area which is not tracted for population census 
        tracts, the equivalent county divisions (as defined by 
        the Bureau of the Census for purposes of defining 
        poverty areas) shall be used for purposes of 
        determining poverty rates and median family income.
    ``(f) National Limitation on Amount of Investments 
Designated.--
            ``(1) In general.--There is a new markets tax 
        credit limitation for each calendar year. Such 
        limitation is--
                    ``(A) $1,000,000,000 for 2001,
                    ``(B) $1,500,000,000 for 2002 and 2003,
                    ``(C) $2,000,000,000 for 2004 and 2005, and
                    ``(D) $3,500,000,000 for 2006 and 2007.
            ``(2) Allocation of limitation.--The limitation 
        under paragraph (1) shall be allocated by the Secretary 
        among qualified community development entities selected 
        by the Secretary. In making allocations under the 
        preceding sentence, the Secretary shall give priority 
        to any entity--
                    ``(A) with a record of having successfully 
                provided capital or technical assistance to 
                disadvantaged businesses or communities, or
                    ``(B) which intends to satisfy the 
                requirement under subsection (b)(1)(B) by 
                making qualified low-income community 
                investments in 1 or more businesses in which 
                persons unrelated to such entity (within the 
                meaning of section 267(b) or 707(b)(1)) hold 
                the majority equity interest.
            ``(3) Carryover of unused limitation.--If the new 
        markets tax credit limitation for any calendar year 
        exceeds the aggregate amount allocated under paragraph 
        (2) for such year, such limitation for the succeeding 
        calendar year shall be increased by the amount of such 
        excess. No amount may be carried under the preceding 
        sentence to any calendar year after 2014.
    ``(g) Recapture of Credit In Certain Cases.--
            ``(1) In general.--If, at any time during the 7-
        year period beginning on the date of the original issue 
        of a qualified equity investment in a qualified 
        community development entity, there is a recapture 
        event with respect to such investment, then the tax 
        imposed by this chapter for the taxable year in which 
        such event occurs shall be increased by the credit 
        recapture amount.
            ``(2) Credit recapture amount.--For purposes of 
        paragraph (1), the credit recapture amount is an amount 
        equal to the sum of--
                    ``(A) the aggregate decrease in the credits 
                allowed to the taxpayer under section 38 for 
                all prior taxable years which would have 
                resulted if no credit had been determined under 
                this section with respect to such investment, 
                plus
                    ``(B) interest at the underpayment rate 
                established under section 6621 on the amount 
                determined under subparagraph (A) for each 
                prior taxable year for the period beginning on 
                the due date for filing the return for the 
                prior taxable year involved.
        No deduction shall be allowed under this chapter for 
        interest described in subparagraph (B).
            ``(3) Recapture event.--For purposes of paragraph 
        (1), there is a recapture event with respect to an 
        equity investment in a qualified community development 
        entity if--
                    ``(A) such entity ceases to be a qualified 
                community development entity,
                    ``(B) the proceeds of the investment cease 
                to be used as required of subsection (b)(1)(B), 
                or
                    ``(C) such investment is redeemed by such 
                entity.
            ``(4) Special rules.--
                    ``(A) Tax benefit rule.--The tax for the 
                taxable year shall be increased under paragraph 
                (1) only with respect to credits allowed by 
                reason of this section which were used to 
                reduce tax liability. In the case of credits 
                not so used to reduce tax liability, the 
                carryforwards and carrybacks under section 39 
                shall be appropriately adjusted.
                    ``(B) No credits against tax.--Any increase 
                in tax under this subsection shall not be 
                treated as a tax imposed by this chapter for 
                purposes of determining the amount of any 
                credit under this chapter or for purposes of 
                section 55.
    ``(h) Basis Reduction.--The basis of any qualified equity 
investment shall be reduced by the amount of any credit 
determined under this section with respect to such investment. 
This subsection shall not apply for purposes of sections 1202, 
1400B, and 1400F.
    ``(i) Regulations.--The Secretary shall prescribe such 
regulations as may be appropriate to carry out this section, 
including regulations--
            ``(1) which limit the credit for investments which 
        are directly or indirectly subsidized by other Federal 
        tax benefits (including the credit under section 42 and 
        the exclusion from gross income under section 103),
            ``(2) which prevent the abuse of the purposes of 
        this section,
            ``(3) which provide rules for determining whether 
        the requirement of subsection (b)(1)(B) is treated as 
        met,
            ``(4) which impose appropriate reporting 
        requirements, and
            ``(5) which apply the provisions of this section to 
        newly formed entities.''.
    (b) Credit Made Part of General Business Credit.--
            (1) In general.--Subsection (b) of section 38 is 
        amended by striking ``plus'' at the end of paragraph 
        (11), by striking the period at the end of paragraph 
        (12) and inserting ``, plus'', and by adding at the end 
        the following new paragraph:
            ``(13) the new markets tax credit determined under 
        section 45D(a).''.
            (2) Limitation on carryback.--Subsection (d) of 
        section 39 is amended by adding at the end the 
        following new paragraph:
            ``(9) No carryback of new markets tax credit before 
        january 1, 2001.--No portion of the unused business 
        credit for any taxable year which is attributable to 
        the credit under section 45D may be carried back to a 
        taxable year ending before January 1, 2001.''.
    (c) Deduction for Unused Credit.--Subsection (c) of section 
196 is amended by striking ``and'' at the end of paragraph (7), 
by striking the period at the end of paragraph (8) and 
inserting ``, and'', and by adding at the end the following new 
paragraph:
            ``(9) the new markets tax credit determined under 
        section 45D(a).''.
    (d) Clerical Amendment.--The table of sections for subpart 
D of part IV of subchapter A of chapter 1 is amended by adding 
at the end the following new item:

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

    (e) Effective Date.--The amendments made by this section 
shall apply to investments made after December 31, 2000.
    (f) Guidance on Allocation of National Limitation.--Not 
later than 120 days after the date of the enactment of this 
Act, the Secretary of the Treasury or the Secretary's delegate 
shall issue guidance which specifies--
            (1) how entities shall apply for an allocation 
        under section 45D(f)(2) of the Internal Revenue Code of 
        1986, as added by this section;
            (2) the competitive procedure through which such 
        allocations are made; and
            (3) the actions that such Secretary or delegate 
        shall take to ensure that such allocations are properly 
        made to appropriate entities.
    (g) Audit and Report.--Not later than January 31 of 2004, 
2007, and 2010, the Comptroller General of the United States 
shall, pursuant to an audit of the new markets tax credit 
program established under section 45D of the Internal Revenue 
Code of 1986 (as added by subsection (a)), report to Congress 
on such program, including all qualified community development 
entities that receive an allocation under the new markets 
credit under such section.

         Subtitle D--Improvements in Low-Income Housing Credit

SEC. 631. MODIFICATION OF STATE CEILING ON LOW-INCOME HOUSING CREDIT.

    (a) In General.--Clauses (i) and (ii) of section 
42(h)(3)(C) (relating to State housing credit ceiling) are 
amended to read as follows:
                            ``(i) the unused State housing 
                        credit ceiling (if any) of such State 
                        for the preceding calendar year,
                            ``(ii) the greater of--
                                    ``(I) $1.75 ($1.50 for 
                                2001) multiplied by the State 
                                population, or
                                    ``(II) $2,000,000,''.
    (b) Adjustment of State Ceiling for Increases in Cost-of-
Living.--Paragraph (3) of section 42(h) (relating to housing 
credit dollar amount for agencies) is amended by adding at the 
end the following new subparagraph:
                    ``(H) Cost-of-living adjustment.--
                            ``(i) In general.--In the case of a 
                        calendar year after 2002, the 
                        $2,000,000 and $1.75 amounts in 
                        subparagraph (C) shall each be 
                        increased by an amount equal to--
                                    ``(I) such dollar amount, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under 
                                section 1(f)(3) for such 
                                calendar year by substituting 
                                `calendar year 2001' for 
                                `calendar year 1992' in 
                                subparagraph (B) thereof.
                            ``(ii) Rounding.--
                                    ``(I) In the case of the 
                                $2,000,000 amount, any increase 
                                under clause (i) which is not a 
                                multiple of $5,000 shall be 
                                rounded to the next lowest 
                                multiple of $5,000.
                                    ``(II) In the case of the 
                                $1.75 amount, any increase 
                                under clause (i) which is not a 
                                multiple of 5 cents shall be 
                                rounded to the next lowest 
                                multiple of 5 cents.''.
    (c) Conforming Amendments.--
            (1) Section 42(h)(3)(C), as amended by subsection 
        (a), is amended--
                    (A) by striking ``clause (ii)'' in the 
                matter following clause (iv) and inserting 
                ``clause (i)''; and
                    (B) by striking ``clauses (i)'' in the 
                matter following clause (iv) and inserting 
                ``clauses (ii)''.
            (2) Section 42(h)(3)(D)(ii) is amended--
                    (A) by striking ``subparagraph (C)(ii)'' 
                and inserting ``subparagraph (C)(i)''; and
                    (B) by striking ``clauses (i)'' in 
                subclause (II) and inserting ``clauses (ii)''.
    (d) Effective Date.--The amendments made by this section 
shall apply to calendar years after 2000.

SEC. 632. MODIFICATION OF CRITERIA FOR ALLOCATING HOUSING CREDITS AMONG 
                    PROJECTS.

    (a) Selection Criteria.--Subparagraph (C) of section 
42(m)(1) (relating to certain selection criteria must be used) 
is amended--
            (1) by inserting ``, including whether the project 
        includes the use of existing housing as part of a 
        community revitalization plan'' before the comma at the 
        end of clause (iii); and
            (2) by striking clauses (v), (vi), and (vii) and 
        inserting the following new clauses:
                            ``(v) tenant populations with 
                        special housing needs,
                            ``(vi) public housing waiting 
                        lists,
                            ``(vii) tenant populations of 
                        individuals with children, and
                            ``(viii) projects intended for 
                        eventual tenant ownership.''.
    (b) Preference for Community Revitalization Projects 
Located in Qualified Census Tracts.--Clause (ii) of section 
42(m)(1)(B) is amended by striking ``and'' at the end of 
subclause (I), by adding ``and'' at the end of subclause (II), 
and by inserting after subclause (II) the following new 
subclause:
                                    ``(III) projects which are 
                                located in qualified census 
                                tracts (as defined in 
                                subsection (d)(5)(C)) and the 
                                development of which 
                                contributes to a concerted 
                                community revitalization 
                                plan,''.

SEC. 633. ADDITIONAL RESPONSIBILITIES OF HOUSING CREDIT AGENCIES.

    (a) Market Study; Public Disclosure of Rationale for Not 
Following Credit Allocation Priorities.--Subparagraph (A) of 
section 42(m)(1) (relating to responsibilities of housing 
credit agencies) is amended by striking ``and'' at the end of 
clause (i), by striking the period at the end of clause (ii) 
and inserting a comma, and by adding at the end the following 
new clauses:
                            ``(iii) a comprehensive market 
                        study of the housing needs of low-
                        income individuals in the area to be 
                        served by the project is conducted 
                        before the credit allocation is made 
                        and at the developer's expense by a 
                        disinterested party who is approved by 
                        such agency, and
                            ``(iv) a written explanation is 
                        available to the general public for any 
                        allocation of a housing credit dollar 
                        amount which is not made in accordance 
                        with established priorities and 
                        selection criteria of the housing 
                        credit agency.''.
    (b) Site Visits.--Clause (iii) of section 42(m)(1)(B) 
(relating to qualified allocation plan) is amended by inserting 
before the period ``and in monitoring for noncompliance with 
habitability standards through regular site visits''.

SEC. 634. MODIFICATIONS TO RULES RELATING TO BASIS OF BUILDING WHICH IS 
                    ELIGIBLE FOR CREDIT.

    (a) Adjusted Basis To Include Portion of Certain Buildings 
Used by Low-Income Individuals Who Are Not Tenants and by 
Project Employees.--Paragraph (4) of section 42(d) (relating to 
special rules relating to determination of adjusted basis) is 
amended--
            (1) by striking ``subparagraph (B)'' in 
        subparagraph (A) and inserting ``subparagraphs (B) and 
        (C)'';
            (2) by redesignating subparagraph (C) as 
        subparagraph (D); and
            (3) by inserting after subparagraph (B) the 
        following new subparagraph:
                    ``(C) Inclusion of basis of property used 
                to provide services for certain nontenants.--
                            ``(i) In general.--The adjusted 
                        basis of any building located in a 
                        qualified census tract (as defined in 
                        paragraph (5)(C)) shall be determined 
                        by taking into account the adjusted 
                        basis of property (of a character 
                        subject to the allowance for 
                        depreciation and not otherwise taken 
                        into account) used throughout the 
                        taxable year in providing any community 
                        service facility.
                            ``(ii) Limitation.--The increase in 
                        the adjusted basis of any building 
                        which is taken into account by reason 
                        of clause (i) shall not exceed 10 
                        percent of the eligible basis of the 
                        qualified low-income housing project of 
                        which it is a part. For purposes of the 
                        preceding sentence, all community 
                        service facilities which are part of 
                        the same qualified low-income housing 
                        project shall be treated as one 
                        facility.
                            ``(iii) Community service 
                        facility.--For purposes of this 
                        subparagraph, the term `community 
                        service facility' means any facility 
                        designed to serve primarily individuals 
                        whose income is 60 percent or less of 
                        area median income (within the meaning 
                        of subsection (g)(1)(B)).''.
    (b) Certain Native American Housing Assistance Disregarded 
in Determining Whether Building Is Federally Subsidized for 
Purposes of the Low-Income Housing Credit.--Subparagraph (E) of 
section 42(i)(2) (relating to determination of whether building 
is federally subsidized) is amended--
            (1) in clause (i), by inserting ``or the Native 
        American Housing Assistance and Self-Determination Act 
        of 1996 (25 U.S.C. 4101 et seq.) (as in effect on 
        October 1, 1997)'' after ``this subparagraph)''; and
            (2) in the subparagraph heading, by inserting ``or 
        native american housing assistance'' after ``home 
        assistance''.

SEC. 635. OTHER MODIFICATIONS.

    (a) Allocation of Credit Limit to Certain Buildings.--
            (1) The first sentence of section 42(h)(1)(E)(ii) 
        is amended by striking ``(as of'' the first place it 
        appears and inserting ``(as of the later of the date 
        which is 6 months after the date that the allocation 
        was made or''.
            (2) The last sentence of section 42(h)(3)(C) is 
        amended by striking ``project which'' and inserting 
        ``project which fails to meet the 10 percent test under 
        paragraph (1)(E)(ii) on a date after the close of the 
        calendar year in which the allocation was made or 
        which''.
    (b) Determination of Whether Buildings Are Located in High 
Cost Areas.--The first sentence of section 42(d)(5)(C)(ii)(I) 
is amended--
            (1) by inserting ``either'' before ``in which 50 
        percent''; and
            (2) by inserting before the period ``or which has a 
        poverty rate of at least 25 percent''.

SEC. 636. CARRYFORWARD RULES.

    (a) In General.--Clause (ii) of section 42(h)(3)(D) 
(relating to unused housing credit carryovers allocated among 
certain States) is amended by striking ``the excess'' and all 
that follows and inserting ``the excess (if any) of--
                                    ``(I) the unused State 
                                housing credit ceiling for the 
                                year preceding such year, over
                                    ``(II) the aggregate 
                                housing credit dollar amount 
                                allocated for such year.''.
    (b) Conforming Amendment.--The second sentence of section 
42(h)(3)(C) (relating to State housing credit ceiling) is 
amended by striking ``clauses (i) and (iii)'' and inserting 
``clauses (i) through (iv)''.

SEC. 637. EFFECTIVE DATE.

    Except as otherwise provided in this title, the amendments 
made by this title shall apply to--
            (1) housing credit dollar amounts allocated after 
        December 31, 2000; and
            (2) buildings placed in service after such date to 
        the extent paragraph (1) of section 42(h) of the 
        Internal Revenue Code of 1986 does not apply to any 
        building by reason of paragraph (4) thereof, but only 
        with respect to bonds issued after such date.

     Subtitle E--Other Community Renewal and New Markets Assistance

SEC. 641. TRANSFER OF UNOCCUPIED AND SUBSTANDARD HUD-HELD HOUSING TO 
                    LOCAL GOVERNMENTS AND COMMUNITY DEVELOPMENT 
                    CORPORATIONS.

    Section 204 of the Departments of Veterans Affairs and 
Housing and Urban Development, and Independent Agencies 
Appropriations Act, 1997 (12 U.S.C. 1715z-11a) is amended--
            (1) by striking ``Flexible Authority.--'' and 
        inserting ``Disposition of HUD-Owned Properties. (a) 
        Flexible Authority for Multifamily Projects.--''; and
            (2) by adding at the end the following new 
        subsection:
    ``(b) Transfer of Unoccupied and Substandard Housing to 
Local Governments and Community Development Corporations.--
            ``(1) Transfer authority.--Notwithstanding the 
        authority under subsection (a) and the last sentence of 
        section 204(g) of the National Housing Act (12 U.S.C. 
        1710(g)), the Secretary of Housing and Urban 
        Development shall transfer ownership of any qualified 
        HUD property, subject to the requirements of this 
        section, to a unit of general local government having 
        jurisdiction for the area in which the property is 
        located or to a community development corporation which 
        operates within such a unit of general local government 
        in accordance with this subsection, but only to the 
        extent that units of general local government and 
        community development corporations consent to transfer 
        and the Secretary determines that such transfer is 
        practicable.
            ``(2) Qualified hud properties.--For purposes of 
        this subsection, the term `qualified HUD property' 
        means any property for which, as of the date that 
        notification of the property is first made under 
        paragraph (3)(B), not less than 6 months have elapsed 
        since the later of the date that the property was 
        acquired by the Secretary or the date that the property 
        was determined to be unoccupied or substandard, that is 
        owned by the Secretary and is--
                    ``(A) an unoccupied multifamily housing 
                project;
                    ``(B) a substandard multifamily housing 
                project; or
                    ``(C) an unoccupied single family property 
                that--
                            ``(i) has been determined by the 
                        Secretary not to be an eligible asset 
                        under section 204(h) of the National 
                        Housing Act (12 U.S.C. 1710(h)); or
                            ``(ii) is an eligible asset under 
                        such section 204(h), but--
                                    ``(I) is not subject to a 
                                specific sale agreement under 
                                such section; and
                                    ``(II) has been determined 
                                by the Secretary to be 
                                inappropriate for continued 
                                inclusion in the program under 
                                such section 204(h) pursuant to 
                                paragraph (10) of such section.
            ``(3) Timing.--The Secretary shall establish 
        procedures that provide for--
                    ``(A) time deadlines for transfers under 
                this subsection;
                    ``(B) notification to units of general 
                local government and community development 
                corporations of qualified HUD properties in 
                their jurisdictions;
                    ``(C) such units and corporations to 
                express interest in the transfer under this 
                subsection of such properties;
                    ``(D) a right of first refusal for transfer 
                of qualified HUD properties to units of general 
                local government and community development 
                corporations, under which--
                            ``(i) the Secretary shall establish 
                        a period during which the Secretary may 
                        not transfer such properties except to 
                        such units and corporations;
                            ``(ii) the Secretary shall offer 
                        qualified HUD properties that are 
                        single family properties for purchase 
                        by units of general local government at 
                        a cost of $1 for each property, but 
                        only to the extent that the costs to 
                        the Federal Government of disposal at 
                        such price do not exceed the costs to 
                        the Federal Government of disposing of 
                        property subject to the procedures for 
                        single family property established by 
                        the Secretary pursuant to the authority 
                        under the last sentence of section 
                        204(g) of the National Housing Act (12 
                        U.S.C. 1710(g));
                            ``(iii) the Secretary may accept an 
                        offer to purchase a property made by a 
                        community development corporation only 
                        if the offer provides for purchase on a 
                        cost recovery basis; and
                            ``(iv) the Secretary shall accept 
                        an offer to purchase such a property 
                        that is made during such period by such 
                        a unit or corporation and that complies 
                        with the requirements of this 
                        paragraph;
                    ``(E) a written explanation, to any unit of 
                general local government or community 
                development corporation making an offer to 
                purchase a qualified HUD property under this 
                subsection that is not accepted, of the reason 
                that such offer was not acceptable.
            ``(4) Other disposition.--With respect to any 
        qualified HUD property, if the Secretary does not 
        receive an acceptable offer to purchase the property 
        pursuant to the procedure established under paragraph 
        (3), the Secretary shall dispose of the property to the 
        unit of general local government in which property is 
        located or to community development corporations 
        located in such unit of general local government on a 
        negotiated, competitive bid, or other basis, on such 
        terms as the Secretary deems appropriate.
            ``(5) Satisfaction of indebtedness.--Before 
        transferring ownership of any qualified HUD property 
        pursuant to this subsection, the Secretary shall 
        satisfy any indebtedness incurred in connection with 
        the property to be transferred, by canceling the 
        indebtedness.
            ``(6) Determination of status of properties.--To 
        ensure compliance with the requirements of this 
        subsection, the Secretary shall take the following 
        actions:
                    ``(A) Upon enactment.--Upon the enactment 
                of this subsection, the Secretary shall 
                promptly assess each residential property owned 
                by the Secretary to determine whether such 
                property is a qualified HUD property.
                    ``(B) Upon acquisition.--Upon acquiring any 
                residential property, the Secretary shall 
                promptly determine whether the property is a 
                qualified HUD property.
                    ``(C) Updates.--The Secretary shall 
                periodically reassess the residential 
                properties owned by the Secretary to determine 
                whether any such properties have become 
                qualified HUD properties.
            ``(7) Tenant leases.--This subsection shall not 
        affect the terms or the enforceability of any contract 
        or lease entered into with respect to any residential 
        property before the date that such property becomes a 
        qualified HUD property.
            ``(8) Use of property.--Property transferred under 
        this subsection shall be used only for appropriate 
        neighborhood revitalization efforts, including 
        homeownership, rental units, commercial space, and 
        parks, consistent with local zoning regulations, local 
        building codes, and subdivision regulations and 
        restrictions of record.
            ``(9) Inapplicability to properties made available 
        for homeless.--Notwithstanding any other provision of 
        this subsection, this subsection shall not apply to any 
        properties that the Secretary determines are to be made 
        available for use by the homeless pursuant to subpart E 
        of part 291 of title 24, Code of Federal Regulations, 
        during the period that the properties are so available.
            ``(10) Protection of existing contracts.--This 
        subsection may not be construed to alter, affect, or 
        annul any legally binding obligations entered into with 
        respect to a qualified HUD property before the property 
        becomes a qualified HUD property.
            ``(11) Definitions.--For purposes of this 
        subsection, the following definitions shall apply:
                    ``(A) Community development corporation.--
                The term `community development corporation' 
                means a nonprofit organization whose primary 
                purpose is to promote community development by 
                providing housing opportunities for low-income 
                families.
                    ``(B) Cost recovery basis.--The term `cost 
                recovery basis' means, with respect to any sale 
                of a residential property by the Secretary, 
                that the purchase price paid by the purchaser 
                is equal to or greater than the sum of: (i) the 
                appraised value of the property, as determined 
                in accordance with such requirements as the 
                Secretary shall establish; and (ii) the costs 
                incurred by the Secretary in connection with 
                such property during the period beginning on 
                the date on which the Secretary acquires title 
                to the property and ending on the date on which 
                the sale is consummated.
                    ``(C) Multifamily housing project.--The 
                term `multifamily housing project' has the 
                meaning given the term in section 203 of the 
                Housing and Community Development Amendments of 
                1978.
                    ``(D) Residential property.--The term 
                `residential property' means a property that is 
                a multifamily housing project or a single 
                family property.
                    ``(E) Secretary.--The term `Secretary' 
                means the Secretary of Housing and Urban 
                Development.
                    ``(F) Severe physical problems.--The term 
                `severe physical problems' means, with respect 
                to a dwelling unit, that the unit--
                            ``(i) lacks hot or cold piped 
                        water, a flush toilet, or both a 
                        bathtub and a shower in the unit, for 
                        the exclusive use of that unit;
                            ``(ii) on not less than three 
                        separate occasions during the preceding 
                        winter months, was uncomfortably cold 
                        for a period of more than 6 consecutive 
                        hours due to a malfunction of the 
                        heating system for the unit;
                            ``(iii) has no functioning 
                        electrical service, exposed wiring, any 
                        room in which there is not a 
                        functioning electrical outlet, or has 
                        experienced three or more blown fuses 
                        or tripped circuit breakers during the 
                        preceding 90-day period;
                            ``(iv) is accessible through a 
                        public hallway in which there are no 
                        working light fixtures, loose or 
                        missing steps or railings, and no 
                        elevator; or
                            ``(v) has severe maintenance 
                        problems, including water leaks 
                        involving the roof, windows, doors, 
                        basement, or pipes or plumbing 
                        fixtures, holes or open cracks in walls 
                        or ceilings, severe paint peeling or 
                        broken plaster, and signs of rodent 
                        infestation.
                    ``(G) Single family property.--The term 
                `single family property' means a 1- to 4-family 
                residence.
                    ``(H) Substandard.--The term `substandard' 
                means, with respect to a multifamily housing 
                project, that 25 percent or more of the 
                dwelling units in the project have severe 
                physical problems.
                    ``(I) Unit of general local government.--
                The term `unit of general local government' has 
                the meaning given such term in section 102(a) 
                of the Housing and Community Development Act of 
                1974.
                    ``(J) Unoccupied.--The term `unoccupied' 
                means, with respect to a residential property, 
                that the unit of general local government 
                having jurisdiction over the area in which the 
                project is located has certified in writing 
                that the property is not inhabited.
            ``(12) Regulations.--
                    ``(A) Interim.--Not later than 30 days 
                after the date of the enactment of this 
                subsection, the Secretary shall issue such 
                interim regulations as are necessary to carry 
                out this subsection.
                    ``(B) Final.--Not later than 60 days after 
                the date of the enactment of this subsection, 
                the Secretary shall issue such final 
                regulations as are necessary to carry out this 
                subsection.''.

SEC. 642. TRANSFER OF HUD ASSETS IN REVITALIZATION AREAS.

    In carrying out the program under section 204(h) of the 
National Housing Act (12 U.S.C. 1710(h)), upon the request of 
the chief executive officer of a county or the government of 
appropriate jurisdiction and not later than 60 days after such 
request is made, the Secretary of Housing and Urban Development 
shall designate as a revitalization area all portions of such 
county that meet the criteria for such designation under 
paragraph (3) of such section.

SEC. 643. RISK-SHARING DEMONSTRATION.

    Section 249 of the National Housing Act (12 U.S.C. 1715z-
14) is amended--
            (1) by striking the section heading and inserting 
        the following:


                    ``risk-sharing demonstration'';


            (2) by striking ``reinsurance'' each place such 
        term appears and insert ``risk-sharing'';
            (3) in subsection (a)--
                    (A) in the first sentence, by inserting 
                ``and with insured community development 
                financial institutions'' after ``private 
                mortgage insurers'';
                    (B) in the second sentence--
                            (i) by striking ``two'' and 
                        inserting ``four''; and
                            (ii) by striking ``March 15, 1988'' 
                        and inserting ``the expiration of the 
                        5-year period beginning on the date of 
                        the enactment of the Taxpayer Relief 
                        Act of 2000''; and
                    (C) in the third sentence--
                            (i) by striking ``insured'' and 
                        inserting ``for which risk of 
                        nonpayment is shared''; and
                            (ii) by striking ``10 percent'' and 
                        inserting ``20 percent'';
            (4) in subsection (b)--
                    (A) in the first sentence--
                            (i) by striking ``to provide'' and 
                        inserting ``, in providing'';
                            (ii) by striking ``through'' and 
                        inserting ``, to enter into''; and
                            (iii) by inserting ``and with 
                        insured community development financial 
                        institutions'' before the period at the 
                        end;
                    (B) in the second sentence, by inserting 
                ``and insured community development financial 
                institutions'' after ``private mortgage 
                insurance companies'';
                    (C) by striking paragraph (1) and inserting 
                the following new paragraph:
            ``(1) assume a secondary percentage of loss on any 
        mortgage insured pursuant to section 203(b), 234, or 
        245 covering a one- to four-family dwelling, which 
        percentage of loss shall be set forth in the risk-
        sharing contract, with the first percentage of loss to 
        be borne by the Secretary;''; and
                    (D) in paragraph (2)--
                            (i) by striking ``carry out (under 
                        appropriate delegation) such'' and 
                        inserting ``perform or delegate 
                        underwriting,'';
                            (ii) by striking ``function as the 
                        Secretary pursuant to regulations,'' 
                        and inserting ``functions as the 
                        Secretary''; and
                            (iii) by inserting before the 
                        period at the end the following: ``and 
                        shall set forth in the risk-sharing 
                        contract'';
            (5) in subsection (c)--
                    (A) in the first sentence--
                            (i) by striking ``of'' the first 
                        place it appears and inserting ``for'';
                            (ii) by inserting ``received by the 
                        Secretary with a private mortgage 
                        insurer or insured community 
                        development financial institution'' 
                        after ``sharing of premiums''
                            (iii) by striking ``insurance 
                        reserves'' and inserting ``loss 
                        reserves'';
                            (iv) by striking ``such insurance'' 
                        and inserting ``such risk-sharing 
                        contract''; and
                            (v) by striking ``right'' and 
                        inserting ``rights''; and
                    (B) in the second sentence--
                            (i) by inserting ``or insured 
                        community development financial 
                        institution'' after ``private mortgage 
                        insurance company''; and
                            (ii) by striking ``for insurance'' 
                        and inserting ``for risk-sharing'';
            (6) in subsection (d), by inserting ``or insured 
        community development financial institution'' after 
        ``private mortgage insurance company''; and
            (7) by adding at the end the following new 
        subsection:
    ``(e) Insured Community Development Financial 
Institution.--For purposes of this section, the term `insured 
community development financial institution' means a community 
development financial institution, as such term is defined in 
section 103 of Reigle Community Development and Regulatory 
Improvement Act of 1994 (12 U.S.C. 4702) that is an insured 
depository institution (as such term is defined in section 3 of 
the Federal Deposit Insurance Act (12 U.S.C. 1813)) or an 
insured credit union (as such term is defined in section 101 of 
the Federal Credit Union Act (12 U.S.C. 1752)).''.

SEC. 644. PREVENTION AND TREATMENT OF SUBSTANCE ABUSE; SERVICES 
                    PROVIDED THROUGH RELIGIOUS ORGANIZATIONS.

    Title V of the Public Health Service Act (42 U.S.C. 290aa 
et seq.) is amended by adding at the end the following part:

      ``Part G--Services Provided Through Religious Organizations

``SEC. 581. APPLICABILITY TO DESIGNATED PROGRAMS.

    ``(a) Designated Programs.--Subject to subsection (b), this 
part applies to discretionary and formula grant programs 
administered by the Substance Abuse and Mental Health Services 
Administration that make awards of financial assistance to 
public or private entities for the purpose of carrying out 
activities to prevent or treat substance abuse (in this part 
referred to as a `designated program'). Designated programs 
include the program under subpart II of part B of title XIX 
(relating to formula grants to the States).
    ``(b) Limitation.--This part does not apply to any award of 
financial assistance under a designated program for a purpose 
other than the purpose specified in subsection (a).
    ``(c) Definitions.--For purposes of this part (and subject 
to subsection (b)):
            ``(1) The term `designated program' has the meaning 
        given such term in subsection (a).
            ``(2) The term `financial assistance' means a 
        grant, cooperative agreement, or contract.
            ``(3) The term `program beneficiary' means an 
        individual who receives program services.
            ``(4) The term `program participant' means a public 
        or private entity that has received financial 
        assistance under a designated program.
            ``(5) The term `program services' means treatment 
        for substance abuse, or preventive services regarding 
        such abuse, provided pursuant to an award of financial 
        assistance under a designated program.
            ``(6) The term `religious organization' means a 
        nonprofit religious organization.

``SEC. 582. RELIGIOUS ORGANIZATIONS AS PROGRAM PARTICIPANTS.

    ``(a) In General.--Notwithstanding any other provision of 
law, a religious organization, on the same basis as any other 
nonprofit private provider--
            ``(1) may receive financial assistance under a 
        designated program; and
            ``(2) may be a provider of services under a 
        designated program.
    ``(b) Religious Organizations.--The purpose of this section 
is to allow religious organizations to be program participants 
on the same basis as any other nonprofit private provider 
without impairing the religious character of such 
organizations, and without diminishing the religious freedom of 
program beneficiaries.
    ``(c) Nondiscrimination Against Religious Organizations.--
            ``(1) Eligibility as program participants.--
        Religious organizations are eligible to be program 
        participants on the same basis as any other nonprofit 
        private organization as long as the programs are 
        implemented consistent with the Establishment Clause 
        and Free Exercise Clause of the First Amendment to the 
        United States Constitution. Nothing in this Act shall 
        be construed to restrict the ability of the Federal 
        Government, or a State or local government receiving 
        funds under such programs, to apply to religious 
        organizations the same eligibility conditions in 
        designated programs as are applied to any other 
        nonprofit private organization.
            ``(2) Nondiscrimination.--Neither the Federal 
        Government nor a State or local government receiving 
        funds under designated programs shall discriminate 
        against an organization that is or applies to be a 
        program participant on the basis that the organization 
        has a religious character.
    ``(d) Religious Character and Freedom.--
            ``(1) Religious organizations.--Except as provided 
        in this section, any religious organization that is a 
        program participant shall retain its independence from 
        Federal, State, and local government, including such 
        organization's control over the definition, 
        development, practice, and expression of its religious 
        beliefs.
            ``(2) Additional safeguards.--Neither the Federal 
        Government nor a State shall require a religious 
        organization to--
                    ``(A) alter its form of internal 
                governance; or
                    ``(B) remove religious art, icons, 
                scripture, or other symbols,
        in order to be a program participant.
    ``(e) Employment Practices.--Nothing in this section shall 
be construed to modify or affect the provisions of any other 
Federal or State law or regulation that relates to 
discrimination in employment. A religious organization's 
exemption provided under section 702 of the Civil Rights Act of 
1964 regarding employment practices shall not be affected by 
its participation in, or receipt of funds from, a designated 
program.
    ``(f) Rights of Program Beneficiaries.--
            ``(1) In general.--If an individual who is a 
        program beneficiary or a prospective program 
        beneficiary objects to the religious character of a 
        program participant, within a reasonable period of time 
        after the date of such objection such program 
        participant shall refer such individual to, and the 
        appropriate Federal, State, or local government that 
        administers a designated program or is a program 
        participant shall provide to such individual (if 
        otherwise eligible for such services), program services 
        that--
                    ``(A) are from an alternative provider that 
                is accessible to, and has the capacity to 
                provide such services to, such individual; and
                    ``(B) have a value that is not less than 
                the value of the services that the individual 
                would have received from the program 
                participant to which the individual had such 
                objection.
        Upon referring a program beneficiary to an alternative 
        provider, the program participant shall notify the 
        appropriate Federal, State, or local government agency 
        that administers the program of such referral.
            ``(2) Notices.--Program participants, public 
        agencies that refer individuals to designated programs, 
        and the appropriate Federal, State, or local 
        governments that administer designated programs or are 
        program participants shall ensure that notice is 
        provided to program beneficiaries or prospective 
        program beneficiaries of their rights under this 
        section.
            ``(3) Additional requirements.--A program 
        participant making a referral pursuant to paragraph (1) 
        shall--
                    ``(A) prior to making such referral, 
                consider any list that the State or local 
                government makes available of entities in the 
                geographic area that provide program services; 
                and
                    ``(B) ensure that the individual makes 
                contact with the alternative provider to which 
                the individual is referred.
            ``(4) Nondiscrimination.--A religious organization 
        that is a program participant shall not in providing 
        program services or engaging in outreach activities 
        under designated programs discriminate against a 
        program beneficiary or prospective program beneficiary 
        on the basis of religion or religious belief.
    ``(g) Fiscal Accountability.--
            ``(1) In general.--Except as provided in paragraph 
        (2), any religious organization that is a program 
        participant shall be subject to the same regulations as 
        other recipients of awards of Federal financial 
        assistance to account, in accordance with generally 
        accepted auditing principles, for the use of the funds 
        provided under such awards.
            ``(2) Limited audit.--With respect to the award 
        involved, a religious organization that is a program 
        participant shall segregate Federal amounts provided 
        under award into a separate account from non-Federal 
        funds. Only the award funds shall be subject to audit 
        by the government.
    ``(h) Compliance.--With respect to compliance with this 
section by an agency, a religious organization may obtain 
judicial review of agency action in accordance with chapter 7 
of title 5, United States Code.

``SEC. 583. LIMITATIONS ON USE OF FUNDS FOR CERTAIN PURPOSES.

    ``No funds provided under a designated program shall be 
expended for sectarian worship, instruction, or 
proselytization.

``SEC. 584. EDUCATIONAL REQUIREMENTS FOR PERSONNEL IN DRUG TREATMENT 
                    PROGRAMS.

    ``(a) Findings.--The Congress finds that--
            ``(1) establishing unduly rigid or uniform 
        educational qualification for counselors and other 
        personnel in drug treatment programs may undermine the 
        effectiveness of such programs; and
            ``(2) such educational requirements for counselors 
        and other personnel may hinder or prevent the provision 
        of needed drug treatment services.
    ``(b) Nondiscrimination.--In determining whether personnel 
of a program participant that has a record of successful drug 
treatment for the preceding three years have satisfied State or 
local requirements for education and training, a State or local 
government shall not discriminate against education and 
training provided to such personnel by a religious 
organization, so long as such education and training includes 
basic content substantially equivalent to the content provided 
by nonreligious organizations that the State or local 
government would credit for purposes of determining whether the 
relevant requirements have been satisfied.''.

                      Subtitle F--Other Provisions

SEC. 651. ACCELERATION OF PHASE-IN OF INCREASE IN VOLUME CAP ON PRIVATE 
                    ACTIVITY BONDS.

    (a) In General.--Paragraphs (1) and (2) of section 146(d) 
(relating to State ceiling) are amended to read as follows:
            ``(1) In general.--The State ceiling applicable to 
        any State for any calendar year shall be the greater 
        of--
                    ``(A) an amount equal to $75 ($62.50 in the 
                case of calendar year 2001) multiplied by the 
                State population, or
                    ``(B) $225,000,000 ($187,500,000 in the 
                case of calendar year 2001).
            ``(2) Cost-of-living adjustment.--In the case of a 
        calendar year after 2002, each of the dollar amounts 
        contained in paragraph (1) shall be increased by an 
        amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for such 
                calendar year by substituting `calendar year 
                2001' for `calendar year 1992' in subparagraph 
                (B) thereof.
        If any increase determined under the preceding sentence 
        is not a multiple of $5 ($5,000 in the case of the 
        dollar amount in paragraph (1)(B)), such increase shall 
        be rounded to the nearest multiple thereof.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to calendar years after 2000.

SEC. 652. MODIFICATIONS TO EXPENSING OF ENVIRONMENTAL REMEDIATION 
                    COSTS.

    (a) Expensing Not Limited to Sites in Targeted Areas.--
Subsection (c) of section 198 is amended to read as follows:
    ``(c) Qualified Contaminated Site.--For purposes of this 
section--
            ``(1) In general.--The term `qualified contaminated 
        site' means any area--
                    ``(A) which is held by the taxpayer for use 
                in a trade or business or for the production of 
                income, or which is property described in 
                section 1221(a)(1) in the hands of the 
                taxpayer, and
                    ``(B) at or on which there has been a 
                release (or threat of release) or disposal of 
                any hazardous substance.
            ``(2) National priorities listed sites not 
        included.--Such term shall not include any site which 
        is on, or proposed for, the national priorities list 
        under section 105(a)(8)(B) of the Comprehensive 
        Environmental Response, Compensation, and Liability Act 
        of 1980 (as in effect on the date of the enactment of 
        this section).
            ``(3) Taxpayer must receive statement from state 
        environmental agency.--An area shall be treated as a 
        qualified contaminated site with respect to 
        expenditures paid or incurred during any taxable year 
        only if the taxpayer receives a statement from the 
        appropriate agency of the State in which such area is 
        located that such area meets the requirement of 
        paragraph (1)(B).
            ``(4) Appropriate state agency.--For purposes of 
        paragraph (3), the chief executive officer of each 
        State may, in consultation with the Administrator of 
        the Environmental Protection Agency, designate the 
        appropriate State environmental agency within 60 days 
        of the date of the enactment of this section. If the 
        chief executive officer of a State has not designated 
        an appropriate environmental agency within such 60-day 
        period, the appropriate environmental agency for such 
        State shall be designated by the Administrator of the 
        Environmental Protection Agency.''.
    (b) Extension of Termination Date.--Subsection (h) of 
section 198 is amended by striking ``2001'' and inserting 
``2003''.
    (c) Effective Date.--The amendments made by this section 
shall apply to expenditures paid or incurred after the date of 
the enactment of this Act.

SEC. 653. EXTENSION OF DC HOMEBUYER TAX CREDIT.

    Section 1400C(i) (relating to application of section) is 
amended by striking ``2002'' and inserting ``2004''.

   TITLE VII--ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL PROVISIONS

                 Subtitle A--Administrative Provisions

SEC. 701. EXEMPTION OF CERTAIN REPORTING REQUIREMENTS.

    Section 3003(a)(1) of the Federal Reports Elimination and 
Sunset Act of 1995 (31 U.S.C. 1113 note) shall not apply to any 
report required to be submitted under any of the following 
provisions of law:
            (1) Section 13031(f) of the Consolidated Omnibus 
        Budget Reconciliation Act of 1985 (19 U.S.C. 58c(f)).
            (2) Section 16(c) of the Foreign Trade Zones Act 
        (19 U.S.C. 81p(c)).
            (3) The following provisions of the Tariff Act of 
        1930:
                    (A) Section 330(c)(1) (19 U.S.C. 
                1330(c)(1)).
                    (B) Section 607(c) (19 U.S.C. 1607(c)).
            (4) Section 5 of the International Coffee Agreement 
        Act of 1980 (19 U.S.C. 1356n).
            (5) Section 351(a)(2) of the Trade Expansion Act of 
        1962 (19 U.S.C. 1981(a)(2)).
            (6) Section 502 of the Automotive Products Trade 
        Act of 1965 (19 U.S.C. 2032).
            (7) Section 3131 of the Customs Enforcement Act of 
        1986 (19 U.S.C. 2081).
            (8) The following provisions of the Trade Act of 
        1974 (19 U.S.C. 2101 et seq.):
                    (A) Section 102(b)(4)(A)(ii)(I) (19 U.S.C. 
                2112(b)(4)(A)(ii)(I)).
                    (B) Section 102(e)(1) (19 U.S.C. 
                2112(e)(1)).
                    (C) Section 102(e)(2) (19 U.S.C. 
                2112(e)(2)).
                    (D) Section 104(d) (19 U.S.C. 2114(d)).
                    (E) Section 125(e) (19 U.S.C. 2135(e)).
                    (F) Section 135(e)(1) (19 U.S.C. 
                2155(e)(1)).
                    (G) Section 141(c) (19 U.S.C. 2171(c)).
                    (H) Section 162 (19 U.S.C. 2212).
                    (I) Section 163(b) (19 U.S.C. 2213(b)).
                    (J) Section 163(c) (19 U.S.C. 2213(c)).
                    (K) Section 203(b) (19 U.S.C. 2253(b)).
                    (L) Section 302(b)(2)(C) (19 U.S.C. 
                2412(b)(2)(C)).
                    (M) Section 303 (19 U.S.C. 2413).
                    (N) Section 309 (19 U.S.C. 2419).
                    (O) Section 407(a) (19 U.S.C. 2437(a)).
                    (P) Section 502(f) (19 U.S.C. 2462(f)).
                    (Q) Section 504 (19 U.S.C. 2464).
            (9) The following provisions of the Trade 
        Agreements Act of 1979 (19 U.S.C. 2501 et seq.):
                    (A) Section 2(b) (19 U.S.C. 2503(b)).
                    (B) Section 3(c) (19 U.S.C. 2504(c)).
                    (C) Section 305(c) (19 U.S.C. 2515(c)).
            (10) Section 303(g)(1) of the Convention on 
        Cultural Property Implementation Act (19 U.S.C. 
        2602(g)(1)).
            (11) The following provisions of the Caribbean 
        Basin Economic Recovery Act (19 U.S.C. 2701 et seq.):
                    (A) Section 212(a)(1)(A) (19 U.S.C. 
                2702(a)(1)(A)).
                    (B) Section 212(a)(2) (19 U.S.C. 
                2702(a)(2)).
            (12) The following provisions of the Omnibus Trade 
        and Competitiveness Act of 1988 (19 U.S.C. 2901 et 
        seq.):
                    (A) Section 1102 (19 U.S.C. 2902).
                    (B) Section 1103 (19 U.S.C. 2903).
                    (C) Section 1206(b) (19 U.S.C. 3006(b)).
            (13) Section 123(a) of the Customs and Trade Act of 
        1990 (Public Law 101-382) (19 U.S.C. 2083).
            (14) Section 243(b)(2) of the Caribbean Basin 
        Economic Recovery Expansion Act of 1990 (Public Law 
        101-382).
            (15) The following provisions of the Internal 
        Revenue Code of 1986:
                    (A) Section 6103(p)(5).
                    (B) Section 7608.
                    (C) Section 7802(f)(3).
                    (D) Section 8022(3).
                    (E) Section 9602(a).
            (16) The following provisions relating to the 
        revenue laws of the United States:
                    (A) Section 1552(c) of the Tax Reform Act 
                of 1986 (100 Stat. 2753).
                    (B) Section 231 of the Deficit Reduction 
                Act of 1984 (26 U.S.C. 801 note).
                    (C) Section 208 of the Tax Treatment 
                Extension Act of 1977 (26 U.S.C. 911 note).
                    (D) Section 7105 of the Technical and 
                Miscellaneous Revenue Act of 1988 (45 U.S.C. 
                369).
            (17) Section 4008 of the Employee Retirement Income 
        Security Act of 1974 (29 U.S.C. 1308).
            (18) Section 426 of the Black Lung Benefits Act (30 
        U.S.C. 936(b)).
            (19) Section 7502(g) of title 31, United States 
        Code.
            (20) The following provisions of the Social 
        Security Act:
                    (A) Section 215(i)(2)(C)(i) (42 U.S.C. 
                415(i)(2)(C)(i)).
                    (B) Section 221(i)(2) (42 U.S.C. 
                421(i)(2)).
                    (C) Section 221(i)(3) (42 U.S.C. 
                421(i)(3)).
                    (D) Section 233(e)(1) (42 U.S.C. 
                433(e)(1)).
                    (E) Section 452(a)(10) (42 U.S.C. 
                652(a)(10)).
                    (F) Section 452(g)(3)(B) (42 U.S.C. 
                652(g)(3)(B)).
                    (G) Section 506(a)(1) (42 U.S.C. 706(a)).
                    (H) Section 908 (42 U.S.C. 1108).
                    (I) Section 1114(f) (42 U.S.C. 1314(f)).
                    (J) Section 1120 (42 U.S.C. 1320).
                    (K) Section 1161 (42 U.S.C. 1320c-10).
                    (L) Section 1875(b) (42 U.S.C. 1395ll(b)).
                    (M) Section 1881 (42 U.S.C. 1395rr).
                    (N) Section 1882 (42 U.S.C. 1395ss(f)(2)).
            (21) Section 104(b) of the Social Security 
        Independence and Program Improvements Act of 1994 (42 
        U.S.C. 904 note).
            (22) Section 10 of the Railroad Retirement Act of 
        1937 (45 U.S.C. 231f).
            (23) The following provisions of the Railroad 
        Retirement Act of 1974:
                    (A) Section 22(a)(1) (45 U.S.C. 
                231u(a)(1)).
                    (B) Section 22(b)(1) (45 U.S.C. 
                231u(b)(1)).
            (24) Section 502 of the Railroad Retirement 
        Solvency Act of 1983 (45 U.S.C. 231f-1).
            (25) Section 47121(c) of title 49, United States 
        Code.
            (26) The following provisions of the Omnibus Budget 
        Reconciliation Act of 1987 (Public Law 100-203; 101 
        Stat. 1330-182):
                    (A) Section 4007(c)(4) (42 U.S.C. 1395ww 
                note).
                    (B) Section 4079 (42 U.S.C. 1395mm note).
                    (C) Section 4205 (42 U.S.C. 1395i-3 note).
                    (D) Section 4215 (42 U.S.C. 1396r note).
            (27) The following provisions of the Inspector 
        General Act of 1978 (Public Law 95-452):
                    (A) Section 5(b).
                    (B) Section 5(d).
            (28) The following provisions of the Public Health 
        Service Act:
                    (A) In section 308(a) (42 U.S.C. 242m(a)), 
                subparagraphs (A), (B), (C), and (D) of 
                paragraph (1).
                    (B) Section 403 (42 U.S.C. 283).
            (29) Section 404 of the Health Services and Centers 
        Amendments of 1978 (42 U.S.C. 242p) (Public Law 95-
        626).
            (30) The following provisions of the Older 
        Americans Act of 1965:
                    (A) Section 206(d) (42 U.S.C. 3017(d)).
                    (B) Section 207 (42 U.S.C. 3018).
            (31) Section 308 of the Age Discrimination Act of 
        1975 (42 U.S.C. 6106a(b)).
            (32) Section 509(c)(3) of the Americans with 
        Disabilities Act 0f 1990 (42 U.S.C. 12209(c)(3)).
            (33) Section 4207(f) of the Omnibus Budget 
        Reconciliation Act of 1990 (42 U.S.C. 1395b-1 note).

SEC. 702. EXTENSION OF DEADLINES FOR IRS COMPLIANCE WITH CERTAIN NOTICE 
                    REQUIREMENTS.

    (a) Annual Installment Agreement Notice.--Section 3506 of 
the Internal Revenue Service Restructuring and Reform Act of 
1998 is amended by striking ``July 1, 2000'' and inserting 
``September 1, 2001''.
    (b) Notice Requirements Relating to Computation of 
Penalty.--Subsection (c) of section 3306 of the Internal 
Revenue Service Restructuring and Reform Act of 1998 is 
amended--
            (1) by striking ``December 31, 2000'' and inserting 
        ``June 30, 2001'', and
            (2) by adding at the end the following: ``In the 
        case of any notice of penalty issued after June 30, 
        2001, and before July 1, 2003, the requirements of 
        section 6751(a) of the Internal Revenue Code of 1986 
        shall be treated as met if such notice contains a 
        telephone number at which the taxpayer can request a 
        copy of the taxpayer's assessment and payment history 
        with respect to such penalty.''.
    (c) Notice Requirements Relating to Interest Imposed.--
Subsection (c) of section 3308 of the Internal Revenue Service 
Restructuring and Reform Act of 1998 is amended--
            (1) by striking ``December 31, 2000'' and inserting 
        ``June 30, 2001'', and
            (2) by adding at the end the following: ``In the 
        case of any notice issued after June 30, 2001, and 
        before July 1, 2003, to which section 6631 of the 
        Internal Revenue Code of 1986 applies, the requirements 
        of section 6631 of such Code shall be treated as met if 
        such notice contains a telephone number at which the 
        taxpayer can request a copy of the taxpayer's payment 
        history relating to interest amounts included in such 
        notice.''.

SEC. 703. EXTENSION OF AUTHORITY FOR UNDERCOVER OPERATIONS.

    Paragraph (6), and the last sentence, of section 7608(c) 
are each amended by striking ``January 1, 2001'' and inserting 
``January 1, 2006''.

SEC. 704. CONFIDENTIALITY OF CERTAIN DOCUMENTS RELATING TO CLOSING AND 
                    SIMILAR AGREEMENTS AND TO AGREEMENTS WITH FOREIGN 
                    GOVERNMENTS.

    (a) Closing and Similar Agreements Treated As Return 
Information.--Paragraph (2) of section 6103(b) (defining return 
information) is amended by striking ``and'' at the end of 
subparagraph (B), by inserting ``and'' at the end of 
subparagraph (C), and by inserting after subparagraph (C) the 
following new subparagraph:
                    ``(D) any agreement under section 7121, and 
                any similar agreement, and any background 
                information related to such an agreement or 
                request for such an agreement,''.
    (b) Agreements With Foreign Governments.--
            (1) In general.--Subchapter B of chapter 61 
        (relating to miscellaneous provisions) is amended by 
        inserting after section 6104 the following new section:

``SEC. 6105. CONFIDENTIALITY OF INFORMATION ARISING UNDER TREATY 
                    OBLIGATIONS.

    ``(a) In General.--Tax convention information shall not be 
disclosed.
    ``(b) Exceptions.--Subsection (a) shall not apply--
            ``(1) to the disclosure of tax convention 
        information to persons or authorities (including courts 
        and administrative bodies) which are entitled to such 
        disclosure pursuant to a tax convention,
            ``(2) to any generally applicable procedural rules 
        regarding applications for relief under a tax 
        convention, or
            ``(3) in any case not described in paragraph (1) or 
        (2), to the disclosure of any tax convention 
        information not relating to a particular taxpayer if 
        the Secretary determines, after consultation with each 
        other party to the tax convention, that such disclosure 
        would not impair tax administration.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Tax convention information.--The term `tax 
        convention information' means any--
                    ``(A) agreement entered into with the 
                competent authority of one or more foreign 
                governments pursuant to a tax convention,
                    ``(B) application for relief under a tax 
                convention,
                    ``(C) any background information related to 
                such agreement or application,
                    ``(D) document implementing such agreement, 
                and
                    ``(E) any other information exchanged 
                pursuant to a tax convention which is treated 
                as confidential or secret under the tax 
                convention.
            ``(2) Tax convention.--The term `tax convention' 
        means--
                    ``(A) any income tax or gift and estate tax 
                convention, or
                    ``(B) any other convention or bilateral 
                agreement (including multilateral conventions 
                and agreements and any agreement with a 
                possession of the United States) providing for 
                the avoidance of double taxation, the 
                prevention of fiscal evasion, nondiscrimination 
                with respect to taxes, the exchange of tax 
                relevant information with the United States, or 
                mutual assistance in tax matters.
    ``(d) Cross References.--

          ``For penalties for the unauthorized disclosure of tax 
        convention information which is return or return information, 
        see sections 7213, 7213A, and 7431.''.

            (2) Clerical amendment.--The table of sections for 
        subchapter B of chapter 61 is amended by inserting 
        after the item relating to section 6104 the following 
        new item:

        ``Sec. 6105. Confidentiality of information arising under treaty 
                  obligations.''.

    (c) Exception From Public Inspection as Written 
Determination.--
            (1) Closing and similar agreements.--Paragraph (1) 
        of section 6110(b) is amended to read as follows:
            ``(1) Written determination.--
                    ``(A) In general.--The term `written 
                determination' means a ruling, determination 
                letter, technical advice memorandum, or Chief 
                Counsel advice.
                    ``(B) Exceptions.--Such term shall not 
                include any matter referred to in subparagraph 
                (C) or (D) of section 6103(b)(2).''.
            (2) Agreements with foreign governments.--Paragraph 
        (1) of section 6110(l) is amended by inserting ``or 
        6105'' after ``6104''.
    (d) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 705. INCREASE IN THRESHOLD FOR JOINT COMMITTEE REPORTS ON REFUNDS 
                    AND CREDITS.

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

SEC. 706. TREATMENT OF MISSING CHILDREN WITH RESPECT TO CERTAIN TAX 
                    BENEFITS.

    (a) In General.--Subsection (c) of section 151 (relating to 
additional exemption for dependents) is amended by adding at 
the end the following new paragraph:
            ``(6) Treatment of missing children.--
                    ``(A) In general.--Solely for the purposes 
                referred to in subparagraph (B), a child of the 
                taxpayer--
                            ``(i) who is presumed by law 
                        enforcement authorities to have been 
                        kidnapped by someone who is not a 
                        member of the family of such child or 
                        the taxpayer, and
                            ``(ii) who was (without regard to 
                        this paragraph) the dependent of the 
                        taxpayer for the portion of the taxable 
                        year before the date of the kidnapping,
                shall be treated as a dependent of the taxpayer 
                for all taxable years ending during the period 
                that the child is kidnapped.
                    ``(B) Purposes.--Subparagraph (A) shall 
                apply solely for purposes of determining--
                            ``(i) the deduction under this 
                        section,
                            ``(ii) the credit under section 24 
                        (relating to child tax credit), and
                            ``(iii) whether an individual is a 
                        surviving spouse or a head of a 
                        household (such terms are defined in 
                        section 2).
                    ``(C) Comparable treatment for earned 
                income credit.--For purposes of section 32, an 
                individual--
                            ``(i) who is presumed by law 
                        enforcement authorities to have been 
                        kidnapped by someone who is not a 
                        member of the family of such individual 
                        or the taxpayer, and
                            ``(ii) who had, for the taxable 
                        year in which the kidnapping occurred, 
                        the same principal place of abode as 
                        the taxpayer for more than one-half of 
                        the portion of such year before the 
                        date of the kidnapping,
                shall be treated as meeting the requirement of 
                section 32(c)(3)(A)(ii) with respect to a 
                taxpayer for all taxable years ending during 
                the period that the individual is kidnapped.
                    ``(D) Termination of treatment.--
                Subparagraphs (A) and (C) shall cease to apply 
                as of the first taxable year of the taxpayer 
                beginning after the calendar year in which 
                there is a determination that the child is dead 
                (or, if earlier, in which the child would have 
                attained age 18).''
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years ending after the date of the 
enactment of this Act.

SEC. 707. AMENDMENTS TO STATUTES REFERENCING YIELD ON 52-WEEK TREASURY 
                    BILLS.

    (a) Amendment to the Act of February 26, 1931.--Section 6 
of the Act of February 26, 1931 (40 U.S.C. 258e-1) (relating to 
the interest rate on compensation owed for takings of property) 
is amended--
            (1) in paragraph (1), by striking ``the coupon 
        issue yield equivalent (as determined by the Secretary 
        of the Treasury) of the average accepted auction price 
        for the last auction of 52 week United States Treasury 
        bills settled immediately before'' and inserting ``the 
        weekly average 1-year constant maturity Treasury yield, 
        as published by the Board of Governors of the Federal 
        Reserve System, for the calendar week preceding''; and
            (2) in paragraph (2), by striking ``the coupon 
        issue yield equivalent (as determined by the Secretary 
        of the Treasury) of the average accepted auction price 
        for the last auction of 52 week United States Treasury 
        bills settled immediately before'' and inserting ``the 
        weekly average 1-year constant maturity Treasury yield, 
        as published by the Board of Governors of the Federal 
        Reserve System, for the calendar week preceding''.
    (b) Amendment to Title 18, United States Code.--Section 
3612(f)(2)(B) of title 18, United States Code (relating to the 
interest rate on unpaid criminal fines and penalties of more 
than $2,500) is amended by striking ``the coupon issue yield 
equivalent (as determined by the Secretary of the Treasury) of 
the average accepted auction price for the last auction of 
fifty-two week United States Treasury bills settled before'' 
and inserting `the weekly average 1-year constant maturity 
Treasury yield, as published by the Board of Governors of the 
Federal Reserve System, for the calendar week preceding.''.
    (c) Amendment to the Internal Revenue Code.--Section 
995(f)(4) (relating to the interest rate on tax-deferred 
liability of shareholders of domestic international sales 
corporations) is amended by striking ``the average investment 
yield of United States Treasury bills with maturities of 52 
weeks which were auctioned during the 1-year period'' and 
inserting ``the average of the 1-year constant maturity 
Treasury yields, as published by the Board of Governors of the 
Federal Reserve System, for the 1-year period''.
    (d) Amendments to Title 28, United States Code.--
            (1) Amendment to section 1961.--Section 1961(a) of 
        title 28, United States Code (relating to the interest 
        rate on money judgments in civil cases recovered in 
        Federal district court) is amended by striking ``the 
        coupon issue yield equivalent (as determined by the 
        Secretary of the Treasury) of the average accepted 
        auction price for the last auction of fifty-two week 
        United States Treasury bills settled immediately prior 
        to'' and inserting ``the weekly average 1-year constant 
        maturity Treasury yield, as published by the Board of 
        Governors of the Federal Reserve System, for the 
        calendar week preceding.''.
            (2) Amendment to section 2516.--Section 2516(b) of 
        title 28, United States Code (relating to the interest 
        rate on a judgment against the United States affirmed 
        by the Supreme Court after review on petition of the 
        United States) is amended by striking ``the coupon 
        issue yield equivalent (as determined by the Secretary 
        of the Treasury) of the average accepted auction price 
        for the last auction of fifty-two week United States 
        Treasury bills settled immediately before'' and 
        inserting ``the weekly average 1-year constant maturity 
        Treasury yield, as published by the Board of Governors 
        of the Federal Reserve System, for the calendar week 
        preceding''.

SEC. 708. ADJUSTMENTS FOR CONSUMER PRICE INDEX ERROR.

    (a) Determinations by OMB.--As soon as practicable after 
the date of the enactment of this Act, the Director of the 
Office of Management and Budget shall determine with respect to 
each applicable Federal benefit program whether the CPI 
computation error for 1999 has or will result in a shortfall in 
payments to beneficiaries under such program (as compared to 
payments that would have been made if the error had not 
occurred). As soon as practicable after the date of the 
enactment of this Act, but not later than 60 days after such 
date, the Director shall direct the head of the Federal agency 
which administers such program to make a payment or payments 
that, insofar as the Director finds practicable and feasible--
            (1) are targeted to the amount of the shortfall 
        experienced by individual beneficiaries, and
            (2) compensate for the shortfall.
    (b) Coordination With Federal Agencies.--As soon as 
practicable after the date of the enactment of this Act, each 
Federal agency that administers an applicable Federal benefit 
program shall, in accordance with such guidelines as are issued 
by the Director pursuant to this section, make an initial 
determination of whether, and the extent to which, the CPI 
computation error for 1999 has or will result in a shortfall in 
payments to beneficiaries of an applicable Federal benefit 
program administered by such agency. Not later than 30 days 
after such date, the head of such agency shall submit a report 
to the Director and to each House of the Congress of such 
determination, together with a complete description of the 
nature of the shortfall.
    (c) Implementation Pursuant to Agency Reports.--Upon 
receipt of the report submitted by a Federal agency pursuant to 
subsection (b), the Director shall review the initial 
determination of the agency, the agency's description of the 
nature of the shortfall, and the compensation payments proposed 
by the agency. Prior to directing payment of such payments 
pursuant to subsection (a), the Director shall make appropriate 
adjustments (if any) in the compensation payments proposed by 
the agency that the Director determines are necessary to comply 
with the requirements of subsection (a) and transmit to the 
agency a summary report of the review, indicating any 
adjustments made by the Director. The agency shall make the 
compensation payments as directed by the Director pursuant to 
subsection (a) in accordance with the Director's summary 
report.
    (d) Income Disregard Under Federal Means-Tested Benefit 
Programs.--A payment made under this section to compensate for 
a shortfall in benefits shall, in accordance with guidelines 
issued by the Director pursuant to this section, be disregarded 
in determining income under title VIII of the Social Security 
Act or any applicable Federal benefit program that is means-
tested.
    (e) Funding.--Funds otherwise available under each 
applicable Federal benefit program for making benefit payments 
under such program are hereby made available for making 
compensation payments under this section in connection with 
such program.
    (f) No Judicial Review.--No action taken pursuant to this 
section shall be subject to judicial review.
    (g) Director's Report.--Not later than April 1, 2001, the 
Director shall submit to each House of the Congress a report on 
the activities performed by the Director pursuant to this 
section.
    (h) Definitions.--For purposes of this section:
            (1) Applicable federal benefit program.--The term 
        ``applicable Federal benefit program'' means any 
        program of the Government of the United States 
        providing for regular or periodic payments or cash 
        assistance paid directly to individual beneficiaries, 
        as determined by the Director of the Office of 
        Management and Budget.
            (2) Federal agency.--The term ``Federal agency'' 
        means a department, agency, or instrumentality of the 
        Government of the United States.
            (3) CPI computation error for 1999.--The term ``CPI 
        computation error for 1999'' means the error in the 
        computation of the Consumer Price Index announced by 
        the Bureau of Labor Statistics on September 28, 2000.
    (i) Tax Provisions.--If any Consumer Price Index (as 
defined in section 1(f)(5) of the Internal Revenue Code of 
1986) reflects the CPI computation error for 1999--
            (1) the correct amount of such Index shall (in such 
        manner and to such extent as the Secretary of the 
        Treasury determines to be appropriate) be taken into 
        account for purposes of such Code, and
            (2) tables prescribed under section 1(f) of such 
        Code to reflect such correct amount shall apply in lieu 
        of any tables that were prescribed based on the 
        erroneous amount.

SEC. 709. PREVENTION OF DUPLICATION OF LOSS THROUGH ASSUMPTION OF 
                    LIABILITIES GIVING RISE TO A DEDUCTION.

    (a) In General.--Section 358 (relating to basis to 
distributees) is amended by adding at the end the following new 
subsection:
    ``(h) Special Rules for Assumption of Liabilities To Which 
Subsection (d) Does Not Apply.--
            ``(1) In general.--If, after application of the 
        other provisions of this section to an exchange or 
        series of exchanges, the basis of property to which 
        subsection (a)(1) applies exceeds the fair market value 
        of such property, then such basis shall be reduced (but 
        not below such fair market value) by the amount 
        (determined as of the date of the exchange) of any 
        liability--
                    ``(A) which is assumed in exchange for such 
                property, and
                    ``(B) with respect to which subsection 
                (d)(1) does not apply to the assumption.
            ``(2) Exceptions.--Except as provided by the 
        Secretary, paragraph (1) shall not apply to any 
        liability if--
                    ``(A) the trade or business with which the 
                liability is associated is transferred to the 
                person assuming the liability as part of the 
                exchange, or
                    ``(B) substantially all of the assets with 
                which the liability is associated are 
                transferred to the person assuming the 
                liability as part of the exchange.
            ``(3) Liability.--For purposes of this subsection, 
        the term `liability' shall include any fixed or 
        contingent obligation to make payment, without regard 
        to whether the obligation is otherwise taken into 
        account for purposes of this title.''
    (b) Determination of Amount of Liability Assumed.--Section 
357(d)(1) is amended by inserting ``section 358(h),'' after 
``section 358(d),''.
    (c) Application of Comparable Rules to Partnerships and S 
Corporations.--The Secretary of the Treasury or his delegate--
            (1) shall prescribe rules which provide appropriate 
        adjustments under subchapter K of chapter 1 of the 
        Internal Revenue Code of 1986 to prevent the 
        acceleration or duplication of losses through the 
        assumption of (or transfer of assets subject to) 
        liabilities described in section 358(h)(3) of such Code 
        (as added by subsection (a)) in transactions involving 
        partnerships, and
            (2) may prescribe rules which provide appropriate 
        adjustments under subchapter S of chapter 1 of such 
        Code in transactions described in paragraph (1) 
        involving S corporations rather than partnerships.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to assumptions of liability after 
        October 18, 1999.
            (2) Rules.--The rules prescribed under subsection 
        (c) shall apply to assumptions of liability after 
        October 18, 1999, or such later date as may be 
        prescribed in such rules.

                  Subtitle B--Miscellaneous Provisions

SEC. 710. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE TAXES ON RAILROADS AND 
                    INLAND WATERWAY TRANSPORTATION WHICH REMAIN IN 
                    GENERAL FUND.

    (a) Taxes on Trains.--
            (1) In general.--Subparagraph (A) of section 
        4041(a)(1) is amended by striking ``or a diesel-powered 
        train'' each place it appears and by striking ``or 
        train''.
            (2) Conforming amendments.--
                    (A) Subparagraph (C) of section 4041(a)(1) 
                is amended by striking clause (ii) and by 
                redesignating clause (iii) as clause (ii).
                    (B) Subparagraph (C) of section 4041(b)(1) 
                is amended by striking all that follows 
                ``section 6421(e)(2)'' and inserting a period.
                    (C) Subsection (d) of section 4041 is 
                amended by redesignating paragraph (3) as 
                paragraph (4) and by inserting after paragraph 
                (2) the following new paragraph:
            ``(3) Diesel fuel used in trains.--There is hereby 
        imposed a tax of 0.1 cent per gallon on any liquid 
        other than gasoline (as defined in section 4083)--
                    ``(A) sold by any person to an owner, 
                lessee, or other operator of a diesel-powered 
                train for use as a fuel in such train, or
                    ``(B) used by any person as a fuel in a 
                diesel-powered train unless there was a taxable 
                sale of such fuel under subparagraph (A).
        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.''
                    (D) Subsection (e) of section 4082 is 
                amended by striking ``section 4041(a)(1)'' and 
                inserting ``subsections (d)(3) and (a)(1) of 
                section 4041, respectively''.
                    (E) Paragraph (3) of section 4083(a) is 
                amended by striking ``or a diesel-powered 
                train''.
                    (F) Paragraph (3) of section 6421(f) is 
                amended to read as follows:
            ``(3) Gasoline used in trains.--In the case of 
        gasoline used as a fuel in a train, this section shall 
        not apply with respect to the Leaking Underground 
        Storage Tank Trust Fund financing rate under section 
        4081.''
                    (G) Paragraph (3) of section 6427(l) is 
                amended to read as follows:
            ``(3) Refund of certain taxes on fuel used in 
        diesel-powered trains.--For purposes of this 
        subsection, the term `nontaxable use' includes fuel 
        used in a diesel-powered train. The preceding sentence 
        shall not apply to the tax imposed by section 4041(d) 
        and the Leaking Underground Storage Tank Trust Fund 
        financing rate under section 4081 except with respect 
        to fuel sold for exclusive use by a State or any 
        political subdivision thereof.''
    (b) Fuel Used on Inland Waterways.--
            (1) In general.--Paragraph (1) of section 4042(b) 
        is amended by adding ``and'' at the end of subparagraph 
        (A), by striking ``, and'' at the end of subparagraph 
        (B) and inserting a period, and by striking 
        subparagraph (C).
            (2) Conforming amendment.--Paragraph (2) of section 
        4042(b) is amended by striking subparagraph (C).
    (c) Effective Date.--The amendments made by this section 
shall take effect on January 1, 2001.

SEC. 711. REPEAL OF REDUCTION OF DEDUCTIONS FOR MUTUAL LIFE INSURANCE 
                    COMPANIES.

    (a) In General.--Section 809 (relating to reductions in 
certain deductions of mutual life insurance companies) is 
hereby repealed.
    (b) Conforming Amendments Related to Repeal of Section 
809.--
            (1) Subsections (a)(2)(B) and (b)(1)(B) of section 
        807 are each amended by striking ``the sum of (i)'' and 
        by striking ``plus (ii) any excess described in section 
        809(a)(2) for the taxable year,''.
            (2)(A) The last sentence of section 807(d)(1) is 
        amended by striking ``(as defined in section 
        809(b)(4)(B))''.
            (B) Subsection (d) of section 807 is amended by 
        adding at the end the following new paragraph:
            ``(6) Statutory reserves.--For purposes of this 
        subsection, the term `statutory reserves' means the 
        aggregate amount set forth in the annual statement with 
        respect to items described in subsection (c). Such term 
        shall not include any reserve attributable to a 
        deferred and uncollected premium if the establishment 
        of such reserve is not permitted under section 
        811(c).''
            (3) Subsection (c) of section 808 is amended to 
        read as follows:
    ``(c) Amount of Deduction.--The deduction for policyholder 
dividends for any taxable year shall be an amount equal to the 
policyholder dividends paid or accrued during the taxable 
year.''
            (4) Subparagraph (A) of section 812(b)(3) is 
        amended by striking ``sections 808 and 809'' and 
        inserting ``section 808''.
            (5) Subsection (c) of section 817 is amended by 
        striking ``(other than section 809)''.
            (6) Subsection (c) of section 842 is amended by 
        striking paragraph (3) and by redesignating paragraph 
        (4) as paragraph (3).
            (7) The table of sections for subpart C of part I 
        of subchapter L of chapter 1 is amended by striking the 
        item relating to section 809.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 712. REPEAL OF POLICYHOLDERS SURPLUS ACCOUNT PROVISIONS.

    (a) Repeal.--Section 815 (relating to distributions to 
shareholders from pre-1984 policyholders surplus accounts) is 
hereby repealed.
    (b) Conforming Amendments.--
            (1) Section 801 is amended by striking subsection 
        (c).
            (2) The table of sections for subpart D of part I 
        of subchapter L of chapter 1 is amended by striking the 
        item relating to section 815.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 713. CREDIT TO HOLDERS OF QUALIFIED AMTRAK BONDS.

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

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

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

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

    ``(a) Allowance of Credit.--In the case of a taxpayer who 
holds a qualified Amtrak bond on a credit allowance date of 
such bond which occurs during the taxable year, there shall be 
allowed as a credit against the tax imposed by this chapter for 
such taxable year an amount equal to the sum of the credits 
determined under subsection (b) with respect to credit 
allowance dates during such year on which the taxpayer holds 
such bond.
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit 
        determined under this subsection with respect to any 
        credit allowance date for a qualified Amtrak bond is 25 
        percent of the annual credit determined with respect to 
        such bond.
            ``(2) Annual credit.--The annual credit determined 
        with respect to any qualified Amtrak bond is the 
        product of--
                    ``(A) the applicable credit rate, 
                multiplied by
                    ``(B) the outstanding face amount of the 
                bond.
            ``(3) Applicable credit rate.--For purposes of 
        paragraph (2), the applicable credit rate with respect 
        to an issue is the rate equal to an average market 
        yield (as of the day before the date of sale of the 
        issue) on outstanding long-term corporate debt 
        obligations (determined under regulations prescribed by 
        the Secretary).
            ``(4) Special rule for issuance and redemption.--In 
        the case of a bond which is issued during the 3-month 
        period ending on a credit allowance date, the amount of 
        the credit determined under this subsection with 
        respect to such credit allowance date shall be a 
        ratable portion of the credit otherwise determined 
        based on the portion of the 3-month period during which 
        the bond is outstanding. A similar rule shall apply 
        when the bond is redeemed.
    ``(c) Limitation Based on Amount of Tax.--
            ``(1) In general.--The credit allowed under 
        subsection (a) for any taxable year shall not exceed 
        the excess of--
                    ``(A) the sum of the regular tax liability 
                (as defined in section 26(b)) plus the tax 
                imposed by section 55, over
                    ``(B) the sum of the credits allowable 
                under this part (other than this subpart and 
                subpart C).
            ``(2) Carryover of unused credit.--If the credit 
        allowable under subsection (a) exceeds the limitation 
        imposed by paragraph (1) for such taxable year, such 
        excess shall be carried to the succeeding taxable year 
        and added to the credit allowable under subsection (a) 
        for such taxable year.
    ``(d) Qualified Amtrak Bond.--For purposes of this part--
            ``(1) In general.--The term `qualified Amtrak bond' 
        means any bond issued as part of an issue if--
                    ``(A) 95 percent or more of the proceeds of 
                such issue are to be used for any qualified 
                project,
                    ``(B) the bond is issued by the National 
                Railroad Passenger Corporation,
                    ``(C) the issuer--
                            ``(i) designates such bond for 
                        purposes of this section,
                            ``(ii) certifies that it meets the 
                        State contribution requirement of 
                        paragraph (3) with respect to such 
                        project and that it has received the 
                        required State contribution payment 
                        before the issuance of such bond, and
                            ``(iii) certifies that it has 
                        obtained the written approval of the 
                        Secretary of Transportation for such 
                        project, including a finding by the 
                        Inspector General of the Department of 
                        Transportation that there is a 
                        reasonable likelihood that the proposed 
                        program will result in a positive 
                        incremental financial contribution to 
                        the National Railroad Passenger 
                        Corporation and that the investment 
                        evaluation process includes a return on 
                        investment, leveraging of funds 
                        (including State capital and operating 
                        contributions), cost effectiveness, 
                        safety improvement, mobility 
                        improvement, and feasibility,
                    ``(D) the term of each bond which is part 
                of such issue does not exceed 20 years,
                    ``(E) the payment of principal with respect 
                to such bond is the obligation of the National 
                Railroad Passenger Corporation (regardless of 
                the establishment of the trust account under 
                subsection (j)), and
                    ``(F) the issue meets the requirements of 
                subsection (h).
            ``(2) Treatment of changes in use.--For purposes of 
        paragraph (1)(A), the proceeds of an issue shall not be 
        treated as used for a qualified project to the extent 
        that the issuer takes any action within its control 
        which causes such proceeds not to be used for a 
        qualified project. The Secretary shall prescribe 
        regulations specifying remedial actions that may be 
        taken (including conditions to taking such remedial 
        actions) to prevent an action described in the 
        preceding sentence from causing a bond to fail to be a 
        qualified Amtrak bond.
            ``(3) State contribution requirement.--
                    ``(A) In general.--For purposes of 
                paragraph (1)(C)(ii), the State contribution 
                requirement of this paragraph is met with 
                respect to any qualified project if the 
                National Railroad Passenger Corporation has a 
                written binding commitment from 1 or more 
                States to make matching contributions not later 
                than the date of issuance of the issue of not 
                less than 20 percent of the cost of the 
                qualified project.
                    ``(B) Use of state matching 
                contributions.--The matching contributions 
                described in subparagraph (A) with respect to 
                each qualified project shall be used--
                            ``(i) as necessary to redeem bonds 
                        which are a part of the issue with 
                        respect to such project, and
                            ``(ii) in the case of any remaining 
                        amount, at the election of the National 
                        Railroad Passenger Corporation and the 
                        contributing State--
                                    ``(I) to fund a qualified 
                                project,
                                    ``(II) to redeem other 
                                qualified Amtrak bonds, or
                                    ``(III) for the purposes of 
                                subclauses (I) and (II).
                    ``(C) State matching contributions may not 
                include federal funds.--For purposes of this 
                paragraph, State matching contributions shall 
                not be derived, directly or indirectly, from 
                Federal funds, including any transfers from the 
                Highway Trust Fund under section 9503.
                    ``(D) No state contribution requirement for 
                certain qualified projects.--With respect to 
                any qualified project described in paragraph 
                (2)(B) or (4) of subsection (e), the State 
                contribution requirement of this paragraph is 
                zero.
            ``(4) Qualified project.--
                    ``(A) In general.--The term `qualified 
                project' means--
                            ``(i) the acquisition, financing, 
                        or refinancing of equipment, rolling 
                        stock, and other capital improvements 
                        for the northeast rail corridor between 
                        Washington, D.C. and Boston, 
                        Massachusetts (including the project 
                        described in subsection (e)(2)(B)),
                            ``(ii) the acquisition, financing, 
                        or refinancing of equipment, rolling 
                        stock, and other capital improvements 
                        for the improvement of train speeds or 
                        safety (or both) on the high-speed rail 
                        corridors designated under section 
                        104(d)(2) of title 23, United States 
                        Code, and
                            ``(iii) the acquisition, financing, 
                        or refinancing of equipment, rolling 
                        stock, and other capital improvements 
                        for other intercity passenger rail 
                        corridors, including station 
                        rehabilitation or construction, track 
                        or signal improvements, or the 
                        elimination of grade crossings.
                    ``(B) Refinancing rules.--For purposes of 
                subparagraph (A), a refinancing shall 
                constitute a qualified project only if the 
                indebtedness being refinanced (including any 
                obligation directly or indirectly refinanced by 
                such indebtedness) was originally incurred by 
                the National Railroad Passenger Corporation--
                            ``(i) after the date of the 
                        enactment of this section,
                            ``(ii) for a term of not more than 
                        3 years,
                            ``(iii) to finance or acquire 
                        capital improvements described in 
                        subparagraph (A), and
                            ``(iv) in anticipation of being 
                        refinanced with proceeds of a qualified 
                        Amtrak bond.
    ``(e) Limitations on Amount of Bonds Designated.--
            ``(1) In general.--There is a qualified Amtrak bond 
        limitation for each fiscal year. Such limitation is--
                    ``(A) $1,000,000,000 for each of the fiscal 
                years 2001 through 2010, and
                    ``(B) except as provided in paragraph (5), 
                zero after fiscal year 2010.
            ``(2) Bonds for rail corridors.--
                    ``(A) In general.--Not more than 
                $3,000,000,000 of the limitation under 
                paragraph (1) may be designated for any 1 rail 
                corridor described in clause (i) or (ii) of 
                subsection (d)(4)(A).
                    ``(B) Specific qualified project 
                allocation.--Of the amount described in 
                subparagraph (A), the Secretary of 
                Transportation shall allocate $92,000,000 for 
                the acquisition and installation of platform 
                facilities, performance of railroad force 
                account work necessary to complete improvements 
                below street grade, and any other necessary 
                improvements related to construction at the 
                railroad station at the James A. Farley Post 
                Office Building in New York City, New York.
            ``(3) Bonds for other projects.--Not more than 10 
        percent of the limitation under paragraph (1) for any 
        fiscal year may be allocated to qualified projects 
        described in subsection (d)(4)(A)(iii).
            ``(4) Bonds for alaska railroad.--The Secretary of 
        Transportation may allocate to the Alaska Railroad a 
        portion of the qualified Amtrak limitation for any 
        fiscal year in order to allow the Alaska Railroad to 
        issue bonds which meet the requirements of this section 
        for use in financing any project described in 
        subsection (d)(4)(A)(iii). For purposes of this 
        section, the Alaska Railroad shall be treated in the 
        same manner as the National Railroad Passenger 
        Corporation.
            ``(5) Carryover of unused limitation.--If for any 
        fiscal year--
                    ``(A) the limitation amount under paragraph 
                (1), exceeds
                    ``(B) the amount of bonds issued during 
                such year which are designated under subsection 
                (d)(1)(C)(i),
        the limitation amount under paragraph (1) for the 
        following fiscal year (through fiscal year 2014) shall 
        be increased by the amount of such excess.
            ``(6) Preference for greater state participation.--
        In selecting qualified projects for allocation of the 
        qualified Amtrak bond limitation under this subsection, 
        the Secretary of Transportation shall give preference 
        to any project with a State matching contribution rate 
        exceeding 20 percent.
    ``(f) Other Definitions.--For purposes of this subpart--
            ``(1) Bond.--The term `bond' includes any 
        obligation.
            ``(2) Credit allowance date.--The term `credit 
        allowance date' means--
                    ``(A) March 15,
                    ``(B) June 15,
                    ``(C) September 15, and
                    ``(D) December 15.
        Such term includes the last day on which the bond is 
        outstanding.
            ``(3) State.--The term `State' means the several 
        States and the District of Columbia, and any 
        subdivision thereof.
            ``(4) Program.--The term `program' means 1 or more 
        projects implemented over 1 or more years to support 
        the development of intercity passenger rail corridors.
    ``(g) Credit Included in Gross Income.--Gross income 
includes the amount of the credit allowed to the taxpayer under 
this section (determined without regard to subsection (c)) and 
the amount so included shall be treated as interest income.
    ``(h) Special Rules Relating to Arbitrage.--
            ``(1) In general.--Subject to paragraph (2), an 
        issue shall be treated as meeting the requirements of 
        this subsection if as of the date of issuance, the 
        issuer reasonably expects--
                    ``(A) to spend at least 95 percent of the 
                proceeds of the issue for 1 or more qualified 
                projects within the 3-year period beginning on 
                such date,
                    ``(B) to incur a binding commitment with a 
                third party to spend at least 10 percent of the 
                proceeds of the issue, or to commence 
                construction, with respect to such projects 
                within the 6-month period beginning on such 
                date, and
                    ``(C) to proceed with due diligence to 
                complete such projects and to spend the 
                proceeds of the issue.
            ``(2) Rules regarding continuing compliance after 
        3-year determination.--If at least 95 percent of the 
        proceeds of the issue is not expended for 1 or more 
        qualified projects within the 3-year period beginning 
        on the date of issuance, an issue shall be treated as 
        continuing to meet the requirements of this subsection 
        if either--
                    ``(A) the issuer uses all unspent proceeds 
                of the issue to redeem bonds of the issue 
                within 90 days after the end of such 3-year 
                period, or
                    ``(B) the following requirements are met:
                            ``(i) The issuer spends at least 75 
                        percent of the proceeds of the issue 
                        for 1 or more qualified projects within 
                        the 3-year period beginning on the date 
                        of issuance.
                            ``(ii) The issuer has proceeded 
                        with due diligence to spend the 
                        proceeds of the issue within such 3-
                        year period and continues to proceed 
                        with due diligence to spend such 
                        proceeds.
                            ``(iii) The issuer pays to the 
                        Federal Government any earnings on the 
                        proceeds of the issue that accrue after 
                        the end of such 3-year period.
                            ``(iv) Either--
                                    ``(I) at least 95 percent 
                                of the proceeds of the issue is 
                                expended for 1 or more 
                                qualified projects within the 
                                4-year period beginning on the 
                                date of issuance, or
                                    ``(II) the issuer uses all 
                                unspent proceeds of the issue 
                                to redeem bonds of the issue 
                                within 90 days after the end of 
                                such 4-year period.
    ``(i) Recapture of Portion of Credit Where Cessation of 
Compliance.--
            ``(1) In general.--If any bond which when issued 
        purported to be a qualified Amtrak bond ceases to be a 
        qualified Amtrak bond, the issuer shall pay to the 
        United States (at the time required by the Secretary) 
        an amount equal to the sum of--
                    ``(A) the aggregate of the credits 
                allowable under this section with respect to 
                such bond (determined without regard to 
                subsection (c)) for taxable years ending during 
                the calendar year in which such cessation 
                occurs and the 2 preceding calendar years, and
                    ``(B) interest at the underpayment rate 
                under section 6621 on the amount determined 
                under subparagraph (A) for each calendar year 
                for the period beginning on the first day of 
                such calendar year.
            ``(2) Failure to pay.--If the issuer fails to 
        timely pay the amount required by paragraph (1) with 
        respect to such bond, the tax imposed by this chapter 
        on each holder of any such bond which is part of such 
        issue shall be increased (for the taxable year of the 
        holder in which such cessation occurs) by the aggregate 
        decrease in the credits allowed under this section to 
        such holder for taxable years beginning in such 3 
        calendar years which would have resulted solely from 
        denying any credit under this section with respect to 
        such issue for such taxable years.
            ``(3) Special rules.--
                    ``(A) Tax benefit rule.--The tax for the 
                taxable year shall be increased under paragraph 
                (2) only with respect to credits allowed by 
                reason of this section which were used to 
                reduce tax liability. In the case of credits 
                not so used to reduce tax liability, the 
                carryforwards and carrybacks under section 39 
                shall be appropriately adjusted.
                    ``(B) No credits against tax.--Any increase 
                in tax under paragraph (2) shall not be treated 
                as a tax imposed by this chapter for purposes 
                of determining --
                            ``(i) the amount of any credit 
                        allowable under this part, or
                            ``(ii) the amount of the tax 
                        imposed by section 55.
    ``(j) Use of Trust Account.--
            ``(1) In general.--The amount of any matching 
        contribution with respect to a qualified project 
        described in subsection (d)(3)(B)(i) or 
        (d)(3)(B)(ii)(II) and the temporary period investment 
        earnings on proceeds of the issue with respect to such 
        project, and any earnings thereon, shall be held in a 
        trust account by a trustee independent of the National 
        Railroad Passenger Corporation to be used to the extent 
        necessary to redeem bonds which are part of such issue.
            ``(2) Use of remaining funds in trust account.--
        Upon the repayment of the principal of all qualified 
        Amtrak bonds issued under this section, any remaining 
        funds in the trust account described in paragraph (1) 
        shall be available--
                    ``(A) to the trustee described in paragraph 
                (1), to meet any remaining obligations under 
                any guaranteed investment contract used to 
                secure earnings sufficient to repay the 
                principal of such bonds, and
                    ``(B) to the issuer, for any qualified 
                project.
    ``(k) Other Special Rules.--
            ``(1) Partnership; s corporation; and other pass-
        thru entities.--Under regulations prescribed by the 
        Secretary, in the case of a partnership, trust, S 
        corporation, or other pass-thru entity, rules similar 
        to the rules of section 41(g) shall apply with respect 
        to the credit allowable under subsection (a).
            ``(2) Bonds held by regulated investment 
        companies.--If any qualified Amtrak bond is held by a 
        regulated investment company, the credit determined 
        under subsection (a) shall be allowed to shareholders 
        of such company under procedures prescribed by the 
        Secretary.
            ``(3) Credits may be stripped.--Under regulations 
        prescribed by the Secretary--
                    ``(A) In general.--There may be a 
                separation (including at issuance) of the 
                ownership of a qualified Amtrak bond and the 
                entitlement to the credit under this section 
                with respect to such bond. In case of any such 
                separation, the credit under this section shall 
                be allowed to the person who on the credit 
                allowance date holds the instrument evidencing 
                the entitlement to the credit and not to the 
                holder of the bond.
                    ``(B) Certain rules to apply.--In the case 
                of a separation described in subparagraph (A), 
                the rules of section 1286 shall apply to the 
                qualified Amtrak bond as if it were a stripped 
                bond and to the credit under this section as if 
                it were a stripped coupon.
            ``(4) Treatment for estimated tax purposes.--Solely 
        for purposes of sections 6654 and 6655, the credit 
        allowed by this section to a taxpayer by reason of 
        holding a qualified Amtrak bond on a credit allowance 
        date shall be treated as if it were a payment of 
        estimated tax made by the taxpayer on such date.
            ``(5) Credit may be transferred.--Nothing in any 
        law or rule of law shall be construed to limit the 
        transferability of the credit allowed by this section 
        through sale and repurchase agreements.
            ``(6) Reporting.--Issuers of qualified Amtrak bonds 
        shall submit reports similar to the reports required 
        under section 149(e).''.
    (b) Reporting.--Subsection (d) of section 6049 (relating to 
returns regarding payments of interest), as amended by section 
505(d), is amended by adding at the end the following new 
paragraph:
            ``(9) Reporting of credit on qualified amtrak 
        bonds.--
                    ``(A) In general.--For purposes of 
                subsection (a), the term `interest' includes 
                amounts includible in gross income under 
                section 54(g) and such amounts shall be treated 
                as paid on the credit allowance date (as 
                defined in section 54(f)(2)).
                    ``(B) Reporting to corporations, etc.--
                Except as otherwise provided in regulations, in 
                the case of any interest described in 
                subparagraph (A) of this paragraph, subsection 
                (b)(4) of this section shall be applied without 
                regard to subparagraphs (A), (H), (I), (J), 
                (K), and (L)(i).
                    ``(C) Regulatory authority.--The Secretary 
                may prescribe such regulations as are necessary 
                or appropriate to carry out the purposes of 
                this paragraph, including regulations which 
                require more frequent or more detailed 
                reporting.''.
    (c) Clerical Amendments.--
            (1) The table of subparts for part IV of subchapter 
        A of chapter 1 is amended by adding at the end the 
        following new item:

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

            (2) Section 6401(b)(1) is amended by striking ``and 
        G'' and inserting ``G, and H''.
    (d) Effective Date.--The amendments made by this section 
shall apply to obligations issued after September 30, 2000.
    (e) Multi-Year Capital Spending Plan and Oversight.--
            (1) Amtrak capital spending plan.--
                    (A) In general.--The National Railroad 
                Passenger Corporation shall annually submit to 
                the President and Congress a multi-year capital 
                spending plan, as approved by the Board of 
                Directors of the Corporation.
                    (B) Contents of plan.--Such plan shall 
                identify the capital investment needs of the 
                Corporation over a period of not less than 5 
                years and the funding sources available to 
                finance such needs and shall prioritize such 
                needs according to corporate goals and 
                strategies.
                    (C) Initial submission date.--The first 
                plan shall be submitted before the issuance of 
                any qualified Amtrak bonds by the National 
                Railroad Passenger Corporation pursuant to 
                section 54 of the Internal Revenue Code of 1986 
                (as added by this section).
            (2) Oversight of amtrak trust account and qualified 
        projects.--
                    (A) Trust account oversight.--The Secretary 
                of the Treasury shall annually report to 
                Congress as to whether the amount deposited in 
                the trust account established by the National 
                Railroad Passenger Corporation under section 
                54(i) of such Code (as so added) is sufficient 
                to fully repay at maturity the principal of any 
                outstanding qualified Amtrak bonds issued 
                pursuant to section 54 of such Code (as so 
                added), together with amounts expected to be 
                deposited into such account, as certified by 
                the National Railroad Passenger Corporation in 
                accordance with procedures prescribed by the 
                Secretary of the Treasury.
                    (B) Project oversight.--The National 
                Railroad Passenger Corporation shall contract 
                for an annual independent assessment of the 
                costs and benefits of the qualified projects 
                financed by such qualified Amtrak bonds, 
                including an assessment of the investment 
                evaluation process of the Corporation. The 
                annual assessment shall be included in the plan 
                submitted under paragraph (1).
                    (C) Oversight funding.--Not more than 0.5 
                percent of the amounts made available through 
                the issuance of qualified Amtrak bonds by the 
                National Railroad Passenger Corporation 
                pursuant to section 54 of such Code (as so 
                added) may be used by the National Railroad 
                Passenger Corporation for assessments described 
                in subparagraph (B).
    (f) Protection of Highway Trust Fund.--
            (1) Certification by the secretary of the 
        treasury.--The issuance of any qualified Amtrak bonds 
        by the National Railroad Passenger Corporation or the 
        Alaska Railroad pursuant to section 54 of the Internal 
        Revenue Code of 1986 (as added by this section) is 
        conditioned on certification by the Secretary of the 
        Treasury, after consultation with the Secretary of 
        Transportation, within 30 days of a request by the 
        issuer, that with respect to funds of the Highway Trust 
        Fund described under paragraph (2), the issuer either--
                    (A) has not received such funds during 
                fiscal years commencing with fiscal year 2001 
                and ending before the fiscal year the bonds are 
                issued, or
                    (B) has repaid to the Highway Trust Fund 
                any such funds which were received during such 
                fiscal years.
            (2) Applicability.--This subsection shall apply to 
        funds received directly, or indirectly from a State or 
        local transit authority, from the Highway Trust Fund 
        established under section 9503 of the Internal Revenue 
        Code of 1986, except for funds authorized to be 
        expended under section 9503(c) of such Code, as in 
        effect on the date of the enactment of this Act.
            (3) No retroactive effect.--Nothing in this 
        subsection shall adversely affect the entitlement of 
        the holders of qualified Amtrak bonds to the tax credit 
        allowed pursuant to section 54 of the Internal Revenue 
        Code of 1986 (as so added) or to repayment of principal 
        upon maturity.

SEC. 714. FARM, FISHING, AND RANCH RISK MANAGEMENT ACCOUNTS.

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

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

    ``(a) Deduction Allowed.--In the case of an individual 
engaged in an eligible farming business or commercial fishing, 
there shall be allowed as a deduction for any taxable year the 
amount paid in cash by the taxpayer during the taxable year to 
a Farm, Fishing, and Ranch Risk Management Account (hereinafter 
referred to as the `FFARRM Account').
    ``(b) Limitation.--
            ``(1) Contributions.--The amount which a taxpayer 
        may pay into the FFARRM Account for any taxable year 
        shall not exceed 20 percent of so much of the taxable 
        income of the taxpayer (determined without regard to 
        this section) which is attributable (determined in the 
        manner applicable under section 1301) to any eligible 
        farming business or commercial fishing.
            ``(2) Distributions.--Distributions from a FFARRM 
        Account may not be used to purchase, lease, or finance 
        any new fishing vessel, add capacity to any fishery, or 
        otherwise contribute to the overcapitalization of any 
        fishery. The Secretary of Commerce shall implement 
        regulations to enforce this paragraph.
    ``(c) Eligible Businesses.--For purposes of this section--
            ``(1) Eligible farming business.--The term 
        `eligible farming business' means any farming business 
        (as defined in section 263A(e)(4)) which is not a 
        passive activity (within the meaning of section 469(c)) 
        of the taxpayer.
            ``(2) Commercial fishing.--The term `commercial 
        fishing' has the meaning given such term by section (3) 
        of the Magnuson-Stevens Fishery Conservation and 
        Management Act (16 U.S.C. 1802) but only if such 
        fishing is not a passive activity (within the meaning 
        of section 469(c)) of the taxpayer.
    ``(d) FFARRM Account.--For purposes of this section--
            ``(1) In general.--The term `FFARRM Account' means 
        a trust created or organized in the United States for 
        the exclusive benefit of the taxpayer, but only if the 
        written governing instrument creating the trust meets 
        the following requirements:
                    ``(A) No contribution will be accepted for 
                any taxable year in excess of the amount 
                allowed as a deduction under subsection (a) for 
                such year.
                    ``(B) The trustee is a bank (as defined in 
                section 408(n)) or another person who 
                demonstrates to the satisfaction of the 
                Secretary that the manner in which such person 
                will administer the trust will be consistent 
                with the requirements of this section.
                    ``(C) The assets of the trust consist 
                entirely of cash or of obligations which have 
                adequate stated interest (as defined in section 
                1274(c)(2)) and which pay such interest not 
                less often than annually.
                    ``(D) All income of the trust is 
                distributed currently to the grantor.
                    ``(E) The assets of the trust will not be 
                commingled with other property except in a 
                common trust fund or common investment fund.
            ``(2) Account taxed as grantor trust.--The grantor 
        of a FFARRM Account shall be treated for purposes of 
        this title as the owner of such Account and shall be 
        subject to tax thereon in accordance with subpart E of 
        part I of subchapter J of this chapter (relating to 
        grantors and others treated as substantial owners).
    ``(e) Inclusion of Amounts Distributed.--
            ``(1) In general.--Except as provided in paragraph 
        (2), there shall be includible in the gross income of 
        the taxpayer for any taxable year--
                    ``(A) any amount distributed from a FFARRM 
                Account of the taxpayer during such taxable 
                year, and
                    ``(B) any deemed distribution under--
                            ``(i) subsection (f )(1) (relating 
                        to deposits not distributed within 5 
                        years),
                            ``(ii) subsection (f )(2) (relating 
                        to cessation in eligible farming 
                        business), and
                            ``(iii) subparagraph (B) or (C) of 
                        subsection (f )(3) (relating to 
                        prohibited transactions and pledging 
                        account as security).
            ``(2) Exceptions.--Paragraph (1)(A) shall not apply 
        to--
                    ``(A) any distribution to the extent 
                attributable to income of the Account, and
                    ``(B) the distribution of any contribution 
                paid during a taxable year to a FFARRM Account 
                to the extent that such contribution exceeds 
                the limitation applicable under subsection (b) 
                if requirements similar to the requirements of 
                section 408(d)(4) are met.
        For purposes of subparagraph (A), distributions shall 
        be treated as first attributable to income and then to 
        other amounts.
    ``(f ) Special Rules.--
            ``(1) Tax on deposits in account which are not 
        distributed within 5 years.--
                    ``(A) In general.--If, at the close of any 
                taxable year, there is a nonqualified balance 
                in any FFARRM Account--
                            ``(i) there shall be deemed 
                        distributed from such Account during 
                        such taxable year an amount equal to 
                        such balance, and
                            ``(ii) the taxpayer's tax imposed 
                        by this chapter for such taxable year 
                        shall be increased by 10 percent of 
                        such deemed distribution.
                The preceding sentence shall not apply if an 
                amount equal to such nonqualified balance is 
                distributed from such Account to the taxpayer 
                before the due date (including extensions) for 
                filing the return of tax imposed by this 
                chapter for such year (or, if earlier, the date 
                the taxpayer files such return for such year).
                    ``(B) Nonqualified balance.--For purposes 
                of subparagraph (A), the term `nonqualified 
                balance' means any balance in the Account on 
                the last day of the taxable year which is 
                attributable to amounts deposited in such 
                Account before the 4th preceding taxable year.
                    ``(C) Ordering rule.--For purposes of this 
                paragraph, distributions from a FFARRM Account 
                (other than distributions of current income) 
                shall be treated as made from deposits in the 
                order in which such deposits were made, 
                beginning with the earliest deposits.
            ``(2) Cessation in eligible business.--At the close 
        of the first disqualification period after a period for 
        which the taxpayer was engaged in an eligible farming 
        business or commercial fishing, there shall be deemed 
        distributed from the FFARRM Account of the taxpayer an 
        amount equal to the balance in such Account (if any) at 
        the close of such disqualification period. For purposes 
        of the preceding sentence, the term `disqualification 
        period' means any period of 2 consecutive taxable years 
        for which the taxpayer is not engaged in an eligible 
        farming business or commercial fishing.
            ``(3) Certain rules to apply.--Rules similar to the 
        following rules shall apply for purposes of this 
        section:
                    ``(A) Section 220(f )(8) (relating to 
                treatment on death).
                    ``(B) Section 408(e)(2) (relating to loss 
                of exemption of account where individual 
                engages in prohibited transaction).
                    ``(C) Section 408(e)(4) (relating to effect 
                of pledging account as security).
                    ``(D) Section 408(g) (relating to community 
                property laws).
                    ``(E) Section 408(h) (relating to custodial 
                accounts).
            ``(4) Time when payments deemed made.--For purposes 
        of this section, a taxpayer shall be deemed to have 
        made a payment to a FFARRM Account on the last day of a 
        taxable year if such payment is made on account of such 
        taxable year and is made on or before the due date 
        (without regard to extensions) for filing the return of 
        tax for such taxable year.
            ``(5) Individual.--For purposes of this section, 
        the term `individual' shall not include an estate or 
        trust.
            ``(6) Deduction not allowed for self-employment 
        tax.--The deduction allowable by reason of subsection 
        (a) shall not be taken into account in determining an 
        individual's net earnings from self-employment (within 
        the meaning of section 1402(a)) for purposes of chapter 
        2.
    ``(g) Reports.--The trustee of a FFARRM Account shall make 
such reports regarding such Account to the Secretary and to the 
person for whose benefit the Account is maintained with respect 
to contributions, distributions, and such other matters as the 
Secretary may require under regulations. The reports required 
by this subsection shall be filed at such time and in such 
manner and furnished to such persons at such time and in such 
manner as may be required by such regulations.''.
    (b) Tax on Excess Contributions.--
            (1) Subsection (a) of section 4973 (relating to tax 
        on excess contributions to certain tax-favored accounts 
        and annuities) is amended by striking ``or'' at the end 
        of paragraph (3), by redesignating paragraph (4) as 
        paragraph (5), and by inserting after paragraph (3) the 
        following new paragraph:
            ``(4) a FFARRM Account (within the meaning of 
        section 468C(d)), or''.
            (2) Section 4973 is amended by adding at the end 
        the following new subsection:
    ``(g) Excess Contributions to FFARRM Accounts.--For 
purposes of this section, in the case of a FFARRM Account 
(within the meaning of section 468C(d)), the term `excess 
contributions' means the amount by which the amount contributed 
for the taxable year to the Account exceeds the amount which 
may be contributed to the Account under section 468C(b) for 
such taxable year. For purposes of this subsection, any 
contribution which is distributed out of the FFARRM Account in 
a distribution to which section 468C(e)(2)(B) applies shall be 
treated as an amount not contributed.''.
            (3) The section heading for section 4973 is amended 
        to read as follows:

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

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

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

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

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

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

SEC. 715. EXTENSION OF ENHANCED DEDUCTION FOR CORPORATE DONATIONS OF 
                    COMPUTER TECHNOLOGY.

    (a) Expansion of Computer Technology Donations to Public 
Libraries.--
            (1) In general.--Paragraph (6) of section 170(e) 
        (relating to special rule for contributions of computer 
        technology and equipment for elementary or secondary 
        school purposes) is amended by striking ``qualified 
        elementary or secondary educational contribution'' each 
        place it occurs in the headings and text and inserting 
        ``qualified computer contribution''.
            (2) Expansion of eligible donees.--Clause (i) of 
        section 170(e)(6)(B) (relating to qualified elementary 
        or secondary educational contribution) is amended by 
        striking ``or'' at the end of subclause (I), by adding 
        ``or'' at the end of subclause (II), and by inserting 
        after subclause (II) the following new subclause:
                                    ``(III) a public library 
                                (within the meaning of section 
                                213(2)(A) of the Library 
                                Services and Technology Act (20 
                                U.S.C. 9122(2)(A)), as in 
                                effect on the date of the 
                                enactment of the Community 
                                Renewal and New Markets Act of 
                                2000, established and 
                                maintained by an entity 
                                described in subsection 
                                (c)(1),''.
            (3) Extension of donation period.--Clause (ii) of 
        section 170(e)(6)(B) is amended by striking ``2 years'' 
        and inserting ``3 years''.
    (b) Conforming Amendments.--
            (1) Section 170(e)(6)(B)(iv) is amended by striking 
        ``in any grades of the K-12''.
            (2) The heading of paragraph (6) of section 170(e) 
        is amended by striking ``elementary or secondary school 
        purposes'' and inserting ``educational purposes''.
    (c) Extension of Deduction.--Section 170(e)(6)(F) (relating 
to termination) is amended by striking ``December 31, 2000'' 
and inserting ``December 31, 2003''.
    (d) Effective Date.--The amendments made by this section 
shall apply to contributions made after December 31, 2000.

SEC. 716. RELIEF FROM FEDERAL TAX LIABILITY ARISING WITH RESPECT TO 
                    CERTAIN CLAIMS AGAINST THE DEPARTMENT OF 
                    AGRICULTURE FOR DISCRIMINATION IN FARM CREDIT AND 
                    BENEFIT PROGRAMS.

    Notwithstanding any provision of the Internal Revenue Code 
of 1986, in the case of a person who is certified to be a 
member of the plaintiff class in the settlement of the 
consolidated actions entitled ``Pigford, et al. v. Glickman'', 
No. 97-1978 (D.D.C.) (PLF), and ``Brewington et al. v. 
Glickman'', No. 98-1693 (D.D.C.) (PLF), gross income for 
purposes of subtitle A of such Code shall not include--
            (1) any cash payment received before, on, or after 
        the date of the enactment of this Act by, or made on 
        behalf of, a person under such settlement, and
            (2) any amount which (but for this section) would 
        be includible in gross income by reason of the 
        discharge of indebtedness pursuant to such settlement.

SEC. 717. EXPANSION OF CREDIT FOR ADOPTION EXPENSES.

    (a) Increase in Expenses Allowable for Adoption.--Paragraph 
(1) of section 23(b) (relating to dollar limitation) is amended 
to read as follows:
            ``(1) Dollar limitation.--
                    ``(A) In general.--The aggregate amount of 
                qualified adoption expenses which may be taken 
                into account under subsection (a) for all 
                taxable years with respect to the adoption of a 
                child by the taxpayer shall not exceed the 
                applicable amount.
                    ``(B) Applicable amount.--For purposes of 
                subparagraph (A)--
                            ``(i) Child with special needs.--In 
                        the case of a child with special needs, 
                        the applicable amount for a taxable 
                        year shall be the amount determined in 
                        accordance with the following table:

        ``For taxable years                               The applicable
            beginning in:                                   amount is:  
            2001..............................................   $8,000 
            2002..............................................  $10,000 
            2003 and thereafter...............................  $12,000.

                            ``(ii) Other children.--In the case 
                        of a child who is not a child with 
                        special needs, the applicable amount 
                        for a taxable year shall be the amount 
                        determined in accordance with the 
                        following table:

        ``For taxable years                               The applicable
            beginning in:                                   amount is:  
            2001..............................................   $6,000 
            2002..............................................   $7,000 
            2003..............................................   $8,000 
            2004..............................................   $9,000 
            2005 and thereafter..............................$10,000.''.

    (b) Increase in Income Limitation.--Clause (i) of section 
23(b)(2)(A) (relating to income limitation) is amended by 
striking ``$75,000'' and inserting ``$150,000''.
    (c) Extension of Sunset.--Subparagraph (B) of section 
23(d)(2) (relating to eligible child) is amended by striking 
``2001'' and inserting ``2005''.
    (d) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2000.

SEC. 718. STUDY CONCERNING UNITED STATES INSURANCE COMPANIES WITH 
                    CERTAIN OFFSHORE REINSURANCE AFFILIATES.

    (a) Study.--The Secretary of the Treasury shall conduct a 
study on the extent to which United States tax on investment 
income of United States insurance companies is being avoided 
through the use of affiliated corporations in Bermuda or other 
offshore locations. In conducting such study, the Secretary 
shall--
            (1) address issues concerning the application of 
        current United States tax law in preventing such 
        avoidance,
            (2) examine changes to United States tax law which 
        may be needed to prevent such avoidance, and
            (3) make such recommendations as the Secretary 
        considers appropriate.
    (b) Submission of Study to Congress.--Not later than 
December 31, 2001, the Secretary shall submit the study 
conducted under subsection (a), together with recommendations 
thereon, to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the Senate.

SEC. 719. TREATMENT OF INDIAN TRIBAL GOVERNMENTS UNDER FEDERAL 
                    UNEMPLOYMENT TAX ACT.

    (a) In General.--Section 3306(c)(7) (defining employment) 
is amended--
            (1) by inserting ``or in the employ of an Indian 
        tribe,'' after ``service performed in the employ of a 
        State, or any political subdivision thereof,''; and
            (2) by inserting ``or Indian tribes'' after 
        ``wholly owned by one or more States or political 
        subdivisions''.
    (b) Payments in Lieu of Contributions.--Section 3309 
(relating to State law coverage of services performed for 
nonprofit organizations or governmental entities) is amended--
            (1) in subsection (a)(2) by inserting ``, including 
        an Indian tribe,'' after ``the State law shall provide 
        that a governmental entity'';
            (2) in subsection (b)(3)(B) by inserting ``, or of 
        an Indian tribe'' after ``of a State or political 
        subdivision thereof'';
            (3) in subsection (b)(3)(E) by inserting ``or 
        tribal'' after ``the State''; and
            (4) in subsection (b)(5) by inserting ``or of an 
        Indian tribe'' after ``an agency of a State or 
        political subdivision thereof''.
    (c) State Law Coverage.--Section 3309 (relating to State 
law coverage of services performed for nonprofit organizations 
or governmental entities) is amended by adding at the end the 
following new subsection:
    ``(d) Election by Indian Tribe.--The State law shall 
provide that an Indian tribe may make contributions for 
employment as if the employment is within the meaning of 
section 3306 or make payments in lieu of contributions under 
this section, and shall provide that an Indian tribe may make 
separate elections for itself and each subdivision, subsidiary, 
or business enterprise wholly owned by such Indian tribe. State 
law may require a tribe to post a payment bond or take other 
reasonable measures to assure the making of payments in lieu of 
contributions under this section. Notwithstanding the 
requirements of section 3306(a)(6), if, within 90 days of 
having received a notice of delinquency, a tribe fails to make 
contributions, payments in lieu of contributions, or payment of 
penalties or interest (at amounts or rates comparable to those 
applied to all other employers covered under the State law) 
assessed with respect to such failure, or if the tribe fails to 
post a required payment bond, then service for the tribe shall 
not be excepted from employment under section 3306(c)(7) until 
any such failure is corrected. This subsection shall apply to 
an Indian tribe within the meaning of section 4(e) of the 
Indian Self-Determination and Education Assistance Act (25 
U.S.C. 450b(e)).''.
    (d) Definitions.--Section 3306 (relating to definitions) is 
amended by adding at the end the following new subsection:
    ``(u) Indian Tribe.--For purposes of this chapter, the term 
`Indian tribe' has the meaning given to such term by section 
4(e) of the Indian Self-Determination and Education Assistance 
Act (25 U.S.C. 450b(e)), and includes any subdivision, 
subsidiary, or business enterprise wholly owned by such an 
Indian tribe.''.
    (e) Effective Date; Transition Rule.--
            (1) Effective date.--The amendments made by this 
        section shall apply to service performed on or after 
        the date of the enactment of this Act.
            (2) Transition rule.--For purposes of the Federal 
        Unemployment Tax Act, service performed in the employ 
        of an Indian tribe (as defined in section 3306(u) of 
        the Internal Revenue Code of 1986 (as added by this 
        section)) shall not be treated as employment (within 
        the meaning of section 3306 of such Code) if--
                    (A) it is service which is performed before 
                the date of the enactment of this Act and with 
                respect to which the tax imposed under the 
                Federal Unemployment Tax Act has not been paid, 
                and
                    (B) such Indian tribe reimburses a State 
                unemployment fund for unemployment benefits 
                paid for service attributable to such tribe for 
                such period.

                   Subtitle C--Technical Corrections

SEC. 721. AMENDMENTS RELATED TO TICKET TO WORK AND WORK INCENTIVES 
                    IMPROVEMENT ACT OF 1999.

    (a) Amendments Related to Section 502 of the Act.--
            (1) Section 280C(c)(1) is amended by striking ``or 
        credit'' after ``deduction'' each place it appears.
            (2) Section 30A is amended by redesignating 
        subsections (f) and (g) as subsections (g) and (h), 
        respectively, and by inserting after subsection (e) the 
        following new subsection:
    ``(f) Denial of Double Benefit.--Any wages or other 
expenses taken into account in determining the credit under 
this section may not be taken into account in determining the 
credit under section 41.''
    (b) Amendment Related to Section 545 of the Act.--Clause 
(ii) of section 857(b)(7)(B) is amended to read as follows:
                            ``(ii) Exception for certain 
                        amounts.--Clause (i) shall not apply to 
                        amounts received directly or indirectly 
                        by a real estate investment trust--
                                    ``(I) for services 
                                furnished or rendered by a 
                                taxable REIT subsidiary that 
                                are described in paragraph 
                                (1)(B) of section 856(d), or
                                    ``(II) from a taxable REIT 
                                subsidiary that are described 
                                in paragraph (7)(C)(ii) of such 
                                section.''
    (c) Clarification Related to Section 538 of the Act.--The 
reference to section 332(b)(1) of the Internal Revenue Code of 
1986 in Treasury Regulation section 1.1502-34 shall be deemed 
to include a reference to section 732(f) of such Code.
    (d) Effective Date.--Subsection (c) and the amendments made 
by this section shall take effect as if included in the 
provisions of the Ticket to Work and Work Incentives 
Improvement Act of 1999 to which they relate.

SEC. 722. AMENDMENTS RELATED TO TAX AND TRADE RELIEF EXTENSION ACT OF 
                    1998.

    (a) Amendment Related to Section 1004(b) of the Act.--
Subsection (d) of section 6104 is amended by adding at the end 
the following new paragraph:
            ``(6) Application to nonexempt charitable trusts 
        and nonexempt private foundations.--The organizations 
        referred to in paragraphs (1) and (2) of section 
        6033(d) shall comply with the requirements of this 
        subsection relating to annual returns filed under 
        section 6033 in the same manner as the organizations 
        referred to in paragraph (1).''.
    (b) Amendment Related to Section 4003 of the Act.--
Subsection (b) of section 4003 of the Tax and Trade Relief 
Extension Act of 1998 is amended by inserting 
``(7)(A)(i)(II),'' after ``(5)(A)(ii)(I),''.
    (c) Effective Date.--The amendments made by this section 
shall take effect as if included in the provisions of the Tax 
and Trade Relief Extension Act of 1998 to which they relate.

SEC. 723. AMENDMENTS RELATED TO INTERNAL REVENUE SERVICE RESTRUCTURING 
                    AND REFORM ACT OF 1998.

    (a) Amendments Related to Innocent Spouse Relief.--
            (1) Election may be made any time after deficiency 
        asserted.--Subparagraph (B) of section 6015(c)(3) is 
        amended by striking ``shall be made'' and inserting 
        ``may be made at any time after a deficiency for such 
        year is asserted but''.
            (2) Clarification regarding disallowance of refunds 
        and credits under section 6015(c).--
                    (A) In general.--Section 6015 is amended by 
                redesignating subsection (g) as subsection (h) 
                and by inserting after subsection (f) the 
                following new subsection:
    ``(g) Credits and Refunds.--
            ``(1) In general.--Except as provided in paragraphs 
        (2) and (3), notwithstanding any other law or rule of 
        law (other than section 6511, 6512(b), 7121, or 7122), 
        credit or refund shall be allowed or made to the extent 
        attributable to the application of this section.
            ``(2) Res judicata.--In the case of any election 
        under subsection (b) or (c), if a decision of a court 
        in any prior proceeding for the same taxable year has 
        become final, such decision shall be conclusive except 
        with respect to the qualification of the individual for 
        relief which was not an issue in such proceeding. The 
        exception contained in the preceding sentence shall not 
        apply if the court determines that the individual 
        participated meaningfully in such prior proceeding.
            ``(3) Credit and refund not allowed under 
        subsection (c).--No credit or refund shall be allowed 
        as a result of an election under subsection (c).''.
                    (B) Conforming amendment.--Paragraph (3) of 
                section 6015(e) is amended to read as follows:
            ``(3) Limitation on tax court jurisdiction.--If a 
        suit for refund is begun by either individual filing 
        the joint return pursuant to section 6532--
                    ``(A) the Tax Court shall lose jurisdiction 
                of the individual's action under this section 
                to whatever extent jurisdiction is acquired by 
                the district court or the United States Court 
                of Federal Claims over the taxable years that 
                are the subject of the suit for refund, and
                    ``(B) the court acquiring jurisdiction 
                shall have jurisdiction over the petition filed 
                under this subsection.''.
            (3) Clarifications regarding review by tax court.--
                    (A) Paragraph (1) of section 6015(e) is 
                amended in the matter preceding subparagraph 
                (A) by inserting after ``individual'' the 
                following: ``against whom a deficiency has been 
                asserted and''.
                    (B) Subparagraph (A) of section 6015(e)(1) 
                is amended to read as follows:
                    ``(A) In general.--In addition to any other 
                remedy provided by law, the individual may 
                petition the Tax Court (and the Tax Court shall 
                have jurisdiction) to determine the appropriate 
                relief available to the individual under this 
                section if such petition is filed--
                            ``(i) at any time after the earlier 
                        of--
                                    ``(I) the date the 
                                Secretary mails, by certified 
                                or registered mail to the 
                                taxpayer's last known address, 
                                notice of the Secretary's final 
                                determination of relief 
                                available to the individual, or
                                    ``(II) the date which is 6 
                                months after the date such 
                                election is filed with the 
                                Secretary, and
                            ``(ii) not later than the close of 
                        the 90th day after the date described 
                        in clause (i)(I).''.
                    (C) Subparagraph (B)(i) of section 
                6015(e)(1) is amended--
                            (i) by striking ``until the 
                        expiration of the 90-day period 
                        described in subparagraph (A)'' and 
                        inserting ``until the close of the 90th 
                        day referred to in subparagraph 
                        (A)(ii)'', and
                            (ii) by inserting ``under 
                        subparagraph (A)'' after ``filed with 
                        the Tax Court''.
                    (D)(i) Subsection (e) of section 6015 is 
                amended by adding at the end the following new 
                paragraph:
            ``(5) Waiver.--An individual who elects the 
        application of subsection (b) or (c) (and who agrees 
        with the Secretary's determination of relief) may waive 
        in writing at any time the restrictions in paragraph 
        (1)(B) with respect to collection of the outstanding 
        assessment (whether or not a notice of the Secretary's 
        final determination of relief has been mailed).''.
                    (ii) Paragraph (2) of section 6015(e) is 
                amended to read as follows:
            ``(2) Suspension of running of period of 
        limitations.--The running of the period of limitations 
        in section 6502 on the collection of the assessment to 
        which the petition under paragraph (1)(A) relates shall 
        be suspended--
                    ``(A) for the period during which the 
                Secretary is prohibited by paragraph (1)(B) 
                from collecting by levy or a proceeding in 
                court and for 60 days thereafter, and
                    ``(B) if a waiver under paragraph (5) is 
                made, from the date the claim for relief was 
                filed until 60 days after the waiver is filed 
                with the Secretary.''.
    (b) Amendments Related to Procedure and Administration.--
            (1) Disputes involving $50,000 or less.--Section 
        7463 is amended by adding at the end the following new 
        subsection:
    ``(f) Additional Cases in Which Proceedings May Be 
Conducted Under This Section.--At the option of the taxpayer 
concurred in by the Tax Court or a division thereof before the 
hearing of the case, proceedings may be conducted under this 
section (in the same manner as a case described in subsection 
(a)) in the case of--
            ``(1) a petition to the Tax Court under section 
        6015(e) in which the amount of relief sought does not 
        exceed $50,000, and
            ``(2) an appeal under section 6330(d)(1)(A) to the 
        Tax Court of a determination in which the unpaid tax 
        does not exceed $50,000.''.
            (2) Authority to enjoin collection actions.--
                    (A) Section 6330(e)(1) is amended by adding 
                at the end the following: ``Notwithstanding the 
                provisions of section 7421(a), the beginning of 
                a levy or proceeding during the time the 
                suspension under this paragraph is in force may 
                be enjoined by a proceeding in the proper 
                court, including the Tax Court. The Tax Court 
                shall have no jurisdiction under this paragraph 
                to enjoin any action or proceeding unless a 
                timely appeal has been filed under subsection 
                (d)(1) and then only in respect of the unpaid 
                tax or proposed levy to which the determination 
                being appealed relates.''.
                    (B) Section 7421(a) is amended by inserting 
                ``6330(e)(1),'' after ``6246(b),''.
            (3) Clarification.--Paragraph (3) of section 
        6331(k) is amended by striking ``(3), (4), and (5)'' 
        and inserting ``(3) and (4)''.
    (c) Amendment Related to Section 1103 of the Act.--
Paragraph (6) of section 6103(k) is amended--
            (1) by inserting ``and an officer or employee of 
        the Office of Treasury Inspector General for Tax 
        Administration'' after ``internal revenue officer or 
        employee'', and
            (2) by striking ``internal revenue'' in the heading 
        and inserting ``certain''.
    (d) Amendment Related to Section 3401 of the Act.--Section 
6330(d)(1)(A) is amended by striking ``to hear'' and inserting 
``with respect to''.
    (e) Amendment Related to Section 3509 of the Act.--
Subparagraph (A) of section 6110(g)(5) is amended by inserting 
``, any Chief Counsel advice,'' after ``technical advice 
memorandum''.
    (f) Effective Dates.--The amendments made by subsections 
(a) and (b) shall take effect on the date of the enactment of 
this Act. The amendments made by subsections (c), (d), and (e) 
shall take effect as if included in the provisions of the 
Internal Revenue Service Restructuring and Reform Act of 1998 
to which they relate.

SEC. 724. AMENDMENTS RELATED TO TAXPAYER RELIEF ACT OF 1997.

    (a) Amendment Related to Section 101 of the Act.--Paragraph 
(4) of section 6211(b) is amended by striking ``sections 32 and 
34'' and inserting ``sections 24(d), 32, and 34''.
    (b) Amendment Related to Section 302 of the Act.--The last 
sentence of section 3405(e)(1)(B) is amended by inserting 
``(other than a Roth IRA)'' after ``individual retirement 
plan''.
    (c) Amendment to Section 311 of the Act.--Paragraph (3) of 
section 311(e) of the Taxpayer Relief Act of 1997 (relating to 
election to recognize gain on assets held on January 1, 2001) 
is amended by adding at the end the following new sentence: 
``Such an election shall not apply to any asset which is 
disposed of (in a transaction in which gain or loss is 
recognized in whole or in part) before the close of the 1-year 
period beginning on the date that the asset would have been 
treated as sold under such election.''
    (d) Amendment Related to Section 402 of the Act.--The flush 
sentence at the end of clause (ii) of section 56(a)(1)(A) is 
amended by inserting before ``or to any other property'' the 
following: ``(and the straight line method shall be used for 
such 1250 property)''.
    (e) Amendments Related to Section  1072 of the Act.--
            (1) Clause (ii) of section 415(c)(3)(D) and 
        subparagraph (B) of section 403(b)(3) are each amended 
        by striking ``section 125 or'' and inserting ``section 
        125, 132(f)(4), or''.
            (2) Paragraph (2) of section 414(s) is amended by 
        striking ``section 125, 402(e)(3)'' and inserting 
        ``section 125, 132(f)(4), 402(e)(3)''.
    (f) Amendment Related to Section  1454 of the Act.--
Subsection (a) of section 7436 is amended by inserting before 
the period at the end of the first sentence ``and the proper 
amount of employment tax under such determination''.
    (g) Effective Date.--The amendments made by this section 
shall take effect as if included in the provisions of the 
Taxpayer Relief of 1997 to which they relate.

SEC. 725. AMENDMENTS RELATED TO BALANCED BUDGET ACT OF 1997.

    (a) Amendments Related to Section  9302 of the Act.--
            (1) Paragraph (1) of section 9302(j) of the 
        Balanced Budget Act of 1997 is amended by striking 
        ``tobacco products and cigarette papers and tubes'' and 
        inserting ``cigarettes''.
            (2)(A) Subsection (h) of section 5702 is amended to 
        read as follows:
    ``(h) Manufacturer of Cigarette Papers and Tubes.--
`Manufacturer of cigarette papers and tubes' means any person 
who manufactures cigarette paper, or makes up cigarette paper 
into tubes, except for his own personal use or consumption.''
            (B) Section 5702, as amended by subparagraph (A), 
        is amended by striking subsection (f) and by 
        redesignating subsections (g) through (p) as 
        subsections (f) through (o), respectively.
            (3) Subsection (c) of section 5761 is amended by 
        adding at the end the following: ``This subsection and 
        section 5754 shall not apply to any person who relands 
        or receives tobacco products in the quantity allowed 
        entry free of tax and duty under chapter 98 of the 
        Harmonized Tariff Schedule of the United States, and 
        such person may voluntarily relinquish to the Secretary 
        at the time of entry any excess of such quantity 
        without incurring the penalty under this subsection. No 
        quantity of tobacco products other than the quantity 
        referred to in the preceding sentence may be relanded 
        or received as a personal use quantity.''.
    (b) Effective Date.--The amendments made by this section 
shall take effect as if included in section 9302 of the 
Balanced Budget Act of 1997.

SEC. 726. AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION ACT OF 
                    1996.

    (a) Amendment Related to Section 1201 of the Act.--
Subparagraph (B) of section 51(d)(2) is amended--
            (1) by striking ``plan approved'' and inserting 
        ``program funded'', and
            (2) by striking ``(relating to assistance for needy 
        families with minor children)''.
    (b) Amendment Related to Section 1302 of the Act.--Clause 
(i) of section 1361(e)(1)(A) is amended by striking ``or'' 
before ``(III)'' and by adding at the end the following: ``or 
(IV) an organization described in section 170(c)(1) which holds 
a contingent interest in such trust and is not a potential 
current beneficiary,''.
    (c) Amendment Related to Section 1401 of the Act.--Clause 
(ii) of section 401(k)(10)(B) is amended by adding at the end 
the following new sentence: ``Such term includes a distribution 
of an annuity contract from--
                                    ``(I) a trust which forms a 
                                part of a plan described in 
                                section 401(a) and which is 
                                exempt from tax under section 
                                501(a), or
                                    ``(II) an annuity plan 
                                described in section 403(a).''.
    (d) Amendment Related to Section 1427 of the Act.--Clause 
(ii) of section 219(c)(1)(B) is amended by striking ``and'' at 
the end of subclause (I), by redesignating subclause (II) as 
subclause (III), and by inserting after subclause (I) the 
following new subclause:
                                    ``(II) the amount of any 
                                designated nondeductible 
                                contribution (as defined in 
                                section 408(o)) on behalf of 
                                such spouse for such taxable 
                                year, and''.
    (e) Effective Date.--The amendments made by this section 
shall take effect as if included in the provisions of the Small 
Business Job Protection Act of 1996 to which they relate.

SEC. 727. AMENDMENT RELATED TO REVENUE RECONCILIATION ACT OF 1990.

    (a) Amendment Related to Section 11511 of the Act.--
Subparagraph (C) of section 43(c)(1) is amended--
            (1) by inserting ``(as defined in section 193(b))'' 
        after ``expenses'', and
            (2) by striking ``under section 193''.
    (b) Effective Date.--The amendment made by this section 
shall take effect as if included in section 11511 of the 
Revenue Reconciliation Act of 1990.

SEC. 728. OTHER TECHNICAL CORRECTIONS.

    (a) Modified Endowment Contracts.--
            (1) Paragraph (2) of section 7702A(a) is amended by 
        inserting ``or this paragraph'' before the period.
            (2) Clause (ii) of section 7702A(c)(3)(A) is 
        amended by striking ``under the contract'' and 
        inserting ``under the old contract''.
            (3) The amendments made by this subsection shall 
        take effect as if included in the amendments made by 
        section 5012 of the Technical and Miscellaneous Revenue 
        Act of 1988.
    (b) Affiliated Corporations in Context of Worthless 
Securities.--
            (1) Subparagraph (A) of section 165(g)(3) is 
        amended to read as follows:
                    ``(A) the taxpayer owns directly stock in 
                such corporation meeting the requirements of 
                section 1504(a)(2), and''.
            (2) Paragraph (3) of section 165(g) is amended by 
        striking the last sentence.
            (3) The amendments made by this subsection shall 
        apply to taxable years beginning after December 31, 
        1984.
    (c) Certain Annuities Issued by Tax-Exempt Organizations 
Not Treated as Debt Instruments Under Original Issue Discount 
Rules.--
            (1) Clause (ii) of section 1275(a)(1)(B) is amended 
        by striking ``subchapter L'' and inserting ``subchapter 
        L (or by an entity described in section 501(c) and 
        exempt from tax under section 501(a) which would be 
        subject to tax under subchapter L were it not so 
        exempt)''.
            (2) The amendment made by this subsection shall 
        take effect as if included in the amendments made by 
        section 41 of the Tax Reform Act of 1984.
    (d) Tentative Carryback Adjustments of Losses From Section 
1256 Contracts.--
            (1) Subsection (a) of section 6411 is amended by 
        striking ``section 1212(a)(1)'' and inserting 
        ``subsection (a)(1) or (c) of section 1212''.
            (2) The amendment made by paragraph (1) shall take 
        effect as if included in the amendments made by section 
        504 of the Economic Recovery Tax Act of 1981.
    (e) Correction of Calculation of Amounts to be Deposited in 
Highway Trust Fund.--
            (1) Subsection (b) of section 9503 is amended by 
        striking paragraph (5) and redesignating paragraph (6) 
        as paragraph (5).
            (2) The amendment made by paragraph (1) shall apply 
        with respect to taxes received in the Treasury after 
        the date of the enactment of this Act.
    (f) Expenditures From Vaccine Injury Compensation Trust 
Fund.--Section 9510(c)(1)(A) is amended by striking ``December 
31, 1999'' and inserting ``October 18, 2000''.

SEC. 729. CLERICAL CHANGES.

            (1) Clause (i) of section 45(d)(7)(A) is amended by 
        striking ``paragraph (3)(A)'' and inserting 
        ``subsection (c)(3)(A)''.
            (2) Subsection (f) of section 67 is amended by 
        striking ``the last sentence'' and inserting ``the 
        second sentence''.
            (3) The heading for paragraph (5) of section 408(d) 
        is amended to read as follows:
            ``(5) Distributions of excess contributions after 
        due date for taxable year and certain excess rollover 
        contributions.--''.
            (4) Paragraph (3) of section 475(g) is amended by 
        striking ``267(b) of'' and inserting ``267(b) or''.
            (5) The heading for subparagraph (B) of section 
        529(e)(3) is amended by striking ``under guaranteed 
        plans''.
            (6) Clause (iii) of section 530(d)(4)(B) is amended 
        by striking ``; or'' at the end and inserting ``, or''.
            (7) Paragraphs (1)(C) and (2)(C) of section 664(d) 
        are each amended by striking the period after 
        ``subsection (g))''.
            (8)(A) Subsection (e) of section 678 is amended by 
        striking ``an electing small business corporation'' and 
        inserting ``an S corporation''.
            (B) Clause (v) of section 6103(e)(1)(D) is amended 
        to read as follows:
                            ``(v) if the corporation was an S 
                        corporation, any person who was a 
                        shareholder during any part of the 
                        period covered by such return during 
                        which an election under section 1362(a) 
                        was in effect, or''.
            (9) Paragraph (7) of section 856(c) is amended by 
        striking ``paragraph (4)(B)(ii)(III)'' and inserting 
        ``paragraph (4)(B)(iii)(III)''
            (10) Subparagraph (A) of section 856(l)(4) is 
        amended by striking ``paragraph (9)(D)(ii)'' and 
        inserting ``subsection (d)(9)(D)(ii)''.
            (11) Subparagraph (B) of section 871(f)(2) is 
        amended by striking ``19 U.S.C.'' and inserting ``(19 
        U.S.C.''.
            (12) Subparagraph (B) of section 995(b)(3) is 
        amended by striking ``the Military Security Act of 1954 
        (22 U.S.C. 1934)'' and inserting ``section 38 of the 
        International Security Assistance and Arms Export 
        Control Act of 1976 (22 U.S.C. 2778)''.
            (13) Section 1391(g)(3)(C) is amended by striking 
        ``paragraph (1)(B)'' and inserting ``paragraph (1)''.
            (14)(A) Paragraph (2) of section 2035(c) is amended 
        by striking ``paragraph (1)'' and inserting 
        ``subsection (a)''.
            (B) Subsection (d) of section 2035 is amended by 
        inserting ``and paragraph (1) of subsection (c)'' after 
        ``Subsection (a)''.
            (15) Paragraph (5) of section 3121(a) is amended by 
        striking the semicolon at the end of subparagraph (G) 
        and inserting a comma.
            (16) Subparagraph (B) of section 4946(c)(3) is 
        amended by striking ``the lowest rate of compensation 
        prescribed for GS-16 of the General Schedule under 
        section 5332'' and inserting ``the lowest rate of basic 
        pay for the Senior Executive Service under section 
        5382''.
            (17) Subsection (p) of section 6103 is amended--
                    (A) in paragraph (4), in the matter 
                preceding subparagraph (A)--
                            (i) by striking the second comma 
                        after ``(13)'', and
                            (ii) by striking ``(7)'' and all 
                        that follows through ``shall, as a 
                        condition'' and inserting ``(7), (8), 
                        (9), (12), (15), or (16) or any other 
                        person described in subsection (l)(16) 
                        shall, as a condition'', and
                    (B) in paragraph (4)(F)(ii), by striking 
                the second comma after ``(14)''.
            (18) Paragraph (5) of section 6166(k) is amended by 
        striking ``2035(d)(4)'' and inserting ``2035(c)(2)''.
            (19) Subsection (a) of section 6512 is amended by 
        striking ``; and'' at the end of paragraphs (1), (2), 
        and (5) and inserting ``, and''.
            (20) Paragraph (1) of section 6611(g) is amended by 
        striking the comma after ``(b)(3)''.
            (21) Subparagraphs (A) and (B) of section 
        6655(e)(5) are amended by striking ``subsections (d)(5) 
        and (l)(3)(B)'' and inserting ``subsection (d)(5)''.
            (22) The subchapter heading for subchapter D of 
        chapter 67 is amended by capitalizing the first letter 
        of the second word.
            (23)(A) Section 6724(d)(1)(B) is amended by 
        striking clauses (xiv) through (xvii) and inserting the 
        following:
                            ``(xiv) subparagraph (A) or (C) of 
                        subsection (c)(4) of section 4093 
                        (relating to information reporting with 
                        respect to tax on diesel and aviation 
                        fuels),
                            ``(xv) section 4101(d) (relating to 
                        information reporting with respect to 
                        fuels taxes),
                            ``(xvi) subparagraph (C) of section 
                        338(h)(10) (relating to information 
                        required to be furnished to the 
                        Secretary in case of elective 
                        recognition of gain or loss), or
                            ``(xvii) section 264(f)(5)(A)(iv) 
                        (relating to reporting with respect to 
                        certain life insurance and annuity 
                        contracts), and''.
            (B) Section 6010(o)(4)(C) of the Internal Revenue 
        Service Restructuring and Reform Act of 1998 is amended 
        by striking ``inserting `or', and by adding at the 
        end'' and inserting ``inserting `, or', and by adding 
        after subparagraph (Z)''.
            (24) Subsection (a) of section 7421 is amended by 
        striking ``6672(b)'' and inserting ``6672(c)''.
            (25) Paragraph (3) of section 7430(c) is amended--
                    (A) in the paragraph heading, by striking 
                ``Attorneys'' and inserting ``Attorneys' '', 
                and
                    (B) in subparagraph (B), by striking 
                ``attorneys fees'' each place it appears and 
                inserting ``attorneys' fees''.
            (26) Paragraph (2) of section 7603(b) is amended by 
        striking the semicolon at the end of subparagraphs (A), 
        (B), (C), (D), (E), (F), and (G) and inserting a comma.
            (27) Clause (ii) of section 7802(b)(2)(B) is 
        amended by striking ``; and'' at the end and inserting 
        ``, and''.
            (28) Paragraph (3) of section 7811(a) is amended by 
        striking ``taxpayer assistance order'' and inserting 
        ``Taxpayer Assistance Order''.
            (29) Paragraph (1) of section 7811(d) is amended by 
        striking ``Ombudsman's'' and inserting ``National 
        Taxpayer Advocate's''.
            (30) Paragraph (3) of section 7872(f) is amended by 
        striking ``foregoing'' and inserting ``forgoing''.

                     Subtitle D--Pay-Go Adjustment

SEC. 731. AVOIDANCE OF A PAY-GO SEQUESTRATION FOR FISCAL YEAR 2001.

    (a) Pay-Go Adjustments.--(1) In preparing the final 
sequestration report required by section 254(f)(3) of the 
Balanced Budget and Emergency Deficit Control Act of 1985 for 
fiscal year 2001, in addition to the information required by 
that section, the Director of the Office of Management and 
Budget shall change any balance of direct spending and receipts 
legislation for fiscal year 2001 under section 252 of that Act 
to zero.
    (2) Notwithstanding Rule 3 of the Budget Scorekeeping 
Guidelines set forth in the joint explanatory statement of the 
committee of conference accompanying the conference report on 
the bill H.R. 2015 of the 105th Congress (House Report No. 105-
217, filed July 30, 1997), the legislation enacted in sections 
504 and 505 of the Department of Transportation and Related 
Agencies Appropriations Act, 2001, section 312 of the 
Legislative Branch Appropriations Act, 2001, and section 1003 
of division B of H.R. 4516 (106th Congress), as enacted, that 
would have been estimated by the Office of Management and 
Budget as changing direct spending or receipts under section 
252 of the Balanced Budget and Emergency Deficit Control Act of 
1985 were it included in an Act other than an appropriations 
Act shall be treated as direct spending or receipts 
legislation, as appropriate, under section 252 of the Balanced 
Budget and Emergency Deficit Control Act of 1985.
    (b) Exemption of Certain Budgetary Reports From 
Termination.--Section 3003(a)(1) of the Federal Reports 
Elimination and Sunset Act of 1995 (31 U.S.C. 1113 note) does 
not apply to any report required to be submitted under any of 
the following provisions of law:
            (1) Sections 1105(a), 1106(a) and (b), and 1109(a) 
        of title 31, United States Code, and any other law 
        relating to the budget of the United States Government.
            (2) The Balanced Budget and Emergency Deficit 
        Control Act of 1985 (2 U.S.C. 900 et seq.).
            (3) Sections 202(e)(1) and (3) of the Congressional 
        Budget Act of 1974 (2 U.S.C. 602(e)(1) and (3)).
            (4) Section 1014(e) of the Congressional Budget and 
        Impoundment Control Act of 1974 (2 U.S.C. 685(e)).
      Following is explanatory language for H.R. 5542 as 
introduced on October 25, 2000. References in the following to 
the ``conference agreement'' refer to the text of that bill.




                            C O N T E N T S

                              ----------                              
                                                                   Page
TITLE I. FSC REPEAL AND EXTRATERRITORIAL INCOME EXCLUSION........   191
TITLE II. SMALL BUSINESS TAX RELIEF PROVISIONS...................   212
    A. Extension of the Work Opportunity Tax Credit..............   212
    B. Increase the Maximum Dollar Amount of Reforestation 
        Expenditures Eligible for Amortization and Credit........   213
    C. Capital Gains Treatment Under Section 631 (b)To Apply to 
        Outright Sales of Timber.................................   214
    D. Increase Section 179 Expensing............................   215
    E. Increase Deduction for Business Meals.....................   216
    F. Increased Deduction for Business Meals While Operating 
        Under Department of Transportation Hours of Service 
        Limitations..............................................   217
    G. Repeal of Modification of Installment Method..............   218
    H. Coordinate Farmers and Fisherman Income Averaging and the 
        Alternative Minimum Tax..................................   220
    I. Repeal Special Occupational Taxes on Producers and 
        Marketers of Alcoholic Beverages.........................   220
    J. Exclusion From Gross Income for Certain Forgiven Mortgage 
        Obligations..............................................   221
    K. Clarification of Cash Accounting Rules for Small 
        Businesses...............................................   222
    L. Authorize Payment of Interest on Business Checking 
        Accounts.................................................   223
TITLE III. HEALTH INSURANCE AND LONG-TERM CARE INSURANCE 
  PROVISIONS.....................................................   224
    A. Accelerate 100-Percent Self-Employed Health Insurance 
        Deduction................................................   224
    B. Above-the-Line Deduction for Health Insurance Expenses....   225
    C. Above-the-Line Deduction for Long-Term Care Expenses......   228
    D. Medical Savings Accounts (``MSAs'').......................   230
    E. Deduction for Providing Long-Term Care to Household 
        Members..................................................   232
TITLE IV. PENSIONS AND INDIVIDUAL RETIREMENT ARRANGEMENT 
  PROVISIONS.....................................................   235
Subtitle A: Individual Retirement Arrangements (``IRAs'')........   235
Subtitle B: Expanding Coverage...................................   242
    A. Increase in Benefit and Contribution Limits...............   242
    B. Plans Loans for S Corporation Shareholders, Partners, and 
        Sole Proprietors.........................................   244
    C. Modification of Top-Heavy Rules...........................   246
    D. Elective Deferrals Not Taken Into Account for Purposes of 
        Deduction Limits.........................................   249
    E. Repeal of Coordination Requirements for Deferred 
        Compensation Plans of State and Local Governments and 
        Tax-Exempt Organizations.................................   250
    F. Eliminate IRS User Fees for Certain Requests Regarding 
        Employer Plans...........................................   251
    G. Deduction Limits..........................................   252
    H. Option to Treat Elective Deferrals as After-Tax 
        Contributions............................................   254
Subtitle C: Enhancing Fairness for Women.........................   257
    A. Additional Catch-Up Contributions.........................   257
    B. Equitable Treatment for Contributions of Employees to 
        Defined Contribution Plans...............................   259
    C. Faster Vesting of Employer Matching Contributions.........   261
    D. Simplify and Update the Minimum Distribution Rules........   262
    E. Clarification of Tax Treatment of Division of Section 457 
        Plan Benefits Upon Divorce...............................   265
    F. Modifications Relating to Hardship Withdrawals Plans......   266
    G. Pension Coverage for Domestic and Similar Workers.........   268
Subtitle D: Increasing Portability for Participants..............   269
    A. Rollovers of Retirement Plan and IRA Distributions........   269
    B. Waiver of 60-Day Rule.....................................   273
    C. Treatment of Forms of Distribution........................   274
    D. Rationalization of Restrictions on Distributions..........   278
    E. Purchase of Service Credit Under Governmental Pension 
        Plans....................................................   279
    F. Employers May Disregard Rollovers for Purposes of Cash-Out 
        Rules....................................................   280
    G. Minimum Distribution and Inclusion Requirements for 
        Section 457 Plans........................................   281
Subtitle E: Strengthening Pension Security and Enforcement.......   282
    A. Phase in Repeal of 155 Percent of Current Liability 
        Funding Limit; Deduction for Contributions to Fund 
        Termination Liability....................................   282
    B. Excise Tax Relief for Sound Pension Funding...............   284
    C. Notice of Significant Reduction in Plan Benefit Accruals..   285
    D. Modification to Section 415 Limits for Multiemployer Plans   293
    E. Prohibited Allocation of Stock in an S Corporation ESOP...   294
    F. Investment of Employee Contributions in 401(k) Plans......   295
    G. Periodic Pension Benefit Statements.......................   297
Subtitle F: Reducing Regulatory Burdens..........................   300
    A. Modification of Timing of Plan Valuations.................   300
    B. ESOP Dividends May Be Reinvested Without Loss of Dividend 
        Deduction................................................   300
    C. Repeal Transition Rule Relating to Certain Highly 
        Compensated Employees....................................   301
    D. Employees of Tax-Exempt Entities..........................   302
    E. Treatment of Employer-Provided Retirement Advice..........   303
    F. Reporting Simplification..................................   304
    G. Improvement to Employee Plans Compliance Resolution System   306
    H. Repeal of the Multiple Use Test...........................   307
    I. Flexibility in Nondiscrimination, Coverage, and Line of 
        Business Rules...........................................   309
    J. Extension to All Governmental Plans of Moratorium on 
        Application of Certain Nondiscrimination Rules Applicable 
        to State and Local Government............................   310
    K. Notice and Consent Period Regarding Distributions; 
        Disclosure of Optional Forms of (sec. 611 of the House 
        bill and sec. 611 of the Senate amendment)...............   311
    L. Annual Report Dissemination...............................   313
    M. Modifications to the SAVER Act............................   313
    N. Studies...................................................   314
Subtitle G: Other ERISA Provisions...............................   315
    A. Extension of PBGC Missing Participants Program............   315
    B. Reduce PBGC Premiums for Small and New Plans..............   316
    C. Authorization for PBGC To Pay Interest on Premium 
        Overpayment Refunds......................................   318
    D. Rules for Substantial Owner Benefits in Terminated Plans..   318
    E. Multiemployer Plan Benefits Guarantee.....................   319
    F. Civil Penalties for Breach of Fiduciary Responsibility....   320
    G. Benefit Suspension Notice.................................   321
Subtitle H: Provisions Relating to Plan Amendments...............   322
TITLE V. INCENTIVES FOR PUBLIC SCHOOL CONSTRUCTION AND 
  MODERNIZATION..................................................   323
TITLE VI. COMMUNITY RENEWAL PROVISIONS...........................   330
    A. Renewal Community Provisions..............................   330
    B. Empowerment Zone Tax Incentives...........................   336
        1. Extension and expansion of empowerment zones..........   336
        2. Rollover of gain from the sale of qualified 
            empowerment zone incentives..........................   340
        3. Increased exclusion of gain from the sale of 
            qualifying empowerment zone stock....................   340
    C. New Markets Tax Credit....................................   341
    D. Increase the Low-Income Housing Tax Credit Cap and Make 
        Other Modifications......................................   345
    E. Accelerate Scheduled Increase in State Volume Limits on 
        Tax-Exempt Private Activity Bonds........................   350
    F. Extension and Modification to Expensing of Environmental 
        Remediation Costs........................................   351
    G. Expansion of District of Columbia Homebuyer Tax Credit....   352
TITLE VII. ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL 
  CORRECTIONS PROVISIONS.........................................   353
Subtitle A. Administrative Provisions............................   353
    A. Exempt Certain Reports From Elimination Under the Federal 
        Reports Elimination and Sunset Act of 1995...............   353
    B. Extension of Deadlines for IRS Compliance With Certain 
        Notice Requirements......................................   354
    C. Extension of Authority for Undercover Operations..........   355
    D. Competent Authority and Pre-Filing Agreements.............   355
    E. Increase in Joint Committee on Taxation Refund Review 
        Threshold................................................   363
    F. Clarify the Allowance of Certain Tax Benefits With Respect 
        to Kidnapped Children....................................   364
    G. Conforming Changes to Accommodate Reduced Issuances of 
        Certain Treasury Securities..............................   365
    H. Authorization of Agencies To Use Corrected Consumer Price 
        Index....................................................   366
    I. Prevent Duplication or Acceleration of Loss Through 
        Assumption of Certain Liabilities........................   368
Subtitle B. Miscellaneous Provisions.............................   371
    A. Repeal Certain Excise Taxes on Rail Diesel Fuel and Inland 
        Waterway Barge Fuels.....................................   371
    B. Repeal of Reduction of Deductions for Mutual Life 
        Insurance Companies and of Policyholder Surplus Accounts 
        of Life Insurance Companies..............................   371
    C. Tax-Credit Bonds for the National Railroad Passenger 
        Corporation (``Amtrak'') and the Alaska Railroad.........   374
    D. Farm, Fish, and Ranch Risk Management Accounts (``FFARRM 
        Accounts'')..............................................   378
    E. Extension and Modification of Enhanced Deduction for 
        Corporate Donations of Computer Technology...............   379
    F. Settlement of Certain Discrimination Claims Brought by 
        Certain Farmers Against the Department of Agriculture....   381
    G. Extension of the Adoption Tax Credit......................   382
    H. Study of Tax Treatment With Respect to Certain Offshore 
        Insurance Companies......................................   383
    I. Treatment of Indian Tribes as Non-Profit Organizations and 
        State or Local Governments for Purposes of the Federal 
        Unemployment Tax (``FUTAS'').............................   384
Subtitle C. Technical Corrections Provisions.....................   385
TITLE VIII. EXCLUSION FROM PAYGO SCORECARD.......................   394
TAX COMPLEXITY ANALYSIS..........................................   394
       TITLE I. FSC REPEAL AND EXTRATERRITORIAL INCOME EXCLUSION

  Repeal of FSC Provisions and Exclusion for Extraterritorial Income 
 (secs. 101-104 of the bill and secs. 114, 921-927, and 941-943 of the 
                                 Code)

                              present law

Summary of U.S. income taxation of foreign persons
      Income earned by a foreign corporation from its foreign 
operations generally is subject to U.S. tax only when such 
income is distributed to a U.S. person that holds stock in such 
corporation. Accordingly, a U.S. person that conducts foreign 
operations through a foreign corporation generally is subject 
to U.S. tax on the income from those operations when the income 
is repatriated to the United States through a dividend 
distribution to the U.S. person.\1\ The income is reported on 
the U.S. person's tax return for the year the distribution is 
received, and the United States imposes tax on such income at 
that time. An indirect foreign tax credit may reduce the U.S. 
tax imposed on such income.
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    \1\ A variety of anti-deferral regimes impose current U.S. tax on 
income earned by a U.S. person through a foreign corporation. The 
Internal Revenue Code of 1986, as amended, (the ``Code'') sets forth 
the following anti-deferral regimes: the controlled foreign corporation 
rules of subpart F (secs. 951-954), the passive foreign investment 
company rules (secs. 1291-1298), the foreign personal holding company 
rules (secs. 551-558), the personal holding company rules (secs. 541-
547), the accumulated earnings tax rules (secs. 531-537), and the 
foreign investment company rules (sec. 1246). Detailed rules for 
coordination among the anti-deferral regimes are provided to prevent a 
U.S. person from being subject to U.S. tax on the same item of income 
under multiple regimes.
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Foreign sales corporations
      The income of an eligible foreign sales corporation 
(``FSC'') is partially subject to U.S. income tax and partially 
exempt from U.S. income tax. In addition, a U.S. corporation 
generally is not subject to U.S. income tax on dividends 
distributed from the FSC out of certain earnings.
      A FSC must be located and managed outside the United 
States, and must perform certain economic processes outside the 
United States. A FSC is often owned by a U.S. corporation that 
produces goods in the United States. The U.S. corporation 
either supplies goods to the FSC for resale abroad or pays the 
FSC a commission in connection with such sales. The income of 
the FSC, a portion of which is exempt from U.S. income tax 
under the FSC rules, equals the FSC's gross markup or gross 
commission income less the expenses incurred by the FSC. The 
gross markup or the gross commission is determined according to 
specified pricing rules.
      A FSC generally is not subject to U.S. income tax on its 
exempt foreign trade income. The exempt foreign trade income of 
a FSC is treated as foreign-source income that is not 
effectively connected with the conduct of a trade or business 
within the United States.
      Foreign trade income, other than exempt foreign trade 
income, generally is treated as U.S.-source income effectively 
connected with the conduct of a trade or business conducted 
through a permanent establishment within the United States. 
Thus, a FSC's income, other than exempt foreign trade income, 
generally is subject to U.S. tax currently and is treated as 
U.S.-source income for purposes of the foreign tax credit 
limitation.
      Foreign trade income of a FSC is defined as the FSC's 
gross income attributable to foreign trading gross receipts. 
Foreign trading gross receipts generally are the gross receipts 
attributable to the following types of transactions: the sale 
of export property; the lease or rental of export property; 
services related and subsidiary to such a sale or lease of 
export property; engineering and architectural services for 
projects outside the United States; and export management 
services. Investment income and carrying charges are excluded 
from the definition of foreign trading gross receipts.
      The term ``export property'' generally means property (1) 
which is manufactured, produced, grown or extracted in the 
United States by a person other than a FSC; (2) which is held 
primarily for sale, lease, or rental in the ordinary course of 
a trade or business for direct use or consumption outside the 
United States; and (3) not more than 50 percent of the fair 
market value of which is attributable to articles imported into 
the United States. The term ``export property'' does not 
include property leased or rented by a FSC for use by any 
member of a controlled group of which the FSC is a member; 
patents, copyrights (other than films, tapes, records, similar 
reproductions, and other than computer software, whether or not 
patented), and other intangibles; oil or gas (or any primary 
product thereof); unprocessed softwood timber; or products the 
export of which is prohibited or curtailed. Export property 
also excludes property designated by the President as being in 
short supply.
      If export property is sold to a FSC by a related person 
(or a commission is paid by a related person to a FSC with 
respect to export property), the income with respect to the 
export transaction must be allocated between the FSC and the 
related person. The taxable income of the FSC and the taxable 
income of the related person are computed based upon a transfer 
price determined under section 482 or under one of two formulas 
specified in the FSC provisions.
      The portion of a FSC's foreign trade income that is 
treated as exempt foreign trade income depends on the pricing 
rule used to determine the income of the FSC. If the amount of 
income earned by the FSC is based on section 482 pricing, the 
exempt foreign trade income generally is 30 percent of the 
foreign trade income the FSC derives from a transaction. If the 
income earned by the FSC is determined under one of the two 
formulas specified in the FSC provisions, the exempt foreign 
trade income generally is 15/23 of the foreign trade income the 
FSC derives from the transaction.
      A FSC is not required or deemed to make distributions to 
its shareholders. Actual distributions are treated as being 
made first out of earnings and profits attributable to foreign 
trade income, and then out of any other earnings and profits. A 
U.S. corporation generally is allowed a 100 percent dividends-
received deduction for amounts distributed from a FSC out of 
earnings and profits attributable to foreign trade income. The 
100 percent dividends-received deduction is not allowed for 
nonexempt foreign trade income determined under section 482 
pricing. Any distribution made by a FSC out of earnings and 
profits attributable to foreign trade income to a foreign 
shareholder is treated as U.S.-source income that is 
effectively connected with a business conducted through a 
permanent establishment of the shareholder within the United 
States. Thus, the foreign shareholder is subject to U.S. tax on 
such a distribution.

                               House Bill

      No provision. However, H.R. 4986, as passed by the House, 
repeals the present-law FSC rules and replaces them with an 
exclusion for extraterritorial income.

                            Senate Amendment

      No provision. However, the Senate Finance Committee 
reported favorably an amended version of H.R. 4986 to the 
Senate (the ``Senate Finance Committee amendment''). The Senate 
has taken no action with respect to the Senate Finance 
Committee amendment. The Senate Finance Committee amendment 
generally follows H.R. 4986, as passed by the House, with one 
amendment to strike a provision providing for a dividends-
received deduction for certain dividends allocable to 
qualifying foreign trade income. Like H.R. 4986, the Senate 
Finance Committee amendment repeals the present-law FSC rules 
and replaces them with an exclusion for extraterritorial 
income.

                          Conference Agreement

      The conference agreement generally follows H.R. 4986, as 
passed by the House, and the Senate Finance Committee 
amendment, with some modifications. The conference agreement, 
like the Senate Finance Committee amendment, does not include 
the provision in the House bill that provides a dividends-
received deduction for certain dividends allocable to 
qualifying foreign trade income.
Repeal of the FSC rules
      The conference agreement repeals the present-law FSC 
rules found in sections 921 through 927 of the Code.
Exclusion of extraterritorial income
      The conference agreement provides that gross income for 
U.S. tax purposes does not include extraterritorial income. 
Because the exclusion of such extraterritorial income is a 
means of avoiding double taxation, no foreign tax credit is 
allowed for income taxes paid with respect to such excluded 
income. Extraterritorial income is eligible for the exclusion 
to the extent that it is ``qualifying foreign trade income.'' 
Because U.S. income tax principles generally deny deductions 
for expenses related to exempt income, otherwise deductible 
expenses that are allocated to qualifying foreign trade income 
generally are disallowed.
      The conference agreement applies in the same manner with 
respect to both individuals and corporations who are U.S. 
taxpayers. In addition, the exclusion from gross income applies 
for individual and corporate alternative minimum tax purposes.
Qualifying foreign trade income
      Under the conference agreement, qualifying foreign trade 
income is the amount of gross income that, if excluded, would 
result in a reduction of taxable income by the greatest of (1) 
1.2 percent of the ``foreign trading gross receipts'' derived 
by the taxpayer from the transaction,2 (2) 15 
percent of the ``foreign trade income'' derived by the taxpayer 
from the transaction, or (3) 30 percent of the ``foreign sale 
and leasing income'' derived by the taxpayer from the 
transaction. The amount of qualifying foreign trade income 
determined using 1.2 percent of the foreign trading gross 
receipts is limited to 200 percent of the qualifying foreign 
trade income that would result using 15 percent of the foreign 
trade income. Notwithstanding the general rule that qualifying 
foreign trade income is based on one of the three calculations 
that results in the greatest reduction in taxable income, a 
taxpayer may choose instead to use one of the other two 
calculations that does not result in the greatest reduction in 
taxable income. Although these calculations are determined by 
reference to a reduction of taxable income (a net income 
concept), qualifying foreign trade income is an exclusion from 
gross income. Hence, once a taxpayer determines the appropriate 
reduction of taxable income, that amount must be ``grossed up'' 
for related expenses in order to determine the amount of gross 
income excluded.3
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    \2\ The term ``transaction'' means (1) any sale, exchange, or other 
disposition; (2) any lease or rental; and (3) any furnishing of 
services.
    \3\ For an example of these calculations, see the General Example, 
below.
---------------------------------------------------------------------------
      If a taxpayer uses 1.2 percent of foreign trading gross 
receipts to determine the amount of qualifying foreign trade 
income with respect to a transaction, the taxpayer or any other 
related persons will be treated as having no qualifying foreign 
trade income with respect to any other transaction involving 
the same property.4 For example, assume that a 
manufacturer and a distributor of the same product are related 
persons. The manufacturer sells the product to the distributor 
at an arm's-length price of $80 (generating $30 of profit) and 
the distributor sells the product to an unrelated customer 
outside of the United States for $100 (generating $20 of 
profit). If the distributor chooses to calculate its qualifying 
foreign trade income on the basis of 1.2 percent of foreign 
trading gross receipts, then the manufacturer will be 
considered to have no qualifying foreign trade income and, 
thus, would have no excluded income. The distributor's 
qualifying foreign trade income would be 1.2 percent of $100, 
and the manufacturer's qualifying foreign trade income would be 
zero. This limitation is intended to prevent a duplication of 
exclusions from gross income because the distributor's $100 of 
gross receipts includes the $80 of gross receipts of the 
manufacturer. Absent this limitation, $80 of gross receipts 
would have been double counted for purposes of the exclusion. 
If both persons were permitted to use 1.2 percent of their 
foreign trading gross receipts in this example, then the 
related-person group would have an exclusion based on $180 of 
foreign trading gross receipts notwithstanding that the 
related-person group really only generated $100 of gross 
receipts from the transaction. However, if the distributor 
chooses to calculate its qualifying foreign trade income on the 
basis of 15 percent of foreign trade income (15 percent of $20 
of profit), then the manufacturer would also be eligible to 
calculate its qualifying foreign trade income in the same 
manner (15 percent of $30 of profit).5 Thus, in the 
second case, each related person may exclude an amount of 
income based on their respective profits. The total foreign 
trade income of the related-person group is $50. Accordingly, 
allowing each person to calculate the exclusion based on their 
respective foreign trade income does not result in duplication 
of exclusions.
---------------------------------------------------------------------------
    \4\ Persons are considered to be related if they are treated as a 
single employer under section 52(a) or (b) (determined without taking 
into account section 1563(b), thus including foreign corporations) or 
section 414(m) or (o).
    \5\  The manufacturer also could compute qualifying foreign trade 
income based on 30 percent of foreign sale and leasing income.
---------------------------------------------------------------------------
      Under the conference agreement, a taxpayer may determine 
the amount of qualifying foreign trade income either on a 
transaction-by-transaction basis or on an aggregate basis for 
groups of transactions, so long as the groups are based on 
product lines or recognized industry or trade usage. Under the 
grouping method, the conferees intend that taxpayers be given 
reasonable flexibility to identify product lines or groups on 
the basis of recognized industry or trade usage. In general, 
provided that the taxpayer's grouping is not unreasonable, it 
will not be rejected merely because the grouped products fall 
within more than one of the two-digit Standard Industrial 
Classification codes.6 The Secretary of the Treasury 
is granted authority to prescribe rules for grouping 
transactions in determining qualifying foreign trade income.
---------------------------------------------------------------------------
    \6\ By reference to Standard Industrial Classification codes, the 
conferees intend to include industries as defined in the North American 
Industrial Classification System.
---------------------------------------------------------------------------
      Qualifying foreign trade income must be reduced by 
illegal bribes, kickbacks and similar payments, and by a factor 
for operations in or related to a country associated in 
carrying out an international boycott, or participating or 
cooperating with an international boycott.
      In addition, the conference agreement directs the 
Secretary of the Treasury to prescribe rules for marginal 
costing in those cases in which a taxpayer is seeking to 
establish or maintain a market for qualifying foreign trade 
property.
            Foreign trading gross receipts
      Under the conference agreement, ``foreign trading gross 
receipts'' are gross receipts derived from certain activities 
in connection with ``qualifying foreign trade property'' with 
respect to which certain ``economic processes'' take place 
outside of the United States. Specifically, the gross receipts 
must be (1) from the sale, exchange, or other disposition of 
qualifying foreign trade property; (2) from the lease or rental 
of qualifying foreign trade property for use by the lessee 
outside of the United States; (3) for services which are 
related and subsidiary to the sale, exchange, disposition, 
lease, or rental of qualifying foreign trade property (as 
described above); (4) for engineering or architectural services 
for construction projects located outside of the United States; 
or (5) for the performance of certain managerial services for 
unrelated persons. Gross receipts from the lease or rental of 
qualifying foreign trade property include gross receipts from 
the license of qualifying foreign trade property. Consistent 
with the policy adopted in the Taxpayer Relief Act of 
1997,7 this includes the license of computer 
software for reproduction abroad.
---------------------------------------------------------------------------
    \7\ The Taxpayer Relief Act of 1997, Public Law 105-34.
---------------------------------------------------------------------------
      Foreign trading gross receipts do not include gross 
receipts from a transaction if the qualifying foreign trade 
property or services are for ultimate use in the United States, 
or for use by the United States (or an instrumentality thereof) 
and such use is required by law or regulation. Foreign trading 
gross receipts also do not include gross receipts from a 
transaction that is accomplished by a subsidy granted by the 
government (or any instrumentality thereof) of the country or 
possession in which the property is manufactured.
      A taxpayer may elect to treat gross receipts from a 
transaction as not foreign trading gross receipts. As a 
consequence of such an election, the taxpayer could utilize any 
related foreign tax credits in lieu of the exclusion as a means 
of avoiding double taxation. It is intended that this election 
be accomplished by the taxpayer's treatment of such items on 
its tax return for the taxable year. Provided that the 
taxpayer's taxable year is still open under the statute of 
limitations for making claims for refund under section 6511, a 
taxpayer can make redeterminations as to whether the gross 
receipts from a transaction constitute foreign trading gross 
receipts.
            Foreign economic processes
      Under the conference agreement, gross receipts from a 
transaction are foreign trading gross receipts only if certain 
economic processes take place outside of the United States. The 
foreign economic processes requirement is satisfied if the 
taxpayer (or any person acting under a contract with the 
taxpayer) participates outside of the United States in the 
solicitation (other than advertising), negotiation, or making 
of the contract relating to such transaction and incurs a 
specified amount of foreign direct costs attributable to the 
transaction.8 For this purpose, foreign direct costs 
include only those costs incurred in the following categories 
of activities: (1) advertising and sales promotion; (2) the 
processing of customer orders and the arranging for delivery; 
(3) transportation outside of the United States in connection 
with delivery to the customer; (4) the determination and 
transmittal of a final invoice or statement of account or the 
receipt of payment; and (5) the assumption of credit risk. An 
exception from the foreign economic processes requirement is 
provided for taxpayers with foreign trading gross receipts for 
the year of $5 million or less.9
---------------------------------------------------------------------------
    \8\ The foreign direct costs attributable to the transaction 
generally must exceed 50 percent of the total direct costs attributable 
to the transaction, but the requirement also will be satisfied if, with 
respect to at least two categories of direct costs, the foreign direct 
costs equal or exceed 85 percent of the total direct costs attributable 
to each category.
    \9\ For this purpose, the receipts of related persons are 
aggregated and, in the case of pass- through entities, the 
determination of whether the foreign trading gross receipts exceed $5 
million is made both at the entity and at the partner/shareholder 
level.
---------------------------------------------------------------------------
      The foreign economic processes requirement must be 
satisfied with respect to each transaction and, if so, any 
gross receipts from such transaction could be considered as 
foreign trading gross receipts. For example, all of the lease 
payments received with respect to a multi-year lease contract, 
which contract met the foreign economic processes requirement 
at the time it was entered into, would be considered as foreign 
trading gross receipts. On the other hand, a sale of property 
that was formerly a leased asset, which was not sold pursuant 
to the original lease agreement, generally would be considered 
a new transaction that must independently satisfy the foreign 
economic processes requirement.
      A taxpayer's foreign economic processes requirement is 
treated as satisfied with respect to a sales transaction 
(solely for the purpose of determining whether gross receipts 
are foreign trading gross receipts) if any related person has 
satisfied the foreign economic processes requirement in 
connection with another sales transaction involving the same 
qualifying foreign trade property.
            Qualifying foreign trade property
      Under the conference agreement, the threshold for 
determining if gross receipts will be treated as foreign 
trading gross receipts is whether the gross receipts are 
derived from a transaction involving ``qualifying foreign trade 
property.'' Qualifying foreign trade property is property 
manufactured, produced, grown, or extracted (``manufactured'') 
within or outside of the United States that is held primarily 
for sale, lease, or rental,10 in the ordinary course 
of a trade or business, for direct use, consumption, or 
disposition outside of the United States.11 In 
addition, not more than 50 percent of the fair market value of 
such property can be attributable to the sum of (1) the fair 
market value of articles manufactured outside of the United 
States plus (2) the direct costs of labor performed outside of 
the United States.12
---------------------------------------------------------------------------
    \10\ In addition, consistent with the policy adopted in the 
Taxpayer Relief Act of 1997, computer software licensed for 
reproduction is considered as property held primarily for sale, lease, 
or rental.
    \11\ ``United States'' includes Puerto Rico for these purposes 
because Puerto Rico is included in the customs territory of the United 
States.
    \12\ For this purpose, the fair market value of any article 
imported into the United States is its appraised value as determined 
under the Tariff Act of 1930. In addition, direct labor costs are 
determined under the principles of section 263A and do not include 
costs that would be treated as direct labor costs attributable to 
``articles,'' again applying principles of section 263A.
---------------------------------------------------------------------------
      The conferees understand that under current industry 
practice, the purchaser of an aircraft contracts separately for 
the aircraft engine and the airframe, albeit contracting with 
the airframe manufacturer to attach the separately purchased 
engine. The conferees intend that an aircraft engine be 
qualifying foreign trade property (assuming that all other 
requirements are satisfied) if (1) it is specifically designed 
to be separated from the airframe to which it is attached 
without significant damage to either the engine or the 
airframe, (2) it is reasonably expected to be separated from 
the airframe in the ordinary course of business (other than by 
reason of temporary separation for servicing, maintenance, or 
repair) before the end of the useful life of either the engine 
or the airframe, whichever is shorter, and (3) the terms under 
which the aircraft engine was sold were directly and separately 
negotiated between the manufacturer of the aircraft engine and 
the person to whom the aircraft will be ultimately delivered. 
By articulating this application of the foreign destination 
test in the case of certain separable aircraft engines, the 
conferees intend no inference with respect to the application 
of any destination test under present law or with respect to 
any other rule of law outside the conference agreement. 
13
---------------------------------------------------------------------------
    \13\ See, e.g., sections 927(a)(1)(B) and 993(c)(1)(B).
---------------------------------------------------------------------------
      The conference agreement excludes certain property from 
the definition of qualifying foreign trade property. The 
excluded property is (1) property leased or rented by the 
taxpayer for use by a related person, (2) certain 
intangibles,14 (3) oil and gas (or any primary 
product thereof), (4) unprocessed softwood timber, (5) certain 
products the transfer of which are prohibited or curtailed to 
effectuate the policy set forth in Public Law 96-72, and (6) 
property designated by Executive order as in short supply. In 
addition, it is the intention of the conferees that property 
that is leased or licensed to a related person who is the 
lessor, licensor, or seller of the same property in a sublease, 
sublicense, sale, or rental to an unrelated person for the 
ultimate and predominate use by the unrelated person outside of 
the United States is not excluded property by reason of such 
lease or license to a related person.
---------------------------------------------------------------------------
    \14\ The intangibles that are treated as excluded property under 
the bill are: patents, inventions, models, designs, formulas, or 
processes whether or not patented, copyrights (other than films, tapes, 
records, or similar reproductions, and other than computer software 
(whether or not patented), for commercial or home use), goodwill, 
trademarks, trade brands, franchises, or other like property. Computer 
software that is licensed for reproduction outside of the United States 
is not excluded from the definition of qualifying foreign trade 
property.
---------------------------------------------------------------------------
      With respect to property that is manufactured outside of 
the United States, rules are provided to ensure consistent U.S. 
tax treatment with respect to manufacturers. The conference 
agreement requires that property manufactured outside of the 
United States be manufactured by (1) a domestic corporation, 
(2) an individual who is a citizen or resident of the United 
States, (3) a foreign corporation that elects to be subject to 
U.S. taxation in the same manner as a U.S. corporation, or (4) 
a partnership or other pass-through entity all of the partners 
or owners of which are described in (1), (2), or (3) 
above.15
---------------------------------------------------------------------------
    \15\ Except as provided by the Secretary of the Treasury, tiered 
partnerships or pass-through entities will be considered as 
partnerships or pass-through entities for purposes of this rule if each 
of the partnerships or entities is directly or indirectly wholly-owned 
by persons described in (1), (2), or (3) above.
---------------------------------------------------------------------------
            Foreign trade income
      Under the conference agreement, ``foreign trade income'' 
is the taxable income of the taxpayer (determined without 
regard to the exclusion of qualifying foreign trade income) 
attributable to foreign trading gross receipts. Certain 
dividends-paid deductions of cooperatives are disregarded in 
determining foreign trade income for this purpose.
            Foreign sale and leasing income
      Under the conference agreement, ``foreign sale and 
leasing income'' is the amount of the taxpayer's foreign trade 
income (with respect to a transaction) that is properly 
allocable to activities that constitute foreign economic 
processes (as described above). For example, a distribution 
company's profit from the sale of qualifying foreign trade 
property that is associated with sales activities, such as 
solicitation or negotiation of the sale, advertising, 
processing customer orders and arranging for delivery, 
transportation outside of the United States, and other 
enumerated activities, would constitute foreign sale and 
leasing income.
      Foreign sale and leasing income also includes foreign 
trade income derived by the taxpayer in connection with the 
lease or rental of qualifying foreign trade property for use by 
the lessee outside of the United States. Income from the sale, 
exchange, or other disposition of qualifying foreign trade 
property that is or was subject to such a lease 16 
(i.e., the sale of the residual interest in the leased 
property) gives rise to foreign sale and leasing income. Except 
as provided in regulations, a special limitation applies to 
leased property that (1) is manufactured by the taxpayer or (2) 
is acquired by the taxpayer from a related person for a price 
that was other than arm's length. In such cases, foreign sale 
and leasing income may not exceed the amount of foreign sale 
and leasing income that would have resulted if the taxpayer had 
acquired the leased property in a hypothetical arm's-length 
purchase and then engaged in the actual sale or lease of such 
property. For example, if a manufacturer leases qualifying 
foreign trade property that it manufactured, the foreign sale 
and leasing income derived from that lease may not exceed the 
amount of foreign sale and leasing income that the manufacturer 
would have earned with respect to that lease had it purchased 
the property for an arm's-length price on the day that the 
manufacturer entered into the lease. For purposes of 
calculating the limit on foreign sale and leasing income, the 
manufacturer's basis and, thus, depreciation would be based on 
this hypothetical arm's-length price. This limitation is 
intended to prevent foreign sale and leasing income from 
including profit associated with manufacturing activities.
---------------------------------------------------------------------------
    \16\ For this purpose, such a lease includes a lease that gave rise 
to exempt foreign trade income under the FSC provisions.
---------------------------------------------------------------------------
      For purposes of determining foreign sale and leasing 
income, only directly allocable expenses are taken into account 
in calculating the amount of foreign trade income. In addition, 
income properly allocable to certain intangibles is excluded 
for this purpose.
General example
      The following is an example of the calculation of 
qualifying foreign trade income.
      XYZ Corporation, a U.S. corporation, manufactures 
property that is sold to unrelated customers for use outside of 
the United States. XYZ Corporation satisfies the foreign 
economic processes requirement through conducting activities 
such as solicitation, negotiation, transportation, and other 
sales-related activities outside of the United States with 
respect to its transactions. During the year, qualifying 
foreign trade property was sold for gross proceeds totaling 
$1,000. The cost of this qualifying foreign trade property was 
$600. XYZ Corporation incurred $275 of costs that are directly 
related to the sale and distribution of qualifying foreign 
trade property. XYZ Corporation paid $40 of income tax to a 
foreign jurisdiction related to the sale and distribution of 
the qualifying foreign trade property. XYZ Corporation also 
generated gross income of $7,600 (gross receipts of $24,000 and 
cost of goods sold of $16,400) and direct expenses of $4,225 
that relate to the manufacture and sale of products other than 
qualifying foreign trade property. XYZ Corporation also 
incurred $500 of overhead expenses. XYZ Corporation's financial 
information for the year is summarized as follows:


------------------------------------------------------------------------
                                                   Other
                                      Total       property    QFTP \17\
------------------------------------------------------------------------
Gross receipts...................   $25,000.00   $24,000.00    $1,000.00
Cost of goods sold...............    17,000.00    16,400.00       600.00
                                  --------------------------------------
Gross income.....................     8,000.00     7,600.00       400.00
Direct expenses..................     4,500.00     4,225.00       275.00
Overhead expenses................       500.00
                                  -------------
Net income.......................     3,000.00
------------------------------------------------------------------------
\17\ ``QFTP'' refers to qualifying foreign trade property.


      Illustrated below is the computation of the amount of 
qualifying foreign trade income that is excluded from XYZ 
Corporation's gross income and the amount of related expenses 
that are disallowed. In order to calculate qualifying foreign 
trade income, the amount of foreign trade income first must be 
determined. Foreign trade income is the taxable income 
(determined without regard to the exclusion of qualifying 
foreign trade income) attributable to foreign trading gross 
receipts. In this example, XYZ Corporation's foreign trading 
gross receipts equal $1,000. This amount of gross receipts is 
reduced by the related cost of goods sold, the related direct 
expenses, and a portion of the overhead expenses in order to 
arrive at the related taxable income.18 Thus, XYZ 
Corporation's foreign trade income equals $100, calculated as 
follows:

    \18\ Overhead expenses must be apportioned in a reasonable manner 
that does not result in a material distortion of income. In this 
example, the apportionment of the $500 of overhead expenses on the 
basis of gross income is assumed not to result in a material distortion 
of income and is assumed to be a reasonable method of apportionment. 
Thus, $25 ($500 of total overhead expenses multiplied by 5 percent, 
i.e., $400 of gross income from the sale of qualifying foreign trade 
property divided by $8,000 of total gross income) is apportioned to 
qualifying foreign trading gross receipts. The remaining $475 ($500 of 
total overhead expenses less the $25 apportioned to qualifying income) 
is apportioned to XYZ Corporation's other income.

Foreign trading gross receipts..........................       $1,000.00
Cost of goods sold......................................          600.00
                    --------------------------------------------------------
                    ____________________________________________________
Gross income............................................          400.00
Direct expenses.........................................          275.00
Apportioned overhead expenses...........................           25.00
                    --------------------------------------------------------
                    ____________________________________________________
Foreign trade income....................................          100.00

      Foreign sale and leasing income is defined as an amount 
of foreign trade income (calculated taking into account only 
directly-related expenses) that is properly allocable to 
certain specified foreign activities. Assume for purposes of 
this example that of the $125 of foreign trade income ($400 of 
gross income from the sale of qualifying foreign trade property 
less only the direct expenses of $275), $35 is properly 
allocable to such foreign activities (e.g., solicitation, 
negotiation, advertising, foreign transportation, and other 
enumerated sales-like activities) and, therefore, is considered 
to be foreign sale and leasing income.
      Qualifying foreign trade income is the amount of gross 
income that, if excluded, will result in a reduction of taxable 
income equal to the greatest of (1) 30 percent of foreign sale 
and leasing income, (2) 1.2 percent of foreign trading gross 
receipts, or (3) 15 percent of foreign trade income. Thus, in 
order to calculate the amount that is excluded from gross 
income, taxable income must be determined and then ``grossed 
up'' for allocable expenses in order to arrive at the 
appropriate gross income figure. First, for each method of 
calculating qualifying foreign trade income, the reduction in 
taxable income is determined. Then, the $275 of direct and $25 
of overhead expenses, totaling $300, attributable to foreign 
trading gross receipts is apportioned to the reduction in 
taxable income based on the proportion of the reduction in 
taxable income to foreign trade income. This apportionment is 
done for each method of calculating qualifying foreign trade 
income. The sum of the taxable income reduction and the 
apportioned expenses equals the respective qualifying foreign 
trade income (i.e., the amount of gross income excluded) under 
each method, as follows:

------------------------------------------------------------------------
                                              1.2%      15%       30%
                                            FTGR \1\  FTI \2\  FS&LI \3\
------------------------------------------------------------------------
  Reduction of taxable income:
    1.2% of FTGR (1.2% * $1,000)..........     12.00
    15% of FTI (15% * $100)...............              15.00
    30% of FS&LI (30% * $35)..............                        10.50
  Gross-up for disallowed expenses:
    $300 * ($12/$100).....................     36.00
    $300 * ($15/$100).....................              45.00
    $275 * ($10.50/$100) \4\..............                        28.88
                                           -----------------------------
      Qualifying foreign trade income.....     48.00    60.00    39.38
------------------------------------------------------------------------
\1\ ``FTGR'' refers to foreign trading gross receipts.
\2\ ``FTI'' refers to foreign trade income.
\3\ ``FS&LI'' refers to foreign sale and leasing income.
\4\ Because foreign sale and leasing income only takes into account
  direct expenses, it is appropriate to take into account only such
  expenses for purposes of this calculation.

      In the example, the $60 of qualifying foreign trade 
income is excluded from XYZ Corporation's gross income 
(determined based on 15 percent of foreign trade income).\19\ 
In connection with excluding $60 of gross income, certain 
expenses that are allocable to this income are not deductible 
for U.S. Federal income tax purposes. Thus, $45 ($300 of 
related expenses multiplied by 15 percent, i.e., $60 of 
qualifying foreign trade income divided by $400 of gross income 
from the sale of qualifying foreign trade property) of expenses 
are disallowed.\20\
---------------------------------------------------------------------------
    \19\ Note that XYZ Corporation could choose to use one of the other 
two methods notwithstanding that they would result in a smaller 
exclusion.
    \20\ The $300 of allocable expenses includes both the $275 of 
direct expenses and the $25 of overhead expenses. Thus, the $45 of 
disallowed expenses represents the sum of $41.25 of direct expenses 
plus $3.75 of overhead expenses. If qualifying foreign trade income 
were determined using 30 percent of foreign sale and leasing income, 
the disallowed expenses would include only the appropriate portion of 
the direct expenses.

----------------------------------------------------------------------------------------------------------------
                                                                 Other                   Excluded/
                                                                property       QFTP      disallowed     Total
----------------------------------------------------------------------------------------------------------------
Gross receipts..............................................   $24,000.00    $1,000.00
Cost of goods sold..........................................    16,400.00       600.00
                                                             --------------------------
Gross income................................................     7,600.00       400.00      (60.00)     7,940.00
Direct expenses.............................................     4,225.00       275.00      (41.25)     4,458.75
Overhead expenses...........................................       475.00        25.00       (3.75)       496.25
                                                                                                    ------------
Taxable income..............................................                                            2,985.00
----------------------------------------------------------------------------------------------------------------

      XYZ Corporation paid $40 of income tax to a foreign 
jurisdiction related to the sale and distribution of the 
qualifying foreign trade property. A portion of this $40 of 
foreign income tax is treated as paid with respect to the 
qualifying foreign trade income and, therefore, is not 
creditable for U.S. foreign tax credit purposes. In this case, 
$6 of such taxes paid ($40 of foreign taxes multiplied by 15 
percent, i.e., $60 of qualifying foreign trade income divided 
by $400 of gross income from the sale of qualifying foreign 
trade property) is treated as paid with respect to the 
qualifying foreign trade income and, thus, is not creditable.
      The results in this example are the same regardless of 
whether XYZ Corporation manufactures the property within the 
United States or outside of the United States through a foreign 
branch. If XYZ Corporation were an S corporation or limited 
liability company, the results also would be the same, and the 
exclusion would pass through to the S corporation owners or 
limited liability company owners as the case may be.
            Other rules
            Foreign-source income limitation
      The conference agreement provides a limitation with 
respect to the sourcing of taxable income applicable to certain 
sale transactions giving rise to foreign trading gross 
receipts. This limitation only applies with respect to sale 
transactions involving property that is manufactured within the 
United States. The special source limitation does not apply 
when qualifying foreign trade income is determined using 30 
percent of the foreign sale and leasing income from the 
transaction.
      This foreign-source income limitation is determined in 
one of two ways depending on whether the qualifying foreign 
trade income is calculated based on 1.2 percent of foreign 
trading gross receipts or on 15 percent of foreign trade 
income. If the qualifying foreign trade income is calculated 
based on 1.2 percent of foreign trading gross receipts, the 
related amount of foreign- source income may not exceed the 
amount of foreign trade income that (without taking into 
account this special foreign-source income limitation) would be 
treated as foreign-source income if such foreign trade income 
were reduced by 4 percent of the related foreign trading gross 
receipts.
      For example, assume that foreign trading gross receipts 
are $2,000 and foreign trade income is $100. Assume also that 
the taxpayer chooses to determine qualifying foreign trade 
income based on 1.2 percent of foreign trading gross receipts. 
Taxable income after taking into account the exclusion of the 
qualifying foreign trade income and the disallowance of related 
deductions is $76. Assume that the taxpayer manufactured its 
qualifying foreign trade property in the United States and that 
title to such property passed outside of the United States. 
Absent a special sourcing rule, under section 863(b) (and the 
regulations thereunder) the $76 of taxable income would be 
sourced as $38 U.S. source and $38 foreign source. Under the 
special sourcing rule, the amount of foreign-source income may 
not exceed the amount of the foreign trade income that 
otherwise would be treated as foreign source if the foreign 
trade income were reduced by 4 percent of the related foreign 
trading gross receipts. Reducing foreign trade income by 4 
percent of the foreign trading gross receipts (4 percent of 
$2,000, or $80) would result in $20 ($100 foreign trade income 
less $80). Applying section 863(b) to the $20 of reduced 
foreign trade income would result in $10 of foreign-source 
income and $10 of U.S.-source income. Accordingly, the 
limitation equals $10. Thus, although under the general 
sourcing rule $38 of the $76 taxable income would be treated as 
foreign source, the special sourcing rule limits foreign-source 
income in this example to $10 (with the remaining $66 being 
treated as U.S.-source income).
      If the qualifying foreign trade income is calculated 
based on 15 percent of foreign trade income, the amount of 
related foreign-source income may not exceed 50 percent of the 
foreign trade income that (without taking into account this 
special foreign-source income limitation) would be treated as 
foreign-source income.
      For example, assume that foreign trade income is $100 and 
the taxpayer chooses to determine its qualifying foreign trade 
income based on 15 percent of foreign trade income. Taxable 
income after taking into account the exclusion of the 
qualifying foreign trade income and the disallowance of related 
deductions is $85. Assume that the taxpayer manufactured its 
qualifying foreign trade property in the United States and that 
title to such property passed outside of the United States. 
Absent a special sourcing rule, under section 863(b) the $85 of 
taxable income would be sourced as $42.50 U.S. source and 
$42.50 foreign source. Under the special sourcing rule, the 
amount of foreign-source income may not exceed 50 percent of 
the foreign trade income that otherwise would be treated as 
foreign source. Applying section 863(b) to the $100 of foreign 
trade income would result in $50 of foreign-source income and 
$50 of U.S.-source income. Accordingly, the limitation equals 
$25, which is 50 percent of the $50 foreign-source income. 
Thus, although under the general sourcing rule $42.50 of the 
$85 taxable income would be treated as foreign source, the 
special sourcing rule limits foreign-source income in this 
example to $25 (with the remaining $60 being treated as U.S.-
source income).\21\
---------------------------------------------------------------------------
    \21\ The foreign-source income limitation provisions also apply 
when source is determined solely in accordance with section 862 (e.g., 
a distributor of qualifying foreign trade property that is manufactured 
in the United States by an unrelated person and sold for use outside of 
the United States).
---------------------------------------------------------------------------
            Treatment of withholding taxes
      The conference agreement generally provides that no 
foreign tax credit is allowed for foreign taxes paid or accrued 
with respect to qualifying foreign trade income (i.e., excluded 
extraterritorial income). In determining whether foreign taxes 
are paid or accrued with respect to qualifying foreign trade 
income, foreign withholding taxes generally are treated as not 
paid or accrued with respect to qualifying foreign trade 
income.\22\ Accordingly, the conference agreement's denial of 
foreign tax credits would not apply to such taxes. For this 
purpose, the term ``withholding tax'' refers to any foreign tax 
that is imposed on a basis other than residence and that is 
otherwise a creditable foreign tax under sections 901 or 
903.\23\ It is intended that such taxes would be similar in 
nature to the gross-basis taxes described in sections 871 and 
881.
---------------------------------------------------------------------------
    \22\ With respect to the withholding taxes that are paid or accrued 
(a prerequisite to the taxes being otherwise creditable), the provision 
in the bill treats such taxes as not being paid or accrued with respect 
to qualifying foreign trade income.
    \23\ This also would apply to any withholding tax that is 
creditable for U.S. foreign tax credit purposes under an applicable 
treaty.
---------------------------------------------------------------------------
      If, however, qualifying foreign trade income is 
determined based on 30 percent of foreign sale and leasing 
income, the special rule for withholding taxes is not 
applicable. Thus, in such cases foreign withholding taxes may 
be treated as paid or accrued with respect to qualifying 
foreign trade income and, accordingly, are not creditable under 
the conference agreement.
            Election to be treated as a U.S. corporation
      The conference agreement provides that certain foreign 
corporations may elect, on an original return, to be treated as 
domestic corporations. The election applies to the taxable year 
when made and all subsequent taxable years unless revoked by 
the taxpayer or terminated for failure to qualify for the 
election. Such election is available for a foreign corporation 
(1) that manufactures property in the ordinary course of such 
corporation's trade or business, or (2) if substantially all of 
the gross receipts of such corporation are foreign trading 
gross receipts. For this purpose, ``substantially all'' is 
based on the relevant facts and circumstances.
      In order to be eligible to make this election, the 
foreign corporation must waive all benefits granted to such 
corporation by the United States pursuant to a treaty.\24\ 
Absent such a waiver, it would be unclear, for example, whether 
the permanent establishment article of a relevant tax treaty 
would override the electing corporation's treatment as a 
domestic corporation under this provision. A foreign 
corporation that elects to be treated as a domestic corporation 
is not permitted to make an S corporation election. The 
Secretary is granted authority to prescribe rules to ensure 
that the electing foreign corporation pays its U.S. income tax 
liabilities and to designate one or more classes of 
corporations that may not make such an election.\25\ If such an 
election is made, for purposes of section 367 the foreign 
corporation is treated as transferring (as of the first day of 
the first taxable year to which the election applies) all of 
its assets to a domestic corporation in connection with an 
exchange to which section 354 applies.
---------------------------------------------------------------------------
    \24\ The waiver of treaty benefits applies to the corporation 
itself and not, for example, to employees of or independent contractors 
associated with the corporation.
    \25\ For example, the Secretary of the Treasury may prescribe rules 
to prevent ``per se'' corporations under the entity-classification 
rules from making such an election.
---------------------------------------------------------------------------
      If a corporation fails to meet the applicable 
requirements, described above, for making the election to be 
treated as a domestic corporation for any taxable year 
beginning after the year of the election, the election will 
terminate. In addition, a taxpayer, at its option and at any 
time, may revoke the election to be treated as a domestic 
corporation. In the case of either a termination or a 
revocation, the electing foreign corporation will not be 
considered as a domestic corporation effective beginning on the 
first day of the taxable year following the year of such 
termination or revocation. For purposes of section 367, if the 
election to be treated as a domestic corporation is terminated 
or revoked, such corporation is treated as a domestic 
corporation transferring (as of the first day of the first 
taxable year to which the election ceases to apply) all of its 
property to a foreign corporation in connection with an 
exchange to which section 354 applies. Moreover, once a 
termination occurs or a revocation is made, the former electing 
corporation may not again elect to be taxed as a domestic 
corporation under the provisions of the conference agreement 
for a period of five tax years beginning with the first taxable 
year that begins after the termination or revocation.
      For example, assume a U.S. corporation owns 100 percent 
of a foreign corporation. The foreign corporation manufactures 
outside of the United States and sells what would be qualifying 
foreign trade property were it manufactured by a person subject 
to U.S. taxation. Such foreign corporation could make the 
election under this provision to be treated as a domestic 
corporation. As a result, its earnings no longer would be 
deferred from U.S. taxation. However, by electing to be subject 
to U.S. taxation, a portion of its income would be qualifying 
foreign trade income.\26\ The requirement that the foreign 
corporation be treated as a domestic corporation (and, 
therefore, subject to U.S. taxation) is intended to provide 
parity between U.S. corporations that manufacture abroad in 
branch form and U.S. corporations that manufacture abroad 
through foreign subsidiaries. The election, however, is not 
limited to U.S.-owned foreign corporations. A foreign-owned 
foreign corporation that wishes to qualify for the treatment 
provided under the conference agreement could avail itself of 
such election (unless otherwise precluded from doing so by 
Treasury regulations).
---------------------------------------------------------------------------
    \26\ The sourcing limitation described above would not apply to 
this example because the property is manufactured outside of the United 
States.
---------------------------------------------------------------------------
            Shared partnerships
      The conference agreement provides rules relating to 
allocations of qualifying foreign trade income by certain 
shared partnerships. To the extent that such a partnership (1) 
maintains a separate account for transactions involving foreign 
trading gross receipts with each partner, (2) makes 
distributions to each partner based on the amounts in the 
separate account, and (3) meets such other requirements as the 
Treasury Secretary may prescribe by regulations, such 
partnership then would allocate to each partner items of 
income, gain, loss, and deduction (including qualifying foreign 
trade income) from such transactions on the basis of the 
separate accounts. It is intended that with respect to, and 
only with respect to, such allocations and distributions (i.e., 
allocations and distributions related to transactions between 
the partner and the shared partnership generating foreign 
trading gross receipts), these rules would apply in lieu of the 
otherwise applicable partnership allocation rules such as those 
in section 704(b). For this purpose, a partnership is a foreign 
or domestic entity that is considered to be a partnership for 
U.S. Federal income tax purposes.
      Under the conference agreement, any partner's interest in 
the shared partnership is not taken into account in determining 
whether such partner is a ``related person'' with respect to 
any other partner for purposes of the conference agreement's 
provisions. Also, the election to exclude certain gross 
receipts from foreign trading gross receipts must be made 
separately by each partner with respect to any transaction for 
which the shared partnership maintains a separate account.
            Certain assets not taken into account for purposes of 
                    interest expense allocation
      The conference agreement also provides that qualifying 
foreign trade property that is held for lease or rental, in the 
ordinary course of a trade or business, for use by the lessee 
outside of the United States is not taken into account for 
interest allocation purposes.
            Distributions of qualifying foreign trade income by 
                    cooperatives
      Agricultural and horticultural producers often market 
their products through cooperatives, which are member-owned 
corporations formed under Subchapter T of the Code. At the 
cooperative level, the conference agreement provides the same 
treatment of foreign trading gross receipts derived from 
products marketed through cooperatives as it provides for 
foreign trading gross receipts of other taxpayers. That is, the 
qualifying foreign trade income attributable to those foreign 
trading gross receipts is excluded from the gross income of the 
cooperative. Absent a special rule, however, patronage 
dividends or per-unit retain allocations attributable to 
qualifying foreign trade income paid to members of cooperatives 
would be taxable in the hands of those members. The conferees 
believe that this would disadvantage agricultural and 
horticultural producers who choose to market their products 
through cooperatives relative to those individuals who market 
their products directly or through pass-through entities such 
as partnerships, limited liability companies, or S 
corporations. Accordingly, the conference agreement provides 
that the amount of any patronage dividends or per-unit retain 
allocations paid to a member of an agricultural or 
horticultural cooperative (to which Part I of Subchapter T 
applies), which is allocable to qualifying foreign trade income 
of the cooperative, is treated as qualifying foreign trade 
income of the member (and, thus, excludable from such member's 
gross income). In order to qualify, such amount must be 
designated by the organization as allocable to qualifying 
foreign trade income in a written notice mailed to its patrons 
not later than the payment period described in section 1382(d). 
The cooperative cannot reduce its income (e.g., cannot claim a 
``dividends-paid deduction'') under section 1382 for such 
amounts.
            Gap period before administrative guidance is issued
      The conferees recognize that there may be a gap in time 
between the enactment of the bill and the issuance of detailed 
administrative guidance. It is intended that during this gap 
period before administrative guidance is issued, taxpayers and 
the Internal Revenue Service may apply the principles of 
present-law regulations and other administrative guidance under 
sections 921 through 927 to analogous concepts under the 
conference agreement. Some examples of the application of the 
principles of present-law regulations to the conference 
agreement are described below. These limited examples are 
intended to be merely illustrative and are not intended to 
imply any limitation regarding the application of the 
principles of other analogous rules or concepts under present 
law.
            Marginal costing and grouping
      Under the conference agreement, the Secretary of the 
Treasury is provided authority to prescribe rules for using 
marginal costing and for grouping transactions in determining 
qualifying foreign trade income. It is intended that similar 
principles under present-law regulations apply for these 
purposes.27
---------------------------------------------------------------------------
    \27\ See, e.g., Treas. Reg. sec. 1.924(d)-1(c)(5) and (e); Temp. 
Treas. Reg. sec. 1.925(a)-1T(c)(8); Temp. Treas. Reg. sec. 1.925(b)-1T.
---------------------------------------------------------------------------
            Excluded property
      The conference agreement provides that qualifying foreign 
trade property does not include property leased or rented by 
the taxpayer for use by a related person. It is intended that 
similar principles under present-law regulations apply for this 
purpose. Thus, excluded property does not apply, for example, 
to property leased by the taxpayer to a related person if the 
property is held for sublease, or is subleased, by the related 
person to an unrelated person and the property is ultimately 
used by such unrelated person predominantly outside of the 
United States.28 In addition, consistent with the 
policy adopted in the Taxpayer Relief Act of 1997, computer 
software that is licensed for reproduction outside of the 
United States is not excluded property. Accordingly, the 
license of computer software to a related person for 
reproduction outside of the United States for sale, sublicense, 
lease, or rental to an unrelated person for use outside of the 
United States is not treated as excluded property by reason of 
the license to the related person.
---------------------------------------------------------------------------
    \28\ See Temp. Treas. Reg. sec. 1.927(a)-1T(f)(2)(i). The bill also 
provides that oil or gas or primary products from oil or gas are 
excluded from the definition of qualifying foreign trade property. It 
is intended that similar principles under present-law regulations apply 
for these purposes. Thus, for this purpose, petrochemicals, medicinal 
products, insecticides, and alcohols are not considered primary 
products from oil or gas and, thus, are not treated as excluded 
property. See Temp. Treas. Reg. sec. 1.927(a)-1T(g)(2)(iv).
---------------------------------------------------------------------------
            Foreign trading gross receipts
      Under the conference agreement, foreign trading gross 
receipts are gross receipts from, among other things, the sale, 
exchange, or other disposition of qualifying foreign trade 
property, and from the lease of qualifying foreign trade 
property for use by the lessee outside of the United States. It 
is intended that the principles of present-law regulations that 
define foreign trading gross receipts apply for this purpose. 
For example, a sale includes an exchange or other disposition 
and a lease includes a rental or sublease and a license or a 
sublicense.29
---------------------------------------------------------------------------
    \29\ See Temp. Treas. Reg. sec. 1.924(a)-1T(a)(2).
---------------------------------------------------------------------------
            Foreign use requirement
      Under the conference agreement, property constitutes 
qualifying foreign trade property if, among other things, the 
property is held primarily for lease, sale, or rental, in the 
ordinary course of business, for direct use, consumption, or 
disposition outside of the United States.30 It is 
intended that the principles of the present-law regulations 
apply for purposes of this foreign use requirement. For 
example, for purposes of determining whether property is sold 
for use outside of the United States, property that is sold to 
an unrelated person as a component to be incorporated into a 
second product which is produced, manufactured, or assembled 
outside of the United States will not be considered to be used 
in the United States (even if the second product ultimately is 
used in the United States), provided that the fair market value 
of such seller's components at the time of delivery to the 
purchaser constitutes less than 20 percent of the fair market 
value of the second product into which the components are 
incorporated (determined at the time of completion of the 
production, manufacture, or assembly of the second 
product).31
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    \30\ Foreign trading gross receipts eligible for exclusion from the 
tax base do not include gross receipts from a transaction if the 
qualifying foreign trade property is for ultimate use in the United 
States.
    \31\ See Temp. Treas. Reg. sec. 1.927(a)-1T(d)(4)(ii).
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      In addition, for purposes of the foreign use requirement, 
property is considered to be used by a purchaser or lessee 
outside of the United States during a taxable year if it is 
used predominantly outside of the United States.32 
For this purpose, property is considered to be used 
predominantly outside of the United States for any period if, 
during that period, the property is located outside of the 
United States more than 50 percent of the time.33 An 
aircraft or other property used for transportation purposes 
(e.g., railroad rolling stock, a vessel, a motor vehicle, or a 
container) is considered to be used outside of the United 
States for any period if, for the period, either the property 
is located outside of the United States more than 50 percent of 
the time or more than 50 percent of the miles traveled in the 
use of the property are traveled outside of the United 
States.34 An orbiting satellite is considered to be 
located outside of the United States for these 
purposes.35
---------------------------------------------------------------------------
    \32\ See Temp. Treas. Reg. sec. 1.927(a)-1T(d)(4)(iii), (iv), and 
(v).
    \33\ See Temp. Treas. Reg. sec. 1.927(a)-1T(d)(4)(vi).
    \34\ Id.
    \35\ Id.
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            Foreign economic processes
      Under the conference agreement, gross receipts from a 
transaction are foreign trading gross receipts eligible for 
exclusion from the tax base only if certain economic processes 
take place outside of the United States. The foreign economic 
processes requirement compares foreign direct costs to total 
direct costs. It is intended that the principles of the 
present-law regulations apply during the gap period for 
purposes of the foreign economic processes requirement 
including the measurement of direct costs. The conferees 
recognize that the measurement of foreign direct costs under 
the present-law regulations often depend on activities 
conducted by the FSC, which is a separate entity. The conferees 
are aware that some of these concepts will have to be modified 
when new guidance is promulgated as a result of the conference 
agreement's elimination of the requirement for a separate 
entity.
Effective date
            In general
      The conference agreement is effective for transactions 
entered into after September 30, 2000. In addition, no 
corporation may elect to be a FSC after September 30, 2000.
      The conference agreement also provides a rule requiring 
the termination of a dormant FSC when the FSC has been inactive 
for a specified period of time. Under this rule, a FSC that 
generates no foreign trade income for any five consecutive 
years beginning after December 31, 2001, will cease to be 
treated as a FSC.
            Transition rules
            Winding down existing FSCs and binding contract relief
      The conference agreement provides a transition period for 
existing FSCs and for binding contractual agreements. The new 
rules do not apply to transactions in the ordinary course of 
business 36 involving a FSC before January 1, 2002. 
Furthermore, the new rules do not apply to transactions in the 
ordinary course of business after December 31, 2001, if such 
transactions are pursuant to a binding contract between a FSC 
(or a person related to the FSC on September 30, 2000) and any 
other person (that is not a related person) and such contract 
is in effect on September 30, 2000, and all times thereafter. 
For this purpose, binding contracts include purchase options, 
renewal options, and replacement options that are enforceable 
against a lessor or seller (provided that the options are a 
part of a contract that is binding and in effect on September 
30, 2000).
---------------------------------------------------------------------------
    \36\ The mere entering into of a single transaction, such as a 
lease, would not, in and of itself, prevent the transaction from being 
in the ordinary course of business.
---------------------------------------------------------------------------
            Old earnings and profits of corporations electing to be 
                    treated as domestic corporations
      A transition rule also is provided for certain 
corporations electing to be treated as a domestic corporation 
under the bill. In the case of a corporation to which this 
transition rule applies, the corporation's earnings and profits 
accumulated in taxable years ending before October 1, 2000 are 
not included in the gross income of the shareholder by reason 
of the deemed asset transfer for section 367 purposes that the 
bill provides. Thus, although the electing corporation may be 
treated as transferring all of its assets to a domestic 
corporation in a reorganization described in section 
368(a)(1)(F), the earnings and profits amount that would 
otherwise be treated as a deemed dividend to the U.S. 
shareholder under the regulations under section 367(b) will not 
include the earnings and profits accumulated in taxable years 
ending before October 1, 2000. This treatment is similar to the 
treatment of earnings and profits of a foreign insurance 
company that makes the election to be treated as a domestic 
corporation under section 953(d), which election was a model 
for the election to be treated as a domestic corporation under 
the bill. Under section 953(d), earnings and profits 
accumulated in taxable years beginning before January 1, 1988 
were not included in the earnings and profits amount that would 
be a deemed dividend for section 367(b) purposes.
      Like the pre-1988 earnings and profits of a domesticating 
foreign insurance company under section 953(d), the earnings 
and profits to which this transition rule applies would 
continue to be treated as earnings and profits of a foreign 
corporation even after the corporation elects to be treated as 
a domestic corporation. Thus, a distribution out of earnings 
and profits of an electing corporation accumulated in taxable 
years ending before October 1, 2000 would be treated as a 
distribution made by a foreign corporation.37 Rules 
similar to those applicable to corporations making the section 
953(d) election that prevent the repatriation of pre-election 
period earnings and profits without current U.S. taxation apply 
for this purpose. Thus, for example, the earnings and profits 
accumulated in taxable years beginning before October 1, 2000 
would continue to be taken into account for section 1248 
purposes.38
---------------------------------------------------------------------------
    \37\ It is anticipated that ordering rules similar to those that 
have been applied in guidance under section 953(d) would apply to 
distributions from the electing corporation. See Notice 89-79, 1989-2 
C.B. 392.
    \38\ See the rules of section 953(d)(4)(ii), (iii) and (iv).
---------------------------------------------------------------------------
      The earnings and profits to which the transition rule 
applies are the earnings and profits accumulated by the 
electing corporation in taxable years ending before October 1, 
2000. The transition rule will not apply to earnings and 
profits accumulated before that date that are succeeded to 
after that date by the electing corporation in a transaction to 
which section 381 applies unless, like the electing 
corporation, the distributor or transferor (from whom the 
electing corporation acquired the earnings and profits) could 
have itself made the election under the bill to be treated as a 
domestic corporation and would have been eligible for the 
transition relief.
      The transition rule for old earnings and profits applies 
to two classes of taxpayers. The first class is FSCs in 
existence on September 30, 2000 that make an election to be 
treated as a domestic corporation because they satisfy the 
requirement that substantially all of their gross receipts are 
foreign trading gross receipts. To be eligible for the 
transition relief, the election must be made not later than for 
the FSC's first taxable year beginning after December 31, 2001.
      The second class of corporations to which this transition 
relief applies is certain controlled foreign corporations (as 
defined in section 957). Notwithstanding other requirements for 
making the election to be treated as a domestic corporation 
provided under the bill's general provisions, such controlled 
foreign corporations are eligible under the transition rule to 
make the election to be treated as a domestic corporation and 
will not have the resulting deemed asset transfer cause a 
deemed inclusion of earnings and profits for earnings and 
profits accumulated in taxable years ending before October 1, 
2000. To be eligible for the transition relief, such a 
controlled foreign corporation must be in existence on 
September 30, 2000. The controlled foreign corporation must be 
wholly owned, directly or indirectly, by a domestic 
corporation.39 The controlled foreign corporation 
must never have made an election to be treated as a FSC and 
must make the election to be treated as a domestic corporation 
not later than for its first taxable year beginning after 
December 31, 2001. In addition, the controlled foreign 
corporation must satisfy certain tests with respect to its 
income and activities. For administrative convenience, these 
tests are limited to the three taxable years preceding the 
first taxable year for which the election to be treated as a 
domestic corporation applies. First, during that three-year 
period, all of the controlled foreign corporation's gross 
income must be subpart F income. Thus, the income was subject 
to full inclusion to the U.S. shareholder and, accordingly, 
subject to current U.S. taxation. Second, during that three-
year period, the controlled foreign corporation must have, in 
the ordinary course of its trade or business, entered into 
transactions in which it regularly sold or paid commissions to 
a related FSC (which also was in existence on September 30, 
2000).40 If an electing corporation in this second 
class ceases to be (directly or indirectly) wholly owned by the 
domestic corporation that owns it on September 30, 2000, the 
election to be treated as a domestic corporation is terminated.
---------------------------------------------------------------------------
    \39\ The ultimate owner must be an actual domestic corporation, not 
a corporation that elects to be treated as a domestic corporation under 
the bill. In addition, although the controlled foreign corporation must 
be wholly owned for this purpose, it is intended that the mere nominal 
ownership of an insignificant number of shares of insignificant value 
(which may, for example, be required by foreign law) by someone 
unrelated to the domestic parent would not cause the controlled foreign 
corporation to fail to be wholly owned for these purposes.
    \40\ It is intended that, if the controlled foreign corporation's 
and related FSC's taxable years are still open under the statute of 
limitations for claims for refund under section 6511, redeterminations 
with respect to sales or commissions paid to the FSC are permitted for 
this purpose. See Temp. Treas. Reg. sec. 1.925(a)-1T(d)(4).
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            Limitation on use of the gross receipts method
      Similar to the limitation on use of the gross receipts 
method under the conference agreement's operative provisions, 
the conference agreement provides a rule that limits the use of 
the gross receipts method for transactions after the effective 
date of the conference agreement if that same property 
generated foreign trade income to a FSC using the gross 
receipts method. Under the rule, if any person used the gross 
receipts method under the FSC regime, neither that person nor 
any related person will have qualifying foreign trade income 
with respect to any other transaction involving the same item 
of property.
            Coordination of new regime with prior law
      Notwithstanding the transition period, FSCs (or related 
persons) may elect to have the rules of the conference 
agreement apply in lieu of the rules applicable to FSCs. Thus, 
for transactions to which the transition rules apply (i.e., 
transactions after September 30, 2000 that occur (1) before 
January 1, 2002 or (2) after December 31, 2001 pursuant to a 
binding contract which is in effect on September 30, 2000), 
taxpayers may choose to apply either the FSC rules or the 
amendments made by this bill, but not both. In addition, a 
taxpayer would not be able to avail itself of the rules of the 
conference agreement in addition to the rules applicable to 
domestic international sales corporations because the 
conference agreement provides that the exclusion of 
extraterritorial income will not apply if a taxpayer is a 
member of any controlled group of which a domestic 
international sales corporation is a member.

             TITLE II. SMALL BUSINESS TAX RELIEF PROVISIONS

 A. Extension of the Work Opportunity Tax Credit (sec. 201 of the bill 
                        and sec. 51 of the Code)

                              Present Law

      The work opportunity tax credit (``WOTC'') is available 
on an elective basis for employers hiring individuals from one 
or more of eight targeted groups. The credit generally is equal 
to 25 percent of qualified first-year wages for employment of 
at least 120 hours but less than 400 hours and 40 percent of 
qualified first-year wages for employment of 400 hours or more. 
Qualified first-year wages consist of wages attributable to 
service rendered by a member of a targeted group during the 
one-year period beginning with the day the individual begins 
work for the employer.
      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 
$2,400. With respect to qualified summer youth employees, the 
maximum credit is 40 percent of up to $3,000 of qualified 
first-year wages, for a maximum credit of $1,200. The credit is 
only effective for wages paid to, or incurred with respect to, 
qualified individuals who begin work for the employer before 
January 1, 2002.
      The employer's deduction for wages is reduced by the 
amount of the credit.

                               House Bill

      No provision.

                            Senate Amendment

      No provision. However, H.R. 833, as passed by the Senate, 
permanently extends the WOTC.
      Effective date.--The provision is effective for wages 
paid to, or incurred with respect to, qualified individuals who 
begin work for the employer on or after July 1, 1999. 
Subsequent to Senate passage of H.R. 833, Public Law 106-170 
extended the WOTC for 30 months (through December 31, 2001) and 
clarified the definition of the first year of employment for 
purposes of the WOTC.

                          Conference Agreement

      The conference agreement extends the WOTC for 30 months 
(through June 30, 2004). It is effective for wages paid to, or 
incurred with respect to, qualified individuals who begin work 
for the employer on or after January 1, 2002, and before July 
1, 2004.

  B. Increase the Maximum Dollar Amount of Reforestation Expenditures 
 Eligible for Amortization and Credit (sec. 202 of the bill and secs. 
                       48(b) and 194 of the Code)

                              Present Law

Amortization of reforestation costs (sec. 194)
      A taxpayer may elect to amortize up to $10,000 ($5,000 in 
the case of a separate return by a married individual) of 
qualifying reforestation expenditures incurred during the 
taxable year with respect to qualifying timber property. 
Amortization is taken over 84 months (seven years) and is 
subject to a mandatory half-year convention.41 In 
the case of an individual, the amortization deduction is 
allowed in determining adjusted gross income (i.e., an ``above-
the-line deduction'') rather than as an itemized deduction. The 
amount eligible for amortization has not been increased since 
the election was added to the Code in 1980.42
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    \41\ Under the half-year convention, all reforestation expenditures 
are considered to be incurred on the first day of the first month of 
the second half of the taxable year. Thus, an amortization deduction 
equal to \6/84\ of the expenditures for the year is allowed in the 
first and eighth years and an amortization deduction equal to \1/7\ 
(\12/84\) of such expenditures is allowed in the second through seventh 
years.
    \42\ Sec. 301(a) of the Multiemployer Pension Plan Amendments Act 
of 1980.
---------------------------------------------------------------------------
      Qualifying reforestation expenditures are the direct 
costs a taxpayer incurs in connection with the forestation or 
reforestation of a site by planting or seeding, and include 
costs for the preparation of the site, the cost of the seed or 
seedlings, and the cost of the labor and tools (including 
depreciation of long lived assets such as tractors and other 
machines) used in the reforestation activity. Qualifying 
reforestation expenditures do not include expenditures that 
would otherwise be deductible and do not include costs for 
which the taxpayer has been reimbursed under a governmental 
cost sharing program, unless the amount of the reimbursement is 
also included in the taxpayer's gross income.
      Qualifying timber property includes any woodlot or other 
site that is located in the United States that will contain 
trees in significant commercial quantities and that is held by 
the taxpayer for the planting, cultivating, caring for, and 
cutting of trees for sale or use in the commercial production 
of timber products. The regulations require that the site 
consist of at least one acre that is devoted to such 
activities.43 A taxpayer may hold qualifying timber 
property in fee or by lease. Where the property is held by one 
person for life with the remainder to another person, the life 
tenant is considered the owner of the property for this 
purpose.
---------------------------------------------------------------------------
    \43\ Treas. Reg. sec. 1.194-3(a).
---------------------------------------------------------------------------
      Reforestation amortization is subject to recapture as 
ordinary income on sale of qualifying timber property within 10 
years of the year in which the qualifying reforestation 
expenditures were incurred.44
---------------------------------------------------------------------------
    \44\ Sec. 1245(b)(7); Treas. Reg. sec. 1.194-1(c).
---------------------------------------------------------------------------
Reforestation tax credit (sec. 48(b))
      A tax credit is allowed equal to 10 percent of the 
reforestation expenditures incurred during the year that are 
properly elected to be amortized. An amount allowed as a credit 
is subject to recapture if the qualifying timber property to 
which the expenditure relates is disposed of within five years.

                               House Bill

      No provision, but H.R. 3081 as passed by the House 
increases the amount of reforestation expenditures eligible for 
seven-year amortization and the reforestation credit from 
$10,000 to $25,000 per taxable year (from $5,000 to $12,500 in 
the case of a separate return by a married individual).
      For taxable years beginning in 2001 through 2003, H.R. 
3081 removes the limitation on the amount of expenditures 
eligible for seven-year amortization.
      Effective date.--The provision is effective for 
expenditures paid or incurred in taxable years beginning after 
December 31, 2000. For taxable years beginning in 2001, 2002, 
and 2003, the amount of reforestation expenditures eligible for 
the credit is limited to $25,000 and no limit applies to the 
amount of expenditures eligible for seven-year amortization. 
For taxable years beginning after 2003, the amount of 
reforestation expenditures eligible for seven-year amortization 
and for the credit is limited to $25,000.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement includes the provision in H.R. 
3081.

 C. Capital Gains Treatment Under Section 631(b) to Apply to Outright 
 Sales of Timber (sec. 202(c) of the bill and sec. 631(b) of the Code)

                              Present Law

      Gain on the cutting and sale of timber generally is 
eligible for capital gains treatment, provided the growing 
timber has been held for more than one year. If the taxpayer 
sells the timber at the time it is cut, the capital gain is 
measured as the difference between the sales price of the 
timber less cost of sales and any unrecovered costs of growing 
the timber.
      If the taxpayer sells the timber prior to its being cut, 
a special rule allows the taxpayer to treat the sale as a 
capital gain, provided the taxpayer retains an economic 
interest in the timber and holds the timber for more than one 
year prior to the date of disposal. The date of disposal is 
deemed to be the date the timber is cut, unless the taxpayer 
receives payment for the timber prior to the date it is cut and 
elects to treat the date of payment as the date of disposal.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      In the case of a sale of timber by the owner of the land 
from which the timber is cut, the requirement that a taxpayer 
retain an economic interest in the timber in order to treat 
gains on sales prior to the time the timber is cut as capital 
gains does not apply. Outright sales of timber by the landowner 
will qualify for capital gains treatment in the same manner as 
sales with a retained economic interest qualify under present 
law, except that the date-of-disposal rule will not apply.
      Effective date.--The provision is effective for sales of 
timber after the date of enactment.

 D. Increase Section 179 Expensing (sec. 1203 of the bill and sec. 179 
                              of the Code)

                              Present Law

      Present law provides that, in lieu of depreciation, a 
taxpayer with a sufficiently small amount of annual investment 
may elect to deduct up to $20,000 (for taxable years beginning 
in 2000) of the cost of qualifying property placed in service 
for the taxable year (sec. 179). In general, qualifying 
property is defined as depreciable tangible personal property 
that is purchased for use in the active conduct of a trade or 
business. The $20,000 amount is reduced (but not below zero) by 
the amount by which the cost of qualifying property placed in 
service during the taxable year exceeds $200,000. In addition, 
the amount eligible to be expensed for a taxable year may not 
exceed the taxable income for a taxable year that is derived 
from the active conduct of a trade or business (determined 
without regard to this provision). Any amount that is not 
allowed as a deduction because of the taxable income limitation 
may be carried forward to succeeding taxable years (subject to 
similar limitations).
      The $20,000 amount is increased to $25,000 for taxable 
years beginning in 2003 and thereafter. The increase is phased 
in as follows: for taxable years beginning in 2001 or 2002, the 
amount is $24,000; and for taxable years beginning in 2003 and 
thereafter, the amount is $25,000.

                               House Bill

      No provision. However, H.R. 3081, as passed by the House, 
provides that the maximum dollar amount that may be deducted 
under section 179 is increased to $30,000 for taxable years 
beginning in 2001 and thereafter.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                            Senate Amendment

      No provision. However, H.R. 833, as passed by the Senate, 
includes a provision identical to the provision of H.R. 3081, 
as passed by the House.

                          Conference Agreement

      The conference agreement includes the provision in H.R. 
3081 and H.R. 833, with a modification. Under the conference 
agreement, the maximum dollar amount that may be deducted under 
section 179 is increased to $35,000 for taxable years beginning 
in 2001 and thereafter.

E. Increase Deduction for Business Meals (sec. 204 of the bill and sec. 
                          274(n) of the Code)

                              Present Law

      Ordinary and necessary business expenses, as well as 
expenses incurred for the production of income, are generally 
deductible, subject to a number of restrictions and limitations 
(secs. 162 and 212). No deduction generally is allowed for 
personal, living, or family expenses (sec. 262).
      Meal and entertainment expenses incurred for business 
reasons or for the production of income are deductible if 
certain legal and substantiation requirements are met. 
Generally, the amount allowable as a deduction for business 
meal and entertainment expenses is limited to 50 percent of the 
otherwise deductible amount (sec. 274(n)). Exceptions to this 
50-percent rule are provided for food and beverages provided to 
crew members of certain vessels and off-shore oil or gas 
platforms or drilling rigs, as well as to individuals subject 
to the hours of service limitations of the Department of 
Transportation. No deduction is allowed for meal or beverage 
expenses unless they are not lavish or extravagant under the 
circumstances (sec. 274(k)(1)(A)). In addition, no deduction is 
allowed for amounts paid or incurred for membership in any club 
organized for business, pleasure, recreation, or other social 
purpose (sec. 274(a)(3)).
      An expense for food or beverages is not deductible unless 
the taxpayer establishes that the item was directly related to 
the ``active conduct'' of the taxpayer's trade or business or, 
in the case of an item directly preceding or following a 
substantial and bona fide business discussion, that the item 
was ``associated with'' the active conduct of the taxpayer's 
trade or business (sec. 274(a)(1)(A)). Accordingly, a business 
meal expense generally is not deductible unless there is a 
substantial and bona fide business discussion during, directly 
preceding, or directly following the meal. Also, the taxpayer 
or an employee of the taxpayer must be present at the meal 
(sec. 274(k)(1)(B)).
      Separate requirements apply to deductions with respect to 
individuals who are traveling away from home in pursuit of a 
trade or business. The absence of a business discussion is 
irrelevant for purposes of the ``active conduct'' and 
``associated with'' tests described above if the individual 
either has the meal alone or has the meal with other persons 
provided that no deduction is claimed with respect to those 
other persons.
      No deduction is allowed with respect to business meal and 
entertainment expenses unless the taxpayer substantiates by 
adequate records or by sufficient evidence corroborating the 
taxpayer's own statement (1) the amount of the expense, (2) the 
time and place of the expense, (3) the business purpose of the 
expense, and (4) the business relationship of the taxpayer to 
the persons entertained (sec. 274(d)). The Code authorizes the 
IRS to provide simpler rules for amounts below a threshold 
specified by the IRS. Accordingly, the IRS provides standard 
meal allowances (generally $30 per day, but higher in specified 
high-cost areas and for employees ``in the transportation 
industry'') that taxpayers who are traveling away from home on 
business may utilize as an alternative to the substantiation 
procedures specified above (Treas. Reg. sec. 1.274(d)-1T).

                               house bill

      No provision. However, H.R. 3081, as passed by the House, 
increases the business meals deduction from the present-law 50 
percent to 55 percent for taxable years beginning in 2001 and 
to 60 percent for taxable years beginning in 2002 and 
thereafter. The bill does not alter the 50-percent limitation 
with respect to the business entertainment deduction.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                            Senate amendment

      No provision. However, H.R. 833, as passed by the Senate, 
phases in an increase from 50 percent to 80 percent in the 
deductible percentage of business meal expense for small 
businesses. The present-law 50 percent limitation continues to 
apply to entertainment expenses. The increase in the deductible 
percentage is phased in according to the following schedule:

                                                              Deductible
        Taxable years beginning in:                          percentage:
        2001......................................................    55
        2002......................................................    60
        2003......................................................    65
        2004......................................................    70
        2005......................................................    75
        2006 and thereafter.......................................    80

      Effective date.--The provision is effective for taxable 
years beginning after 2000.

                          conference agreement

      The conference agreement increases the business meals 
deduction from the present-law 50 percent to 70 percent for 
taxable years beginning after December 31, 2000.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

    F. Increased Deduction for Business Meals While Operating Under 
Department of Transportation Hours of Service Limitations (sec. 205 of 
                 the bill and sec. 274(n) of the Code)

                              present law

      Ordinary and necessary business expenses, as well as 
expenses incurred for the production of income, are generally 
deductible, subject to a number of restrictions and 
limitations. Generally, the amount allowable as a deduction for 
food and beverage is limited to 50 percent of the otherwise 
deductible amount. Exceptions to this 50 percent rule are 
provided for food and beverages provided to crew members of 
certain vessels and offshore oil or gas platforms or drilling 
rigs.
      The 1997 Act increased to 80 percent the deductible 
percentage of the cost of food and beverages consumed while 
away from home by an individual during, or incident to, a 
period of duty subject to the hours of service limitations of 
the Department of Transportation.
      Individuals subject to the hours of service limitations 
of the Department of Transportation include:
      (1) certain air transportation employees such as pilots, 
crew, dispatchers, mechanics, and control tower operators 
pursuant to Federal Aviation Administration regulations,
      (2) interstate truck operators and interstate bus drivers 
pursuant to Department of Transportation regulations,
      (3) certain railroad employees such as engineers, 
conductors, train crews, dispatchers and control operations 
personnel pursuant to Federal Railroad Administration 
regulations, and
      (4) certain merchant mariners pursuant to Coast Guard 
regulations.
      The increase in the deductible percentage is phased in 
according to the following schedule:

                                                              Deductible
        Taxable years beginning in:                          percentage:
        1998, 1999................................................    55
        2000, 2001................................................    60
        2002, 2003................................................    65
        2004, 2005................................................    70
        2006, 2007................................................    75
        2008 and thereafter.......................................    80

                               house bill

      No provision. However, H.R. 3081, as passed by the House, 
accelerates the increase in the deduction for business meals 
while operating under Department of Transportation hours of 
service limitations so that it becomes 80 percent in 2001 and 
thereafter.
      Effective date.--The provision is effective for taxable 
years beginning after 2000.

                            senate amendment

      No provision.

                          conference agreement

      The conference agreement includes the provision in H.R. 
3081.

 G. Repeal of Modification of Installment Method (sec. 206 of the bill 
                  and secs. 453 and 453A of the Code)

                              present law

      The installment method of accounting allows a taxpayer to 
defer the recognition of income from the disposition of certain 
property until payment is received. Sales to customers in the 
ordinary course of business are not eligible for the 
installment method, except for sales of property that is used 
or produced in the trade or business of farming and sales of 
timeshares and residential lots if an election to pay interest 
under section 453(l)(2)(B) is made. Section 536(a) of the 
Ticket to Work and Work Incentives Improvement Act of 1999 
prohibited the use of the installment method for a transaction 
that would otherwise be required to be reported using the 
accrual method of accounting, effective for dispositions 
occurring on or after December 17, 1999.
      A pledge rule provides that if an installment obligation 
is pledged as security for any indebtedness, the net proceeds 
45 of such indebtedness are treated as a payment on 
the obligation, triggering the recognition of income. Actual 
payments received on the installment obligation subsequent to 
the receipt of the loan proceeds are not taken into account 
until such subsequent payments exceed the loan proceeds that 
were treated as payments. The pledge rule does not apply to 
sales of property used or produced in the trade or business of 
farming, to sales of timeshares and residential lots where the 
taxpayer elects to pay interest under section 453(l)(2)(B), or 
to dispositions where the sales price does not exceed $150,000. 
The Ticket to Work and Work Incentives Improvement Act of 1999 
provided that the right to satisfy a loan with an installment 
obligation will be treated as a pledge of the installment 
obligation, effective for dispositions occurring on or after 
December 17, 1999.
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    \45\ The net proceeds equal the gross loan proceeds less the direct 
expenses of obtaining the loan.
---------------------------------------------------------------------------

                               house bill

      No provision. However, H.R. 3081, as passed by the House, 
repeals the prohibition on the use of the installment method of 
accounting for dispositions of property that would otherwise be 
reported for Federal income tax purposes using the accrual 
method of accounting. Accordingly, any disposition of property 
that otherwise qualifies to be reported using the installment 
method of accounting may be reported using that method without 
regard to whether the disposition would otherwise be reported 
using the accrual method of accounting.
      The provision leaves unchanged the rule added by section 
536(b) of the Ticket to Work and Work Incentives Improvement 
Act of 1999 that modified the installment method pledge rule.
      Effective date.--The provision is effective for sales or 
other dispositions on or after December 17, 1999.

                            senate amendment

      No provision. However, H.R. 833, as passed by the Senate, 
contains the provisions enacted in the Ticket to Work and Work 
Incentives Improvement Act of 1999 prohibiting the use of the 
installment method for a transaction that would otherwise be 
required to be reported using the accrual method of accounting 
and expanding the pledge rule.

                          conference agreement

      The conference agreement includes the provision in H.R. 
3081.

     H. Coordinate Farmers and Fisherman Income Averaging and the 
Alternative Minimum Tax (sec. 207 of the bill and secs. 55 and 1301 of 
                               the Code)

                              present law

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

                               house bill

      No provision. However, H.R. 3081, as passed by the House, 
extends to individuals engaged in the trade or business of 
fishing the same election to income average that is available 
to farmers. For this purpose, the trade or business of fishing 
is the conduct of commercial fishing as defined in section 3 of 
the Magnuson-Stevens Fishery Conservation and Management Act 
(16 U.S.C. 1802) and includes the trade or business of 
catching, taking, or harvesting fish that are intended to enter 
commerce through sale, barter or trade.
      The bill also coordinates farmers and fishermen income 
averaging with the alternative minimum tax. Under the bill, a 
farmer or fisherman will owe alternative minimum tax only to 
the extent he or she will owe alternative minimum tax had 
averaging not been elected. This result is achieved by 
excluding the impact of the election to average farm and 
fishing income from the calculation of both regular tax and 
tentative minimum tax, solely for the purpose of determining 
alternative minimum tax.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                            senate amendment

      No provision. However, the provision of H.R. 3081 is 
included in S. 3152.

                          conference agreement

      The conference agreement follows H.R. 3081 and S. 3152.

  I. Repeal Special Occupational Taxes on Producers and Marketers of 
 Alcoholic Beverages (sec. 208 of the bill and secs. 5081, 5091, 5111, 
                   5121, 5131, and 5276 of the Code)

                              Present Law

      Under present law, special occupational taxes are imposed 
on producers and others engaged in the marketing of distilled 
spirits, wine, and beer. These excise taxes are imposed as part 
of a broader Federal tax and regulatory engine governing the 
production and marketing of alcoholic beverages. The special 
occupational taxes are payable annually, on July 1 of each 
year. The present tax rates are as follows:
      Producers: Distilled spirits and wines (sec. 5081)--
$1,000 per year, per premise; Brewers (sec. 5091)--$1,000 per 
year, per premise.
      Wholesale dealers (sec. 5111): Liquors, wines, or beer--
$500 per year.
      Retail dealers (sec. 5121): Liquors, wines, or beer--$250 
per year.
      Nonbeverage use of distilled spirits (sec. 5131)--$500 
per year.
      Industrial use of distilled spirits (sec. 5276)--$250 per 
year.

                               House Bill

      No provision, but H.R., 3081, as passed by the House 
repeals the special occupational taxes on producers and 
marketers of alcoholic beverages. The provision is effective on 
July 1, 2001. The provision does not affect liability for taxes 
imposed with respect to periods before July 1, 2001.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement includes the provision of H.R. 
3081, as passed by the House.

     J. Exclusion From Gross Income for Certain Forgiven Mortgage 
      Obligations (sec. 209 of the bill and sec. 108 of the Code)

                              Present Law

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

                               House Bill

      No provision. However, H.R. 3081, as passed by the House, 
permits eligible individuals to elect an exclusion from 
discharge of indebtedness income to the extent such income is 
attributable to the sale of real property securing qualified 
residential indebtedness. Qualified residential indebtedness is 
defined as indebtedness incurred or assumed by the taxpayer for 
the acquisition, construction, reconstruction, or substantial 
improvement of the taxpayer's principal residence (within the 
meaning of section 121) and which is secured by such residence. 
For this purpose, refinanced indebtedness qualifies for the 
exclusion only to the extent that the principal amount of the 
refinanced indebtedness does not exceed the principal amount of 
the indebtedness before the refinancing. The exclusion does not 
apply to qualified farm indebtedness or qualified real property 
business indebtedness.
      Effective date.--The provision is effective for 
discharges of indebtedness after December 31, 2000.

                            Senate Amendment

      No provision. However, the provision of H.R. 3081 is 
included in S. 3152.

                          Conference Agreement

      The conference agreement follows H.R. 3081 and S. 3152.

 K. Clarification of Cash Accounting Rules for Small Businesses (sec. 
               210 of the bill and sec. 446 of the Code)

                              Present Law

      Section 446(c) of the Code generally allows a taxpayer to 
select the method of accounting it will use to compute its 
taxable income if such method clearly reflects the income of 
the taxpayer. A taxpayer is entitled to adopt any one of the 
permissible methods for each separate trade or business, 
subject to certain restrictions. The regulations under section 
446 require that a taxpayer use an accrual method of accounting 
with regard to purchases and sales of merchandise whenever 
section 471 requires the taxpayer to account for such items as 
inventory. 46 In general, section 471 provides that 
whenever, in the opinion of the Secretary of the Treasury, the 
use of inventories is necessary to clearly determine the income 
of the taxpayer, inventories must be taken by the taxpayer. 
Treas. Reg. sec. 1.471-1 requires a taxpayer to account for 
inventories when the production, purchase, or sale of 
merchandise is an income-producing factor in the taxpayer's 
business. Treas. Reg. sec. 1.162-3 requires taxpayers carrying 
materials and supplies (other than incidental materials and 
supplies) on hand to deduct the cost of materials and supplies 
only in the amount that they are actually consumed and used in 
operations during the tax year.
---------------------------------------------------------------------------
    \46\ Treas. Reg. sec. 1.446-1(c)(2)
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement provides that, notwithstanding 
any other provision of the Code, a taxpayer is not required to 
use an accrual method of accounting if the average annual gross 
receipts of the taxpayer (or any predecessor) do not exceed 
$2.5 million for all prior taxable years beginning after 
October 31, 1999 (including the prior taxable years of any 
predecessor). Thus, even if the production, purchase, or sale 
of merchandise is an income-producing factor in the taxpayer's 
business, the taxpayer is not required to use an accrual method 
of accounting with regard to such purchases and sales if the 
average annual gross receipts of the taxpayer do not exceed 
$2.5 million.
      The provision also provides that a taxpayer meeting the 
average annual gross receipts test is not required to account 
for inventories under section 471. If a taxpayer elects not to 
account for inventory under section 471, the taxpayer is 
required to treat such inventory in the same manner as a 
material or supply that is not incidental. It is the intention 
of the conferees that a taxpayer that elects to treat inventory 
as a material or supply is to include in expense the charges 
for materials and supplies only in the amount that they are 
actually consumed and used in operation during the taxable year 
for which the return is made, provided that the costs of such 
materials and supplies have not been deducted in determining 
the net income or loss or taxable income for any previous 
year.47
---------------------------------------------------------------------------
    \47\ See Treas. Reg. sec. 1.162-3.
---------------------------------------------------------------------------
      Average annual gross receipts are determined by averaging 
the gross receipts of the three taxable year period ending with 
such prior taxable year.
      For example, assume a calendar year entity had gross 
receipts of $1.5 million in 1998, $2.5 million in 1999, $3.5 
million in 2000, and $4.5 million in 2001. In addition, the 
sale of inventory is an income-producing factor in the 
taxpayer's business. Average annual gross receipts are $2.5 
million in 2000 and $3.5 million in 2001. In calendar year 
2001, the entity may use the cash method of accounting 
notwithstanding that the production, purchase, or sale of 
merchandise is an income-producing factor in the taxpayer's 
trade or business, because it had average annual gross receipts 
of $2.5 million or less for all prior taxable years. In 
calendar year 2002, the entity may not use the cash method of 
accounting with regard to purchases and sales of merchandise, 
because average annual gross receipts for a prior taxable year 
(2001) exceed $2.5 million.
      In addition, the rules of paragraph (2) and (3) section 
448(c) (regarding the aggregation of related taxpayers, 
taxpayers not in existence for the entire three year period, 
short taxable years, definition of gross receipts, and 
treatment of predecessors) shall apply for purposes of 
determining the average annual gross receipts test.
      Effective date.--The provision is effective for taxable 
years beginning after date of enactment. Any change in the 
taxpayer's method of accounting permitted as a result of the 
provision is treated as a voluntary change initiated by the 
taxpayer with the consent of the Secretary of the Treasury. Any 
required section 481(a) adjustment is to be taken into account 
over a period not to exceed four years under principles 
consistent with those in Rev. Proc. 99-49.48
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    \48\ 1999-52 I.R.B. 725.
---------------------------------------------------------------------------

 L. Authorize Payment of Interest on Business Checking Accounts (sec. 
                            211 of the bill)

      The bill would eliminate the Federal prohibition on 
depository institutions paying interest on demand deposits. 
Thus, under the bill, depository institutions would be 
permitted to pay interest on business checking accounts.
      Effective date.--The repeal of the prohibition on the 
payment of interest would be effective two years after the date 
of enactment. During the two year period beginning on the date 
of enactment, the bill would permit depository institutions to 
offer business customers checking accounts that allow the funds 
in the account to be swept into an interest-bearing account on 
a daily basis.

  TITLE III. HEALTH INSURANCE AND LONG-TERM CARE INSURANCE PROVISIONS

  A. Accelerate 100-Percent Self-Employed Health Insurance Deduction 
           (sec. 301 of the bill and sec. 162(l) of the Code)

                              Present Law

      Under present law, the individual income tax treatment of 
health insurance expenses depends on the individual's 
circumstances. Self-employed individuals may deduct a portion 
of health insurance expenses for the individual and his or her 
spouse and dependents. The deductible percentage of health 
insurance expenses of a self-employed individual is 60 percent 
in 2000 through 2001, 70 percent in 2002, and 100 percent in 
2003 and thereafter. The deduction for health insurance 
expenses of self-employed individuals is not available for any 
month in which the taxpayer is eligible to participate in a 
subsidized health plan maintained by the employer of the 
taxpayer or the taxpayer's spouse.
      Employees can exclude from income 100 percent of 
employer-provided health insurance.
      Individuals who itemize deductions may deduct their 
health insurance expenses only to the extent that the total 
medical expenses of the individual exceed 7.5 percent of 
adjusted gross income (sec. 213). Subject to certain dollar 
limitations, premiums for qualified long-term care insurance 
are treated as medical expenses for purposes of the itemized 
deduction for medical expenses (sec. 213). The amount of 
qualified long-term care insurance premiums that may be taken 
into account for 2000 is as follows: $220 in the case of an 
individual 40 years old or less; $410 in the case of an 
individual who is over 40 but not more than 50; $820 in the 
case of an individual who is more than 50 but not more than 60; 
$2,220 in the case of an individual who is more than 60 but not 
more than 70; and $2,750 in the case of an individual who is 
more than 70. These dollar limits are indexed for inflation.
      The self-employed health deduction also applies to 
qualified long-term care insurance premiums treated as medical 
care for purposes of the itemized deduction for medical 
expenses.

                               House Bill

      No provision. However, H.R. 3081, as passed by the House, 
increases the deduction for health insurance expenses (and 
qualified long-term care insurance expenses) of self-employed 
individuals to 100 percent beginning in 2001. H.R. 3081 also 
provides that the deduction is not available in any month in 
which the taxpayer participates in an employer-subsidized 
health plan.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                            Senate Amendment

      No provision. However, H.R. 833, as passed by the Senate, 
increases the deduction for health insurance expenses (and 
qualified long-term care insurance expenses) of self-employed 
individuals to 100 percent beginning in 2001.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement includes the provision in H.R. 
3081.

B. Above-the-Line Deduction for Health Insurance Expenses (sec. 302 of 
                 the bill and new sec. 222 of the Code)

                              Present Law

      Under present law, the individual income tax treatment of 
health insurance expenses depends on the individual's 
circumstances. Self-employed individuals may deduct a portion 
of health insurance expenses for the individual and his or her 
spouse and dependents. The deductible percentage of health 
insurance expenses of a self-employed individual is 60 percent 
in 2000 and 2001; 70 percent in 2002; and 100 percent in 2003 
and thereafter. The deduction for health insurance expenses of 
self-employed individuals is not available for any month in 
which the taxpayer is eligible to participate in a subsidized 
health plan maintained by the employer of the taxpayer or the 
taxpayer's spouse. The deduction applies to qualified long-term 
care insurance premiums treated as medical expenses under the 
itemized deduction for medical expenses, described below.
      Employees can exclude from income 100 percent of 
employer-provided health insurance or qualified long-term care 
insurance.
      Individuals who itemize deductions may deduct their 
health insurance expenses only to the extent that the total 
medical expenses of the individual exceed 7.5 percent of 
adjusted gross income (sec. 213). Subject to certain dollar 
limitations, premiums for qualified long-term care insurance 
are treated as medical expenses for purposes of the itemized 
deduction for medical expenses (sec. 213). The amount of 
qualified long-term care insurance premiums that may be taken 
into account for 2000 is as follows: $220 in the case of an 
individual 40 years old or less; $410 in the case of an 
individual who is more than 40 but not more than 50; $820 in 
the case of an individual who is more than 50 but not more than 
60; $2,200 in the case of an individual who is more than 60 but 
not more than 70; and $2,750 in the case of an individual who 
is more than 70. These dollar limits are indexed for inflation.

                               House Bill

      No provision.

                            Senate Amendment

      No provision. However, H.R. 833, as passed by the Senate, 
provides an above-the-line deduction for a percentage of the 
amount paid during the year for insurance which constitutes 
medical care (as defined under sec. 213, other than long-term 
care insurance treated as medical care under sec. 213) for the 
taxpayer and his or her spouse and dependents.49 The 
deductible percentage is: 25 percent in 2002, 2003, and 2004; 
35 percent in 2005; 65 percent in 2006; and 100 percent in 2007 
and thereafter.
---------------------------------------------------------------------------
    \49\ The deduction only applies to health insurance that 
constitutes medical care; it does not apply to medical expenses. The 
deduction applies to self-insured arrangements (provided such 
arrangements constitute insurance, e.g., there is appropriate risk-
shifting) and coverage under employer plans treated as insurance under 
section 104. Another provision of the bill provides a similar deduction 
for qualified long-term care insurance expenses.
---------------------------------------------------------------------------
      The deduction is not available to an individual for any 
month in which the individual is covered under an employer-
sponsored health plan if at least 50 percent of the cost of the 
coverage is paid or incurred by the employer.50 
Thus, the individual must pay for more than 50 percent of the 
cost of the coverage in order to be eligible for the deduction. 
For purposes of this rule, any amount excludable from the gross 
income of the employee under the exclusion for employer-
provided health coverage is treated as paid or incurred by the 
employer; thus, for example, health insurance purchased by an 
employee through a cafeteria plan with salary reduction amounts 
is considered to be paid for by the employer.51 In 
determining whether the 50-percent threshold is met, all health 
plans of the employer in which the employee participates are 
treated as a single plan. If the employer pays for less than 50 
percent of the cost of all health plans in which the individual 
participates, the deduction is available only with respect to 
each plan with respect to which the employer subsidy is less 
than 50 percent. Cost is determined as under the health care 
continuation rules.
---------------------------------------------------------------------------
    \50\ This rule is applied separately with respect to qualified 
long-term care insurance.
    \51\ Excludable employer contributions to a health flexible 
spending arrangement or medical savings account (including salary 
reduction contributions) are also considered amounts paid by the 
employer for health insurance that constitutes medical care. Salary 
reduction contributions are not considered to be amounts paid by the 
employee.
---------------------------------------------------------------------------
      The deduction is not available with respect to insurance 
providing coverage for accidents, disability, dental care, 
vision care, or a specific disease or making payments of a 
fixed amount per day (or other period) on account of 
hospitalization. Such insurance and employer payments for such 
insurance are not taken into account in determining whether the 
employee pays for more than 50 percent of the cost of health 
insurance.
      The deduction is not available to individuals enrolled in 
Medicare, Medicaid, the Federal Employees Health Benefit 
Program (``FEHBP''),52 Champus, VA, Indian Health 
Service, or Children's Health Insurance programs. Thus, for 
example, the deduction is not available with respect to Medigap 
coverage, because such coverage is provided to individuals 
enrolled in Medicare.
---------------------------------------------------------------------------
    \52\ This rule does not prevent individuals covered by the FEHBP 
from deducting premiums for health care continuation coverage, provided 
the requirements for the deduction are otherwise met.
---------------------------------------------------------------------------
      The provision authorizes the Secretary to prescribe rules 
necessary to carry out the provision, including appropriate 
reporting requirements for employers.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2001.

                          Conference Agreement

      The conference agreement includes the provision in H.R. 
833, except that the deductible percentage is 25 percent in 
2001 through 2003, 35 percent in 2004, 65 percent in 2005, and 
100 percent in 2006 and thereafter.
      The following examples illustrate the application of the 
rule denying the deduction if the employer pays 50 percent or 
more of the cost of the coverage.
      Example 1: Employee A participates in an employer-
sponsored health plan. The annual cost for single coverage is 
$3,000, and the annual additional cost for coverage for A's 
spouse and dependents is $1,000. The employer pays 100 percent 
of the cost of individual coverage, but does not pay any 
additional amount for family coverage. A chooses family 
coverage. The total amount the employer pays for the insurance 
is $3,000, which is 75 percent of the total cost of the 
coverage ($4,000). A also purchases qualified long-term care 
insurance under an employer-sponsored plan, and pays for 100 
percent of the cost of this coverage on an after-tax basis. The 
deduction is not available with respect to A's expenses for 
health insurance.53
---------------------------------------------------------------------------
    \53\ Under another provision of the bill, a deduction is available 
with respect to A's qualified long-term care insurance premiums.
---------------------------------------------------------------------------
      Example 2: Employee B participates in two employer-
sponsored health plans. One plan provides major medical 
coverage. The cost of this plan is $2,000 per year. The 
employer pays one-half of the cost of this plan. The second 
plan provides only dental insurance. The cost of the dental 
plan is $300 per year, which is paid by the employee. In 
determining whether B is entitled to the deduction, the dental 
plan is disregarded. Thus, the total cost of the health plans 
in which B participates is $2,000. The employer pays for 50 
percent of this total cost. B may not deduct her share of the 
premium for the major medical plan, nor the cost of the dental 
insurance.
      Example 3: Employee C participates in an employer-
sponsored health plan. The cost of the plan is $4,000. The 
employer pays $1,000 of the cost of the plan directly, and 
Employee C pays the remainder of the $3,000 cost of the plan by 
salary reduction through a cafeteria plan. The $1,000 employer 
contribution and the $3,000 salary reduction contributions are 
all employer payments. Thus, the employer pays for the entire 
cost of the plan, and the deduction is not available.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

   C. Above-the-Line Deduction for Long-Term Care Insurance Expenses 
     (secs. 1302 and 1304 of the bill and new sec. 222 of the Code)

                              Present Law

      Under present law, the individual income tax treatment of 
health insurance expenses depends on the individual's 
circumstances. Self-employed individuals may deduct a portion 
of health insurance expenses for the individual and his or her 
spouse and dependents. The deductible percentage of health 
insurance expenses of a self-employed individual is 60 percent 
in 2000 and 2001; 70 percent in 2002; and 100 percent in 2003 
and thereafter. The deduction for health insurance expenses of 
self-employed individuals is not available for any month in 
which the taxpayer is eligible to participate in a subsidized 
health plan maintained by the employer of the taxpayer or the 
taxpayer's spouse. The deduction applies to qualified long-term 
care insurance premiums treated as medical expenses under the 
itemized deduction for medical expenses, described below.
      Employees can exclude from income 100 percent of 
employer-provided health insurance or qualified long-term care 
insurance.
      Individuals who itemize deductions may deduct their 
health insurance expenses only to the extent that the total 
medical expenses of the individual exceed 7.5 percent of 
adjusted gross income (sec. 213). Subject to certain dollar 
limitations, premiums for qualified long-term care insurance 
are treated as medical expenses for purposes of the itemized 
deduction for medical expenses (sec. 213). The amount of 
qualified long-term care insurance premiums that may be taken 
into account for 2000 is as follows: $220 in the case of an 
individual 40 years old or less; $410 in the case of an 
individual who is more than 40 but not more than 50; $820 in 
the case of an individual who is more than 50 but not more than 
60; $2,200 in the case of an individual who is more than 60 but 
not more than 70; and $2,750 in the case of an individual who 
is more than 70. These dollar limits are indexed for inflation.
      In order for a long-term care contract to be qualified 
for purposes of the Code, the contract must satisfy certain 
consumer protection provisions of the long-term care insurance 
model act and regulations promulgated by the National 
Association of Insurance Commissioners (``NAIC'') adopted as of 
January 1993. In addition, issuers of qualified long-term care 
contracts are required to satisfy certain disclosure 
requirements. An excise tax is imposed with respect to the 
failure to meet the applicable disclosure 
requirements.54
---------------------------------------------------------------------------
    \54\ These provisions apply for all provisions of the Code relating 
to qualified long-term care contracts, not only the above-the-line 
deduction.
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      No provision. However, H.R. 833, as passed by the Senate, 
provides an above-the-line deduction for a percentage of the 
amount paid during the year for qualified long-term care 
insurance for the taxpayer and his or her spouse and 
dependents, subject to the present-law premium limitations.\55\ 
The deductible percentage is: 25 percent in 2002, 2003, and 
2004; 35 percent in 2005; 65 percent in 2006; and 100 percent 
in 2007 and thereafter.
---------------------------------------------------------------------------
    \55\ The deduction only applies to insurance that constitutes 
medical care; it does not apply to long-term care expenses. The 
deduction applies to self-insured arrangements (provided such 
arrangements constitute insurance, e.g., there is appropriate risk-
shifting) and coverage under employer plans treated as insurance under 
section 104. Another provision of the bill provides a similar deduction 
for health insurance expenses.
---------------------------------------------------------------------------
      The deduction is not available to an individual for any 
month in which the individual is covered under an employer-
sponsored long-term care plan if at least 50 percent of the 
cost of the coverage is paid or incurred by the employer.\56\ 
For purposes of this rule, any amounts excludable from the 
gross income of the employee with respect to qualified long-
term care insurance are treated as paid or incurred by the 
employer. In determining whether the 50-percent threshold is 
met, all plans of the employer providing long-term care 
insurance in which the employee participates are treated as a 
single plan. If the employer pays less than 50 percent of the 
cost of all long-term care plans in which the individual 
participates, the deduction is available only with respect to 
each plan with respect to which the employer pays for less than 
50 percent of the cost. Cost is determined as under the health 
care continuation rules.
---------------------------------------------------------------------------
    \56\ This rule is applied separately with respect to health 
insurance.
---------------------------------------------------------------------------
      The provision authorizes the Secretary to prescribe rules 
necessary to carry out the provision, including appropriate 
reporting requirements for employers.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2001.

                          Conference Agreement

      The conference agreement includes the provision in H.R. 
833, except that the deductible percentage is 25 percent in 
2001 through 2003, 35 percent in 2004, 65 percent in 2005, and 
100 percent in 2006 and thereafter.\57\
---------------------------------------------------------------------------
    \57\ See the description of the above-the-line deduction for health 
insurance expenses for examples of the operation of the rule denying 
the deduction if the employer pays for 50 percent or more of the cost 
of the coverage.
---------------------------------------------------------------------------
      The conference agreement adds additional consumer 
protection provisions for qualified long-term care contracts. 
In order to be a qualified contract for purposes of the Code, a 
long-term care insurance contract must satisfy the NAIC model 
act and regulations relating to contingent nonforfeiture 
benefits, if the policyholder declines the offer of a 
nonforfeiture provision. In addition, the conference agreement 
modifies the disclosure requirements applicable to issuers of 
long-term care contracts by adding the NAIC requirements 
regarding suitability and disclosure of rating practices. The 
conference agreement also updates present-law references to the 
NAIC model act and regulations to reflect current provisions.
      Effective date.--The above-the-line deduction is 
effective for taxable years beginning after December 31, 2000. 
The consumer protection provisions are effective with respect 
to policies issued more than 1 year after the date of 
enactment.

 D. Medical Savings Accounts (``MSAs'') (sec. 303 of the bill and sec. 
                            220 of the Code)

                              Present Law

      Within limits, contributions to a medical savings account 
(``MSA'') \58\ are deductible in determining adjusted gross 
income (``AGI'') if made by an eligible individual and are 
excludable from gross income and wages for employment tax 
purposes if made by the employer of an eligible individual. 
Earnings on amounts in an MSA are not currently taxable. 
Distributions from an MSA for medical expenses are not taxable. 
Distributions not used for medical expenses are taxable. In 
addition, distributions not used for medical expenses are 
subject to an additional 15-percent tax unless the distribution 
is made after age 65, death, or disability.
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    \58\ In general, an MSA is a trust or custodial account created 
exclusively for the benefit of the account holder and is subject to 
rules similar to those applicable to individual retirement 
arrangements. The trustee of an MSA can be a bank, insurance company, 
or other person who demonstrates to the satisfaction of the Secretary 
that the manner in which such person will administer the trust will be 
consistent with applicable requirements.
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      MSAs are available to self-employed individuals \59\ and 
to employees covered under an employer-sponsored high 
deductible plan of a small employer. An employer is a small 
employer if it employed, on average, no more than 50 employees 
on business days during either the preceding or the second 
preceding year.
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    \59\ Self-employed individuals include more than 2-percent 
shareholders of S corporations who are treated as partners for purposes 
of fringe benefit rules pursuant to section 1372. Self-employed 
individuals are eligible for an MSA regardless of the size of the 
entity for which the individual performs services.
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      In order for an employee of a small employer to be 
eligible to make MSA contributions (or to have employer 
contributions made on his or her behalf), the employee must be 
covered under an employer-sponsored high deductible health plan 
(see the definition below) and must not be covered under any 
other health plan (other than a plan that provides certain 
permitted coverage).
      Similarly, in order to be eligible to make contributions 
to an MSA, a self-employed individual must be covered under a 
high deductible health plan and no other health plan (other 
than a plan that provides certain permitted coverage, described 
below). A self-employed individual is not an eligible 
individual (by reason of being self-employed) if the high 
deductible plan under which the individual is covered is 
established or maintained by an employer of the individual (or 
the individual's spouse).
      The maximum annual contribution that can be made to an 
MSA for a year is 65 percent of the deductible under the high 
deductible plan in the case of individual coverage and 75 
percent of the deductible in the case of family coverage.
      A high deductible plan is a health plan with an annual 
deductible of at least $1,550 and no more than $2,350 in the 
case of individual coverage and at least $3,100 and no more 
than $4,650 in the case of family coverage. In addition, the 
maximum out-of-pocket expenses with respect to allowed costs 
(including the deductible) must be no more than $3,100 in the 
case of individual coverage and no more than $5,700 in the case 
of family coverage.60 A plan does not fail to 
qualify as a high deductible plan merely because it does not 
have a deductible for preventive care as required by State law. 
A plan does not qualify as a high deductible health plan if 
substantially all of the coverage under the plan is for 
permitted coverage (as described above). In the case of a self-
insured plan, the plan must in fact be insurance (e.g., there 
must be appropriate risk shifting) and not merely a 
reimbursement arrangement.
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    \60\ These dollar amounts are for 2000. These amounts are indexed 
for inflation in $50 increments.
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      The number of taxpayers benefiting annually from an MSA 
contribution is limited to a threshold level (generally 750,000 
taxpayers). If it is determined in a year that the threshold 
level has been exceeded (called a ``cut-off'' year) then, in 
general, for succeeding years during the 4-year pilot period 
1997-2000, only those individuals who (1) made an MSA 
contribution or had an employer MSA contribution for the year 
or a preceding year (i.e., are active MSA participants) or (2) 
are employed by a participating employer, is eligible for an 
MSA contribution. In determining whether the threshold for any 
year has been exceeded, MSAs of individuals who were not 
covered under a health insurance plan for the six month period 
ending on the date on which coverage under a high deductible 
plan commences would not be taken into account.61 
However, if the threshold level is exceeded in a year, 
previously uninsured individuals are subject to the same 
restriction on contributions in succeeding years as other 
individuals. That is, they would not be eligible for an MSA 
contribution for a year following a cut-off year unless they 
are an active MSA participant (i.e., had an MSA contribution 
for the year or a preceding year) or are employed by a 
participating employer.
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    \61\ Permitted coverage, as described above, does not constitute 
coverage under a health insurance plan for this purpose.
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      The number of MSAs established has not exceeded the 
threshold level.
      After December 31, 2000, no new contributions may be made 
to MSAs except by or on behalf of individuals who previously 
had MSA contributions and employees who are employed by a 
participating employer. An employer is a participating employer 
if (1) the employer made any MSA contributions for any year to 
an MSA on behalf of employees or (2) at least 20 percent of the 
employees covered under a high deductible plan made MSA 
contributions of at least $100 in the year 2000.
      Self-employed individuals who made contributions to an 
MSA during the period 1997-2000 also may continue to make 
contributions after 2000.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement extends the MSA program through 
2002. The same rules that apply to the limit on MSAs for 1999 
apply to 2000 and 2001. Thus, for example, the threshold level 
in those years is 750,000 taxpayers.
      Effective date.--The provision is effective on the date 
of enactment.

 E. Deduction for Providing Long-Term Care to Household Members (sec. 
             305 of the bill and new sec. 223 of the Code)

                              present law

      Under present law, the individual income tax treatment of 
health insurance expenses depends on the individual's 
circumstances. Self-employed individuals may deduct a portion 
of health insurance expenses for the individual and his or her 
spouse and dependents. The deductible percentage of health 
insurance expenses of a self-employed individual is 60 percent 
in 2000 and 2001; 70 percent in 2002; and 100 percent in 2003 
and thereafter. The deduction for health insurance expenses of 
self-employed individuals is not available for any month in 
which the taxpayer is eligible to participate in a subsidized 
health plan maintained by the employer of the taxpayer or the 
taxpayer's spouse. The deduction applies to qualified long-term 
care insurance premiums treated as medical expenses under the 
itemized deduction for medical expenses, described below.
      Employees can exclude from income 100 percent of 
employer-provided health insurance or qualified long-term care 
insurance.
      Individuals who itemize deductions may deduct their 
health insurance expenses only to the extent that the total 
medical expenses of the individual exceed 7.5 percent of 
adjusted gross income (sec. 213). Subject to certain dollar 
limitations, premiums for qualified long-term care insurance 
are treated as medical expenses for purposes of the itemized 
deduction for medical expenses (sec. 213). The amount of 
qualified long-term care insurance premiums that may be taken 
into account for 2000 is as follows: $220 in the case of an 
individual 40 years old or less; $410 in the case of an 
individual who is more than 40 but not more than 50; $820 in 
the case of an individual who is more than 50 but not more than 
60; $2,200 in the case of an individual who is more than 60 but 
not more than 70; and $2,750 in the case of an individual who 
is more than 70. These dollar limits are indexed for inflation.
      To qualify as a dependent under present law, an 
individual must: (1) be a specified relative or member of the 
taxpayer's household; (2) be a citizen or resident of the U.S. 
or resident of Canada or Mexico; (3) not be required to file a 
joint tax return with his or her spouse; (4) have gross income 
below the dependent exemption amount ($2,800 in 2000) if not 
the taxpayer's child; and (5) receive over half of his or her 
support from the taxpayer. If no one person contributes over 
half the support of an individual, the taxpayer is treated as 
meeting the support requirement if: (1) over half the support 
is received from persons each of whom, but for the fact that he 
or she did not provide over half such support, could claim the 
individual as a dependent; (2) the taxpayer contributes over 10 
percent of such support; and (3) other caregivers who provide 
over 10 percent of the support file written declarations 
stating that they will not claim the individual as a dependent.

                               house bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement provides taxpayers who maintain 
a household including one or more qualifying individuals a 
deduction with respect to each qualifying individual with long-
term care needs, regardless of the expenses incurred in the 
care of the qualifying dependent. The deduction does not reduce 
adjusted gross income (i.e., is not ``above-the-line''); 
however, the deduction is available whether or not the taxpayer 
itemizes deductions. The deductible amount is reduced by 
amounts received under a long-term care contract (whether or 
not qualified and including contracts that pay on a per diem or 
similar basis) covering the qualifying dependent. The deduction 
is phased out for higher income taxpayers in the same manner as 
the personal exemption amount.62 The deduction is 
taken into account in determining alternative minimum taxable 
income.
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    \62\ The deduction is added to the taxpayer's personal exemptions 
for purposes of the personal exemption phaseout. For 2000, the personal 
exemption amount phases out over the following ranges of adjusted gross 
income: $193,400-$315,900 for married taxpayers filing a joint return; 
$161,150-$283,650 for taxpayers filing as heads of households; and 
$128,950-$251,450 for unmarried taxpayers.
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      The deductible amount is $3,000 in 2001 and increases by 
$1,000 each year thereafter until the limit is $10,000 in 2010 
and thereafter.
      An individual is a qualifying individual with respect to 
a taxpayer if the individual (1) is the spouse of the taxpayer 
or a relative of the taxpayer determined under the rules 
relating to the dependency exemption, and (2) lives in a 
household maintained by the taxpayer for the entire taxable 
year. In addition, if the individual is not the taxpayer's 
spouse or a child of the taxpayer (as determined under the 
dependency rules), the individual's gross income for the year 
must be less than the sum of the personal exemption amount, the 
standard deduction for a single taxpayer and, if applicable, 
the additional deduction for the elderly and blind.
      A qualifying individual must be certified before the due 
date for the return for the taxable year (without regard to 
extensions) as having long-term care needs (as described below 
based on the age of the individual) for at least 180 
consecutive days. Some portion of the 180-day period must fall 
within the taxable year. The deduction is not available unless 
the certification was made no more than 39\1/2\ months before 
the due date for the return (or such other time as specified by 
the Secretary).
      In general, an individual who is at least six years of 
age is considered to have long-term care needs if the 
individual is unable to perform at least three activities of 
daily living (``ADLs'') without substantial assistance due to a 
loss of functional capacity including individuals born with a 
condition that is comparable to a loss of functional capacity. 
As under the present-law rules relating to long-term care, ADLs 
are eating, toileting, transferring, bathing, dressing and 
continence. Substantial assistance includes both hands-on 
assistance (that is, the physical assistance of another person 
without which the individual would be unable to perform the 
ADL) and stand-by assistance (that is, the presence of another 
person within arm's reach of the individual that is necessary 
to prevent, by physical intervention, injury to the individual 
when performing the ADL).
      As an alternative to the two-ADL test, an individual is 
considered to have long-term care needs if the individual (1) 
requires substantial supervision to protect the individual from 
threats to health and safety due to severe cognitive impairment 
and (2) is unable to perform, without reminding or cuing 
assistance, at least one ADL or to the extent provided in 
regulations,63 is unable to engage in age 
appropriate activities.
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    \63\ The regulations are to be prescribed by the Secretary, in 
consultation with the Secretary of Health and Human Services.
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      A child between the ages of two and six is considered to 
have long-term care needs if the child requires substantial 
assistance with two of the following ADLs: eating, 
transferring, and mobility.
      A child under the age of two is considered to have long-
term care needs if the child requires specific durable medical 
equipment (e.g., a respirator) by reason of a severe health 
condition or requires a skilled practitioner to address the 
child's condition when the parents are absent.
      For purposes of the provision, a taxpayer would be 
considered to be maintaining a household for any period only if 
over one-half the cost of maintaining the household for the 
period is provided by the taxpayer (or, if married, the 
taxpayer and his or her spouse). If the taxpayer is married at 
the end of the taxable year, the deduction is available only if 
the taxpayer and his or her spouse file a joint return. An 
individual legally separated is not considered married. An 
individual is not considered married if the individual (1) 
files a separate return for the year, (2) maintains a household 
which constitutes the principal place of abode for a qualifying 
individual for more than one-half of the year, and (3) during 
the last six months of the year the individual's spouse is not 
a member of the individual's household.
      The deduction is not available unless the taxpayer 
identification number of the qualifying individual is included 
on the taxpayer's return for the year. In addition, the 
deduction is not available unless the taxpayer includes on the 
return a physician identification number (e.g., the Unique 
Physician Identification Number currently required for Medicare 
billing). The IRS is authorized to use mathematical error 
procedures to deny claims for the deduction during return 
processing if the taxpayer does not provide valid taxpayer 
identification numbers and physician identification numbers.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

  TITLE IV. PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS 
                              1

Subtitle A. Individual Retirement Arrangements (``IRAs'') (sec. 401-404 
 of the bill) (sec. 101 of the House bill, secs. 101-104 of the Senate 
          amendment, and secs. 219, 408, and 408A of the Code)

                              Present Law

In general
      There are two general types of individual retirement 
arrangements (``IRAs'') under present law: traditional IRAs, to 
which both deductible and nondeductible contributions may be 
made, and Roth IRAs. The Federal income tax rules regarding 
each type of IRA (and IRA contribution) differ.
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    \1\ The provisions of the bill as passed by the House and the 
Senate did not contain provisions relating to pensions and individual 
retirement arrangements. Provisions described under the House bill 
refer to the provisions of H.R. 1102, the ``Comprehensive Retirement 
Security and Pension Reform Act of 2000,'' as passed by the House. For 
legislative history, see H.R. Rep. No. 106-753. Provisions described 
under the Senate amendment refer to the provisions of H.R. 1102, the 
``Retirement Security and Savings Act of 2000,'' as reported by the 
Senate Committee on Finance on September 13, 2000. For legislative 
history, see S.Rep. No. 106-411.
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Traditional IRAs
      Under present law, an individual may make deductible 
contributions to an IRA up to the lesser of $2,000 or the 
individual's compensation if neither the individual nor the 
individual's spouse is an active participant in an employer-
sponsored retirement plan. In the case of a married couple, 
deductible IRA contributions of up to $2,000 can be made for 
each spouse (including, for example, a homemaker who does not 
work outside the home), if the combined compensation of both 
spouses is at least equal to the contributed amount. If the 
individual (or the individual's spouse) is an active 
participant in an employer-sponsored retirement plan, the 
$2,000 deduction limit is phased out for taxpayers with 
modified adjusted gross income (``AGI'') over certain levels 
for the taxable year.
      The AGI phase-out limits for taxpayers who are active 
participants in employer-sponsored plans are as follows:

Single Taxpayers

                                                     AGI Phase-out range
Taxable years beginning in:
    2000................................................  $32,000-42,000
    2001................................................   33,000-43,000
    2002................................................   34,000-44,000
    2003................................................   40,000-50,000
    2004................................................   45,000-55,000
    2005 and thereafter.................................   50,000-60,000

Taxpayers Filing Joint Returns

                                                         Phase-out range
Taxable years beginning in:
    2000................................................  $52,000-62,000
    2001................................................   53,000-63,000
    2002................................................   54,000-64,000
    2003................................................   60,000-70,000
    2004................................................   65,000-75,000
    2005................................................   70,000-80,000
    2006................................................   75,000-85,000
    2007 and thereafter.................................  80,000-100,000

      The AGI phase-out range for married taxpayers filing a 
separate return is $0 to $10,000.
      If the individual is not an active participant in an 
employer-sponsored retirement plan, but the individual's spouse 
is, the $2,000 deduction limit is phased out for taxpayers with 
AGI between $150,000 and $160,000.
      To the extent an individual cannot or does not make 
deductible contributions to an IRA or contributions to a Roth 
IRA, the individual may make nondeductible contributions to a 
traditional IRA.
      Amounts held in a traditional IRA are includible in 
income when withdrawn (except to the extent the withdrawal is a 
return of nondeductible contributions). Includible amounts 
withdrawn prior to attainment of age 59\1/2\ are subject to an 
additional 10-percent early withdrawal tax, unless the 
withdrawal is due to death or disability, is made in the form 
of certain periodic payments, is used to pay medical expenses 
in excess of 7.5 percent of AGI, is used to purchase health 
insurance for an unemployed individual, is used for education 
expenses, or is used for first-time homebuyer expenses of up to 
$10,000.
Roth IRAs
      Individuals with AGI below certain levels may make 
nondeductible contributions to a Roth IRA. The maximum annual 
contribution that may be made to a Roth IRA is the lesser of 
$2,000 or the individual's compensation for the year. The 
contribution limit is reduced to the extent an individual makes 
contributions to any other IRA for the same taxable year. As 
under the rules relating to IRAs generally, a contribution of 
up to $2,000 for each spouse may be made to a Roth IRA provided 
the combined compensation of the spouses is at least equal to 
the contributed amount. The maximum annual contribution that 
can be made to a Roth IRA is phased out for single taxpayers 
with AGI between $95,000 and $110,000 and for taxpayers filing 
a joint return with AGI between $150,000 and $160,000. For 
married taxpayers filing a separate return, the phase-out range 
is $0 to $10,000.
      Taxpayers with modified AGI of $100,000 or less generally 
may convert a traditional IRA into a Roth IRA. The amount 
converted is includible in income as if a withdrawal had been 
made, except that the 10-percent early withdrawal tax does not 
apply and, if the conversion occurred in 1998, the income 
inclusion may be spread ratably over 4 years. Married taxpayers 
who file separate returns cannot convert a traditional IRA into 
a Roth IRA.
      Amounts held in a Roth IRA that are withdrawn as a 
qualified distribution are neither includible in income, nor 
subject to the additional 10-percent tax on early withdrawals. 
A qualified distribution is a distribution that (1) is made 
after the 5-taxable year period beginning with the first 
taxable year for which the individual made a contribution to a 
Roth IRA, and (2) which is made after attainment of age 59\1/
2\, on account of death or disability, or is made for first-
time homebuyer expenses of up to $10,000.
      To the extent attributable to earnings, distributions 
from a Roth IRA that are not qualified distributions are 
includible in income and subject to the 10-percent early 
withdrawal tax (unless an exception applies).2 The 
same exceptions to the early withdrawal tax that apply to IRAs 
apply to Roth IRAs.
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    \2\ Early distribution of converted amounts may also accelerate 
income inclusion of converted amounts that are taxable under the 4-year 
rule applicable to 1998 conversions.
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Taxation of charitable contributions
      Generally, a taxpayer who itemizes deductions may deduct 
cash contributions to charity, as well as the fair market value 
of contributions of property. The amount of the deduction 
otherwise allowable for the 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.
      For donations of cash by individuals, total deductible 
contributions to public charities may not exceed 50 percent of 
a taxpayer's AGI for a taxable year. To the extent a taxpayer 
has not exceeded the 50-percent limitation, contributions of 
cash to private foundations and certain other nonprofit 
organizations and contributions of capital gain property to 
public charities generally may be deducted up to 30 percent of 
the taxpayer's AGI. If a taxpayer makes a contribution in one 
year which exceeds the applicable 50-percent or 30-percent 
limitation, the excess amount of the contribution may be 
carried over and deducted during the next five taxable years.
      In addition to the percentage limitations imposed 
specifically on charitable contributions, present law imposes a 
reduction on most itemized deductions, including charitable 
contribution deductions, for taxpayers with AGI in excess of a 
threshold amount, which is indexed annually for inflation. The 
threshold amount for 2000 is $128,950 ($64,475 for married 
individuals filing separate returns). For those deductions that 
are subject to the reduction, the total amount of itemized 
deductions is reduced by 3 percent of AGI over the threshold 
amount, but not by more than 80 percent of itemized deductions 
subject to the reduction. The effect of this reduction may be 
to limit a taxpayer's ability to deduct charitable 
contributions.

                               House Bill

Increase in annual contribution limits
      The House bill increases the maximum annual dollar 
contribution limit for IRA contributions from $2,000 to $3,000 
in 2001, $4,000 in 2002, and $5,000 in 2003. The limit is 
indexed for inflation in $500 increments in 2004 and 
thereafter.
Additional catch-up contributions
      In the case of individuals who have attained age 50 
before the end of the taxable year, the IRA contribution limit 
is $5,000, beginning in 2001.
Increase in AGI limits for deductible IRA contributions
      No provision.
Roth IRAs
      No provision.
Deemed IRAs under employer plans
      No provision.
Tax-free IRA withdrawals for charitable purposes
      No provision.
Effective date
      The provision is effective for taxable years beginning 
after December 31, 2000.

                            Senate Amendment

Increase in annual contribution limits
      The Senate amendment is the same as the House bill.
Additional catch-up contributions
      The bill provides that individuals who have attained age 
50 may make additional catch-up IRA contributions. The 
otherwise maximum contribution limit (before application of the 
AGI phase-out limits) for an individual who has attained age 50 
before the end of the taxable year is increased by 50 percent.
Increase in AGI limits for deductible IRA contributions
      Under the bill, the increases in the AGI phase-out limits 
for active participants in an employer-sponsored plan are 
evened out. In addition, the phase-out range for married 
taxpayers filing separately is conformed to the phase-out range 
for single taxpayers. The AGI phase-out limits under the bill 
are as follows.

            Taxpayers Filing Returns Other Than Joint Returns

                                                     AGI Phase-out range
Taxable years beginning in:
    2001................................................  $36,000-46,000
    2002................................................   40,000-50,000
    2003................................................   44,000-54,000
    2004................................................   48,000-58,000
    2005 and thereafter.................................   50,000-60,000

                     Taxpayers Filing Joint Returns

                                                     AGI Phase-out range
Taxable years beginning in:
    2001................................................  $56,000-66,000
    2002................................................   60,000-70,000
    2003................................................   64,000-74,000
    2004................................................   68,000-78,000
    2005................................................   72,000-82,000
    2006................................................   76,000-86,000
    2007 and thereafter.................................  80,000-100,000

      The present-law income phase-out range for an individual 
who is not an active participant in an employer-sponsored plan, 
but whose spouse is, remains at $150,000 to $160,000.
Roth IRAs
      The bill increases the income phase-out range for Roth 
IRA contributions to $190,000 to $220,000 for married couples 
filing a joint return. In addition, the bill applies to married 
taxpayers filing a separate return the same phase-out range 
that applies to single taxpayers.
      Under the bill, the income limit for conversions of 
traditional IRAs to Roth IRAs is $200,000 for married couples 
filing a joint return. For all other taxpayers (including 
married taxpayers filing a separate return), the limit is 
$100,000.
Deemed IRAs under employer plans
      The bill provides that, if an eligible retirement plan 
permits employees to make voluntary employee contributions to a 
separate account or annuity that (1) is established under the 
plan, and (2) meets the requirements applicable to either 
traditional IRAs or Roth IRAs, then the separate account or 
annuity is deemed to be a traditional IRA or a Roth IRA, as 
applicable, for all purposes of the Code. For example, the 
reporting requirements applicable to IRAs apply. The deemed 
IRA, and contributions thereto, are not subject to the Code 
rules pertaining to the eligible retirement plan. In addition, 
the deemed IRA, and contributions thereto, are not taken into 
account in applying such rules to any other contributions under 
the plan. The deemed IRA, and contributions thereto, are 
subject to the exclusive benefit and fiduciary rules of ERISA 
to the extent otherwise applicable to the plan, but are not 
subject to the ERISA reporting and disclosure, participation, 
vesting, funding, and enforcement requirements that apply to 
the eligible retirement plan. An eligible retirement plan is a 
qualified plan (sec. 401(a)), tax-sheltered annuity (sec. 
403(b)), or a governmental section 457 plan.
Tax-free IRA withdrawals for charitable purposes
      The bill provides an exclusion from gross income for 
qualified charitable distributions from an IRA: (1) to an 
organization to which deductible contributions can be made; (2) 
to a charitable remainder annuity trust or charitable remainder 
unitrust; (3) to a pooled income fund (as defined in sec. 
642(c)(5)); or (4) for the issuance of a charitable gift 
annuity. The exclusion applies with respect to distributions 
described in (2), (3), or (4) only if no person holds an income 
interest in the trust, fund, or annuity attributable to such 
distributions other than the IRA owner, his or her spouse, or a 
charitable organization.
      In determining the character of distributions from a 
charitable remainder annuity trust or a charitable remainder 
unitrust to which a qualified charitable distribution from an 
IRA is made, the charitable remainder trust is required to 
treat as ordinary income the portion of the distribution from 
the IRA to the trust which would have been includible in income 
but for the provision, and is required to treat any remaining 
portion of the distribution as corpus. Similarly, in 
determining the amount includible in gross income by reason of 
a payment from a charitable gift annuity purchased with a 
qualified charitable distribution from an IRA, the taxpayer is 
not permitted to treat the portion of the distribution from the 
IRA that would have been taxable but for the provision and 
which is used to purchase the annuity as an investment in the 
annuity contract.
      A qualified charitable distribution is any distribution 
from an IRA which (1) is made after age 70\1/2\ of the account 
holder, (2) qualifies as a charitable contribution (within the 
meaning of sec. 170(c)), and (3) is made directly to the 
organization or to a charitable remainder annuity trust, 
charitable remainder unitrust, pooled income fund, or 
charitable gift annuity (as described above). 3 A 
taxpayer is not permitted to claim a charitable contribution 
deduction for amounts transferred from his or her IRA to a 
charity or to a trust, fund, or annuity that, because of the 
provision, are excluded from the taxpayer's income. Conversely, 
if the amounts transferred would otherwise be nontaxable, e.g., 
a qualified distribution from a Roth IRA, the regularly 
applicable deduction rules would apply.
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    \3\ It is intended that, in the case of transfer to a trust, fund, 
or annuity, the full amount distributed from an IRA will meet the 
definition of a qualified charitable distribution if the charitable 
organization's interest in the distribution would qualify as a 
charitable contribution under section 170.
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Effective date
      The provisions are generally effective for taxable years 
beginning after December 31, 2000. The provision relating to 
deemed IRAs under employer plans is effective for plan years 
beginning after December 31, 2001.

                          Conference Agreement

Increase in annual contribution limits
      The conference agreement follows the House bill and the 
Senate amendment.
Additional catch-up contributions
      The conference agreement follows the Senate amendment, 
with modifications. Under the conference agreement, the maximum 
catch-up amount is phased in over the same period as the 
increase in the IRA contribution limit. The maximum catch-up 
contribution is $500 in 2001, $1,000 in 2002, and $1,500 in 
2003. The $1,500 amount is indexed for inflation beginning 
after 2003 (when the indexing of the $5,000 basic contribution 
limit begins).
Increase in AGI limits for deductible IRA contributions
      The conference agreement follows the Senate amendment.
Roth IRAs
      The conference agreement follows the Senate amendment.
Deemed IRAs under employer plans
      The conference agreement follows the Senate amendment. As 
under the Senate amendment, if an eligible retirement plan 
permits employees to make voluntary employee contributions to a 
separate account or annuity that (1) is established under the 
plan, and (2) meets the requirements applicable to either 
traditional IRAs or Roth IRAs, then the separate account or 
annuity is deemed to be a traditional IRA or a Roth IRA, as 
applicable, for all purposes of the Code. For example, the IRA 
reporting requirements apply. The deemed IRA, and contributions 
thereto, are not subject to the Code rules pertaining to the 
eligible retirement plan. In addition, the deemed IRA, and 
contributions thereto, are not taken into account in applying 
such rules to any other contributions under the plan. The 
deemed IRA, and contributions thereto, are subject to the 
exclusive benefit and fiduciary rules of ERISA to the extent 
otherwise applicable to the plan, but are not subject to the 
ERISA reporting and disclosure, participation, vesting, 
funding, and enforcement requirements that apply to the 
eligible retirement plan. Except as otherwise specified, the 
provision does not affect the treatment of the deemed IRA as 
part of the qualified plan.
Tax-free IRA withdrawals for charitable purposes
      The conference agreement follows the Senate amendment, 
with the modification that the tax-free treatment is available 
only for a distribution made to an organization to which 
charitable contributions (as defined in sec. 170(c)) can be 
made, and not for distributions to charitable remainder trusts, 
pooled income funds, or for the issuance of charitable gift 
annuities. The conferees clarify that the exclusion does not 
apply unless the distribution meets the requirements generally 
applicable to deductible contributions (other than the 
percentage limits on such deductions). Thus, for example, the 
substantiation rules and the rule limiting the deductible 
amount of a contribution to the excess, if any, of the value of 
the contribution over the value of any benefit received by the 
donor, would apply. It is intended that the Secretary will 
issue such rules as are necessary to apply to distributions 
made to organizations pursuant to the provision.
      The conference agreement also clarifies that amounts that 
would have been includible in gross income but for the 
provision are not deductible in any year. In addition, such 
amounts are not taken into account in determining the 
deductible amount for any year.
      Except as provided in the provision, a distribution under 
the provision is treated the same as other IRA distributions. 
Thus, for example, the distribution is taken into account in 
determining whether the minimum distribution requirements are 
satisfied.
Effective date
      The provisions are generally effective for taxable years 
beginning after December 31, 2000. The provision relating to 
deemed IRAs under employer plans is effective for plan years 
beginning after December 31, 2001.

       Subtitle B. Expanding Coverage (secs. 411-418 of the bill)

 A. Increase in Benefit and Contribution Limits (sec. 201 of the House 
 bill, sec. 201 of the Senate amendment, and secs. 401(a)(17), 402(g), 
                   408(p), 415, and 457 of the Code)

                              Present Law

In general
      Under present law, limits apply to contributions and 
benefits under qualified plans (sec. 415), the amount of 
compensation that may be taken into account under a plan for 
determining benefits (sec. 401(a)(17)), the maximum amount of 
elective deferrals that an individual may make to a salary 
reduction plan or tax sheltered annuity (sec. 402(g)), and 
deferrals under an eligible deferred compensation plan of a 
tax-exempt organization or a State or local government (sec. 
457).
Limitations on contributions and benefits
      Under present law, the limits on contributions and 
benefits under qualified plans are based on the type of plan. 
Under a defined contribution plan, the qualification rules 
limit the annual additions to the plan with respect to each 
plan participant to the lesser of (1) 25 percent of 
compensation or (2) $30,000 (for 2000). Annual additions 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.
      Under a defined benefit plan, the maximum annual benefit 
payable at retirement is generally the lesser of (1) 100 
percent of average compensation, or (2) $135,000 (for 2000). 
The dollar limit is adjusted for inflation in $5,000 
increments.
      Under present law, in general, the dollar limit on annual 
benefits is reduced if benefits under the plan begin before the 
social security retirement age (currently, age 65) and 
increased if benefits begin after social security retirement 
age.
Compensation limitation
      Under present law, the annual compensation of each 
participant that may be taken into account for purposes of 
determining contributions and benefits under a plan, applying 
the deduction rules, and for nondiscrimination testing purposes 
is limited to $170,000 (for 2000). The compensation limit is 
indexed for inflation in $10,000 increments.
Elective deferral limitations
      Under present law, under certain salary reduction 
arrangements, 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 an 
individual may make to a qualified cash or deferred arrangement 
(a ``section 401(k) plan''), a tax-sheltered annuity (``section 
403(b) annuity'') or a salary reduction simplified employee 
pension plan (``SEP'') is $10,500 (for 2000). The maximum 
annual amount of elective deferrals that an individual may make 
to a SIMPLE plan is $6,000. These limits are indexed for 
inflation in $500 increments.
Section 457 plans
      The maximum annual deferral under a deferred compensation 
plan of a State or local government or a tax-exempt 
organization (a ``section 457 plan'') is the lesser of (1) 
$8,000 (for 2000) or (2) 33\1/2\ percent of compensation. The 
$8,000 limit is indexed for inflation in $500 increments. Under 
a special catch-up rule, the section 457 plan may provide that, 
for one or more of the participant's last 3 years before 
retirement, the otherwise applicable limit is increased to the 
lesser of (1) $15,000 or (2) the sum of the otherwise 
applicable limit for the year plus the amount by which the 
limit applicable in preceding years of participation exceeded 
the deferrals for that year.

                               House Bill

Limits on contributions and benefits
      The House bill increases the $30,000 annual addition 
limit for defined contribution plans to $40,000. This amount is 
indexed for inflation in $1,000 increments.\4\
---------------------------------------------------------------------------
    \4\ The 25 percent of compensation limitation is increased to 100 
percent of compensation under another provision of the House bill.
---------------------------------------------------------------------------
      The House bill increases the $135,000 annual benefit 
limit under a defined benefit plan to $160,000. The dollar 
limit is reduced for benefit commencement before age 62 and 
increased for benefit commencement after age 65.
Compensation limitation
      The House bill increases the limit on compensation that 
may be taken into account under a plan to $200,000. This amount 
is indexed for inflation in $5,000 increments.
Elective deferral limitations
      The House bill increases the dollar limit on annual 
elective deferrals under section 401(k) plans, section 403(b) 
annuities and salary reduction SEPs to $11,000 in 2001, and in 
$1,000 annual increments thereafter until the limits reach 
$15,000 in 2005. The $15,000 limit is indexed for inflation in 
$500 increments beginning in 2006. Beginning in 2001, the House 
bill increases the maximum annual elective deferrals that may 
be made to a SIMPLE plan in $1,000 annual increments until the 
limit reaches $10,000 in 2004. The $10,000 limit is indexed for 
inflation in $500 increments beginning in 2005.
Section 457 plans
      The House bill increases the dollar limit on deferrals 
under a section 457 plan to conform to the elective deferral 
limitation. Thus, the limit is $11,000 in 2001, and is 
increased in $1,000 annual increments thereafter until the 
limit reaches $15,000 in 2005. The $15,000 limit is indexed for 
inflation in $500 increments beginning in 2006. The limit is 
twice the otherwise applicable dollar limit in the three years 
prior to retirement.5
---------------------------------------------------------------------------
    \5\ Another provision of the House bill increases the 33\1/3\ 
percentage of compensation limit to 100 percent.
---------------------------------------------------------------------------
Effective date
      The House bill is effective for years beginning after 
December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except with respect to the provision relating to the defined 
contribution plan dollar limit. The Senate amendment retains 
the present-law $30,000 limit, and indexes the limit for 
inflation in $1,000 increments.
      Effective date.--Same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill. In 
adopting rules regarding the application of the increase in the 
defined benefit plan limits under the bill, the conferees 
intend that the Secretary will apply rules similar to those 
adopted in Notice 99-44 regarding benefit increases due to the 
repeal of the combined plan limit under former section 415(e). 
Thus, for example, a defined benefit plan could provide for 
benefit increases to reflect the provisions of the bill for a 
current or former employee who has commenced benefits under the 
plan prior to the effective date of the bill if the employee or 
former employee has an accrued benefit under the plan (other 
than an accrued benefit resulting from a benefit increase 
solely as a result of the increases in the section 415 limits 
under the bill). As under the notice, the maximum amount of 
permitted increase is generally the amount that could have been 
provided had the provisions of the bill been in effect at the 
time of the commencement of benefit. In no case can benefits 
reflect increases that could not be paid prior to the effective 
date because of the limits in effect under present law. In 
addition, in no case can plan amendments providing increased 
benefits under the relevant provision of the bill be effective 
prior to the effective date of the provision.

   B. Plan Loans for S Corporation Shareholders, Partners, and Sole 
    Proprietors (sec. 202 of the House bill, sec. 202 of the Senate 
                 amendment, and sec. 4975 of the Code)

                              Present Law

      The Internal Revenue Code prohibits certain transactions 
(``prohibited transactions'') between a qualified plan and a 
disqualified person in order to prevent persons with a close 
relationship to the qualified plan from using that relationship 
to the detriment of plan participants and 
beneficiaries.6 Certain types of transactions are 
exempted from the prohibited transaction rules, including loans 
from the plan to plan participants, if certain requirements are 
satisfied. In addition, the Secretary of Labor can grant an 
administrative exemption from the prohibited transaction rules 
if she finds the exemption is administratively feasible, in the 
interest of the plan and plan participants and beneficiaries, 
and protective of the rights of participants and beneficiaries 
of the plan. Pursuant to this exemption process, the Secretary 
of Labor grants exemptions both with respect to specific 
transactions and classes of transactions.
---------------------------------------------------------------------------
    \6\ Title I of the Employee Retirement Income Security Act of 1974, 
as amended (``ERISA''), also contains prohibited transaction rules. The 
Code and ERISA provisions are substantially similar, although not 
identical.
---------------------------------------------------------------------------
      The statutory exemptions to the prohibited transaction 
rules do not apply to certain transactions in which the plan 
makes a loan to an owner-employee.7 Loans to 
participants other than owner-employees are permitted if loans 
are available to all participants on a reasonably equivalent 
basis, are not made available to highly compensated employees, 
are made in accordance with specific provisions in the plan, 
bear a reasonable rate of interest, and are adequately secured. 
In addition, the Code places limits on the amount of loans and 
the repayment terms.
---------------------------------------------------------------------------
    \7\ Certain transactions involving a plan and S corporation 
shareholders are permitted.
---------------------------------------------------------------------------
      For purposes of the prohibited transaction rules, an 
owner-employee means (1) a sole proprietor, (2) a partner who 
owns more than 10 percent of either the capital interest or the 
profits interest in the partnership, (3) an employee or officer 
of an S corporation who owns more than 5 percent of the 
outstanding stock of the corporation, and (4) the owner of an 
individual retirement arrangement (``IRA''). The term owner-
employee also includes certain family members of an owner-
employee and certain corporations owned by an owner-employee.
      Under the Internal Revenue Code, a two-tier excise tax is 
imposed on disqualified persons who engage in a prohibited 
transaction. The first level tax is equal to 15 percent of the 
amount involved in the transaction. The second level tax is 
imposed if the prohibited transaction is not corrected within a 
certain period, and is equal to 100 percent of the amount 
involved.

                               House Bill

      The House bill generally eliminates the special present-
law rules relating to plan loans made to an owner-employee 
(other than the owner of an IRA). Thus, the general statutory 
exemption applies to such transactions. Present law continues 
to apply with respect to IRAs.
      Effective date.--The House bill is effective with respect 
to loans made after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House 
bill.8
---------------------------------------------------------------------------
    \8\ The Senate amendment also amends the corresponding provisions 
of ERISA.
---------------------------------------------------------------------------
      Effective date.--The Senate amendment is effective for 
years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.
      Effective date.--The conference agreement follows the 
Senate amendment. Thus, as under the Senate amendment, a loan 
that is a prohibited transaction solely because of the present-
law restriction would cease to be a prohibited transaction on 
January 1, 2000. However, the loan would continue to be a 
prohibited transaction prior to January 1, 2000.

 C. Modification of Top-Heavy Rules (sec. 203 of the House bill, sec. 
         203 of the Senate amendment, and sec. 416 of the Code)

                              Present Law

In general
      Under present law, additional qualification requirements 
apply to plans that primarily benefit an employer's key 
employees (``top-heavy plans''). These additional requirements 
provide (1) more rapid vesting for plan participants who are 
non-key employees and (2) minimum nonintegrated employer 
contributions or benefits for plan participants who are non-key 
employees.
Definition of top-heavy plan
      In general, a top-heavy plan is a plan under which more 
than 60 percent of the contributions or benefits are provided 
to key employees.
      For purposes of determining whether a plan is a top-heavy 
plan, benefits derived both from employer and employee 
contributions, including employee elective contributions, are 
taken into account. In addition, the accrued benefit of a 
participant in a defined benefit plan and the account balance 
of a participant in a defined contribution plan includes any 
amount distributed within the 5-year period ending on the 
determination date.
      An individual's accrued benefit or account balance is not 
taken into account in determining whether a plan is top-heavy 
if the individual has not performed services for the employer 
during the 5-year period ending on the determination date.
      SIMPLE plans are not subject to the top-heavy rules.
Definition of key employee
      A key employee is an employee who, during the plan year 
containing the determination date for the plan year in question 
or any of the 4 preceding plan years, is (1) an officer earning 
over one-half of the defined benefit plan dollar limitation of 
section 415 ($67,500 for 2000), (2) a 5-percent owner of the 
employer, (3) a 1-percent owner of the employer earning over 
$150,000, or (4) one of the 10 employees earning more than the 
defined contribution plan dollar limit ($30,000 for 2000) with 
the largest ownership interests in the employer. A family 
ownership attribution rule applies to the determination of 1-
percent owner status, 5-percent owner status, and largest 
ownership interest. Under this attribution rule, an individual 
is treated as owning stock owned by the individual's spouse, 
children, grandchildren, or parents.
Minimum benefit for non-key employees
      A minimum benefit generally must be provided to all non-
key employees in a top-heavy plan. In general, a top-heavy 
defined benefit plan must provide a minimum benefit equal to 
the lesser of (1) 2 percent of compensation multiplied by the 
employee's years of service, or (2) 20 percent of compensation. 
A top-heavy defined contribution plan must provide a minimum 
annual contribution equal to the lesser of (1) 3 percent of 
compensation, or (2) the percentage of compensation at which 
contributions were made for key employees (including employee 
elective contributions made by key employees and employer 
matching contributions).
      For purposes of the minimum benefit rules, only benefits 
derived from employer contributions (other than amounts 
employees have elected to defer) to the plan are taken into 
account, and an employee's social security benefits are 
disregarded (i.e., the minimum benefit is nonintegrated). 
Employer matching contributions may be used to satisfy the 
minimum contribution requirement; however, in such a case the 
contributions are not treated as matching contributions for 
purposes of applying the special nondiscrimination requirements 
applicable to employee elective contributions and matching 
contributions under sections 401 (k) and (m). Thus, such 
contributions would have to meet the general nondiscrimination 
test of section 401(a)(4).9
---------------------------------------------------------------------------
    \9\ Tres. Reg. sec. 1.416-1 Q&A M-19.
---------------------------------------------------------------------------
Top-heavy vesting
      Benefits under a top-heavy plan must vest at least as 
rapidly as under one of the following schedules: (1) 3-year 
cliff vesting, which provides for 100 percent vesting after 3 
years of service; and (2) 2-6 year graded vesting, which 
provides for 20 percent vesting after 2 years of service, and 
20 percent more each year thereafter so that a participant is 
fully vested after 6 years of service.10
---------------------------------------------------------------------------
    \10\ Benefits under a plan that is not top heavy must vest at least 
as rapidly as under one of the following schedules: (1) 5-year cliff 
vesting; and (2) 3-7 year graded vesting, which provides for 20 percent 
vesting after 3 years of service and 20 percent more each year 
thereafter so that a participant is fully vested after 7 years of 
service.
---------------------------------------------------------------------------
Qualified cash or deferred arrangements
      Under a qualified cash or deferred arrangement (a 
``section 401(k) plan''), an employee may elect to have the 
employer make payments as contributions to a qualified 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. A special nondiscrimination test applies to 
elective deferrals under cash or deferred arrangements, which 
compares the elective deferrals of highly compensated employees 
with elective deferrals of nonhighly compensated employees. 
(This test is called the actual deferral percentage test or the 
``ADP'' test). Employer matching contributions under qualified 
defined contribution plans are also subject to a similar 
nondiscrimination test. (This test is called the actual 
contribution percentage test or the ``ACP'' test.)
      Under a design-based safe harbor, a cash or deferred 
arrangement is deemed to satisfy the ADP test if the plan 
satisfies one of two contribution requirements and satisfies a 
notice requirement.

                               House Bill

Definition of top-heavy plan
      The provision provides that a plan consisting of a cash-
or-deferred arrangement that satisfies the design-based safe 
harbor for such plans and matching contributions that satisfy 
the safe harbor rule for such contributions is not a top-heavy 
plan. Matching or nonelective contributions provided under such 
a plan may be taken into account in satisfying the minimum 
contribution requirements applicable to top-heavy 
plans.11
---------------------------------------------------------------------------
    \11\ This provision is not intended to preclude the use of 
nonelective contributions that are used to satisfy the safe harbor 
rules from being used to satisfy other qualified retirement plan 
nondiscrimination rules, including those involving cross-testing.
---------------------------------------------------------------------------
      In determining whether a plan is top-heavy, the provision 
provides that distributions during the year ending on the date 
the top-heavy determination is being made are taken into 
account; however, the present-law 5-year rule applies with 
respect to in-service distributions. Similarly, the provision 
provides that an individual's accrued benefit or account 
balance is not taken into account if the individual has not 
performed services for the employer during the 1-year period 
ending on the date the top-heavy determination is being made.
Definition of key employee
      The provision (1) provides that an employee is not 
considered a key employee by reason of officer status unless 
the employee earns more than $150,000 in compensation for the 
year, and (2) repeals the top-10 owner key employee category.
      The provision repeals the 4-year lookback rule for 
determining key employee status and provides that an employee 
is a key employee only if he or she is a key employee during 
the plan year containing the determination date for the plan 
year in question.
      The family ownership attribution rule no longer applies 
in determining whether an individual is a 5-percent owner of 
the employer for purposes of the top-heavy rules only. The 
family ownership attribution rule continues to apply to other 
provisions that cross reference the top-heavy rules, such as 
the definition of highly compensated employee and the 
definition of 1-percent owner under the top-heavy rules.
Minimum benefit for non-key employees
      Under the provision, matching contributions are taken 
into account in determining whether the minimum benefit 
requirement has been satisfied.12
---------------------------------------------------------------------------
    \12\ Thus, this provision overrides the provision in Treasury 
regulations that, if matching contributions are used to satisfy the 
minimum benefit requirement, then they are not treated as matching 
contributions for purposes of the section 401(m) nondiscrimination 
rules.
---------------------------------------------------------------------------
      The provision provides that, in determining the minimum 
benefit required under a defined benefit plan, a year of 
service does not include any year in which no employee benefits 
under the plan (as determined under sec. 410).
Effective date
      The provision is effective for years beginning after 
December 31, 2000.

                            Senate Amendment

      The Senate amendment follows the House bill, with the 
following modifications.
      Under the Senate amendment, an employee is considered a 
key employee if, during the prior year, the employee was (1) an 
officer with compensation in excess of $85,000 (for 2000), (2) 
a 5-percent owner, or (3) a 1-percent owner with compensation 
in excess of $150,000. The present-law limits on the number of 
officers treated as key employees under (1) continue to apply. 
An employee who was not an employee in the preceding plan year, 
or who was an employee only for part of the year, is treated as 
a key employee if it can be reasonably anticipated that the 
employee will meet the definition of a key employee for current 
plan year.
      The Senate amendment provides that, in determining the 
minimum benefit required under a defined benefit plan, a year 
of service does not include any year in which no key employee 
or former key employee benefits under the plan (as determined 
under sec. 410).
      Effective date.--The Senate amendment is effective for 
years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the House bill, with the 
following modifications. Under the conference agreement, an 
employee is a key employee if, during the plan year containing 
the determination date for the plan year in question, the 
employee was (1) an officer with compensation in excess of 
$115,000 (indexed for inflation after 2001), (2) a 5-percent 
owner, or (3) a 1-percent owner with compensation in excess of 
$150,000. The present-law limits on the number of officers 
treated as key employees under (1) continue to apply. As under 
the House bill, the family ownership attribution rule no longer 
applies in determining whether an individual is a 5-percent 
owner of the employer for purposes of the top-heavy rules only. 
The family ownership attribution rule continues to apply to 
other provisions that cross reference the top-heavy rules, such 
as the definition of highly compensated employee and the 
definition of 1-percent owner under the top-heavy rules.
      The conference agreement follows the Senate amendment in 
providing that, in determining the minimum benefit required 
under a defined benefit plan, a year of service does not 
include any year in which no key employee or former key 
employee benefits under the plan (as determined under sec. 
410).
      Effective date.--The conference agreement is effective 
for years beginning after December 31, 2000.

D. Elective Deferrals Not Taken Into Account for Purposes of Deduction 
 Limits (sec. 204 of the House bill, sec. 204 of the Senate amendment, 
                       and sec. 404 of the Code)

                              Present Law

      Employer contributions to one or more qualified 
retirement plans are deductible subject to certain limits. In 
general, the deduction limit depends on the kind of plan.
      In the case of a defined benefit pension plan or a money 
purchase pension plan, the employer generally may deduct the 
amount necessary to satisfy the minimum funding cost of the 
plan for the year. If a defined benefit pension plan has more 
than 100 participants, the maximum amount deductible is at 
least equal to the plan's unfunded current liabilities.
      In the case of a profit-sharing or stock bonus plan, the 
employer generally may deduct an amount equal to 15 percent of 
compensation of the employees covered by the plan for the year.
      If an employer sponsors both a defined benefit pension 
plan and a defined contribution plan that covers some of the 
same employees (or a money purchase pension plan and another 
kind of defined contribution plan), the total deduction for all 
plans for a plan year generally is limited to the greater of 
(1) 25 percent of compensation or (2) the contribution 
necessary to meet the minimum funding requirements of the 
defined benefit pension plan for the year (or the amount of the 
plan's unfunded current liabilities, in the case of a plan with 
more than 100 participants).
      For purposes of the deduction limits, employee elective 
deferral contributions to a section 401(k) plan are treated as 
employer contributions and, thus, are subject to the generally 
applicable deduction limits.
      Subject to certain exceptions, nondeductible 
contributions are subject to a 10-percent excise tax.

                               House Bill

      Under the House bill, elective deferral contributions are 
not subject to the deduction limits, and the application of a 
deduction limitation to any other employer contribution to a 
qualified retirement plan does not take into account elective 
deferral contributions.
      Effective date.--The House bill is effective for years 
beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.

E. Repeal of Coordination Requirements for Deferred Compensation Plans 
 of State and Local Governments and Tax-Exempt Organizations (sec. 205 
 of the House bill, sec. 205 of the Senate amendment, and sec. 457 of 
                               the Code)

                              Present Law

      Compensation deferred under an eligible deferred 
compensation plan of a tax-exempt or State and local government 
employer (a ``section 457 plan'') is not includible in gross 
income until paid or made available. In general, the maximum 
permitted annual deferral under such a plan is the lesser of 
(1) $8,000 (in 2000) or (2) 33\1/3\ percent of compensation. 
The $8,000 limit is indexed for inflation in $500 increments.
      The $8,000 limit (as modified under the catch-up rule), 
applies to all deferrals under all section 457 plans in which 
the individual participates. In addition, in applying the 
$8,000 limit, contributions under a tax-sheltered annuity 
(``section 403(b) annuity''), elective deferrals under a 
qualified cash or deferred arrangement (``section 401(k) 
plan''), salary reduction contributions under a simplified 
employee pension plan (``SEP''), and contributions under a 
SIMPLE plan are taken into account. Further, the amount 
deferred under a section 457 plan is taken into account in 
applying a special catch-up rule for section 403(b) annuities.

                               House Bill

      The House bill repeals the rules coordinating the section 
457 dollar limit with contributions under other types of 
plans.13
---------------------------------------------------------------------------
    \13\ The limits on deferrals under a section 457 plan are modified 
under other provisions of the House bill.
---------------------------------------------------------------------------
      Effective date.--The House bill is effective for years 
beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.

  F. Eliminate IRS User Fees for Certain Requests Regarding Employer 
                   Plans (sec. 206 of the House bill)

                              Present Law

      An employer that maintains a retirement plan for the 
benefit of its employees may request from the Internal Revenue 
Service (``IRS'') a determination as to whether the form of the 
plan satisfies the requirements applicable to tax-qualified 
plans (sec. 401(a)). In order to obtain a determination letter 
on the qualified status of the plan, the employer must pay a 
user fee. The Secretary determines the user fee to be made for 
various types of requests, subject to statutory minimum 
requirements for average fees based on the category of the 
request. The user fee for a employee plan determination letter 
request may range from $125 to $1,250, depending upon the scope 
of the request and the type and format of the 
plan.14
---------------------------------------------------------------------------
    \14\ Authorization for the user fees was originally enacted in 
section 10511 of the Revenue Act of 1987 (Pub. L. No. 100-203, December 
22, 1987). The authorization was extended through September 30, 2003, 
by Public Law Number 104-117 (An Act to provide that members of the 
Armed Forces preforming services for the peacekeeping efforts in Bosnia 
and Herzegovina, Croatia, and Macedonia shall be entitled to tax 
benefits in the same manner as if such services were performed in a 
combat zone, and for other purposes (March 20, 1996)).
---------------------------------------------------------------------------
      In general, a qualified plan which does not meet the 
qualification requirements as a result of a disqualifying 
provision may be amended retroactively to comply with such 
requirements if the necessary amendments are adopted within the 
remedial amendment period. The remedial amendment period with 
respect to plan amendments needed to reflect changes in the law 
generally ends by the due date for the employer's tax return 
for the taxable year in which the change in the law occurs. The 
Secretary is authorized to extend the otherwise applicable 
remedial amendment period. Pursuant to this authority, the 
Secretary has provided extended remedial amendment periods with 
respect to recent legislation affecting qualified 
plans.15
---------------------------------------------------------------------------
    \15\ See, e.g., Rev. Proc. 99-23, 1999-16 IRB 6.
---------------------------------------------------------------------------

                               House Bill

      Under the House bill, a small employer (100 or fewer 
employees) is not required to pay a user fee for any 
determination letter request with respect to the qualified 
status of a retirement plan that the employer maintains, if the 
request is made within the first 5 plan years of the plan. The 
House bill applies only to requests by employers for 
determination letters concerning the qualified retirement plans 
they maintain. Therefore, a sponsor of a prototype plan is 
required to pay a user fee for a request for a notification 
letter, opinion letter, or similar ruling. A small employer 
that adopts a prototype plan, however, is not required to pay a 
user fee for a determination letter request with respect to the 
employer's plan.
      Effective date.--The House bill is effective for 
determination letter requests made after December 31, 2000.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the House bill, with the 
following modification. Under the conference agreement, a small 
employer also is not required to pay a user fee for a 
determination letter request made prior to the end of a 
remedial amendment period beginning within the first 5 plan 
years of the plan. In addition, determination letter requests 
for which user fees are not required under the conference 
agreement are not taken into account in determining average 
user fees.

G. Deduction Limits (sec. 207 of the House bill, sec. 206 of the Senate 
                  amendment, and sec. 404 of the Code)

                              Present Law

      Employer contributions to one or more qualified 
retirement plans are deductible subject to certain limits. In 
general, the deduction limit depends on the kind of plan. 
Subject to certain exceptions, nondeductible contributions are 
subject to a 10-percent excise tax.
      In the case of a defined benefit pension plan or a money 
purchase pension plan, the employer generally may deduct the 
amount necessary to satisfy the minimum funding cost of the 
plan for the year. If a defined benefit pension plan has more 
than 100 participants, the maximum amount deductible is at 
least equal to the plan's unfunded current liabilities.
      In some cases, the amount of deductible contributions is 
limited by compensation. In the case of a profit-sharing or 
stock bonus plan, the employer generally may deduct an amount 
equal to 15 percent of compensation of the employees covered by 
the plan for the year.
      If an employer sponsors both a defined benefit pension 
plan and a defined contribution plan that covers some of the 
same employees (or a money purchase pension plan and another 
kind of defined contribution plan), the total deduction for all 
plans for a plan year generally is limited to the greater of 
(1) 25 percent of compensation or (2) the contribution 
necessary to meet the minimum funding requirements of the 
defined benefit pension plan for the year (or the amount of the 
plan's unfunded current liabilities, in the case of a plan with 
more than 100 participants).
      In the case of an employee stock ownership plan 
(``ESOP''), principal payments on a loan used to acquire 
qualifying employer securities are deductible up to 25 percent 
of compensation.
      For purposes of the deduction limits, employee elective 
deferral contributions to a qualified cash or deferred 
arrangement (``section 401(k) plan'') are treated as employer 
contributions and, thus, are subject to the generally 
applicable deduction limits.16
---------------------------------------------------------------------------
    \16\ Another provision in the House bill provides that elective 
deferrals are not subject to the deduction limits.
---------------------------------------------------------------------------
      For purposes of the deduction rules, compensation 
generally includes only taxable compensation, and thus does not 
include salary reduction amounts, such as elective deferrals 
under a section 401(k) plan or a tax-sheltered annuity 
(``section 403(b) annuity''), elective contributions under a 
deferred compensation plan of a tax-exempt organization or a 
State or local government (``section 457 plan''), and salary 
reduction contributions under a section 125 cafeteria plan. For 
purposes of the contribution limits under section 415, 
compensation does include such salary reduction amounts.

                               House Bill

      Under the House bill, the definition of compensation for 
purposes of the deduction rules includes salary reduction 
amounts treated as compensation under section 415. In addition, 
the annual limitation on the amount of deductible contributions 
to a profit-sharing or stock bonus plan is increased from 15 
percent to 20 percent of compensation of the employees covered 
by the plan for the year.
      Effective date.--The House bill is effective for years 
beginning after December 31, 2000.

                            Senate Amendment

      Under the Senate amendment, the definition of 
compensation for purposes of the deduction rules includes 
salary reduction amounts treated as compensation under section 
415. In addition, the annual limitation on the amount of 
deductible contributions to a profit-sharing or stock bonus 
plan is increased from 15 percent to 25 percent of compensation 
of the employees covered by the plan for the year. Also, the 
Senate amendment provides that, except to the extent provided 
in regulations, a money purchase pension plan is treated like a 
profit-sharing or stock bonus plan for purposes of the 
deduction rules.

                          Conference Agreement

      The conference agreement follows the Senate amendment. 
The conferees intend that the Treasury regulations authorized 
by the conference agreement will address the need for an 
appropriate increase of the annual limitation on the amount of 
deductible contributions to a money purchase pension plan by an 
amount that equals the minimum funding requirement attributable 
to the prior plan year, but only to the extent that such amount 
was not deductible for the prior taxable year because the 
amount was not contributed prior to the due date of the 
employer's federal income tax return for the prior taxable year 
(even though the amount was contributed within 8\1/2\ months 
after the end of the prior plan year and therefore satisfied 
the minimum funding requirement).

H. Option To Treat Elective Deferrals as After-Tax Contributions (sec. 
 208 of the House bill, sec. 207 of the Senate amendment, and new sec. 
                           402A of the Code)

                              Present Law

      A qualified cash or deferred arrangement (``section 
401(k) plan'') or a tax-sheltered annuity (``section 403(b) 
annuity'') may permit a participant to elect to have the 
employer make payments as contributions to the plan or to the 
participant directly in cash. Contributions made to the plan at 
the election of a participant are elective deferrals. Elective 
deferrals must be nonforfeitable and are subject to an annual 
dollar limitation (sec. 402(g)) 17 and distribution 
restrictions. In addition, elective deferrals under a section 
401(k) plan are subject to special nondiscrimination rules. 
Elective deferrals that do not exceed the annual dollar 
limitation (and earnings attributable thereto) are not 
includible in a participant's gross income until distributed 
from the plan.
---------------------------------------------------------------------------
    \17\ The limit on elective deferrals is $10,500 for 2000. This 
limit is increased under another provision of the bill.
---------------------------------------------------------------------------
      Elective deferrals for a taxable year that exceed the 
annual dollar limitation (``excess deferrals'') are includible 
in gross income for the taxable year. If an employee makes 
elective deferrals under a plan (or plans) of a single employer 
that exceed the annual dollar limitation (``excess 
deferrals''), then the plan may provide for the distribution of 
the excess deferrals, with earnings thereon. If the excess 
deferrals are made to more than one plan of unrelated 
employers, then the plan may permit the individual to allocate 
excess deferrals among the various plans, no later than the 
March 1 (April 15 under the applicable regulations) following 
the end of the taxable year. If excess deferrals are 
distributed not later than April 15 following the end of the 
taxable year, along with earnings attributable to the excess 
deferrals, then the excess deferrals are not again includible 
in income when distributed. The earnings are includible in 
income in the year distributed. If excess deferrals (and income 
thereon) are not distributed by the applicable April 15, then 
the excess deferrals (and income thereon) are includible in 
income when received by the participant. Thus, excess deferrals 
that are not distributed by the applicable April 15th are 
taxable both in the taxable year when the deferral was made and 
in the year the participant receives a distribution of the 
excess deferral.
      Individuals with adjusted gross income below certain 
levels generally may make nondeductible contributions to a Roth 
IRA and may convert a deductible or nondeductible IRA into a 
Roth IRA. Amounts held in a Roth IRA that are withdrawn as a 
qualified distribution are not includible in income, nor 
subject to the additional 10-percent tax on early withdrawals. 
A qualified distribution is a distribution that (1) is made 
after the 5-taxable year period beginning with the first 
taxable year for which the individual made a contribution to a 
Roth IRA, and (2) is made after attainment of age 59\1/2\, is 
made on account of death or disability, or is a qualified 
special purpose distribution (i.e., for first-time homebuyer 
expenses of up to $10,000). A distribution from a Roth IRA that 
is not a qualified distribution is includible in income to the 
extent attributable to earnings, and is subject to the 10-
percent tax on early withdrawals (unless an exception 
applies).18
---------------------------------------------------------------------------
    \18\ Early distributions of converted amounts may also accelerate 
income inclusion of converted amounts that are taxable under the 4-year 
rule applicable to 1998 conversions.
---------------------------------------------------------------------------

                               House Bill

      A section 401(k) plan or a section 403(b) annuity is 
permitted to include a ``qualified plus contribution program'' 
that permits a participant to elect to have all or a portion of 
the participant's elective deferrals under the plan treated as 
designated plus contributions. Designated plus contributions 
are elective deferrals that the participant designates as not 
excludable from the participant's gross income.
      The annual dollar limitation on a participant's 
designated plus contributions is the section 402(g) annual 
limitation on elective deferrals, reduced by the participant's 
elective deferrals that the participant does not designate as 
designated plus contributions. Designated plus contributions 
are treated as any other elective deferral for purposes of 
nonforfeitability requirements and distribution restrictions. 
Under a section 401(k) plan, designated plus contributions also 
are treated as any other elective deferral for purposes of the 
special nondiscrimination requirements.
      The plan is required to establish a separate account, and 
maintain separate recordkeeping, for a participant's designated 
plus contributions (and earnings allocable thereto). A 
qualified distribution from a participant's designated plus 
contributions account is not includible in the participant's 
gross income. A qualified distribution is a distribution that 
is made after the end of a specified nonexclusion period and 
that is (1) made on or after the date on which the participant 
attains age 59\1/2\, (2) made to a beneficiary (or to the 
estate of the participant) on or after the death of the 
participant, or (3) attributable to the participant's being 
disabled.19 The nonexclusion period is the 5-year-
taxable period beginning with the earlier of (1) the first 
taxable year for which the participant made a designated plus 
contribution to any designated plus contribution account 
established for the participant under the plan, or (2) if the 
participant has made a rollover contribution to the designated 
plus contribution account that is the source of the 
distribution from a designated plus contribution account 
established for the participant under another plan, the first 
taxable year for which the participant made a designated plus 
contribution to the previously established account.
---------------------------------------------------------------------------
    \19\ A qualified special purpose distribution, as defined under the 
rules relating to Roth IRAs, does not qualify as a tax-free 
distribution from a designated plus contributions account.
---------------------------------------------------------------------------
      A distribution from a designated plus contributions 
account that is a corrective distribution of an elective 
deferral (and income allocable thereto) that exceeds the 
section 402(g) annual limit on elective deferrals is not a 
qualified distribution.
      A participant is permitted to roll over a distribution 
from a designated plus contributions account only to another 
designated plus contributions account or a Roth IRA of the 
participant.
      The Secretary of the Treasury is directed to require the 
plan administrator of each section 401(k) plan or section 
403(b) annuity that permits participants to make designated 
plus contributions to make such returns and reports regarding 
designated plus contributions to the Secretary, plan 
participants and beneficiaries, and other persons that the 
Secretary may designate.
      Effective date.--The House bill is effective for taxable 
years beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except that the Senate amendment refers to designated plus 
contributions as ``Roth contributions.''
      The Senate amendment also includes additional 
clarifications in the legislative history. The Senate amendment 
provides that it is intended that the Secretary generally will 
not permit retroactive designations of elective deferrals as 
Roth contributions. The Senate amendment also clarifies that 
Roth contributions to a section 403(b) annuity are treated the 
same as other salary reduction contributions to the annuity 
(except that Roth contributions are includible in gross 
income). The Senate amendment provides that it is intended that 
the Secretary will provide ordering rules regarding the return 
of excess contributions under the special nondiscrimination 
rules (pursuant to sec. 401(k)(8)) in the event a participant 
has made both Roth contributions and regular elective 
contributions. It is intended that such rules will generally 
permit a plan to allow participants to designate which 
contributions are returned first or to permit the plan to 
specify which contributions are returned first.

                          Conference Agreement

      The conference agreement follows the Senate amendment. 
The conference agreement clarifies the treatment of excess 
deferrals to the extent attributable to excess Roth 
contributions. In general, the conference agreement conforms 
the treatment of excess Roth contributions to the treatment of 
excess deferrals attributable to non-Roth elective deferrals. 
If excess Roth contributions (including earnings thereon) are 
distributed no later than the April 15th following the taxable 
year, then the Roth contributions are not includible in gross 
income as a result of the distribution, because such 
contributions are includible in gross income when made. 
Earnings on such excess contributions are treated the same as 
earnings on excess deferrals distributed no later than April 
15th, i.e., they are includible in income when distributed. If 
excess Roth contributions are not distributed no later than the 
applicable April 15th, then such contributions (and earnings 
thereon) are taxable when distributed. Thus, as is the case 
with excess elective deferrals that are not distributed by the 
applicable April 15th, the contributions are includible in 
income in the year when made and again when distributed from 
the plan. Earnings on such contributions are taxable when 
received.
      It is intended that the Secretary will provide ordering 
rules regarding the return of excess deferrals in the event a 
participant has made both Roth contributions and regular 
contributions to the plan. It is intended that such rules will 
generally permit a plan to allow participants to designate 
which contributions are returned first or to permit the plan to 
specify which contributions are returned first. It is also 
intended that the Secretary will provide ordering rules to 
determine the extent to which a distribution consists of excess 
Roth contributions.

  Subtitle C. Enhancing Fairness for Women (secs. 421-427 of the bill)

A. Additional Salary Reduction Catch-Up Contributions (sec. 301 of the 
House bill, sec. 301 of the Senate amendment, and sec. 414 of the Code)

                              Present Law

Elective deferral limitations
      Under present law, under certain salary reduction 
arrangements, 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 an 
individual may make to a qualified cash or deferred arrangement 
(a ``401(k) plan''), a tax-sheltered annuity (``section 403(b) 
annuity'') or a salary reduction simplified employee pension 
plan (``SEP'') is $10,500 (for 2000). The maximum annual amount 
of elective deferrals that an individual may make to a SIMPLE 
plan is $6,000. These limits are indexed for inflation in $500 
increments.
Section 457 plans
      The maximum annual deferral under a deferred compensation 
plan of a State or local government or a tax-exempt 
organization (a ``section 457 plan'') is the lesser of (1) 
$8,000 (for 2000) or (2) 33\1/3\ percent of compensation. The 
$8,000 dollar limit is indexed for inflation in $500 
increments. Under a special catch-up rule, the section 457 plan 
may provide that, for one or more of the participant's last 3 
years before retirement, the otherwise applicable limit is 
increased to the lesser of (1) $15,000 or (2) the sum of the 
otherwise applicable limit for the year plus the amount by 
which the limit applicable in preceding years of participation 
exceeded the deferrals for that year.

                               House Bill

      The provision provides that the otherwise applicable 
dollar limit on elective deferrals under a section 401(k) plan, 
section 403(b) annuity, or SIMPLE, or deferrals under a section 
457 plan are increased for individuals who have attained age 50 
by the end of the year.20 Additional contributions 
are permitted to be made by an individual who has attained age 
50 before the end of the plan year and with respect to whom no 
other elective deferrals may otherwise be made to the plan for 
the year because of the application of any limitation of the 
Code (e.g., the annual limit on elective deferrals) or of the 
plan. Under the provision, the additional amount of elective 
contributions that are permitted to be made by an eligible 
individual participating in such a plan is the lesser of (1) 
$5,000, or (2) the participant's compensation for the year 
reduced by any other elective deferrals of the participant for 
the year.21 This $5,000 amount is indexed for 
inflation in $500 increments in 2006 and thereafter.
---------------------------------------------------------------------------
    \20\ Another provision of the bill increases the dollar limit on 
elective deferrals under such arrangements.
    \21\ In the case of a section 457 plan, this catch-up rule does not 
apply during the participant's last 3 years before retirement (in those 
years, the regularly applicable dollar limit is doubled).
---------------------------------------------------------------------------
      Catch-up contributions made under the provision are not 
subject to any other contribution limits and are not taken into 
account in applying other contribution limits. Such 
contributions are subject to applicable nondiscrimination 
rules.22
---------------------------------------------------------------------------
    \22\ Another provision of the bill provides that elective 
contributions are deductible without regard to the otherwise applicable 
deduction limits.
---------------------------------------------------------------------------
      An employer is permitted to make matching contributions 
with respect to catch-up contributions. Any such matching 
contributions are subject to the normally applicable rules.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                            Senate Amendment

      The bill provides that individuals who have attained age 
50 may be permitted to make additional catch-up elective 
contributions to employer-sponsored retirement 
plans.23
---------------------------------------------------------------------------
    \23\ Another provision of the bill provides for catch-up 
contributions to IRAs.
---------------------------------------------------------------------------
      In the case of employer-sponsored retirement plans, the 
provision applies to elective deferrals under a section 401(k) 
plan, section 403(b) annuity, SIMPLE, or a section 457 plan. 
Additional contributions may be made by an individual who has 
attained age 50 before the end of the plan year and with 
respect to whom no other elective deferrals may otherwise be 
made to the plan for the year because of the application of any 
limitation of the Code (e.g., the annual limit on elective 
deferrals) or of the plan.24 Under the bill, the 
additional amount of elective contributions that could be made 
by an eligible individual participating in such a plan is the 
lesser of (1) the applicable percent of the maximum dollar 
amount of elective deferrals otherwise excludable from the 
gross income of the participant for the year (under sec. 
402(g)) or (2) the participant's compensation for the year 
reduced by any other elective deferrals of the participant for 
the year.25 The applicable percent is 10 percent in 
2001, and increases by 10 percentage points until the 
applicable percent is 50 in 2005 and thereafter.
---------------------------------------------------------------------------
    \24\ A plan is not required to permit participants to make catch-up 
contributions.
    \25\ In the case of a section 457 plans, this catch-up rule does 
not apply during the participant's last 3 years before retirement. 
Under another provision in the bill, in those years, the regularly 
applicable dollar limit is doubled.
---------------------------------------------------------------------------
      Catch-up contributions made under the bill are not 
subject to any other contribution limits and are not taken into 
account in applying other contribution limits. In addition, 
such contributions are not subject to otherwise applicable 
nondiscrimination rules or the top-heavy rules.
      An employer is permitted to make matching contributions 
with respect to catch-up contributions. Any such matching 
contributions are subject to the normally applicable rules.
      Effective date.--The provision is effective for 
contributions in taxable years beginning after December 31, 
2000.

                          Conference Agreement

      The conference agreement follows the House bill, with a 
modification. Although catch-up contributions are subject to 
applicable nondiscrimination rules, a plan will not be treated 
as failing to meet the applicable nondiscrimination 
requirements under section 401(a)(4) with respect to benefits, 
rights, and features if the plan allows all eligible 
individuals participating in the plan to make the same election 
with respect to catch-up contributions. For purposes of this 
rule, all plans of related employers are treated as a single 
plan.

   B. Equitable Treatment for Contributions of Employees to Defined 
Contribution Plans (sec. 302 of the House bill, sec. 302 of the Senate 
         amendment and secs. 413(b), 415, and 452 of the Code)

                              Present Law

      Present law imposes limits on the contributions that may 
be made to tax-favored retirement plans.
Defined contribution plans
      In the case of a tax-qualified defined contribution plan, 
the limit on annual additions that can be made to the plan on 
behalf of an employee is the lesser of $30,000 (for 2000) or 25 
percent of the employee's compensation (sec. 415(c)). Annual 
additions include employer contributions, including 
contributions made at the election of the employee (i.e., 
employee elective deferrals), after-tax employee contributions, 
and any forfeitures allocated to the employee. For this 
purpose, compensation means taxable compensation of the 
employee, plus elective deferrals, and similar salary reduction 
contributions. A separate limit applies to benefits under a 
defined benefit plan.
      For years before January 1, 2000, an overall limit 
applies if an employee is a participant in both a defined 
contribution plan and a defined benefit plan of the same 
employer.
Tax-sheltered annuities
      In the case of a tax-sheltered annuity (a ``section 
403(b) annuity''), the annual contribution generally cannot 
exceed the lesser of the exclusion allowance or the section 
415(c) defined contribution limit. The exclusion allowance for 
a year is equal to 20 percent of the employee's includible 
compensation, multiplied by the employee's years of service, 
minus excludable contributions for prior years under qualified 
plans, tax-sheltered annuities or section 457 plans of the 
employer.
      In addition to this general rule, employees of nonprofit 
educational institutions, hospitals, home health service 
agencies, health and welfare service agencies, and churches may 
elect application of one of several special rules that increase 
the amount of the otherwise permitted contributions. The 
election of a special rule is irrevocable; an employee may not 
elect to have more than one special rule apply.
      Under one special rule, in the year the employee 
separates from service, the employee may elect to contribute up 
to the exclusion allowance, without regard to the 25 percent of 
compensation limit under section 415. Under this rule, the 
exclusion allowance is determined by taking into account no 
more than 10 years of service.
      Under a second special rule, the employee may contribute 
up to the lesser of: (1) the exclusion allowance; (2) 25 
percent of the participant's includible compensation; or (3) 
$15,000.
      Under a third special rule, the employee may elect to 
contribute up to the section 415(c) limit, without regard to 
the exclusion allowance. If this option is elected, then 
contributions to other plans of the employer are also taken 
into account in applying the limit.
      For purposes of determining the contribution limits 
applicable to section 403(b) annuities, includible compensation 
means the amount of compensation received from the employer for 
the most recent period which may be counted as a year of 
service under the exclusion allowance. In addition, includible 
compensation includes elective deferrals and similar salary 
reduction amounts.
      Treasury regulations include provisions regarding 
application of the exclusion allowance in cases where the 
employee participates in a section 403(b) annuity and a defined 
benefit plan. The Taxpayer Relief Act of 1997 directed the 
Secretary of the Treasury to revise these regulations, 
effective for years beginning after December 31, 1999, to 
reflect the repeal of the overall limit on contributions and 
benefits.
Section 457 plans
      Compensation deferred under an eligible deferred 
compensation plan of a tax-exempt or State and local 
governmental employer (a ``section 457 plan'') is not 
includible in gross income until paid or made available. In 
general, the maximum permitted annual deferral under such a 
plan is the lesser of (1) $8,000 (in 2000) or (2) 33\1/3\ 
percent of compensation. The $8,000 limit is increased for 
inflation in $500 increments.

                               House Bill

Increase in defined contribution plan limit
      The bill increases the 25 percent of compensation 
limitation on annual additions under a defined contribution 
plan to 100 percent.26
---------------------------------------------------------------------------
    \26\ Another provision of the bill increases the defined 
contribution plan dollar limit.
---------------------------------------------------------------------------
Conforming limits on tax-sheltered annuities
      The bill repeals the exclusion allowance applicable to 
contributions to tax-sheltered annuities. Thus, such annuities 
are subject to the limits applicable to tax-qualified plans.
      The bill also directs the Secretary of the Treasury to 
revise the regulations relating to the exclusion allowance 
under section 403(b)(2) to render void the requirement that 
contributions to a defined benefit plan be treated as 
previously excluded amounts for purposes of the exclusion 
allowance. For taxable years beginning after December 31, 1999, 
the regulatory provisions regarding the exclusion allowance are 
to be applied as if the requirement that contributions to a 
defined benefit plan be treated as previously excluded amounts 
for purposes of the exclusion allowance were void.
Section 457 plans
      The bill increases the 33\1/3\ percent of compensation 
limitation on deferrals under a section 457 plan to 100 percent 
of compensation.
Effective date
      The provision generally is effective for years beginning 
after December 31, 2000. The provision regarding the 
regulations under section 403(b)(2) is effective on the date of 
enactment.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.

 C. Faster Vesting of Employer Matching Contributions (sec. 303 of the 
House bill, sec. 303 of the Senate amendment, and sec. 411 of the Code)

                              Present Law

      Under present law, 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 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 after 4 
years of service, 60 percent after 5 years of service, 80 
percent after 6 years of service, and 100 percent after 7 years 
of service.27
---------------------------------------------------------------------------
    \27\ The minimum vesting requirements are also contained in Title I 
of the Employee Retirement Income Security Act of 1974, as amended 
(``ERISA'').
---------------------------------------------------------------------------

                               House Bill

      The bill applies faster vesting schedules to employer 
matching contributions. Under the provision, employer matching 
contributions must vest at least as rapidly as under one of the 
following two alternative minimum vesting schedules. A plan 
satisfies the first schedule if a participant acquires a 
nonforfeitable right to 100 percent of employer matching 
contributions upon the completion of 3 years of service. A plan 
satisfies the second schedule if a participant has a 
nonforfeitable right to 20 percent of employer matching 
contributions for each year of service beginning with the 
participant's second year of service and ending with 100 
percent after 6 years of service.
      Effective date.--The provision is effective for 
contributions for plan years beginning after December 31, 2000, 
with a delayed effective date for plans maintained pursuant to 
a collective bargaining agreement. The provision does not apply 
to any employee until the employee has an hour of service after 
the effective date. In applying the new vesting schedule, 
service before the effective date must be taken into account.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.

D. Simplify and Update the Minimum Distribution Rules (sec. 304 of the 
 House bill, sec. 304 of the Senate amendment, and secs. 401(a)19 and 
                            457 of the Code)

                              Present Law

In general
      Minimum distribution rules apply to all types of tax-
favored retirement vehicles, including qualified plans, 
individual retirement arrangements (``IRAs''), tax-sheltered 
annuities (``section 403(b) annuities''), and eligible deferred 
compensation plans of tax-exempt and State and local government 
employers (``section 457 plans''). In general, under these 
rules, distribution of minimum benefits must begin no later 
than the required beginning date. Minimum distribution rules 
also apply to benefits payable with respect to a plan 
participant who has died. Failure to comply with the minimum 
distribution rules results in an excise tax imposed on the 
individual plan participant equal to 50 percent of the required 
minimum distribution not distributed for the year. The excise 
tax can be waived if the individual establishes to the 
satisfaction of the Secretary that the shortfall in the amount 
distributed was due to reasonable error and reasonable steps 
are being taken to remedy the shortfall.
Distributions prior to the death of the individual
      In the case of distributions prior to the death of the 
plan participant, the minimum distribution rules are satisfied 
if either (1) the participant's entire interest in the plan is 
distributed by the required beginning date, or (2) the 
participant's interest in the plan is to be distributed (in 
accordance with regulations), beginning not later than the 
required beginning date, over a permissible period. The 
permissible periods are (1) the life of the participant, (2) 
the lives of the participant and a designated beneficiary, (3) 
the life expectancy of the participant, or (4) the joint life 
and last survivor expectancy of the participant and a 
designated beneficiary. In calculating minimum required 
distributions, life expectancies of the participant and the 
participant's spouse may be recomputed annually.
      In the case of qualified plans, tax-sheltered annuities, 
and section 457 plans, the required beginning date is the April 
1 of the calendar year following the later of (1) the calendar 
year in which the employee attains age 70\1/2\ or (2) 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\. If commencement of benefits is delayed beyond age 
70\1/2\ from a defined benefit plan, then the accrued benefit 
of the employee must 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.28 In the case 
of distributions from an IRA other than a Roth IRA, the 
required beginning date is the April 1 following the calendar 
year in which the IRA owner attains age 70\1/2\. The pre-death 
minimum distribution rules do not apply to Roth IRAs.
---------------------------------------------------------------------------
    \28\ State and local government plans and church plans are not 
required to actuarially increase benefits that begin after age 70\1/2\.
---------------------------------------------------------------------------
      In general, under proposed regulations, in order to 
satisfy the minimum distribution rules, annuity payments under 
a defined benefit plan must be paid in periodic payments made 
at intervals not longer than one year over a permissible 
period, and must be nonincreasing, or increase only as a result 
of the following: (1) cost-of-living adjustments; (2) cash 
refunds of employee contributions; (3) benefit increases under 
the plan; or (4) an adjustment due to death of the employee's 
beneficiary. In the case of a defined contribution plan, the 
minimum required distribution is determined by dividing the 
employee's benefit by the applicable life expectancy.
Distributions after the death of the plan participant
      The minimum distribution rules also apply to 
distributions to beneficiaries of deceased participants. In 
general, if the participant dies after minimum distributions 
have begun, the remaining interest must be distributed at least 
as rapidly as under the minimum distribution method being used 
as of the date of death. If the participant dies before minimum 
distributions have begun, then the entire remaining interest 
must generally be distributed within 5 years of the 
participant's death. The 5-year rule does not apply if 
distributions begin within 1 year of the participant's death 
and are payable over the life of a designated beneficiary or 
over the life expectancy of a designated beneficiary. A 
surviving spouse beneficiary is not required to begin 
distribution until the date the deceased participant would have 
attained age 70\1/2\.

                               House Bill

Modification of post-death distribution rules
      The provision applies the present-law rules applicable if 
the participant dies before distribution of minimum benefits 
has begun to all post-death distributions. Thus, in general, if 
the employee dies before his or her entire interest has been 
distributed, distribution of the remaining interest is required 
to be made within 5 years of the date of death, or begin within 
one year of the date of death and paid over the life or life 
expectancy of a designated beneficiary. In the case of a 
surviving spouse, distributions are not required to begin until 
the April 1 of the calendar year following the year in which 
the surviving spouse attains age 70\1/2\. Minimum distributions 
that have already begun could be recalculated under the new 
rule.
Reduction in excise tax
      The bill reduces the excise tax on failures to satisfy 
the minimum distribution rules to 10 percent of the amount that 
was required to be distributed but was not distributed.
Treasury regulations
      The Secretary of the Treasury is directed to update, 
simplify, and finalize the regulations relating to the minimum 
distribution rules and to reflect in such regulations current 
life expectancies and to revise the required distribution 
methods so that, under reasonable assumptions, the amount of 
the required distribution does not decrease over time. The 
regulations are to permit recalculation of distributions for 
future years to reflect the change in the regulations, and to 
permit the election of a new designated beneficiary and method 
of calculating life expectancy. The regulations are to be 
effective for years beginning after December 31, 2000, and are 
to apply to individuals regardless of whether minimum 
distributions had begun.
Effective date
      In general, the provision is effective for years 
beginning after December 31, 2000. The provision regarding 
Treasury regulations is effective on the date of enactment.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except that the Senate amendment provides that final Treasury 
regulations are to be issued no later than December 31, 2001, 
and the Senate amendment does not require that such regulations 
are to be effective for years beginning after December 31, 
2000.
      Effective date.--Same as the House bill.

                          Conference Agreement

      The conference agreement follows the Senate amendment.
      Effective date.--In general, the provision is effective 
for years beginning after December 31, 2000. The provision 
regarding Treasury regulations is effective on the date of 
enactment. The conference agreement also provides a transition 
rule with respect to the provision providing that the required 
beginning date in the case of a surviving spouse is no earlier 
than April 1 of the calendar year after the surviving spouse 
attains age 70\1/2\. The conference agreement provides that, in 
the case of an individual who died before the date of enactment 
and prior to his or her required beginning date and whose 
beneficiary is the surviving spouse, minimum distributions to 
the surviving spouse are not required to begin earlier than the 
date distributions would have been required to begin under 
present law.

   E. Clarification of Tax Treatment of Division of Section 457 Plan 
  Benefits Upon Divorce (sec. 305 of the House bill, sec. 305 of the 
              Senate amendment, and sec. 457 of the Code)

                              Present Law

      Under present law, benefits provided under a qualified 
retirement plan for a participant may not be assigned or 
alienated to creditors of the participant, except in very 
limited circumstances. One exception to the prohibition on 
assignment or alienation rule is a qualified domestic relations 
order (``QDRO''). A QDRO is a domestic relations order that 
creates or recognizes a right of an alternate payee to any plan 
benefit payable with respect to a participant, and that meets 
certain procedural requirements.
      Under present law, a distribution from a governmental 
plan or a church plan is treated as made pursuant to a QDRO if 
it is made pursuant to a domestic relations order that creates 
or recognizes a right of an alternate payee to any plan benefit 
payable with respect to a participant. Such distributions are 
not required to meet the procedural requirements that apply 
with respect to distributions from qualified plans.
      Under present law, amounts distributed from a qualified 
plan generally are taxable to the participant in the year of 
distribution. However, if amounts are distributed to the spouse 
(or former spouse) of the participant by reason of a QDRO, the 
benefits are taxable to the spouse (or former spouse). Amounts 
distributed pursuant to a QDRO to an alternate payee other than 
the spouse (or former spouse) are taxable to the plan 
participant.
      Section 457 of the Internal Revenue Code provides rules 
for deferral of compensation by an individual participating in 
an eligible deferred compensation plan (``section 457 plan'') 
of a tax-exempt or State and local government employer. The 
QDRO rules do not apply to section 457 plans.

                               House Bill

      The bill applies the taxation rules for qualified plan 
distributions pursuant to a QDRO to distributions made pursuant 
to a domestic relations order from a section 457 plan. In 
addition, a section 457 plan is not treated as violating the 
restrictions on distributions from such plans due to payments 
to an alternate payee under a QDRO. The special rule applicable 
to governmental plans and church plans applies for purposes of 
determining whether a distribution is pursuant to a QDRO.
      Effective date.--The provision is effective for 
transfers, distributions, and payments made after December 31, 
2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill, with 
a modification to the effective date.
      Effective date.--The provision relating to taxation of 
distributions is effective for transfers, distributions, and 
payments made after December 31, 2000. The other provisions are 
effective on January 1, 2001, except that, in the case of a 
domestic relations order entered into before such date, the 
plan administrator (1) shall treat such order as a QDRO if the 
administrator is paying benefits pursuant to the order and (2) 
may treat any other such order entered into before the 
effective date as a QDRO.

                          Conference Agreement

      The conference agreement follows the House bill.

  F. Modifications Relating to Hardship Withdrawals (sec. 306 of the 
 House bill, sec. 306 of the Senate amendment and secs. 401(k) and 402 
                              of the Code)

                              Present Law

      Elective deferrals under a qualified cash or deferred 
arrangement (a ``section 401(k) plan'') may not be 
distributable prior to the occurrence of one or more specified 
events. One event upon which distribution is permitted is the 
financial hardship of the employee. Applicable Treasury 
regulations 29 provide that a distribution is made 
on account of hardship only if the distribution is made on 
account of an immediate and heavy financial need of the 
employee and is necessary to satisfy the heavy need.
---------------------------------------------------------------------------
    \29\ Treas. Reg. sec. 1.401(k)-1.
---------------------------------------------------------------------------
      The Treasury regulations provide a safe harbor under 
which a distribution may be deemed necessary to satisfy an 
immediate and heavy financial need. One requirement of this 
safe harbor is that the employee be prohibited from making 
elective contributions and employee contributions to the plan 
and all other plans maintained by the employer for at least 12 
months after receipt of the hardship distribution.
      Under present law, hardship withdrawals of elective 
deferrals from a qualified cash or deferred arrangement (or 
403(b) annuity) are not eligible rollover distributions. Other 
types of hardship distributions, e.g., employer matching 
contributions distributed on account of hardship, are eligible 
rollover distributions. Different withholding rules apply to 
distributions that are eligible rollover distributions and to 
distributions that are not eligible rollover distributions. 
Eligible rollover distributions that are not directly rolled 
over are subject to withholding at a flat rate of 20-percent. 
Distributions that are not eligible rollover distributions are 
subject to elective withholding. Periodic distributions are 
subject to withholding as if the distribution were wages; 
nonperiodic distributions are subject to withholding at a rate 
of 10 percent. In either case, the individual may elect not to 
have withholding apply.

                               House Bill

      The Secretary of the Treasury is directed to revise the 
applicable regulations to reduce from 12 months to 6 months the 
period during which an employee must be prohibited from making 
elective contributions and employee contributions in order for 
a distribution to be deemed necessary to satisfy an immediate 
and heavy financial need. The revised regulations are to be 
effective for years beginning after December 31, 2000.
      Effective date.--The provision is effective on the date 
of enactment.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except that the Senate amendment also provides that any 
hardship distribution made pursuant to the terms of a plan is 
not an eligible rollover distribution. Thus, such distributions 
may not be rolled over, and are subject to the withholding 
rules applicable to distributions that are not eligible 
rollover distributions. The bill does not modify the rules 
under which hardship distributions may be made. For example, as 
under present law, hardship distributions of qualified employer 
matching contributions may only be made under the rules 
applicable to elective deferrals.
      Effective date.--The provision directing the Secretary to 
revise the rules relating to safe harbor hardship distributions 
is effective on the date of enactment.
      The provision providing that hardship distributions are 
not eligible rollover distributions is effective for 
distributions made after December 31, 2000. The Secretary has 
the authority to issue transitional guidance with respect to 
this provision to provide sufficient time for plans to 
implement the new rule.

                          Conference Agreement

      The conference agreement follows the Senate amendment.
      Effective date.--The provision directing the Secretary to 
revise the regulations relating to safe harbor hardship 
distributions is effective on the date of enactment. The 
provision relating to rollover of hardship distributions is 
generally effective for distributions after December 31, 2001. 
For distributions occurring during calendar year 2001, a plan 
may treat a distribution that is a hardship distribution under 
the terms of the plan as not an eligible rollover distribution 
for all purposes of the Code. Thus, for example, if a plan 
treats a hardship distribution made in 2001 as not an eligible 
rollover distribution, the distribution could not be rolled 
over and the withholding rules applicable to distributions that 
are not eligible rollover distributions would apply.

 G. Pension Coverage for Domestic and Similar Workers (sec. 307 of the 
              Senate amendment and sec. 4972 of the Code)

                              Present Law

      Under present law, within limits, employers may make 
deductible contributions to qualified retirement plans for 
employees. Subject to certain exceptions, a 10-percent excise 
tax applies to nondeductible contributions to such plans.
      Employers of household workers may establish a pension 
plan for such workers. Contributions to such plans are not 
deductible because they are not made in connection with a trade 
or business of the employer.

                               House Bill

      No provision.

                            Senate Amendment

      Under the provision, the 10-percent excise tax on 
nondeductible contributions does not apply to contributions to 
a SIMPLE plan or a SIMPLE IRA which are nondeductible solely 
because the contributions are not a trade or business expense 
under section 162 because they are not made in connection with 
a trade or business of the employer. Thus, for example, 
employers of household workers could make contributions to such 
plans without imposition of the excise tax. As under present 
law, the contributions are not deductible. The present-law 
rules applicable to such plans, e.g., contribution limits and 
nondiscrimination rules, continue to apply. The provision does 
not apply with respect to contributions on behalf of the 
employer and members of his or her family.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                          Conference Agreement

      The conference follows the Senate amendment, except that 
the conference agreement does not limit the waiver of the 
excise tax to contributions to a SIMPLE plan or SIMPLE IRA. The 
conference agreement provides that the 10-percent excise tax on 
nondeductible contributions does not apply to contributions to 
a SIMPLE IRA or plan, SEP, or qualified plan which are not 
deductible solely because the contributions are not made in 
connection with a trade or business of the taxpayer. Thus, for 
example, employers of household workers could make 
contributions to such plans without imposition of the excise 
tax. As under present law, the contributions are not 
deductible. The present-law rules applicable to such plans, 
e.g., contribution limits and nondiscrimination rules, continue 
to apply. The provision does not apply with respect to 
contributions on behalf of the employer and members of his or 
her family. For this purpose, family members include the 
individual, the individual's brothers and sisters, the brothers 
and sisters of the individual's parents and grandparents, and 
ancestors and lineal descendants of the foregoing, and a spouse 
of any of the foregoing.
      No inference is intended with respect to application of 
the excise tax under present law to contributions that are not 
deductible because they are not made in connection with a trade 
or business of the employer.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

 Subtitle D. Increasing Portability for Participants (secs. 431-439 of 
                               the bill)

A. Rollovers of Retirement Plan and IRA Distributions (secs. 401-403 of 
  the House bill, sec. 401-403 of the Senate amendment and secs. 401, 
              402, 403(b), 408, 457, and 3405 of the Code)

                              Present Law

In general
      Present law permits the rollover of funds from a tax-
favored retirement plan to another tax-favored retirement plan. 
The rules that apply depend on the type of plan involved. 
Similarly, the rules regarding the tax treatment of amounts 
that are not rolled over depend on the type of plan involved.
Distributions from qualified plans
      Under present law, an ``eligible rollover distribution'' 
from a tax-qualified employer-sponsored retirement plan may be 
rolled over tax free to a traditional individual retirement 
arrangement (``IRA'') 30 or another qualified 
plan.31 An ``eligible rollover distribution'' means 
any distribution to an employee of all or any portion of the 
balance to the credit of the employee in a qualified plan, 
except the term does not include (1) any distribution which is 
one of a series of substantially equal periodic payments made 
(a) for the life (or life expectancy) of the employee or the 
joint lives (or joint life expectancies) of the employee and 
the employee's designated beneficiary, or (b) for a specified 
period of 10 years or more, (2) any distribution to the extent 
such distribution is required under the minimum distribution 
rules, and (3) certain hardship distributions. The maximum 
amount that can be rolled over is the amount of the 
distribution includible in income, i.e., after-tax employee 
contributions cannot be rolled over. Qualified plans are not 
required to accept rollovers.
---------------------------------------------------------------------------
    \30\ A ``traditional'' IRA refers to IRAs other than Roth IRAs or 
SIMPLE IRAs. All references to IRAs in the description of this 
provision refer only to traditional IRAs.
    \31\ An eligible rollover distribution may either be rolled over by 
the distributee within 60 days of the date of the distribution or, as 
described below, directly rolled over by the distributing plan.
---------------------------------------------------------------------------
Distributions from tax-sheltered annuities
      Eligible rollover distributions from a tax-sheltered 
annuity (``section 403(b) annuity'') may be rolled over into an 
IRA or another section 403(b) annuity. Distributions from a 
section 403(b) annuity cannot be rolled over into a tax-
qualified plan. Section 403(b) annuities are not required to 
accept rollovers.
IRA distributions
      Distributions from a traditional IRA, other than minimum 
required distributions, can be rolled over into another IRA. In 
general, distributions from an IRA cannot be rolled over into a 
qualified plan or section 403(b) annuity. An exception to this 
rule applies in the case of so-called ``conduit IRAs.'' Under 
the conduit IRA rule, amounts can be rolled from a qualified 
plan into an IRA and then subsequently rolled back to another 
qualified plan if the amounts in the IRA are attributable 
solely to rollovers from a qualified plan. Similarly, an amount 
may be rolled over from a section 403(b) annuity to an IRA and 
subsequently rolled back into a section 403(b) annuity if the 
amounts in the IRA are attributable solely to rollovers from a 
section 403(b) annuity.
Distributions from section 457 plans
      A ``section 457 plan'' is an eligible deferred 
compensation plan of a State or local government or tax-exempt 
employer that meets certain requirements. In some cases, 
different rules apply under section 457 to governmental plans 
and plans of tax-exempt employers. For example, governmental 
section 457 plans are like qualified plans in that plan assets 
are required to be held in a trust for the exclusive benefit of 
plan participants and beneficiaries. In contrast, benefits 
under a section 457 plan of a tax-exempt employer are unfunded, 
like nonqualified deferred compensation plans of private 
employers.
      Section 457 benefits can be transferred to another 
section 457 plan. Distributions from a section 457 plan cannot 
be rolled over to another section 457 plan, a qualified plan, a 
section 403(b) annuity, or an IRA.
Rollovers by surviving spouses
      A surviving spouse that receives an eligible rollover 
distribution may roll over the distribution into an IRA, but 
not a qualified plan or section 403(b) annuity.
Direct rollovers and withholding requirements
      Qualified plans and section 403(b) annuities are required 
to provide that a plan participant has the right to elect that 
an eligible rollover distribution be directly rolled over to 
another eligible retirement plan. If the plan participant does 
not elect the direct rollover option, then withholding is 
required on the distribution at a 20-percent rate.32
---------------------------------------------------------------------------
    \32\ Distributions from qualified plans and section 403(b) 
annuities that are not eligible rollover distributions are subject to 
elective withholding. Periodic distributions are subject to withholding 
as if the distribution were wages; nonperiodic distributions are 
subject to withholding at a rate of 10 percent. In either case, the 
individual may elect not to have withholding apply.
---------------------------------------------------------------------------
      The direct rollover rules do not apply to section 457 
plans. Distributions from a section 457 plan are subject to 
wage withholding.
Notice of eligible rollover distribution
      The plan administrator of a qualified plan or a section 
403(b) annuity is required to provide a written explanation of 
rollover rules to individuals who receive a distribution 
eligible for rollover. In general, the notice is to be provided 
within a reasonable period of time before making the 
distribution and is to include an explanation of (1) the 
provisions under which the individual may have the distribution 
directly rolled over to another eligible retirement plan, (2) 
the provision that requires withholding if the distribution is 
not directly rolled over, (3) the provision under which the 
distribution may be rolled over within 60 days of receipt, and 
(4) if applicable, certain other rules that may apply to the 
distribution. The Secretary has provided more specific guidance 
regarding timing and content of the notice and has issued a 
safe harbor notice that is deemed to satisfy the requirements 
regarding the content of the notice.
Taxation of distributions
      As is the case with the rollover rules, different rules 
regarding taxation of benefits apply to different types of tax-
favored arrangements. In general, distributions from a 
qualified plan, section 403(b) annuity, or IRA are includible 
in income in the year received. In certain cases, distributions 
from qualified plans are eligible for capital gains treatment 
and averaging. These rules do not apply to distributions from 
another type of plan. Distributions from a qualified plan, IRA, 
and section 403(b) annuity generally are subject to an 
additional 10-percent early withdrawal tax if made before age 
59\1/2\. There are a number of exceptions to the early 
withdrawal tax. Some of the exceptions apply to all three types 
of plans, and others apply only to certain types of plans. For 
example, the 10-percent early withdrawal tax does not apply to 
IRA distributions for educational expenses, but does apply to 
similar distributions from qualified plans and section 403(b) 
annuities. Benefits under a section 457 plan are generally 
includible in income when paid or made available. The 10-
percent early withdrawal tax does not apply to section 457 
plans.

                               house bill

In general
      The bill provides that eligible rollover distributions 
from qualified retirement plans, section 403(b) annuities, and 
governmental section 457 plans generally may be rolled over to 
any of such plans or arrangements. Similarly, distributions 
from an IRA generally may be rolled over into a qualified plan, 
section 403(b) annuity, or governmental section 457 plan. The 
direct rollover and withholding rules are extended to 
distributions from a governmental section 457 plan, and such 
plans are required to provide the written notification 
regarding eligible rollover distributions.33 The 
rollover notice (with respect to all plans) is required to 
include a description of the provisions under which 
distributions from the plan to which the distribution is rolled 
over may be subject to restrictions and tax consequences 
different than those applicable to distributions from the 
distributing plan. Qualified plans, section 403(b) annuities, 
and section 457 plans are not required to accept rollovers.
---------------------------------------------------------------------------
    \33\ The elective withholding rules applicable to distributions 
from qualified plans and section 403(b) annuities that are not eligible 
rollover distributions are also extended to distributions from 
governmental section 457 plans. Thus, periodic distributions from 
governmental section 457 plans that are not eligible rollover 
distributions are subject to withholding as if the distribution were 
wages and nonperiodic distributions from such plans that are not 
eligible rollover distributions are subject to withholding at a 10-
percent rate. In either case, the individual may elect not to have 
withholding apply.
---------------------------------------------------------------------------
      Some special rules apply in certain cases. A distribution 
from a qualified plan is not eligible for capital gains or 
averaging treatment if there was a rollover to the plan that 
would not have been permitted under present law. Thus, in order 
to preserve capital gains and averaging treatment for a 
qualified plan distribution that is rolled over, the rollover 
must be made to a ``conduit IRA'' as under present law, and 
then rolled back into a qualified plan. Amounts distributed 
from a section 457 plan are subject to the early withdrawal tax 
to the extent the distribution consists of amounts attributable 
to rollovers from another type of plan. Section 457 plans are 
required to separately account for such amounts.
Rollover of after-tax contributions
      The bill provides that employee after-tax contributions 
may be rolled over into another qualified plan or a traditional 
IRA. In the case of a rollover from a qualified plan to another 
qualified plan, the rollover may be accomplished only through a 
direct rollover. In addition, a qualified plan is permitted to 
accept rollovers of after-tax contributions only if the plan 
provides separate accounting for such contributions (and 
earnings thereon). After-tax contributions (including 
nondeductible contributions to an IRA) may not be rolled over 
from an IRA into a qualified plan, tax-sheltered annuity, or 
section 457 plan.
      In the case of a distribution from a traditional IRA that 
is rolled over into an eligible rollover plan that is not an 
IRA, the distribution is attributed first to amounts other than 
after-tax contributions.
Expansion of spousal rollovers
      The bill provides that surviving spouses may roll over 
distributions to a qualified plan, section 403(b) annuity, or 
governmental section 457 plan in which the surviving spouse 
participates.
Treasury regulations
      The Secretary is directed to prescribe rules necessary to 
carry out the provisions. Such rules may include, for example, 
reporting requirements and mechanisms to address mistakes 
relating to rollovers. It is expected that the IRS will develop 
forms to assist individuals who roll over after-tax 
contributions to an IRA in keeping track of such contributions. 
Such forms could, for example, expand Form 8606--Nondeductible 
IRAs, to include information regarding after-tax contributions.
Effective date
      The provisions are effective for distributions after 
December 31, 2000.

                            senate amendment

      The Senate amendment is the same as the House bill.
      Effective date.--The provisions are effective for 
distributions after December 31, 2001.

                          conference agreement

      The conference agreement follows the House bill and the 
Senate amendment. The conferees intend that the Secretary will 
revise the safe harbor rollover notice that plans may use to 
satisfy the rollover requirements. Until issuance of a new 
notice, the conferees intend that a plan will be treated as 
complying with the notice requirement if the plan makes a 
reasonable, good faith effort to comply. For example, the bill 
requires that the rollover notice include a description of the 
provisions under which distributions from the eligible 
retirement plan receiving the distribution may be subject to 
restrictions and tax consequences which are different from 
those applicable to distributions from the plan making the 
distribution. A plan will be treated as making a reasonable 
good faith effort to comply with this requirement if the notice 
states that distributions from the plan to which the rollover 
is made may be subject to different restrictions and tax 
consequences than those that apply to distributions from the 
plan from which the rollover is made.
      Effective date.--The provisions are effective for 
distributions after December 31, 2000, except that the 
provision allowing after-tax contributions to be rolled over is 
effective for distributions after December 31, 2001.

 B. Waiver of 60-Day Rule (sec. 404 of the House bill, sec. 404 of the 
          Senate amendment, and secs. 402 and 408 of the Code)

                              present law

      Under present law, amounts received from an IRA or 
qualified plan may be rolled over tax free if the rollover is 
made within 60 days of the date of the distribution. The 
Secretary does not have the authority to waive the 60-day 
requirement.

                               house bill

      The bill provides that the Secretary may waive the 60-day 
rollover period if the failure to waive such requirement would 
be against equity or good conscience, including cases of 
casualty, disaster, or other events beyond the reasonable 
control of the individual subject to such requirement.
      Effective date.--The provision applies to distributions 
made after December 31, 2000.

                            senate amendment

      The Senate amendment is the same as the House bill.

                          conference agreement

      The conference agreement follows the House bill and the 
Senate amendment.

C. Treatment of Forms of Distribution (sec. 405 of the House bill, sec. 
      405 of the Senate amendment, and sec. 411(d)(6) of the Code)

                              present law

      An amendment of a qualified retirement plan may not 
decrease the accrued benefit of a plan participant. An 
amendment is treated as reducing an accrued benefit if, with 
respect to benefits accrued before the amendment is adopted, 
the amendment has the effect of either (1) eliminating or 
reducing an early retirement benefit or a retirement-type 
subsidy, or (2) except as provided by Treasury regulations, 
eliminating an optional form of benefit (sec. 
411(d)(6)).34
---------------------------------------------------------------------------
    \34\ A similar provision is contained in Title I of ERISA.
---------------------------------------------------------------------------
      The Treasury Department has recently issued final 
regulations specifying situations in which optional forms of 
benefit may be eliminated. These regulations provide that, if 
certain requirements are satisfied, optional forms of benefit 
may be eliminated or reduced in connection with the voluntary 
transfer of benefits between defined contribution plans in 
connection with an asset or stock acquisition, merger, or other 
similar transaction involving a change in employer or in 
connection with the participant's change in employment status 
to an employment status with respect to which the participant 
is not entitled to additional allocations under the transferor 
plan.35 The regulations also permit defined 
contribution plans to eliminate or restrict optional forms of 
benefit if the participant is entitled to receive a single-sum 
distribution that is otherwise identical to the optional form 
of benefit that is being eliminated or restricted.36
---------------------------------------------------------------------------
    \35\ Treas. reg. sec. 1.411(d)-4, Q&A-3, paragraph (b).
    \36\ Treas. reg. sec. 1.411(d)-4, Q&A-2, paragraph (e).
---------------------------------------------------------------------------
      A plan that is a transferee of a plan that is subject to 
the joint and survivor rules is also subject to those rules.

                               house bill

Transfers between defined contribution plans
      A defined contribution plan to which benefits are 
transferred is not treated as reducing a participant's or 
beneficiary's accrued benefit even though it does not provide 
all of the forms of distribution previously available under the 
transferor plan if (1) the plan receives from another defined 
contribution plan a direct transfer of the participant's or 
beneficiary's benefit accrued under the transferor plan, or the 
plan results from a merger or other transaction that has the 
effect of a direct transfer (including consolidations of 
benefits attributable to different employers within a multiple 
employer plan), (2) the terms of both the transferor plan and 
the transferee plan authorize the transfer, (3) the transfer 
occurs pursuant to a voluntary election by the participant or 
beneficiary that is made after the participant or beneficiary 
received a notice describing the consequences of making the 
election, (4) in the case of a plan that provides for an 
annuity as the normal form of distribution in accordance with 
the joint and survivor rules (sec. 417), the participant's 
spouse (if any) consents to the transfer in a manner similar to 
the consent required by section 417, and (5) the transferee 
plan allows the participant or beneficiary to receive 
distribution of his or her benefit under the transferee plan in 
the form of a single sum distribution. The bill does not modify 
the rules relating to survivor annuities under section 417. 
Thus, as under present law, a plan that is a transferee of a 
plan subject to the joint and survivor rules is also subject to 
those rules.
Elimination of optional forms of benefit in the case of defined 
        contribution plans offering a single-sum distribution
      Except to the extent provided by the Secretary of the 
Treasury in regulations, a defined contribution plan is not 
treated as reducing a participant's accrued benefit if (1) a 
plan amendment eliminates a form of distribution previously 
available under the plan, (2) a single sum distribution is 
available to the participant at the same time or times as the 
form of distribution eliminated by the amendment, and (3) the 
single sum distribution is based on the same or greater portion 
of the participant's accrued benefit as the form of 
distribution eliminated by the amendment.
Early retirement benefits, retirement-type subsidies, and optional 
        forms of benefit
      The provision directs the Secretary of the Treasury to 
provide by regulations that the prohibitions against 
eliminating or reducing an early retirement benefit, a 
retirement-type subsidy, or an optional form of benefit shall 
not apply to plan amendments that do not adversely affect the 
rights of participants in a material manner but that do 
eliminate or reduce early retirement benefits, retirement-type 
subsidies, and optional forms of benefit that create 
significant burdens and complexities for a plan and its 
participants.
      It is intended that the factors to be considered in 
determining whether an amendment has a materially adverse 
effect on a participant would include (1) all of the 
participant's early retirement benefits, retirement-type 
subsidies, and optional forms of benefits that are reduced or 
eliminated by the amendment, (2) the extent to which early 
retirement benefits, retirement-type subsidies, and optional 
forms of benefit in effect with respect to a participant after 
the amendment effective date provide rights that are comparable 
to the rights that are reduced or eliminated by the plan 
amendment, (3) the number of years before the participant 
attains normal retirement age under the plan (or early 
retirement age, as applicable), (4) the size of the 
participant's benefit that is affected by the plan amendment, 
in relation to the amount of the participant's compensation, 
and (5) the number of years before the plan amendment is 
effective.
Treasury regulations
      The Secretary is directed to issue, not later than 
December 31, 2001, final regulations under section 411(d)(6), 
including regulations required under the provision.
Effective date
      The provision is effective for years beginning after 
December 31, 2000, except that the direction to the Secretary 
is effective on the date of enactment.

                            senate amendment

Transfers between defined contribution plans
      The Senate amendment provision regarding transfers of 
defined contribution plan benefits is the same as the House 
bill, except that the Senate amendment does not include the 
requirement that, in the case of a plan with an annuity as the 
normal form of distribution, the spouse, if any, must consent 
to the transfer. As under present law, a plan that is a 
transferee of a plan subject to the joint and survivor rules is 
subject to the joint and survivor rules.
Elimination of optional forms of benefit in the case of defined 
        contribution plans offering a single-sum distribution
      The Senate amendment does not include the provision 
regarding elimination of forms of distribution in the case of 
plans offering a lump sum.
Early retirement benefits, retirement-type subsidies, and optional 
        forms of benefit
      The Senate amendment directs the Secretary of the 
Treasury to provide by regulations that the prohibitions 
against eliminating or reducing an early retirement benefit, a 
retirement-type subsidy, or an optional form of benefit do not 
apply to plan amendments that eliminate or reduce early 
retirement benefits, retirement-type subsidies, and optional 
forms of benefit that create significant burdens and 
complexities for a plan and its participants, but only if such 
an amendment does not adversely affect the rights of any 
participant in more than a de minimis manner.
      For this purpose, the factors to be considered in 
determining whether an amendment has more than a de minimis 
adverse effect on any participant include (1) all of the 
participant's early retirement benefits, retirement-type 
subsidies, and optional forms of benefits that are reduced or 
eliminated by the amendment, (2) the extent to which early 
retirement benefits, retirement-type subsidies, and optional 
forms of benefit in effect with respect to a participant after 
the amendment effective date provide rights that are comparable 
to the rights that are reduced or eliminated by the plan 
amendment, (3) the number of years before the participant 
attains normal retirement age under the plan (or early 
retirement age, as applicable), (4) the amount of the 
participant's benefit that is affected by the plan amendment, 
in relation to the amount of the participant's 
compensation,37 and (5) the number of years before 
the plan amendment is effective.
---------------------------------------------------------------------------
    \37\ In determining the amount of any subsidy under the provision, 
it is expected that the regulations will value the subsidy by reference 
to the date on which it would be the most valuable with respect to the 
participant.
---------------------------------------------------------------------------
Treasury regulations
      The provision regarding issuance of Treasury regulations 
is the same as the House bill.
Effective date
      The effective date of the Senate amendment provision is 
the same as the House bill.38
---------------------------------------------------------------------------
    \38\ The Senate amendment also amends the corresponding provisions 
of ERISA.
---------------------------------------------------------------------------

                          Conference Agreement

Transfers between defined contribution plans
      The conference agreement follows the Senate amendment.
Elimination of optional forms of benefit in the case of defined 
        contribution plans offering a single-sum distribution
      The conference agreement follows the House bill.
Early retirement benefits, retirement-type subsidies, and optional 
        forms of benefit
      The conference agreement follows the Senate amendment. As 
under the Senate amendment, the Secretary is directed to 
provide by regulation that the prohibitions against eliminating 
or reducing an early retirement benefit, a retirement-type 
subsidy, or an optional form of benefit do not apply to plan 
amendments that eliminate or reduce early retirement benefits, 
retirement-type subsidies, and optional forms of benefit that 
create significant burdens and complexities for a plan and its 
participants and that do not adversely affect the rights of any 
participant in more than a de minimis manner.
      For this purpose, the factors to be considered in 
determining whether an amendment has more than a de minimis 
adverse effect on any participant include (1) all of the 
participant's early retirement benefits, retirement-type 
subsidies, and optional forms of benefits that are reduced or 
eliminated by the amendment, (2) the extent to which early 
retirement benefits, retirement-type subsidies, and optional 
forms of benefit in effect with respect to a participant after 
the amendment effective date provide rights that are comparable 
to the rights that are reduced or eliminated by the plan 
amendment, (3) the number of years before the participant 
attains normal retirement age under the plan (or early 
retirement age, as applicable), (4) the amount of the 
participant's benefit that is affected by the plan amendment, 
in relation to the amount of the participant's 
compensation,39 and (5) the number of years before 
the plan amendment is effective.
---------------------------------------------------------------------------
    \39\ In determining the amount of any subsidy under the provision, 
it is expected that the regulations will value the subsidy by reference 
to the date on which it would be the most valuable with respect to the 
participant.
---------------------------------------------------------------------------
      This provision of the bill does not affect the rules 
relating to involuntary cash outs (sec. 411(a)(11)) 
40 or survivor annuity requirements (sec. 417). 
Accordingly, if a participant is entitled to protections of the 
joint and survivor rules, those protections may not be 
eliminated. The intent of the provision authorizing regulations 
is solely to permit the elimination of early retirement 
benefits, retirement-type subsidies, or optional forms of 
benefit that have no more than a de minimis effect on any 
participant but create disproportionate burdens and 
complexities for a plan and its participants.
---------------------------------------------------------------------------
    \40\ Another provision of the bill provides that rollover amounts 
are not taken into account for purposes of the cash-out rules.
---------------------------------------------------------------------------
      For example, assume the following. Employer A acquires 
employer B and merges B's defined benefit plan into A's defined 
benefit plan. The defined benefit plan maintained by B before 
the merger provides an early retirement subsidy for individuals 
age 55 with a specified number of years of service. E1 and E2 
are employees of B and who transfer to A in connection with the 
merger. E1 is 25 years old and has compensation of $40,000. The 
present value of E's early retirement subsidy under B's plan is 
$75. E2 is 50 years old and also has compensation of $40,000. 
The present value of Y's early retirement subsidy under B's 
plan is $10,000.
      Assume that A's plan has an early retirement subsidy for 
individuals who have attained age 50 with a specified number of 
years of service, but the subsidy is not the same as under B's 
plan. Under A's plan, the present value of E2's early 
retirement subsidy is $9,500. Maintenance of both subsidies 
would create burdens for the plan and complexities for the plan 
and its participants.
      Treasury regulations could permit E1's early retirement 
subsidy under B's plan to be eliminated entirely (i.e., even if 
A's plan did not have an early retirement subsidy). Taking into 
account all relevant factors, including the value of the 
benefit, E1's compensation, and the number of years until E1 
would be eligible to receive the subsidy, the subsidy is de 
minimis. Treasury regulations could permit E2's early 
retirement subsidy under B's plan to be eliminated as to be 
replaced by the subsidy under A's plan, because the difference 
in the subsidies is de minimis. However, A's subsidy could not 
be entirely eliminated.
Treasury regulations
      The conference agreement follows the House bill and the 
Senate amendment, except that the conference agreement provides 
that the Secretary is to issue the required regulations not 
later than December 31, 2002. Such regulations are to be 
effective for plan years beginning after December 31, 2002, or 
such earlier date as is specified by the Secretary.
Effective date
      The provision is effective for years beginning after 
December 31, 2000, except that the direction to the Secretary 
is effective on the date of enactment.

 D. Rationalization of Restrictions on Distributions (sec. 406 of the 
House bill, sec. 406 of the Senate amendment, and secs. 401(k), 403(b), 
                          and 457 of the Code)

                              present law

      Elective deferrals under a qualified cash or deferred 
arrangement (``section 401(k) plan''), tax-sheltered annuity 
(``section 403(b) annuity''), or an eligible deferred 
compensation plan of a tax-exempt organization or State or 
local government (``section 457 plan''), may not be 
distributable prior to the occurrence of one or more specified 
events. These permissible distributable events include 
``separation from service.''
      A separation from service occurs only upon a 
participant's death, retirement, resignation or discharge, and 
not when the employee continues on the same job for a different 
employer as a result of the liquidation, merger, consolidation 
or other similar corporate transaction. A severance from 
employment occurs when a participant ceases to be employed by 
the employer that maintains the plan. Under a so-called ``same 
desk rule,'' a participant's severance from employment does not 
necessarily result in a separation from service.41
---------------------------------------------------------------------------
    \41\ Rev. Rul. 79-336, 1979-2 C.B. 187.
---------------------------------------------------------------------------
      In addition to separation from service and other events, 
a section 401(k) plan that is maintained by a corporation may 
permit distributions to certain employees who experience a 
severance from employment with the corporation that maintains 
the plan but does not experience a separation from service 
because the employee continues on the same job for a different 
employer as a result of a corporate transaction. If the 
corporation disposes of substantially all of the assets used by 
the corporation in a trade or business, a distributable event 
occurs with respect to the accounts of the employees who 
continue employment with the corporation that acquires the 
assets. If the corporation disposes of its interest in a 
subsidiary, a distributable event occurs with respect to the 
accounts of the employees who continue employment with the 
subsidiary.

                               house bill

      The bill modifies the distribution restrictions 
applicable to section 401(k) plans, section 403(b) annuities, 
and section 457 plans to provide that distribution may occur 
upon severance from employment rather than separation from 
service. In addition, the provisions for distribution from a 
section 401(k) plan based upon a corporation's disposition of 
its assets or a subsidiary is repealed; this special rule is no 
longer necessary as a result of the changes made by the 
provision.
      Effective date.--The provision is effective for 
distributions after December 31, 2000, regardless of when the 
severance of employment occurred.

                            senate amendment

      The Senate amendment is the same as the House bill.

                          conference agreement

      The conference agreement follows the House bill and the 
Senate amendment.

 E. Purchase of Service Credit Under Governmental Pension Plans (sec. 
  407 of the House bill, sec. 407 of the Senate amendment, and secs. 
                      403(b) and 457 of the Code)

                              present law

      A qualified retirement plan maintained by a State or 
local government employer may provide that a participant may 
make after-tax employee contributions in order to purchase 
permissive service credit, subject to certain limits (sec. 
415). Permissive service credit means credit for a period of 
service recognized by the governmental plan only if the 
employee voluntarily contributes to the plan an amount (as 
determined by the plan) that does not exceed the amount 
necessary to fund the benefit attributable to the period of 
service and that is in addition to the regular employee 
contributions, if any, under the plan.
      In the case of any repayment of contributions and 
earnings to a governmental plan with respect to an amount 
previously refunded upon a forfeiture of service credit under 
the plan (or another plan maintained by a State or local 
government employer within the same State), any such repayment 
is not taken into account for purposes of the section 415 
limits on contributions and benefits. Also, service credit 
obtained as a result of such a repayment is not considered 
permissive service credit for purposes of the section 415 
limits.
      A participant may not use a rollover or direct transfer 
of benefits from a tax-sheltered annuity (``section 403(b) 
annuity'') or an eligible deferred compensation plan of a tax-
exempt organization of a State or local government (``section 
457 plan'') to purchase permissive service credits or repay 
contributions and earnings with respect to a forfeiture of 
service credit.

                               house bill

      A participant in a State or local governmental plan is 
not required to include in gross income a direct trustee-to-
trustee transfer to a governmental defined benefit plan from a 
section 403(b) annuity or a section 457 plan if the transferred 
amount is used (1) to purchase permissive service credits under 
the plan, or (2) to repay contributions and earnings with 
respect to an amount previously refunded under a forfeiture of 
service credit under the plan (or another plan maintained by a 
State or local government employer within the same State).
      Effective date.--The provision is effective for transfers 
after December 31, 2000.

                            senate amendment

      The Senate amendment is the same as the House bill.

                          conference agreement

      The conference agreement follows the House bill and the 
Senate amendment.

  F. Employers May Disregard Rollovers for Purposes of Cash-Out Rules 
(sec. 408 of the House bill, sec. 408 of the Senate amendment, and sec. 
                        411(a)(11) of the Code)

                              Present Law

      If a qualified retirement plan participant ceases to be 
employed by the employer that maintains the plan, the plan may 
distribute the participant's nonforfeitable accrued benefit 
without the consent of the participant and, if applicable, the 
participant's spouse, if the present value of the benefit does 
not exceed $5,000. If such an involuntary distribution occurs 
and the participant subsequently returns to employment covered 
by the plan, then service taken into account in computing 
benefits payable under the plan after the return need not 
include service with respect to which a benefit was 
involuntarily distributed unless the employee repays the 
benefit.42
---------------------------------------------------------------------------
    \42\ A similar provision is contained in Title I of ERISA.
---------------------------------------------------------------------------
      Generally, a participant may roll over an involuntary 
distribution from a qualified plan to an IRA or to another 
qualified plan.43
---------------------------------------------------------------------------
    \43\ Other provisions of the bill expand the kinds of plans to 
which benefits may be rolled over.
---------------------------------------------------------------------------

                               House Bill

      For purposes of the cash-out rule, a plan is permitted to 
provide that the present value of a participant's 
nonforfeitable accrued benefit is determined without regard to 
the portion of such benefit that is attributable to rollover 
contributions (and any earnings allocable thereto).
      Effective date.--The provision is effective for 
distributions after December 31, 2000.

                            senate amendment

      The Senate amendment is the same as the House bill.

                          conference agreement

      The conference agreement follows the House bill and the 
Senate amendment.

  G. Minimum Distribution and Inclusion Requirements for Section 457 
 Plans (sec. 409 of the House bill, sec. 409 of the Senate amendment, 
                       and sec. 457 of the Code)

                              Present Law

      A ``section 457 plan'' is an eligible deferred 
compensation plan of a State or local government or tax-exempt 
employer that meets certain requirements. For example, amounts 
deferred under a section 457 plan cannot exceed certain limits. 
Amounts deferred under a section 457 plan are generally 
includible in income when paid or made available. Amounts 
deferred under a plan of deferred compensation of a State or 
local government or tax-exempt employer that does not meet the 
requirements of section 457 are includible in income when the 
amounts are not subject to a substantial risk of forfeiture, 
regardless of whether the amounts have been paid or made 
available.44
---------------------------------------------------------------------------
    \44\ This rule of inclusion does not apply to amounts deferred 
under a tax-qualified retirement plan or similar plans.
---------------------------------------------------------------------------
      Section 457 plans are subject to the minimum distribution 
rules applicable to tax-qualified pension plans. In addition, 
such plans are subject to additional minimum distribution rules 
(sec. 457(d)(2)(B)).
      The limits on section 457 plans were first applied to 
plans of tax-exempt employers pursuant to the Tax Reform Act of 
1986 (the ``1986 Act''), generally effective for taxable years 
beginning after December 31, 1986. The limitations of section 
457 do not apply to amounts deferred under a plan of a tax-
exempt employer by an individual covered under such a plan on 
August 16, 1986, if the amounts (1) were deferred from taxable 
years beginning before January 1, 1987, or (2) are deferred 
from taxable years beginning after December 31, 1986, pursuant 
to an agreement that was in writing on August 16, 1986, and on 
such date provided for a deferral for each taxable year covered 
by the agreement of a fixed amount or of an amount determined 
pursuant to a fixed formula. The provision in (2) ceases to 
apply if there is any modification to the agreement or formula.

                               house bill

      The House bill provides that amounts deferred under a 
section 457 plan of a State or local government are includible 
in income when paid.
      The House bill also repeals the special minimum 
distribution rules applicable to section 457 plans. Thus, such 
plans are subject to the minimum distribution rules applicable 
to qualified plans.
      Effective date.--The provision is effective for 
distributions after December 31, 2000.

                            Senate Amendment

      The Senate amendment includes the House bill provisions.
      In addition, the Senate amendment modifies the transition 
rule adopted in the 1986 Act relating to deferred compensation 
plans of tax-exempt employers. Under the bill, the transition 
rule applies to agreements providing cost-of-living adjustments 
to amounts that otherwise satisfy the requirements of the 
transition rule. The grandfather does not apply to the extent 
that the annual amount provided under such an agreement exceeds 
the annual grandfathered amount multiplied by the cumulative 
increase in the Consumer Price Index (as published by the 
Department of Labor).
      Effective date.--The provision is generally effective for 
distributions after December 31, 2000. The provision relating 
to plans of tax-exempt organizations is effective for taxable 
years ending after the date of enactment for cost-of-living 
increases after September 1993.

                          conference agreement

      The conference agreement follows the House bill.

 Subtitle E. Strengthening Pension Security and Enforcement (secs. 441-
                            448 of the bill)

 A. Phase in Repeal of 155 Percent of Current Liability Funding Limit; 
 Deduction for Contributions to Fund Termination Liability (secs. 501 
 and 502 of the House bill, secs. 501 and 502 of the Senate amendment, 
        and secs. 404(a)(1), 412(c)(7), and 4972(c) of the Code)

                              present law

      Under present law, defined benefit pension plans are 
subject to minimum funding requirements designed to ensure that 
pension plans have sufficient assets to pay benefits. A defined 
benefit pension plan is funded using one of a number of 
acceptable actuarial cost methods.
      No contribution is required under the minimum funding 
rules in excess of the full funding limit. The full funding 
limit is generally defined as the excess, if any, of (1) the 
lesser of (a) the accrued liability under the plan (including 
normal cost) or (b) 155 percent of the plan's current 
liability, over (2) the value of the plan's assets (sec. 
412(c)(7)).45 In general, current liability is all 
liabilities to plan participants and beneficiaries accrued to 
date, whereas the accrued liability full funding limit is based 
on projected benefits. The current liability full funding limit 
is scheduled to increase as follows: 160 percent for plan years 
beginning in 2001 or 2002, 165 percent for plan years beginning 
in 2003 and 2004, and 170 percent for plan years beginning in 
2005 and thereafter.46 In no event is a plan's full 
funding limit less than 90 percent of the plan's current 
liability over the value of the plan's assets.
---------------------------------------------------------------------------
    \45\ The minimum funding requirements, including the full funding 
limit, are also contained in title I of ERISA.
    \46\ As originally enacted in the Pension Protection Act of 1997, 
the current liability full funding limit was 150 percent of current 
liability. The Taxpayer Relief Act of 1997 increased the current 
liability full funding limit to 155 percent in 1999 and 2000, and 
adopted the scheduled increases described in the text.
---------------------------------------------------------------------------
      An employer sponsoring a defined benefit pension plan 
generally may deduct amounts contributed to satisfy the minimum 
funding standard for the plan year. Contributions in excess of 
the full funding limit generally are not deductible. Under a 
special rule, an employer that sponsors a defined benefit 
pension plan (other than a multiemployer plan) which has more 
than 100 participants for the plan year may deduct amounts 
contributed of up to 100 percent of the plan's unfunded current 
liability.

                               house bill

Current liability full funding limit
      The bill gradually increases and then repeals the current 
liability full funding limit. The current liability full 
funding limit is 160 percent of current liability for plan 
years beginning in 2001, 165 percent for plan years beginning 
in 2002, and 170 percent for plan years beginning in 2003. The 
current liability full funding limit is repealed for plan years 
beginning in 2004 and thereafter. Thus, in 2004 and thereafter, 
the full funding limit will be the excess, if any, of (1) the 
accrued liability under the plan (including normal cost), over 
(2) the value of the plan's assets.
Deduction for contributions to fund termination liability
      The special rule allowing a deduction for unfunded 
current liability generally is extended to all defined benefit 
pension plans, i.e., the provision applies to multiemployer 
plans and plans with 100 or fewer participants. The special 
rule does not apply to plans not covered by the PBGC 
termination insurance program.47
---------------------------------------------------------------------------
    \47\ The PBGC termination insurance program does not cover plans of 
professional service employers that have fewer than 25 participants.
---------------------------------------------------------------------------
      The bill also modifies the rule by providing that the 
deduction is for up to 100 percent of unfunded termination 
liability, determined as if the plan terminated at the end of 
the plan year. In the case of a plan with less than 100 
participants for the plan year, termination liability does not 
include the liability attributable to benefit increases for 
highly compensated employees resulting from a plan amendment 
which was made or became effective, whichever is later, within 
the last two years.
      Effective date.--The provision is effective for plan 
years beginning after December 31, 2000.

                            senate amendment

      The Senate amendment is the same as the House bill.

                          conference agreement

      The conference agreement follows the House bill and the 
Senate amendment.

 B. Excise Tax Relief for Sound Pension Funding (sec. 503 of the House 
   bill, sec. 503 of the Senate amendment, and sec. 4972 of the Code)

                              present law

      Under present law, defined benefit pension plans are 
subject to minimum funding requirements designed to ensure that 
pension plans have sufficient assets to pay benefits. A defined 
benefit pension plan is funded using one of a number of 
acceptable actuarial cost methods.
      No contribution is required under the minimum funding 
rules in excess of the full funding limit. The full funding 
limit is generally defined as the excess, if any, of (1) the 
lesser of (a) the accrued liability under the plan (including 
normal cost) or (b) 155 percent of the plan's current 
liability, over (2) the value of the plan's assets (sec. 
412(c)(7)). In general, current liability is all liabilities to 
plan participants and beneficiaries accrued to date, whereas 
the accrued liability full funding limit is based on projected 
benefits. The current liability full funding limit is scheduled 
to increase as follows: 160 percent for plan years beginning in 
2001 or 2002, 165 percent for plan years beginning in 2003 and 
2004, and 170 percent for plan years beginning in 2005 and 
thereafter.48 In no event is a plan's full funding 
limit less than 90 percent of the plan's current liability over 
the value of the plan's assets.
---------------------------------------------------------------------------
    \48\ As originally enacted in the Pension Protection Act of 1997, 
the current liability full funding limit was 150 percent of current 
liability. The Taxpayer Relief Act of 1997 increased the current 
liability full funding limit to 155 percent in 1999 and 2000, and 
adopted the scheduled increases described in the text. Another proposal 
would gradually increase and then repeal the current liability full 
funding limit.
---------------------------------------------------------------------------
      An employer sponsoring a defined benefit pension plan 
generally may deduct amounts contributed to satisfy the minimum 
funding standard for the plan year. Contributions in excess of 
the full funding limit generally are not deductible. Under a 
special rule, an employer that sponsors a defined benefit 
pension plan (other than a multiemployer plan) which has more 
than 100 participants for the plan year may deduct amounts 
contributed of up to 100 percent of the plan's unfunded current 
liability.
      Present law also provides that contributions to defined 
contribution plans are deductible, subject to certain 
limitations.
      Subject to certain exceptions, an employer that makes 
nondeductible contributions to a plan is subject to an excise 
tax equal to 10 percent of the amount of the nondeductible 
contributions for the year. The 10-percent excise tax does not 
apply to contributions to certain terminating defined benefit 
plans. The 10-percent excise tax also does not apply to 
contributions of up to 6 percent of compensation to a defined 
contribution plan for employer matching and employee elective 
deferrals.

                               House Bill

      In determining the amount of nondeductible contributions, 
the employer is permitted to elect not to take into account 
contributions to a defined benefit pension plan except to the 
extent they exceed the accrued liability full funding limit. 
Thus, if an employer elects, contributions in excess of the 
current liability full funding limit are not subject to the 
excise tax on nondeductible contributions. An employer making 
such an election for a year is not permitted to take advantage 
of the present-law exceptions for certain terminating plans and 
certain contributions to defined contribution plans. The 
provision applies to terminated plans as well as ongoing plans.
      Effective date.--The provision is effective for years 
beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.

 C. Notice of Significant Reduction in Plan Benefit Accruals (sec. 504 
  of the House bill, secs. 521-523 of the Senate amendment, and secs. 
           411(d) and 417(e) and new sec. 4980F of the Code)

                              Present Law

      Section 204(h) of Title I of ERISA provides that a 
defined benefit pension plan or a money purchase pension plan 
may not be amended so as to provide for a significant reduction 
in the rate of future benefit accrual, unless, after adoption 
of the plan amendment and not less than 15 days before the 
effective date of the plan amendment, the plan administrator 
provides a written notice (``section 204(h) notice''), setting 
forth the plan amendment (or a summary of the amendment written 
in a manner calculated to be understood by the average plan 
participant) and its effective date. The plan administrator 
must provide the section 204(h) notice to each plan 
participant, each alternate payee under an applicable qualified 
domestic relations order (``QDRO''), and each employee 
organization representing participants in the plan. The 
applicable Treasury regulations 49 provide, however, 
that a plan administrator need not provide the section 204(h) 
notice to any participant or alternate payee whose rate of 
future benefit accrual is reasonably expected not to be reduced 
by the amendment, nor to an employee organization that does not 
represent a participant to whom the section 204(h) notice must 
be provided. In addition, the regulations provide that the rate 
of future benefit accrual is determined without regard to 
optional forms of benefit, early retirement benefits, 
retirement-type subsidiaries, ancillary benefits, and certain 
other rights and features.
---------------------------------------------------------------------------
    \49\ Treas. Reg. sec. 1.411(d)-6.
---------------------------------------------------------------------------
      A covered amendment generally will not become effective 
with respect to any participants and alternate payees whose 
rate of future benefit accrual is reasonably expected to be 
reduced by the amendment but who do not receive a section 
204(h) notice. An amendment will become effective with respect 
to all participants and alternate payees to whom the section 
204(h) notice was required to be provided if the plan 
administrator (1) has made a good faith effort to comply with 
the section 204(h) notice requirements, (2) has provided a 
section 204(h) notice to each employee organization that 
represents any participant to whom a section 204(h) notice was 
required to be provided, (3) has failed to provide a section 
204(h) notice to no more than a de minimis percentage of 
participants and alternate payees to whom a section 204(h) 
notice was required to be provided, and (4) promptly upon 
discovering the oversight, provides a section 204(h) notice to 
each omitted participant and alternate payee.
      The Internal Revenue Code does not require any notice 
concerning a plan amendment that provides for a significant 
reduction in the rate of future benefit accrual.
      The Internal Revenue Code prohibits the reduction of a 
participant's accrued benefit by plan amendment (sec. 
411(d)(6)), and, for this purpose, except to the extent set 
forth in Treasury regulations, treats the elimination or 
reduction of an early retirement benefit or retirement-type 
subsidy or an optional form of benefit as a reduction of a 
participant's accrued benefit. However, this prohibition does 
not prevent a plan amendment from ceasing or reducing future 
accruals.
      In the case of a pension plan that is subject to the 
joint and survivor annuity rules, the Internal Revenue Code 
(sec. 417(e)) restricts distributions before normal retirement 
age without the consent of the participant and the 
participant's spouse unless the value of the distribution does 
not exceed a dollar limit ($5,000 under sec. 411(a)(11)(A)). 
For this purpose, under Treasury regulations, a specific 
interest rate and mortality table are prescribed for purposes 
of determining whether the distribution exceeds the dollar 
limit and prohibits a lump sum distribution of an amount less 
than the amount determined under the applicable interest rate 
and mortality table even if the distribution exceeds the dollar 
limit.

                               House Bill

      The provision adds to the Internal Revenue Code a 
requirement that the plan administrator of a defined benefit 
pension plan or a money purchase pension plan with more than 
100 participants furnish a written notice concerning a plan 
amendment that provides for a significant reduction in the rate 
of future benefit accrual. The plan administrator is required 
to provide in this notice, in a manner calculated to be 
understood by the average plan participant, sufficient 
information (as defined in Treasury regulations) to allow 
participants to understand the effect of the amendment.
      The notice requirement does not apply to governmental 
plans or church plans with respect to which an election to have 
the qualified plan participation, vesting, and funding rules 
apply has not been made (sec. 410(d)).
      The plan administrator is required to provide this notice 
to each affected participant, each affected alternate payee, 
and each employee organization representing affected 
participants. For purposes of the provision, an affected 
participant or alternate payee is a participant or alternate 
payee to whom the significant reduction in the rate of future 
benefit accrual is reasonably expected to apply.
      Except to the extent provided by Treasury regulations, 
the plan administrator is required to provide the notice within 
a reasonable time before the effective date of the plan 
amendment.
      The provision imposes on a plan administrator that fails 
to comply with the notice requirement an excise tax equal to 
$100 per day per omitted participant and alternate payee. For 
failures due to reasonable cause and not to willful neglect, 
the total excise tax imposed during a taxable year of the 
employer will not exceed $500,000. Furthermore, in the case of 
a failure due to reasonable cause and not to willful neglect, 
the Secretary of the Treasury is authorized to waive the excise 
tax to the extent that the payment of the tax would be 
excessive relative to the failure involved.
      It is intended that the Secretary will issue the 
necessary regulations with respect to disclosure within 90 days 
of enactment. It is also intended that such guidance may be 
relatively detailed because of the need to provide for 
alternative disclosures rather than a single disclosure 
methodology that may not fit all situations, and the need to 
consider the complex actuarial calculations and assumptions 
involved in providing necessary disclosures.
      In addition, the provision directs the Secretary of the 
Treasury to prepare a report on the effects of conversions of 
traditional defined benefit plans to cash balance or hybrid 
formula plans. Such study is to examine the effect of such 
conversions on longer service participants, including the 
incidence and effects of ``wear away'' provisions under which 
participants earn no additional benefits for a period of time 
after the conversion. The Secretary is directed to submit such 
report, together with recommendations thereon, to the Committee 
on Ways and Means of the House of Representatives and the 
Committee on Finance of the Senate as soon as practicable, but 
not later than 60 days after the date of enactment.
      Effective date.--The provision is effective for plan 
amendments taking effect on or after the date of enactment. The 
period for providing any notice required under the provision 
will not end before the last day of the 3-month period 
following the date of enactment. Prior to the issuance of 
Treasury regulations, a plan will be treated as meeting the 
requirements of the provision if the plan makes a good faith 
effort to comply with such requirements.

                            Senate Amendment

      The provision adds to the Internal Revenue Code a 
requirement that the plan administrator of a pension plan 
furnish a written notice concerning a plan amendment that 
provides for a significant reduction in the rate of future 
benefit accrual, including any elimination or reduction of an 
early retirement benefit or retirement-type 
subsidy.50 The notice is required to set forth: (1) 
a summary of the amendment and the effective date of the 
amendment; (2) a statement that the amendment is expected to 
significantly reduce the rate of future benefit accrual; (3) a 
description of the classes of employees reasonably expected to 
be affected by the reduction in the rate of future benefit 
accrual; (4) examples illustrating the plan changes for these 
classes of employees; (5) in the event of an amendment that 
results in a conversion of a traditional defined benefit plan 
to a cash balance plan (described below), a notice that the 
plan administrator will provide, generally no later than 15 
days prior to the effective date of the amendment, a ``benefit 
estimation tool kit'' (described below) that will enable 
affected participants who have completed at least 1 year of 
participation to personalize the illustrative examples; and (6) 
notice of each affected participant's right to request, and of 
the procedures for requesting, an annual benefit statement as 
provided under present law. The plan administrator is required 
to provide the notice not less than 45 days before the 
effective date of the plan amendment.
---------------------------------------------------------------------------
    \50\ The provision also modifies the present-law notice requirement 
contained in section 204(h) of Title I of ERISA to provide that an 
applicable pension plan may not be amended to provide for a significant 
reduction in the rate of future benefit accrual in the event of an 
egregious failure by the plan administrator to comply with a notice 
requirement similar to the notice requirement that the provision adds 
to the Internal Revenue Code. In addition, the provision expands the 
current ERISA notice requirement regarding significant reductions in 
normal retirement benefit accrual rates to early retirement benefits 
and retirement-type subsidies.
---------------------------------------------------------------------------
      The notice requirement does not apply to plans to which 
ERISA sec. 204(h) does not apply, including governmental plans 
or church plans with respect to which an election to have the 
qualified plan participation, vesting, and funding rules apply 
has not been made (sec. 410(d)).
      The plan administrator is required to provide this 
generalized notice to each affected participant and each 
affected alternate payee. For purposes of the provision, an 
affected participant or alternate payee is a participant or 
alternate payee to whom the reduction in the rate of future 
benefit accrual, including any elimination or significant 
reduction in early retirement benefit or retirement-type 
subsidy, is reasonably expected to apply.
      As noted above, the provision requires the plan 
administrator to provide a benefit estimation tool kit, no 
later than 15 days prior to the amendment effective date, to a 
participant for whom the amendment may reasonably be expected 
to produce a significant reduction in the rate of future 
benefit accrual if the amendment has the effect of converting a 
traditional defined benefit plan to a cash balance plan. The 
plan administrator is not required to provide this benefit 
estimation tool kit to any participant who has less than 1 year 
of participation in the plan. For purposes of the provision, a 
``cash balance plan'' means a defined benefit plan under which 
the accrued benefit is determined as an amount other than an 
annual benefit commencing at normal retirement age, and any 
defined benefit plan, or portion of such a plan, that has an 
effect similar to a defined benefit plan under which the 
accrued benefit is determined as an amount other than an annual 
benefit commencing at normal retirement age (as determined 
under Treasury regulations). If the benefits of 2 or more 
defined benefit plans established or maintained by an employer 
are coordinated in such a manner as to have the effect of a 
conversion to a cash balance plan, the provision treats the 
sponsor of the plan or plans providing for such coordination as 
having adopted such a conversion as of the date such 
coordination begins. If a plan sponsor represents in 
communications to participants and beneficiaries that a plan 
amendment has an effect equivalent to a cash balance 
conversion, such amendment is (to the extent provided in 
Treasury regulations) treated as a cash balance conversion. In 
addition, the provision provides for the Secretary of the 
Treasury to issue regulations to prevent avoidance of the 
requirements of the provision through the use of 2 or more plan 
amendments rather than a single amendment.
      The benefit estimation tool kit is designed to enable 
participants to estimate benefits under the old and new plan 
provisions. The provision permits the tool kit to be in the 
form of software (for use at home, at a workplace kiosk, or on 
a company intranet), worksheets, or calculation instructions, 
or other formats to be determined by the Secretary of the 
Treasury. The tool kit is required to include any necessary 
actuarial assumptions and formulas and to permit the 
participant to estimate both a single life annuity at 
appropriate ages and, when available, a lump sum distribution. 
The tool kit is required to disclose the interest rate used to 
compute a lump sum distribution and whether the value of early 
retirement benefits is included in the lump sum distribution.
      The provision requires the benefit estimation tool kit to 
accommodate employee-provided variables with respect to age, 
years of service, retirement age, covered compensation, and 
interest rate (when variable rates apply). The tool kit is 
required to permit employees to recalculate estimated benefits 
by changing the values of these variables. The provision does 
not require the tool kit to accommodate employee variables with 
respect to qualified domestic relations orders, factors that 
result in unusual patterns of credited service (such as 
extended time away from the job), special benefit formulas for 
unusual situations, offsets from other plans, and forms of 
annuity distributions.
      In the case of a cash balance conversion that occurs in 
connection with a business disposition or acquisition 
transaction and within 1 year following the date of the 
transaction, the provision requires the plan administrator to 
provide the benefit estimation tool kit prior to the end of the 
2-year period following the date of the transaction to the 
affected participants who become participants as a result of 
the transaction.
      The provision permits a plan administrator to provide any 
notice required under the provision to a person designated in 
writing by the individual to whom it would otherwise be 
provided. In addition, the provision authorizes the Secretary 
of the Treasury to allow any notice required under the 
provision to be provided by using new technologies.
      The provision imposes on a plan administrator that fails 
to comply with the notice requirement an excise tax equal to 
$100 per day per omitted participant and alternate payee. No 
excise tax shall be imposed during any period during which any 
person subject to liability for the tax did not know that the 
failure existed and exercised reasonable diligence to meet the 
notice requirement. Also, no excise tax shall be imposed on any 
failure if any person subject to liability for the tax 
exercised reasonable diligence to meet the notice requirement 
and such person provides the required notice during the 30-day 
period beginning on the first date such person knew, or 
exercising reasonable diligence would have known, that the 
failure existed. If the person subject to liability for the 
excise tax exercised reasonable diligence to meet the notice 
requirement, the total excise tax imposed during a taxable year 
of the employer will not exceed $500,000. Furthermore, in the 
case of a failure due to reasonable cause and not to willful 
neglect, the Secretary of the Treasury is authorized to waive 
the excise tax to the extent that the payment of the tax is 
excessive or otherwise inequitable relative to the failure 
involved.
      The provision adds to the Internal Revenue Code and ERISA 
requirements designed to prevent the use of ``wear away'' 
provisions under which participants earn no additional benefits 
for a period of time after a conversion of a traditional 
defined benefit plan to a cash balance plan. These requirements 
are in addition to the other provisions of the Internal Revenue 
Code that prohibit the reduction of a participant's accrued 
benefit by plan amendment (sec. 411(d)(6)). In the event of a 
conversion of a traditional defined benefit plan to a cash 
balance plan, the provision applies a minimum benefit 
requirement. This minimum benefit requirement requires a 
participant's accrued benefit under the cash balance plan to 
equal not less than (1) the benefit accrued for years of 
service prior to the conversion under the traditional defined 
benefit plan formula (not taking into account any early 
retirement benefit or retirement-type subsidy), plus (2) any 
benefit accrued for years of service after the conversion under 
the cash balance plan benefit formula. If the amendment 
provides that the accrued benefit initially credited to a 
participant's accumulation account (or its equivalent) on the 
effective date of the amendment satisfies the present value 
rules described below, the plan will not be treated as failing 
to provide to the participant an accrued benefit that includes 
such pre-conversion accrued benefit at any time after the 
effective date of the amendment merely because of a fluctuation 
in interest rates. The provision does not apply the minimum 
benefit requirement designed to prevent ``wear away'' to a cash 
balance conversion amendment to the extent that the amendment 
permits a participant to continue to accrue benefits in the 
same manner as under the terms of the plan in effect prior to 
the amendment (for example, by providing for the participant to 
receive the greater of the old or new formulas).
      Under the provision, a plan is treated as satisfying the 
minimum benefit requirement designed to prevent ``wear away'' 
if a plan amendment provides that the present value of a 
participant's benefit accrued under a traditional defined 
benefit plan formula prior to a cash balance conversion is not 
less than the greater of (1) the present value determined using 
the applicable mortality table and the applicable interest rate 
in effect under the plan on the effective date of the cash 
balance conversion, or (2) the amount of the lump sum 
distribution that would be payable as of such effective date if 
the participant were eligible to receive a distribution under 
the terms of the plan as in effect immediately before such 
effective date, but not taking into account any early 
retirement benefit or retirement-type subsidy.
      Except as provided in regulations, the provision 
generally requires the present value of the accrued benefit of 
any participant under a cash balance plan to be equal to the 
balance in the participant's accumulation account (or its 
equivalent) as of the time of the present value determination. 
This requirement will not apply to any portion of the 
participant's benefit accrued prior to a cash balance 
conversion except to the extent the plan provides that the 
amount initially credited to a participant's accumulation 
account (or its equivalent) on the effective date of the 
conversion is not less than the benefit accrued for years of 
service prior to the conversion under the traditional defined 
benefit formula (not taking into account any early retirement 
benefit or retirement-type subsidy). This provision is solely 
intended to permit plan sponsors to provide interest credits in 
an amount greater than the amount currently permitted under the 
Internal Revenue Code. Regulations may condition satisfaction 
of this requirement on the plan crediting interest at rates not 
in excess of a maximum and not less than a minimum specified in 
the regulations.
      Failure to comply with the requirements of the provision 
designed to prevent ``wear away'' results in the 
disqualification of the plan.
      The provision directs the Secretary of the Treasury to 
define in regulations, within 12 months after the date of 
enactment, the terms ``early retirement benefit'' and 
``retirement-type subsidy.'' In addition, with respect to a 
participant who is eligible to accrue benefits under the terms 
of a defined benefit plan as in effect either before or after 
an amendment that results in a conversion to a cash balance 
plan, the provision directs the Secretary of the Treasury to 
prescribe regulations under which (1) the plan will be treated 
as meeting the requirements of sec. 411(b)(1)(A), (B), or (C) 
if such requirements are met separately with respect to each of 
the plan's methods of accruing benefits, and (2) the plan will 
not be treated as failing to meet the requirements of sec. 
401(a)(4) merely because only participants as of the effective 
date of the amendment are so eligible, if the plan met the 
requirements of sec. 401(a)(4) under the terms of the plan as 
in effect before the amendment (subject to the terms and 
conditions provided by the regulations).
      Under the provision, no inference is intended with 
respect to the proper treatment of cash balance plans or 
conversions to cash balance plans under the laws in effect 
prior to the effective date of the provision or under laws not 
affected by the provision. In addition, the provision is not 
intended to result in the treatment of a cash balance plan as a 
defined contribution plan, or to affect the rules relating to 
involuntary cash outs (sec. 411(a)(11)) \51\ or survivor 
annuity requirements (sec. 417).
---------------------------------------------------------------------------
    \51\ Another provision provides that rollover amounts are not taken 
into account for purposes of the cash-out rules.
---------------------------------------------------------------------------
      Effective date.--The provision is effective for plan 
amendments taking effect on or after the date of enactment, 
with a delayed effective date for plans maintained pursuant to 
a collective bargaining agreement. The period for providing any 
notice required under the provision will not end before the 
last day of the 3-month period following the date of enactment. 
The notice requirements under the provision do not apply to any 
plan amendment taking effect on or after the date of enactment 
if, before September 5, 2000, notice is provided to 
participants and beneficiaries adversely affected by the plan 
amendment (or their representatives) that is reasonably 
expected to notify them of the nature and effective date of the 
plan amendment.

                          conference agreement

      The conference agreement follows the House bill, with the 
following modifications.\52\ The conference agreement also 
requires a notice with respect to the elimination or reduction 
of an early retirement benefit or retirement-type subsidy. In 
addition, the conference agreement authorizes the Secretary of 
the Treasury to provide a simplified notice requirement or an 
exemption from the notice requirement for plans with less than 
100 participants and to allow any notice required under the 
conference agreement to be provided by using new technologies. 
The conference agreement also authorizes the Secretary to 
provide a simplified notice requirement or an exemption from 
the notice requirement if participants are given the option to 
choose between benefits under the new plan formula and the old 
plan formula. In such cases, the conferees understand that the 
fiduciary rules applicable to pension plans may require 
appropriate disclosure to participants, even if no disclosure 
is required under the provision. With respect to the amount of 
the excise tax for failure to comply with the notice 
requirement, the conference agreement provides that no excise 
tax shall be imposed during any period during which any person 
subject to liability for the tax did not know that the failure 
existed and exercised reasonable diligence to meet the notice 
requirement. The conference agreement also provides that no 
excise tax shall be imposed on any failure if any person 
subject to liability for the tax exercised reasonable diligence 
to meet the notice requirement and such person provides the 
required notice during the 30-day period beginning on the first 
date such person knew, or exercising reasonable diligence would 
have known, that the failure existed. Furthermore, the 
conference agreement provides that if the person subject to 
liability for the excise tax exercised reasonable diligence to 
meet the notice requirement, the total excise tax imposed 
during a taxable year of the employer will not exceed $500,000.
---------------------------------------------------------------------------
    \52\ The conference agreement also modifies the present-law notice 
requirement contained in section 204(h) of Title I of ERISA to provide 
that an applicable pension plan may not be amended to provide for a 
significant reduction in the rate of future benefit accrual in the 
event of a failure by the plan administrator to comply with a notice 
requirement similar to the notice requirement that the conference 
agreement adds to the Internal Revenue Code. In addition, the 
conference agreement expands the current ERISA notice requirement 
regarding significant reductions in normal retirement benefit accrual 
rates to reductions in early retirement benefits and retirement-type 
subsidies.
---------------------------------------------------------------------------
      Effective date.--The conference agreement is effective 
for plan amendments taking effect on or after the date of 
enactment. The period for providing any notice required under 
the conference agreement will not end before the last day of 
the 3-month period following the date of enactment. Prior to 
the issuance of Treasury regulations, a plan will be treated as 
meeting the requirements of the conference agreement if the 
plan makes a good faith effort to comply with such 
requirements. The notice requirement under the conference 
agreement does not apply to any plan amendment taking effect on 
or after the date or enactment if, before October 24, 2000, 
notice is provided to participants and beneficiaries adversely 
affected by the plan amendment (or their representatives) that 
is reasonably expected to notify them of the nature and 
effective date of the plan amendment.

 D. Modifications to Section 415 Limits for Multiemployer Plans (sec. 
 505 of the House bill, sec. 504 of the Senate amendment, and sec. 415 
                              of the Code)

                              present law

      Under present law, limits apply to contributions and 
benefits under qualified plans (sec. 415). The limits on 
contributions and benefits under qualified plans are based on 
the type of plan.
      Under a defined benefit plan, the maximum annual benefit 
payable at retirement is generally the lesser of (1) 100 
percent of average compensation for the highest three years, or 
(2) $135,000 (for 2000). The dollar limit is adjusted for cost-
of-living increases in $5,000 increments. The dollar limit is 
reduced in the case of retirement before the social security 
retirement age and increased in the case of retirement after 
the social security retirement age.
      A special rule applies to governmental defined benefit 
plans. In the case of such plans, the defined benefit dollar 
limit is reduced in the case of retirement before age 62 and 
increased in the case of retirement after age 65. In addition, 
there is a floor on early retirement benefits. Pursuant to this 
floor, the minimum benefit payable at age 55 is $75,000.
      In the case of a defined contribution plan, the limit on 
annual is additions if the lesser of (1) 25 percent of 
compensation 53 or (2) $30,000 (for 2000).
---------------------------------------------------------------------------
    \53\ Another provision of the bill increases this limit to 100 
percent of compensation.
---------------------------------------------------------------------------
      In applying these limits, plans of the same employer are 
aggregated. That is, all defined benefit plans of the same 
employer are treated as a single plan, and all defined 
contribution plans of the same employer are treated as a single 
plan. Under Treasury regulations, multiemployer plans are not 
aggregated with other multiemployer plans. However, if an 
employer maintains both a plan that is not a multiemployer plan 
and a mulitemployer plan, the plan that is not a multiemployer 
plan is aggregated with the multiemployer plan to the extent 
that benefits provided under the multiemployer plan are 
provided with respect to a common participant.54
---------------------------------------------------------------------------
    \54\ Treas. reg. sec. 1.415-8(e).
---------------------------------------------------------------------------

                               house bill

      Under the House bill, the 100 percent of compensation 
defined benefit plan limit does not apply to multiemployer 
plans. In addition, multiemployer plans are not aggregated with 
any other plan maintained by the same employer, except for 
purposes of applying the dollar limitation on defined plans and 
the limits on annual additions to a plan that is not a 
multiemployer plan.
      Effective date.--The provision is effective for years 
beginning after December 31, 2000.

                            senate amendment

      The Senate amendment is the same as the House bill with 
respect to waiver of the 100 percent of compensation limit.
      With respect to aggregation of multiemployer plans with 
other plans, the Senate amendment provides that multiemployer 
plans are not aggregated with single-employer defined benefit 
plans maintained by an employer contributing to the 
multiemployer plan for purposes of applying the 100 percent of 
compensation limit to such single-employer plan.
      Effective date.--Same as the House bill.

                          conference agreement

      The conference agreement follows the House bill and the 
Senate amendment with respect to the 100-percent of 
compensation limitation. Thus, the 100-percent of compensation 
defined benefit plan limit does not apply to multiemployer 
plans.
      The conference agreement follows the Senate amendment 
with respect to the aggregation of multiemployer plans with 
other plans, with modifications.

 E. Investment of Employee Contributions in 401(k) Plans (sec. 505 of 
  the Senate amendment and sec. 1524(b) of the Taxpayer Relief Act of 
                                 1997)

                              present law

      The Employee Retirement Income Security Act of 1974, as 
amended (``ERISA'') prohibits certain employee benefit plans 
from acquiring securities or real property of the employer who 
sponsors the plan if, after the acquisition, the fair market 
value of such securities and property exceeds 10 percent of the 
fair market value of plan assets. The 10-percent limitation 
does not apply to any ``eligible individual account plans'' 
that specifically authorize such investments. Generally, 
eligible individual account plans are defined contribution 
plans, including plans containing a cash or deferred 
arrangement (``401(k) plans'').
      The term ``eligible individual account plan'' does not 
include the portion of a plan that consists of elective 
deferrals (and earnings on the elective deferrals) made under 
section 401(k) if elective deferrals equal to more than 1 
percent of any employee's eligible compensation are required to 
be invested in employer securities and employer real property. 
Eligible compensation is compensation that is eligible to be 
deferred under the plan. The portion of the plan that consists 
of elective deferrals (and earnings thereon) is still treated 
as an individual account plan, and the 10-percent limitation 
does not apply, as long as elective deferrals (and earnings 
thereon) are not required to be invested in employer securities 
or employer real property.
      The rule excluding elective deferrals (and earnings 
thereon) from the definition of individual account plan does 
not apply if individual account plans are a small part of the 
employer's retirement plans. In particular, that rule does not 
apply to an individual account plan for a plan year if the 
value of the assets of all individual account plans maintained 
by the employer do not exceed 10 percent of the value of the 
assets of all pension plans maintained by the employer 
(determined as of the last day of the preceding plan year). 
Multiemployer plans are not taken into account in determining 
whether the value of the assets of all individual account plans 
maintained by the employer exceed 10 percent of the value of 
the assets of all pension plans maintained by the employer. The 
rule excluding elective deferrals (and earnings thereon) from 
the definition of individual account plan does not apply to an 
employee stock ownership plan as defined in section 4975(e)(7) 
of the Internal Revenue Code.
      The rule excluding elective deferrals (and earnings 
thereon) from the definition of individual account plan applies 
to elective deferrals for plan years beginning after December 
31, 1998 (and earnings thereon). It does not apply with respect 
to earnings on elective deferrals for plan years beginning 
before January 1, 1999.

                               house bill

      No provision.

                            senate amendment

      The provision modifies the effective date of the rule 
excluding certain elective deferrals (and earnings thereon) 
from the definition of individual account plan by providing 
that the rule does not apply to any elective deferral used to 
acquire employer securities or employer real property acquired 
before January 1, 1999.
      Effective date.--The provision is effective as if 
included in the section of the Taxpayer Relief Act of 1997 that 
contained the rule excluding certain elective deferrals (and 
earnings thereon) from the definition of individual account 
plan.

                          conference agreement

      The conference agreement follows the Senate amendment.

    F. Periodic Pension Benefit Statements (sec. 506 of the Senate 
                  amendment and sec. 105(a) of ERISA)

                              present law

      Title I of ERISA provides that a pension plan 
administrator must furnish a benefit statement to any 
participant or beneficiary who makes a written request for such 
a statement. This statement must indicate, on the basis of the 
latest available information, (1) the participant's or 
beneficiary's total accrued benefit, and (2) the participant's 
or beneficiary's vested accrued benefit or the earliest date on 
which the accrued benefit will become vested. A participant or 
beneficiary is not entitled to receive more than 1 benefit 
statement during any 12-month period. The plan administrator 
must furnish the benefit statement no later than 60 days after 
receipt of the request or, if later, 120 days after the close 
of the immediately preceding plan year.
      In addition, the plan administrator must furnish a 
benefit statement to each participant whose employment 
terminates or who has a 1-year break in service. For purposes 
of this benefit statement requirement, a ``1-year break in 
service'' is a calendar year, plan year, or other 12-month 
period designated by the plan during which the participant does 
not complete more than 500 hours of service for the employer. A 
participant is not entitled to receive more than 1 benefit 
statement with respect to consecutive breaks in service. The 
plan administrator must provide a benefit statement required 
upon termination of employment or a break in service no later 
than 180 days after the end of the plan year in which the 
termination of employment or break in service occurs.

                               house bill

      No provision.

                            senate amendment

      A plan administrator of a defined contribution plan 
generally is required to furnish a benefit statement to each 
participant at least once annually and to a beneficiary upon 
written request.
      In addition to providing a benefit statement to a 
participant or beneficiary upon written request, the plan 
administrator of a defined benefit plan generally is required 
either (1) to furnish a benefit statement at least once every 3 
years to each participant who has a vested accrued benefit and 
who is employed by the employer at the time the plan 
administrator furnishes the benefit statements to participants, 
or (2) to annually furnish written, electronic, telephonic, or 
other appropriate notice to each participant of the 
availability of and the manner in which the participant may 
obtain the benefit statement.
      The plan administrator of a multiemployer plan or a 
multiple employer plan is required to furnish a benefit 
statement only upon written request of a participant or 
beneficiary.55
---------------------------------------------------------------------------
    \55\ A multiple employer plan is a plan that is maintained by 2 or 
more unrelated employers but that is not maintained pursuant to a 
collective-bargaining agreement (sec. 413(c)).
---------------------------------------------------------------------------
      The plan administrator is required to write the benefit 
statement in a manner calculated to be understood by the 
average plan participant and is permitted to furnish the 
statement in written, electronic, telephonic, or other 
appropriate form.
      Effective date.--The provision is effective for plan 
years beginning after December 31, 2000.

                          conference agreement

      The conference agreement follows the Senate amendment, 
with the following modifications. The conference agreement 
authorizes the Secretary of Labor to provide that years in 
which no employee or former employee benefits under a plan need 
not be taken into account in determining the applicable 3-year 
period.
      Effective date.--The conference agreement is effective 
for plan years beginning after December 31, 2001.

 G. Prohibited Allocations of Stock in an S Corporation ESOP (sec. 506 
of the House bill, sec. 507 of the Senate amendment, and secs. 409 and 
                           4979A of the Code)

                              present law

      The Small Business Job Protection Act of 1996 allowed 
qualified retirement plan trusts described in section 401(a) to 
own stock in an S corporation. That Act treated the plan's 
share of the S corporation's income (and gain on the 
disposition of the stock) as includible in full in the trust's 
unrelated business taxable income (``UBTI'').
      The Tax Relief Act of 1997 repealed the provision 
treating items of income or loss of an S corporation as UBTI in 
the case of an employee stock ownership plan (``ESOP''). Thus, 
the income of an S corporation allocable to an ESOP is not 
subject to current taxation.
      Present law provides a deferral of income on the sales of 
certain employer securities to an ESOP (sec. 1042). A 50-
percent excise tax is imposed on certain prohibited allocations 
of securities acquired by an ESOP in a transaction to which 
section 1042 applies. In addition, such allocations are 
currently includible in the gross income of the individual 
receiving the prohibited allocation.

                               house bill

In general
      Under the provision, if there is a nonallocation year 
with respect to an ESOP maintained by an S corporation: (1) the 
amount allocated in a prohibited allocation to an individual 
who is a disqualified person is treated as distributed to such 
individual (i.e., the value of the prohibited allocation is 
includible in the gross income of the individual receiving the 
prohibited allocation); (2) an excise tax is imposed on the S 
corporation equal to 50 percent of the amount involved in a 
prohibited allocation; and (3) an excise tax is imposed on the 
S corporation with respect to any synthetic equity owned by a 
disqualified person.56
---------------------------------------------------------------------------
    \56\ The plan is not disqualified merely because an excise tax is 
imposed under the provision.
---------------------------------------------------------------------------
      It is intended that the provision will limit the 
establishment of ESOPs by S corporations to those that provide 
broad-based employee coverage and that benefit rank-and-file 
employees as well as highly compensated employees and 
historical owners.
Definition of nonallocation year
      A nonallocation year means any plan year of an ESOP 
holding shares in an S corporation if, at any time during the 
plan year, disqualified persons own at least 50 percent of the 
number of outstanding shares of the S corporation.
      A person is a disqualified person if the person is either 
(1) a member of a ``deemed 20-percent shareholder group'' or 
(2) a ``deemed 10-percent shareholder.'' A person is a member 
of a ``deemed 20-percent shareholder group'' if the aggregate 
number of deemed-owned shares of the person and his or her 
family members is at least 20 percent of the number of deemed-
owned shares of stock in the S corporation.57 A 
person is a deemed 10-percent shareholder if the person is not 
a member of a deemed 20-percent shareholder group and the 
number of the person's deemed-owned shares is at least 10 
percent of the number of deemed-owned shares of stock of the 
corporation.
---------------------------------------------------------------------------
    \57\ A family member of a member of a ``deemed 20-percent 
shareholder group'' with deemed owned shares also is treated as a 
disqualified person.
---------------------------------------------------------------------------
      In general, ``deemed-owned shares'' means: (1) stock 
allocated to the account of an individual under the ESOP, and 
(2) an individual's share of unallocated stock held by the 
ESOP. An individual's share of unallocated stock held by an 
ESOP is determined in the same manner as the most recent 
allocation of stock under the terms of the plan.
      For purposes of determining whether there is a 
nonallocation year, ownership of stock generally is attributed 
under the rules of section 318,58 except that: (1) 
the family attribution rules are modified to include certain 
other family members, as described below, (2) option 
attribution does not apply (but instead special rules relating 
to synthetic equity described below apply), and (3) ``deemed-
owned shares'' held by the ESOP are treated as held by the 
individual with respect to whom they are deemed owned.
---------------------------------------------------------------------------
    \58\ These attribution rules also apply to stock treated as owned 
by reason of the ownership of synthetic equity.
---------------------------------------------------------------------------
      Under the provision, family members of an individual 
include (1) the spouse 59 of the individual, (2) an 
ancestor or lineal descendant of the individual or his or her 
spouse, (3) a sibling of the individual (or the individual's 
spouse) and any lineal descendant of the brother or sister, and 
(4) the spouse of any person described in (2) or (3).
---------------------------------------------------------------------------
    \59\ As under section 318, an individual's spouse is not treated as 
a member of the individual's family if the spouses are legally 
separated.
---------------------------------------------------------------------------
      The provision contains special rules applicable to 
synthetic equity interests. Except to the extent provided in 
regulations, the stock on which a synthetic equity interest is 
based is treated as outstanding stock of the S corporation and 
as deemed-owned shares of the person holding the synthetic 
equity interest if such treatment would result in the treatment 
of any person as a disqualified person or the treatment of any 
year as a nonallocation year. Thus, for example, disqualified 
persons for a year include those individuals who are 
disqualified persons under the general rule (i.e., treating 
only those shares held by the ESOP as deemed-owned shares) and 
those individuals who are disqualified individuals if synthetic 
equity interests are treated as deemed-owned shares.
      ``Synthetic equity'' means any stock option, warrant, 
restricted stock, deferred issuance stock right, or similar 
interest that gives the holder the right to acquire or receive 
stock of the S corporation in the future. Except to the extent 
provided in regulations, synthetic equity also includes a stock 
appreciation right, phantom stock unit, or similar right to a 
future cash payment based on the value of such stock or 
appreciation in such value.60
---------------------------------------------------------------------------
    \60\ The provisions relating to synthetic equity do not modify the 
rules relating to S corporations, e.g., the circumstances in which 
options or similar interests are treated as creating a second class of 
stock.
---------------------------------------------------------------------------
      Ownership of synthetic equity is attributed in the same 
manner as stock is attributed under the provision (as described 
above). In addition, ownership of synthetic equity is 
attributed under the rules of section 318(a)(2) and (3) in the 
same manner as stock.
Definition of prohibited allocation
      An ESOP of an S corporation is required to provide that 
no portion of the assets of the plan attributable to (or 
allocable in lieu of) S corporation stock may, during a 
nonallocation year, accrue (or be allocated directly or 
indirectly under any qualified plan of the S corporation) for 
the benefit of a disqualified person. A ``prohibited 
allocation'' refers to violations of this provision. A 
prohibited allocation occurs, for example, if income on S 
corporation stock held by an ESOP is allocated to the account 
of an individual who is a disqualified person.
Application of excise tax
      In the case of a prohibited allocation, the S corporation 
is liable for an excise tax equal to 50 percent of the amount 
of the allocation. For example, if S corporation stock is 
allocated in a prohibited allocation, the excise tax is equal 
to 50 percent of the fair market value of such stock.
      A special rule applies in the case of the first 
nonallocation year, regardless of whether there is a prohibited 
allocation. In that year, the excise tax also applies to the 
fair market value of the deemed-owned shares of any 
disqualified person held by the ESOP, even though those shares 
are not allocated to the disqualified person in that year.
      As mentioned above, the S corporation also is liable for 
an excise tax with respect to any synthetic equity interest 
owned by any disqualified person in a nonallocation year. The 
excise tax is 50 percent of the value of the shares on which 
synthetic equity is based.
Treasury regulations
      The Treasury Department is given the authority to 
prescribe such regulations as may be necessary to carry out the 
purposes of the provision.
Effective date
      The provision generally is effective with respect to plan 
years beginning after December 31, 2001. In the case of an ESOP 
established after July 11, 2000, or an ESOP established on or 
before such date if the employer maintaining the plan was not 
an S corporation on such date, the proposal is effective with 
respect to plan years ending after July 11, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.

  Subtitle F. Reducing Regulatory Burdens (secs. 451-464 of the bill)

  A. Modification of Timing of Plan Valuations (sec. 601 of the House 
   bill, sec. 601 of the Senate amendment, and sec. 412 of the Code)

                              Present Law

      Under present law, plan valuations are generally required 
annually for plans subject to the minimum funding rules. Under 
proposed Treasury regulations, except as provided by the 
Commissioner, the valuation must be as of a date within the 
plan year to which the valuation refers or within the month 
prior to the beginning of that year.61
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    \61\ Prop. reg. sec. 1.412(c)(9)-1(b)(1).
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                               House Bill

      The provision incorporates into the statute the proposed 
regulation regarding the date of valuations. The provision also 
provides, as an exception to this general rule, that the 
valuation date with respect to a plan year may be any date 
within the immediately preceding plan year if, as of such date, 
plan assets are not less than 125 percent of the plan's current 
liability. Information determined as of such date is required 
to be adjusted actuarially, in accordance with Treasury 
regulations, to reflect significant differences in plan 
participants. An election to use a prior plan year valuation 
date, once made, may only be revoked with the consent of the 
Secretary.
      Effective date.--The provision is effective for plan 
years beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House 
bill.62
---------------------------------------------------------------------------
    \62\ The Senate amendment also amends the corresponding provisions 
of ERISA.
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                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.63
---------------------------------------------------------------------------
    \63\ The conference agreement also amends the corresponding 
provisions of ERISA.
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B. ESOP Dividends May Be Reinvested Without Loss of Dividend Deduction 
(sec. 602 of the House bill, sec. 602 of the Senate amendment, and sec. 
                            404 of the Code)

                              Present Law

      An employer is entitled to deduct certain dividends paid 
in cash during the employer's taxable year with respect to 
stock of the employer that is held by an employee stock 
ownership plan (``ESOP''). The deduction is allowed with 
respect to dividends that, in accordance with plan provisions, 
are (1) paid in cash directly to the plan participants or their 
beneficiaries, (2) paid to the plan and subsequently 
distributed to the participants or beneficiaries in cash no 
later than 90 days after the close of the plan year in which 
the dividends are paid to the plan, or (3) used to make 
payments on loans (including payments of interest as well as 
principal) that were used to acquire the employer securities 
(whether or not allocated to participants) with respect to 
which the dividend is paid.
      The Secretary may disallow the deduction for any ESOP 
dividend if he determines that the dividend constitutes, in 
substance, an evasion of taxation (sec. 404(k)(5)).

                               House Bill

      In addition to the deductions permitted under present law 
for dividends paid with respect to employer securities that are 
held by an ESOP, an employer is entitled to deduct dividends 
that, at the election of plan participants or their 
beneficiaries, are (1) payable in cash directly to plan 
participants or beneficiaries, (2) paid to the plan and 
subsequently distributed to the participants or beneficiaries 
in cash no later than 90 days after the close of the plan year 
in which the dividends are paid to the plan, or (3) paid to the 
plan and reinvested in qualifying employer securities.
      As under present law, the Secretary may disallow the 
deduction for any ESOP dividend if he determines that the 
dividend constitutes, in substance, an evasion of taxation 
(sec. 404(k)(5)).
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment, with the following modification. The 
conference agreement permits the Secretary of the Treasury to 
disallow the deduction for any ESOP dividend in the case of any 
dividend that constitutes the avoidance or evasion of taxation. 
For example, it is intended that the Secretary will disallow 
the deduction as an avoidance or evasion of taxation in 
circumstances similar to those that would result in a 
nonallocation year under the provision of the bill relating to 
S corporation ESOPs. The dividends deductible under the 
provision are treated the same as other plan earnings, i.e., 
they are not subject to the limits on elective deferrals or the 
special nondiscrimination rules applicable to section 401(k) 
plans, and are not treated as annual additions for purposes of 
the section 415 limits on contributions.

   C. Repeal Transition Rule Relating to Certain Highly Compensated 
     Employees (sec. 603 of the House bill, sec. 603 of the Senate 
     amendment, and sec. 1114(c)(4) of the Tax Reform Act of 1986)

                              Present Law

      Under present law, for purposes of the rules relating to 
qualified plans, a highly compensated employee is generally 
defined as an employee 64 who (1) was a 5-percent 
owner of the employer at any time during the year or the 
preceding year or (2) either (a) had compensation for the 
preceding year in excess of $85,000 (for 2000) or (b) at the 
election of the employer, had compensation in excess of $85,000 
for the preceding year and was in the top 20 percent of 
employees by compensation for such year.
---------------------------------------------------------------------------
    \64\ An employee includes a self-employed individual.
---------------------------------------------------------------------------
      Under a rule enacted in the Tax Reform Act of 1986, a 
special definition of highly compensated employee applies for 
purposes of the nondiscrimination rules relating to qualified 
cash or deferred arrangements (``section 401(k) plans'') and 
matching contributions. This special definition applies to an 
employer incorporated on December 15, 1924, that meets certain 
specific requirements.

                               House Bill

      The provision repeals the special definition of highly 
compensated employee under the Tax Reform Act of 1986. Thus, 
the present-law definition applies.
      Effective date.--The provision is effective for plan 
years beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.

  D. Employees of Tax-Exempt Entities (sec. 604 of the House bill and 
                   sec. 604 of the Senate amendment)

                              Present Law

      The Tax Reform Act of 1986 provided that nongovernmental 
tax-exempt employers were not permitted to maintain a qualified 
cash or deferred arrangement (``section 401(k) plan''). This 
prohibition was repealed, effective for years beginning after 
December 31, 1996, by the Small Business Job Protection Act of 
1996.
      Treasury regulations provide that, in applying the 
nondiscrimination rules to a section 401(k) plan (or a section 
401(m) plan that is provided under the same general arrangement 
as the section 401(k) plan), the employer may treat as 
excludable those employees of a tax-exempt entity who could not 
participate in the arrangement due to the prohibition on 
maintenance of a section 401(k) plan by such entities. Such 
employees may be disregarded only if more than 95 percent of 
the employees who could participate in the section 401(k) plan 
benefit under the plan for the plan year.65
---------------------------------------------------------------------------
    \65\ Treas. Reg. sec. 1.410(b)-6(g).
---------------------------------------------------------------------------
      Tax-exempt charitable organizations may maintain a tax-
sheltered annuity (a ``section 403(b) annuity'') that allows 
employees to make salary reduction contributions.

                               House Bill

      The Treasury Department is directed to revise its 
regulations under section 410(b) to provide that employees of a 
tax-exempt charitable organization who are eligible to make 
salary reduction contributions under a section 403(b) annuity 
may be treated as excludable employees for purposes of testing 
a section 401(k) plan, or a section 401(m) plan that is 
provided under the same general arrangement as the section 
401(k) plan of the employer, if (1) no employee of such tax-
exempt entity is eligible to participate in the section 401(k) 
or 401(m) plan and (2) at least 95 percent of the employees who 
are not employees of the charitable employer are eligible to 
participate in such section 401(k) plan or section 401(m) plan.
      The revised regulations are to be effective for years 
beginning after December 31, 1996.
      Effective date.--The provision is effective on the date 
of enactment.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.

 E. Treatment of Employer-Provided Retirement Advice (sec. 605 of the 
House bill, sec. 605 of the Senate amendment, and sec. 132 of the Code)

                              Present Law

      Under present law, certain employer-provided fringe 
benefits are excludable from gross income (sec. 132) and wages 
for employment tax purposes. These excludable fringe benefits 
include working condition fringe benefits and de minimis 
fringes. In general, a working condition fringe benefit is any 
property or services provided by an employer to an employee to 
the extent that, if the employee paid for such property or 
services, such payment would be allowable as a deduction as a 
business expense. A de minimis fringe benefit is any property 
or services provided by the employer the value of which, after 
taking into account the frequency with which similar fringes 
are provided, is so small as to make accounting for it 
unreasonable or administratively impracticable.
      In addition, if certain requirements are satisfied, up to 
$5,250 annually of employer-provided educational assistance is 
excludable from gross income (sec. 127) and wages. This 
exclusion expires with respect to courses beginning after 
December 31, 2001.66 Education not excludable under 
section 127 may be excludable as a working condition fringe.
---------------------------------------------------------------------------
    \66\ The exclusion does not apply with respect to graduate-level 
courses.
---------------------------------------------------------------------------
      There is no specific exclusion under present law for 
employer-provided retirement planning services. However, such 
services may be excludable as employer-provided educational 
assistance or a fringe benefit.

                               House Bill

      Qualified retirement planning services provided to an 
employee and his or her spouse by an employer maintaining a 
qualified plan are excludable from income and wages. Qualified 
retirement planning services are advice and information 
regarding retirement planning. The exclusion is not limited to 
information regarding the qualified plan, and, thus, for 
example, applies to advice and information regarding retirement 
income planning for an individual and his or her spouse and how 
the employer's plan fits into the individual's overall 
retirement income plan. On the other hand, the exclusion does 
not apply to services that may be related to retirement 
planning, such as tax preparation, accounting, legal, or 
brokerage services.
      The exclusion does not apply with respect to highly 
compensated employees unless the services are available on 
substantially the same terms to each member of the group of 
employees normally provided education and information regarding 
the employer's qualified plan.
      Effective date.--The provision is effective with respect 
to years beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment. The conferees intend that the provision will 
clarify the treatment of retirement advice provided in a 
nondiscriminatory manner. It is intended that the Secretary, in 
determining the application of the exclusion to highly 
compensated employees, may permit employers to take into 
consideration employee circumstances other than compensation 
and position in providing advice to classifications of 
employees. Thus, for example, the Secretary may permit 
employers to limit certain advice to individuals nearing 
retirement age under the plan.

F. Reporting Simplification (sec. 606 of the House bill and sec. 606 of 
                         the Senate amendment)

                              Present Law

      A plan administrator of a pension, annuity, stock bonus, 
profit-sharing or other funded plan of deferred compensation 
generally must file with the Secretary of the Treasury an 
annual return for each plan year containing certain information 
with respect to the qualification, financial condition, and 
operation of the plan. Title I of ERISA also may require the 
plan administrator to file annual reports concerning the plan 
with the Department of Labor and the Pension Benefit Guaranty 
Corporation (``PBGC''). The plan administrator must use the 
Form 5500 series as the format for the required annual 
return.\67\ The Form 5500 series annual return/report, which 
consists of a primary form and various schedules, includes the 
information required to be filed with all three agencies. The 
plan administrator satisfies the reporting requirement with 
respect to each agency by filing the Form 5500 series annual 
return/report with the Department of Labor, which forwards the 
form to the Internal Revenue Service and the PBGC.
---------------------------------------------------------------------------
    \67\ Treas. Reg. sec. 301.6058-1(a).
---------------------------------------------------------------------------
      The Form 5500 series consists of 3 different forms: Form 
5500, Form 5500-C/R, and Form 5500-EZ. Form 5500 is the most 
comprehensive of the forms and requires the most detailed 
financial information. Form 5500-C/R requires less information 
than Form 5500, and Form 5500-EZ, which consists of only 1 
page, is the simplest of the forms.
      The size of the plan determines which form a plan 
administrator must file. If the plan has more than 100 
participants at the beginning of the plan year, the plan 
administrator generally must file Form 5500. If the plan has 
fewer than 100 participants at the beginning of the plan year, 
the plan administrator generally may file Form 5500-C/R. A plan 
administrator generally may file Form 5500-EZ if (1) the only 
participants in the plan are the sole owner of a business that 
maintains the plan (and such owner's spouse), or partners in a 
partnership that maintains the plan (and such partners' 
spouses), (2) the plan is not aggregated with another plan in 
order to satisfy the minimum coverage requirements of section 
410(b), (3) the employer is not a member of a related group of 
employers, and (4) the employer does not receive the services 
of leased employees. If the plan satisfies the eligibility 
requirements for Form 5500-EZ and the total value of the plan 
assets as of the end of the plan year and all prior plan years 
does not exceed $100,000, the plan administrator is not 
required to file a return.

                               House Bill

      The Secretary of the Treasury is directed to provide for 
the filing of a simplified annual return substantially similar 
to the Form 5500-EZ by a plan that (1) covers less than 25 
employees on the first day of the plan year, (2) is not 
aggregated with another plan in order to satisfy the minimum 
coverage requirements of section 410(b), (3) is maintained by 
an employer that is not a member of a related group of 
employers, and (4) is maintained by an employer that does not 
receive the services of leased employees.
      In addition, the Secretary is directed to modify the 
annual return filing requirements with respect to plans that 
satisfy the eligibility requirements for Form 5500-EZ to 
provide that if the total value of the plan assets of such a 
plan as of the end of the plan year and all prior plan years 
does not exceed $250,000, the plan administrator is not 
required to file a return.
      Effective date.--The provision is effective on January 1, 
2001.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except that the Senate amendment does not include the provision 
relating to annual returns for plans that cover less than 25 
employees.

                          Conference Agreement

      The conference agreement follows the Senate bill, with 
the following modification. The conference agreement directs 
the Secretary of the Treasury to provide simplified reporting 
requirements for plan years beginning after December 31, 2001, 
for certain plans with fewer than 25 employees.

G. Improvement to Employee Plans Compliance Resolution System (sec. 607 
        of the House bill and sec. 607 of the Senate amendment)

                              Present Law

      A retirement plan that is intended to be a tax-qualified 
plan provides retirement benefits on a tax-favored basis if the 
plan satisfies all of the requirements of section 401(a). 
Similarly, an annuity that is intended to be a tax-sheltered 
annuity provides retirement benefits on a tax-favored basis if 
the program satisfies all of the requirements of section 
403(b). Failure to satisfy all of the applicable requirements 
of section 401(a) or section 403(b) may disqualify a plan or 
annuity for the intended tax-favored treatment.
      The Internal Revenue Service (``IRS'') has established 
the Employee Plans Compliance Resolution System (``EPCRS''), 
which is a comprehensive system of correction programs for 
sponsors of retirement plans and annuities that are intended, 
but have failed, to satisfy the requirements of section 401(a) 
and section 403(b), as applicable.68 EPCRS permits 
employers to correct compliance failures and continue to 
provide their employees with retirement benefits on a tax-
favored basis.
---------------------------------------------------------------------------
    \68\ Rev. Proc. 98-22, 1998-12 I.R.B. 11, as modified by Rev. Proc. 
99-13, 1999-5, I.R.B. 52.
---------------------------------------------------------------------------
      The IRS has designed EPCRS to (1) encourage operational 
and formal compliance, (2) promote voluntary and timely 
correction of compliance failures, (3) provide sanctions for 
compliance failures identified on audit that are reasonable in 
light of the nature, extent, and severity of the violation, (4) 
provide consistent and uniform administration of the correction 
programs, and (5) permit employers to rely on the availability 
of EPCRS in taking corrective actions to maintain the tax-
favored status of their retirement plans and annuities.
      The basic elements of the programs that comprise EPCRS 
are self-correction, voluntary correction with IRS approval, 
and correction on audit. The Administrative Policy Regarding 
Self-Correction (``APRSC'') permits a plan sponsor that has 
established compliance practices to correct certain 
insignificant failures at any time (including during an audit), 
and certain significant failures within a 2-year period, 
without payment of any fee or sanction. The Voluntary 
Compliance Resolution (``VCR'') program, the Walk-In Closing 
Agreement Program (``Walk-In CAP''), and the Tax-Sheltered 
Annuity Voluntary Correction (``TVC'') program permit an 
employer, at any time before an audit, to pay a limited fee and 
receive IRS approval of a correction. For a failure that is 
discovered on audit and corrected, the Audit Closing Agreement 
Program (``Audit CAP'') provides for a sanction that bears a 
reasonable relationship to the nature, extent, and severity of 
the failure and that takes into account the extent to which 
correction occurred before audit.
      The IRS has expressed its intent that EPCRS will be 
updated and improved periodically in light of experience and 
comments from those who use it.

                               House Bill

      The Secretary of the Treasury is directed to continue to 
update and improve EPCRS, giving special attention to (1) 
increasing the awareness and knowledge of small employers 
concerning the availability and use of EPCRS, (2) taking into 
account special concerns and circumstances that small employers 
face with respect to compliance and correction of compliance 
failures, (3) extending the duration of the self-correction 
period under APRSC for significant compliance failures, (4) 
expanding the availability to correct insignificant compliance 
failures under APRSC during audit, and (5) assuring that any 
tax, penalty, or sanction that is imposed by reason of a 
compliance failure is not excessive and bears a reasonable 
relationship to the nature, extent, and severity of the 
failure.
      Effective date.--The provision is effective on the date 
of enactment.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.

 H. Repeal of the Multiple Use Test (sec. 608 of the House bill, sec. 
       608 of the Senate amendment, and sec. 401(m) of the Code)

                              Present Law

      Elective deferrals under a qualified cash or deferred 
arrangement (``section 401(k) plan'') are subject to a special 
annual nondiscrimination test (``ADP test''). The ADP test 
compares the actual deferral percentages (``ADPs'') of the 
highly compensated employee group and the nonhighly compensated 
employee group. The ADP for each group generally is the average 
of the deferral percentages separately calculated for the 
employees in the group who are eligible to make elective 
deferrals for all or a portion of the relevant plan year. Each 
eligible employee's deferral percentage generally is the 
employee's elective deferrals for the year divided by the 
employee's compensation for the year.
      The plan generally satisfies the ADP test if the ADP of 
the highly compensated employee group for the current plan year 
is either (1) not more than 125 percent of the ADP of the 
nonhighly compensated employee group for the prior plan year, 
or (2) not more than 200 percent of the ADP of the nonhighly 
compensated employee group for the prior plan year and not more 
than 2 percentage points greater than the ADP of the nonhighly 
compensated employee group for the prior plan year.
      Employer matching contributions and after-tax employee 
contributions under a defined contribution plan also are 
subject to a special annual nondiscrimination test (``ACP 
test''). The ACP test compares the actual deferral percentages 
(``ACPs'') of the highly compensated employee group and the 
nonhighly compensated employee group. The ACP for each group 
generally is the average of the contribution percentages 
separately calculated for the employees in the group who are 
eligible to make after-tax employee contributions or who are 
eligible for an allocation of matching contributions for all or 
a portion of the relevant plan year. Each eligible employee's 
contribution percentage generally is the employee's aggregate 
after-tax employee contributions and matching contributions for 
the year divided by the employee's compensation for the year.
      The plan generally satisfies the ACP test if the ACP of 
the highly compensated employee group for the current plan year 
is either (1) not more than 125 percent of the ACP of the 
nonhighly compensated employee group for the prior plan year, 
or (2) not more than 200 percent of the ACP of the nonhighly 
compensated employee group for the prior plan year and not more 
than 2 percentage points greater than the ACP of the nonhighly 
compensated employee group for the prior plan year.
      For any year in which (1) at least one highly compensated 
employee is eligible to participate in an employer's plan or 
plans that are subject to both the ADP test and the ACP test, 
(2) the plan subject to the ADP test satisfies the ADP test but 
the ADP of the highly compensated employee group exceeds 125 
percent of the ADP of the nonhighly compensated employee group, 
and (3) the plan subject to the ACP test satisfies the ACP test 
but the ACP of the highly compensated employee group exceeds 
125 percent of the ACP of the nonhighly compensated employee 
group, an additional special nondiscrimination test (``multiple 
use test'') applies to the elective deferrals, employer 
matching contributions, and after-tax employee contributions. 
The plan or plans generally satisfy the multiple use test if 
the sum of the ADP and the ACP of the highly compensated 
employee group does not exceed the greater of (1) the sum of 
(A) 1.25 times the greater of the ADP or the ACP of the 
nonhighly compensated employee group, and (B) 2 percentage 
points plus (but not more than 2 times) the lesser of the ADP 
or the ACP of the nonhighly compensated employee group, or (2) 
the sum of (A) 1.25 times the lesser of the ADP or the ACP of 
the nonhighly compensated employee group, and (B) 2 percentage 
points plus (but not more than 2 times) the greater of the ADP 
or the ACP of the nonhighly compensated employee group.

                               House Bill

      The provision repeals the multiple use test.
      Effective date.--The provision is effective for years 
beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.

  I. Flexibility in Nondiscrimination, Coverage, and Line of Business 
Rules (sec. 609 of the House bill, sec. 609 of the Senate amendment and 
            secs. 401(a)(4), 410(b), and 414(r) of the Code)

                              Present Law

      A plan is not a qualified retirement plan if the 
contributions or benefits provided under the plan discriminate 
in favor of highly compensated employees (sec. 401(a)(4)). The 
applicable Treasury regulations set forth the exclusive rules 
for determining whether a plan satisfies the nondiscrimination 
requirement. These regulations state that the form of the plan 
and the effect of the plan in operation determine whether the 
plan is nondiscriminatory and that intent is irrelevant.
      Similarly, a plan is not a qualified retirement plan if 
the plan does not benefit a minimum number of employees (sec. 
410(b)). A plan satisfies this minimum coverage requirement if 
and only if it satisfies one of the tests specified in the 
applicable Treasury regulations. If an employer is treated as 
operating separate lines of business, the employer may apply 
the minimum coverage requirements to a plan separately with 
respect to the employees in each separate line of business 
(sec. 414(r)). Under a so-called ``gateway'' requirement, 
however, the plan must benefit a classification of employees 
that does not discriminate in favor of highly compensated 
employees in order for the employer to apply the minimum 
coverage requirements separately for the employees in each 
separate line of business. A plan satisfies this gateway 
requirement only if it satisfies one of the tests specified in 
the applicable Treasury regulations.

                               House Bill

      The Secretary of the Treasury is directed to provide by 
regulation applicable to years beginning after December 31, 
2000, that a plan is deemed to satisfy the nondiscrimination 
requirements of section 401(a)(4) if the plan satisfies the 
pre-1994 facts and circumstances test, satisfies the conditions 
prescribed by the Secretary to appropriately limit the 
availability of such test,69 and is submitted to the 
Secretary for a determination of whether it satisfies such test 
(to the extent provided by the Secretary).
---------------------------------------------------------------------------
    \69\ Any conditions prescribed by the Secretary cannot be effective 
before the first year beginning not less than 120 days after the date 
on which the condition is prescribed.
---------------------------------------------------------------------------
      Similarly, a plan complies with the minimum coverage 
requirement of section 410(b) if the plan satisfies the pre-
1989 coverage rules, is submitted to the Secretary for a 
determination of whether it satisfies the pre-1989 coverage 
rules (to the extent provided by the Secretary), and satisfies 
conditions prescribed by the Secretary by regulation that 
appropriately limit the availability of the pre-1989 coverage 
rules.70
---------------------------------------------------------------------------
    \70\ Any conditions prescribed by the Secretary cannot be effective 
before the first year beginning not less than 120 days after the date 
on which the condition is prescribed.
---------------------------------------------------------------------------
      The Secretary of the Treasury is directed to modify, on 
or before December 31, 2000, the existing regulations issued 
under section 414(r) in order to expand (to the extent that the 
Secretary may determine to be appropriate) the ability of a 
plan to demonstrate compliance with the line of business 
requirements based upon the facts and circumstances surrounding 
the design and operation of the plan, even though the plan is 
unable to satisfy the mechanical tests currently used to 
determine compliance.
      Effective date.--The provision is effective on the date 
of enactment.

                            Senate Amendment

      The Senate amendment is the same as the House bill, with 
the following modification. The Senate amendment provides that 
the regulations required with respect to the nondiscrimination 
requirements of section 401(a)(4), the minimum coverage 
requirements of section 410(b), and the line of business 
requirements of section 414(r) are to be issued or effective, 
whichever is applicable, by December 31, 2001.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with the following modification. The conference agreement 
provides that the regulations required with respect to the 
nondiscrimination requirements of section 401(a)(4), the 
minimum coverage requirements of section 410(b), and the line 
of business requirements of section 414(r) are to be issued or 
effective, whichever is applicable, by December 31, 2002.

J. Extension to All Governmental Plans of Moratorium on Application of 
     Certain Nondiscrimination Rules Applicable to State and Local 
 Government Plans (sec. 610 of the House bill, sec. 610 of the Senate 
amendment, and sec. 1505 of the Taxpayer Relief Act of 1997, and secs. 
                     401(a) and 401(k) of the Code)

                              Present Law

      All governmental plans are exempt from the minimum 
coverage requirements (sec. 410(b)). A qualified retirement 
plan maintained by a State or local government is exempt from 
the rules concerning nondiscrimination (sec. 401(a)(4)) and 
minimum participation (sec. 401(a)(26)). All other governmental 
plans are not exempt from the nondiscrimination and minimum 
participation rules.

                               House Bill

      The provision exempts all governmental plans (as defined 
in sec. 414(d)) from the nondiscrimination and minimum 
participation rules.
      Effective date.--The provision is effective for plan 
years beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill.

                          Conference Agreement

      The conference agreement follows the House bill and the 
Senate amendment.

  K. Notice and Consent Period Regarding Distributions; Disclosure of 
Optional Forms of Benefit (sec. 611 of the House bill, sec. 611 of the 
     Senate amendment, and secs. 402(f), 411, and 417 of the Code)

                              Present Law

      Notice and consent requirements apply to certain 
distributions from qualified retirement plans. These 
requirements relate to the content and timing of information 
that a plan must provide to a participant prior to a 
distribution, and to whether the plan must obtain the 
participant's consent to the distribution. The nature and 
extent of the notice and consent requirements applicable to a 
distribution depend upon the value of the participant's vested 
accrued benefit and whether the joint and survivor annuity 
requirements (sec. 417) apply to the participant.71
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    \71\ Similar provisions are contained in Title I of ERISA.
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      If the present value of the participant's vested accrued 
benefit exceeds $5,000, the plan may not distribute the 
participant's benefit without the written consent of the 
participant. The participant's consent to a distribution is not 
valid unless the participant has received from the plan a 
notice that contains a written explanation of (1) the material 
features and the relative values of the optional forms of 
benefit available under the plan, (2) the participant's right, 
if any, to have the distribution directly transferred to 
another retirement plan or IRA, and (3) the rules concerning 
the taxation of a distribution. If the joint and survivor 
annuity requirements apply to the participant, this notice also 
must contain a written explanation of (1) the terms and 
conditions of the qualified joint and survivor annuity 
(``QJSA''), (2) the participant's right to make, and the effect 
of, an election to waive the QJSA, (3) the rights of the 
participant's spouse with respect to a participant's waiver of 
the QJSA, and (4) the right to make, and the effect of, a 
revocation of a waiver of the QJSA. The plan generally must 
provide this notice to the participant no less than 30 and no 
more than 90 days before the date distribution commences.
      If the participant's vested accrued benefit does not 
exceed $5,000, the terms of the plan may provide for 
distribution without the participant's consent. The plan 
generally is required, however, to provide to the participant a 
notice that contains a written explanation of (1) the 
participant's right, if any, to have the distribution directly 
transferred to another retirement plan or IRA, and (2) the 
rules concerning the taxation of a distribution. The plan 
generally must provide this notice to the participant no less 
than 30 and no more than 90 days before the date distribution 
commences.
      The plan administrator is required to provide to the 
distributee of an eligible rollover distribution an explanation 
of the rollover and withholding rules applicable to the 
distribution. This notice must generally be provided no less 
than 30 days and not more than 90 days before the date of the 
distribution.

                               House Bill

      A qualified retirement plan is required to provide the 
applicable distribution notice no less than 30 days and no more 
than 180 days before the date distribution commences. The 
Secretary of the Treasury is directed to modify the applicable 
regulations to reflect the extension of the notice period to 
180 days and to provide that the description of a participant's 
right, if any, to defer receipt of a distribution shall also 
describe the consequences of failing to defer such receipt.
      Effective date.--The provision is effective for years 
beginning after December 31, 2000.

                            Senate Amendment

      The Senate amendment is the same as the House bill with 
respect to the notice and consent period regarding 
distributions.
      In addition, the Senate amendment requires that plan 
participants be notified of the existence of certain 
differences between the values of optional forms of benefit. If 
a plan provides optional forms of benefits and the present 
values of such optional forms of benefits are not actuarially 
equivalent as of the annuity starting date, then the plan is 
required to provide certain information regarding such benefits 
in the notice required to be provided regarding joint and 
survivor annuities. The information must be sufficient (as 
determined in accordance with Treasury regulations) to allow 
the participant to understand the differences in the present 
values of the optional forms of benefits and the effect the 
participant's election as to the form of benefit will have on 
the value of the benefits provided under the plan. The 
information must be provided in a manner calculated to be 
reasonably understood by the average plan participant.
      Effective date.--Same as the House bill.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with the following modification. With respect to the disclosure 
of the differences between the values of optional forms of 
benefits, the conference agreement directs the Secretary of the 
Treasury to issue, not later than December 31, 2001, final 
regulations under section 417(a)(3). These regulations are to 
provide that, if a defined benefit plan offers both a qualified 
joint and survivor annuity and a single sum optional form of 
benefit, and the distributable amount under such single sum 
option is less than the present value (determined in accordance 
with section 417(e)) of the qualified joint and survivor 
annuity commencing as of the same annuity starting date, the 
applicable distribution notice shall include sufficient 
information to permit the participant to understand the 
difference between the present value of the qualified joint and 
survivor annuity and the amount of the single sum. If the plan 
offers an unmarried participant one or more annuity options 
that are substantially more valuable than the qualified joint 
and survivor annuity offered by the plan, the required 
comparison shall be made between the single sum option and the 
most valuable of the other annuity options. The conference 
agreement provides that the regulations shall apply to 
distributions made not earlier than 6 months after the date the 
regulations are issued.

 L. Annual Report Dissemination (sec. 612 of the Senate amendment and 
                        sec. 104(b)(3) of ERISA)

                              Present Law

      Title I of ERISA generally requires the plan 
administrator of each employee pension benefit plan and each 
employee welfare benefit plan to file an annual report 
concerning the plan with the Secretary of Labor within seven 
months after the end of the plan year. Within nine months after 
the end of the plan year, the plan administrator generally must 
provide to each participant and to each beneficiary receiving 
benefits under the plan a summary of the annual report filed 
with the Secretary of Labor for the plan year.

                               House Bill

      No provision.

                            Senate Amendment

      Within nine months after the end of each plan year, the 
plan administrator is required to make available for 
examination a summary of the annual report filed with the 
Secretary of Labor for the plan year. In addition, the plan 
administrator is required to furnish the summary to a 
participant, or to a beneficiary receiving benefits under the 
plan, upon request.
      Effective date.--The provision is effective for reports 
for years beginning after December 31, 1999.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with the following modification. The conference agreement 
provides that the requirement that the summary annual report be 
provided to participants and beneficiaries is satisfied if the 
report is reasonably available through electronic means or 
other new technology.

M. Modifications to the SAVER Act (sec. 613 of the Senate amendment and 
                           sec. 517 of ERISA)

                              Present Law

      The Savings Are Vital to Everyone's Retirement 
(``SAVER'') Act 72 initiated a public-private 
partnership to educate American workers about retirement 
savings and directed the Department of Labor to maintain an 
ongoing program of public information and outreach. The Act 
also convened a National Summit on Retirement Savings held June 
4-5, 1998, and to be held again in 2001 and 2005, co-hosted by 
the President and the bipartisan Congressional leadership. The 
National Summit brings together experts in the fields of 
employee benefits and retirement savings, key leaders of 
government, and interested parties from the private sector and 
general public. The delegates are selected by the Congressional 
leadership and the President. The National Summit is a public-
private partnership, receiving substantial funding from private 
sector contributions. The goals of the National Summits are to: 
(1) advance the public's knowledge and understanding of 
retirement savings and facilitate the development of a broad-
based, public education program; (2) identify the barriers 
which hinder workers from setting aside adequate savings for 
retirement and impede employers, especially small employers, 
from assisting their workers in accumulating retirement 
savings; and (3) develop specific recommendations for 
legislative, executive, and private sector actions to promote 
retirement income savings among American workers.
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    \72\ Pub. L. No. 105-92.
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                               House Bill

      No provision.

                            Senate Amendment

      The provision clarifies that future National Summits on 
Retirement Savings are to be held in the month of September in 
2001 and 2005, and would add an additional National Summit in 
2009. To facilitate the administration of future National 
Summits, the Department of Labor is given authority to enter 
into cooperative agreements (pursuant to the Federal Grant and 
Cooperative Agreement Act of 1977) with its 1999 summit 
partner, the American Savings Education Council.
      Six new statutory delegates are added to future National 
Summits: the Chairman and Ranking Member of the House Ways and 
Means Committee, the Senate Finance Committee, and the 
Subcommittee on Employer-Employee Relations of the House 
Committee on Education and the Workforce. Further, the 
President, in consultation with the Congressional leadership, 
may appoint up to three percent of the delegates (not to exceed 
10) from a list of nominees provided by the private sector 
partner in Summit administration. The provision also clarifies 
that new delegates are to be appointed for each future National 
Summit (as was the intent of the original legislation) and sets 
deadlines for their appointment.
      The provision also sets deadlines for the Department of 
Labor to publish the Summit agenda, gives the Department of 
Labor limited reception and representation authority, and 
mandates that the Department of Labor consult with the 
Congressional leadership in drafting the post-Summit report.
      Effective date.--The provision is effective on the date 
of enactment.

                          Conference Agreement

      The conference agreement follows the Senate amendment.

             N. Studies (sec. 614 of the Senate amendment)

                              Present Law

      No provision.

                               House Bill

      No provision.

                            Senate Amendment

Report on pension coverage
      The bill directs the Secretary to report to the Senate 
Committee on Finance and the House Committee on Ways and Means 
regarding the effect of the bill on pension coverage, including 
any expansion of coverage for low- and moderate-income workers, 
levels of pension benefits, quality of coverage, worker's 
access to and participation in plans, and retirement security. 
This report is required to be submitted no later than five 
years after the date of enactment.
Studies of preretirement uses of benefits and investment decisions
      The bill directs the Secretary to conduct a study of the 
present-law rules that permit individuals to access their IRA 
or qualified retirement plan benefits prior to retirement, 
including an analysis of the use of the existing rules and the 
extent to which such rules undermine the goal of accumulating 
adequate resources for retirement. In addition, the Secretary 
of the Treasury is directed to conduct a study of the types of 
investment decisions made by IRA owners and participants in 
self-directed qualified retirement plans, including an analysis 
of the existing restrictions on investments and the extent to 
which additional restrictions would facilitate the accumulation 
of adequate income for retirement. The studies are required to 
be submitted to the Senate Committee on Finance and the House 
Committee on Ways and Means no later than January 1, 2002.
Effective date
      The provisions are effective on the date of enactment.

                          Conference Agreement

      The conference agreement follows the Senate amendment, 
with the following modification. The conference agreement does 
not direct the Secretary to conduct the study relating to pre-
retirement access to IRA or qualified retirement plan assets or 
the study relating to the types of investment decisions made by 
IRA owners and participants in self-directed qualified 
retirement plans.

     Subtitle G. Other ERISA Provisions (secs. 471-478 of the bill)

  A. Extension of PBGC Missing Participants Program (secs. 206(f) and 
                             4050 of ERISA)

                              Present Law

      The plan administrator of a single-employer defined 
benefit pension plan that is subject to Title IV of ERISA and 
terminates under a standard termination is required to 
distribute the assets of the plan. With respect to a 
participant whom the plan administrator cannot locate after a 
diligent search, the plan administrator satisfies the 
distribution requirement only by purchasing irrevocable 
commitments from an insurer to provide all benefit liabilities 
under the plan or transferring the participant's designated 
benefit to the Pension Benefit Guaranty Corporation (``PBGC''), 
which holds the benefit of the missing participant as trustee 
until the PBGC locates the missing participant and distributes 
the benefit.
      The PBGC missing participant program is not available to 
multiemployer plans or defined contribution plans and other 
plans not covered by Title IV of ERISA.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The PBGC is directed to prescribe for terminating 
multiemployer plans rules similar to the present-law missing 
participant rules applicable to terminating single employer 
plans that are subject to Title IV of ERISA.
      In addition, plan administrators of certain types of 
plans not subject to the PBGC termination insurance program 
under present law are permitted, but not required, to elect to 
transfer missing participants' benefits to the PBGC upon plan 
termination. Specifically, the provision extends the missing 
participants program to defined contribution plans, defined 
benefit plans that have no more than 25 active participants and 
are maintained by professional service employers, and the 
portion of defined benefit plans that provide benefits based 
upon the separate accounts of participants and therefor are 
treated as defined contribution plans under ERISA.
      Effective date.--The provision is effective for 
distributions made after final regulations under the provision 
are prescribed.

  B. Reduce PBGC Premiums for Small and New Plans (sec. 4006 of ERISA)

                              Present Law

      Under present law, the Pension Benefit Guaranty 
Corporation (``PBGC'') provides insurance protection for 
participants and beneficiaries under certain defined benefit 
pension plans by guaranteeing certain basic benefits under the 
plan in the event the plan is terminated with insufficient 
assets to pay benefits promised under the plan. The guaranteed 
benefits are funded in part by premium payments from employers 
who sponsor defined benefit plans. The amount of the required 
annual PBGC premium for a single-employer plan is generally a 
flat rate premium of $19 per participant and an additional 
variable-rate premium based on a charge of $9 per $1,000 of 
unfunded vested benefits. Unfunded vested benefits under a plan 
generally means (1) the unfunded current liability for vested 
benefits under the plan, over (2) the value of the plan's 
assets, reduced by any credit balance in the funding standard 
account. No variable-rate premium is imposed for a year if 
contributions to the plan were at least equal to the full 
funding limit.
      The PBGC guarantee is phased in ratably in the case of 
plans that have been in effect for less than 5 years, and with 
respect to benefit increases from a plan amendment that was in 
effect for less than 5 years before termination of the plan.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

Reduced flat-rate premiums for new plans of small employers
      Under the conference agreement, for the first five plan 
years of a new single-employer plan of a small employer, the 
flat-rate PBGC premium is $5 per plan participant.
      A small employer is a contributing sponsor that, on the 
first day of the plan year, has 100 or fewer employees. For 
this purpose, all employees of the members of the controlled 
group of the contributing sponsor are taken into account. In 
the case of a plan to which more than one unrelated 
contributing sponsor contributes, employees of all contributing 
sponsors (and their controlled group members) are taken into 
account in determining whether the plan is a plan of a small 
employer.
      A new plan means a defined benefit plan maintained by a 
contributing sponsor if, during the 36-month period ending on 
the date of adoption of the plan, such contributing sponsor (or 
controlled group member or a predecessor of either) has not 
established or maintained a plan subject to PBGC coverage with 
respect to which benefits were accrued for substantially the 
same employees as are in the new plan.
Reduced variable-rate PBGC premium for new plans
      The provision provides that the variable-rate premium is 
phased in for new defined benefit plans over a six-year period 
starting with the plan's first plan year. The amount of the 
variable-rate premium is a percentage of the variable premium 
otherwise due, as follows: 0 percent of the otherwise 
applicable variable-rate premium in the first plan year; 20 
percent in the second plan year; 40 percent in the third plan 
year; 60 percent in the fourth plan year; 80 percent in the 
fifth plan year; and 100 percent in the sixth plan year (and 
thereafter).
      A new defined benefit plan is defined as described above 
under the flat-rate premium provision relating to new small 
employer plans.
Reduced variable-rate PBGC premium for small plans
      In the case of a plan of a small employer, the variable-
rate premium is no more than $5 multiplied by the number of 
plan participants in the plan at the end of the preceding plan 
year. For purposes of this provision, a small employer is a 
contributing sponsor that, on the first day of the plan year, 
has 25 or fewer employees. For this purpose, all employees of 
the members of the controlled group of the contributing sponsor 
are taken into account. In the case of a plan to which more 
than one unrelated contributing sponsor contributes, employees 
of all contributing sponsors (and their controlled group 
members) are taken into account in determining whether the plan 
is a plan of a small employer.
Effective date
      The reduction of the flat-rate premium for new plans of 
small employers and the reduction of the variable-rate premium 
for new plans are effective with respect to plans established 
after December 31, 2000. The reduction of the variable-rate 
premium for small plans is effective with respect to plan years 
beginning after December 31, 2000.

   C. Authorization for PBGC to Pay Interest on Premium Overpayment 
                    Refunds (sec. 4007(b) of ERISA)

                              Present Law

      The PBGC charges interest on underpayments of premiums, 
but is not authorized to pay interest on overpayments.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement allows the PBGC to pay interest 
on overpayments made by premium payors. Interest paid on 
overpayments is to be calculated at the same rate and in the 
same manner as interest is charged on premium underpayments.
      Effective date.--The provision is effective with respect 
to interest accruing for periods beginning not earlier than the 
date of enactment.

  D. Rules for Substantial Owner Benefits in Terminated Plans (secs. 
                  4021, 4022, 4043 and 4044 of ERISA)

                              Present Law

      Under present law, the PBGC provides participants and 
beneficiaries in a defined benefit pension plan with certain 
guarantees as to the receipt of benefits under the plan in case 
of plan termination. The employer sponsoring the defined 
benefit pension plan is required to pay premiums to the PBGC to 
provide insurance for the guaranteed benefits. In general, the 
PBGC will guarantee all basic benefits which are payable in 
periodic installments for the life (or lives) of the 
participant and his or her beneficiaries and are non-
forfeitable at the time of plan termination. The amount of the 
guaranteed benefit is subject to certain limitations. One 
limitation is that the plan (or an amendment to the plan which 
increases benefits) must be in effect for 60 months before 
termination for the PBGC to guarantee the full amount of basic 
benefits for a plan participant, other than a substantial 
owner. In the case of a substantial owner, the guaranteed basic 
benefit is phased in over 30 years beginning with participation 
in the plan. A substantial owner is one who owns the entire 
interest in an unincorporated trade or business, or who owns, 
directly or indirectly, more than 10 percent of the voting 
stock of a corporation or all the stock of a corporation, or, 
in the case of a partnership, one who owns, directly or 
indirectly, more than 10 percent of either the capital interest 
or profits interest. Special rules restricting the amount of 
benefit guaranteed and the allocation of assets also apply to 
substantial owners.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The provision provides that the 60 month phase-in of 
guaranteed benefits applies to a substantial owner with less 
than a 50 percent ownership interest. For a substantial owner 
with a 50 percent or more ownership interest (``majority 
owner''), the phase-in occurs over a 10-year period and depends 
on the number of years the plan has been in effect. The 
majority owner's guaranteed benefit is limited so that it may 
not be more than the amount phased in over 60 months for other 
participants. The rules regarding allocation of assets apply to 
substantial owners, other than majority owners, in the same 
manner as other participants.
      Effective date.--The provision is effective for plan 
terminations with respect to which notices of intent to 
terminate are provided, or for which proceedings for 
termination are instituted by the PBGC, after December 31, 
2000.

     E. Multiemployer Plan Benefits Guarantee (sec. 4022A of ERISA)

                              Present Law

      The PBGC guarantees benefits of workers in multiemployer 
plans. The monthly guarantee is equal to the participant's 
years of service multiplied by the sum of (1) 100 percent of 
the first $5 of the monthly benefit accrual rate, and (2) 75 
percent of the next $15 of the accrual rate. The level of 
benefits guaranteed by the PBGC under the multiemployer program 
has not increased since 1980. For a retiree with 30 years of 
service, the maximum guaranteed annual benefit is $5,850. The 
maximum guarantee under the PBGC's single-employer program is 
adjusted each year to reflect changes in the social security 
wage index.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement adjusts the amount guaranteed in 
multiemployer plans to account for changes in the social 
security wage index since 1980. Under the conference agreement, 
the PBGC guarantees a monthly benefit equal to the 
participant's years of service multiplied by the sum of (1) 100 
percent of the first $11 of the monthly benefit accrual rate, 
and (2) 75 percent of the next $33 of the accrual rate. Thus, 
the conference agreement increases the maximum annual guarantee 
for a retiree with 30 years of service to $12,870.
      Effective date.--The provision applies to benefits 
payable after the date of enactment, except that the provision 
does not apply to benefits under any multiemployer plan that 
has received financial assistance from the PBGC under section 
4261 of ERISA within the 1-year period ending on the date of 
enactment.

F. Civil Penalties for Breach of Fiduciary Responsibility (sec. 502 of 
                                 ERISA)

                              Present Law

      Present law requires the Secretary of Labor to assess a 
civil penalty against (1) a fiduciary who breaches a fiduciary 
responsibility under, or commits a violation of, part 4 of 
Title I of ERISA, or (2) any other person who knowingly 
participates in such a breach or violation. The penalty is 
equal to 20 percent of the ``applicable recovery amount'' that 
is paid pursuant to a settlement agreement with the Secretary 
of Labor or that a court orders to be paid in a judicial 
proceeding brought by the Secretary of Labor to enforce ERISA's 
fiduciary responsibility provisions. The Secretary of Labor may 
waive or reduce the penalty only if the Secretary finds in 
writing that either (1) the fiduciary or other person acted 
reasonably and in good faith, or (2) it is reasonable to expect 
that the fiduciary or other person cannot restore all the 
losses without severe financial hardship unless the waiver or 
reduction is granted.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement makes the assessment of the 
penalty discretionary with the Secretary of Labor, rather than 
mandatory. This change will allow the Secretary to refrain from 
imposing the penalty in certain cases as well as to assess a 
penalty of less than 20 percent of the applicable recovery 
amount. The requirement of a settlement agreement is also 
eliminated. The applicable recovery amount is any amount 
recovered by a plan or by a participant or beneficiary more 
than 30 days after the fiduciary's or other person's receipt of 
a written notice of the violation from the Department of Labor 
(``DOL''). Payments made after the 30-day grace 
period,73 whether they are made pursuant to a 
settlement agreement, or simply to discourage the DOL from 
bringing a legal action, are subject to the penalty, as are 
amounts recovered pursuant to a court order. ERISA section 
502(l) is also amended to clarify that the term ``applicable 
recovery amount'' includes payments by third parties that are 
made on behalf of the relevant fiduciary or other persons 
liable for the amount that is recovered, including those who 
did not actually pay. These changes prevent avoidance of the 
penalty by having an unrelated third party pay the recovery 
amount.
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    \73\ The 30-day period may be extended by the Secretary of Labor.
---------------------------------------------------------------------------
      Effective date.--The provision applies to any breach of 
fiduciary responsibility or other violation of part 4 of Title 
I of ERISA occurring on or after the date of enactment. The 
change with respect to ``applicable recovery amount'' includes 
a transition rule whereby a breach or other violation occurring 
before the date of enactment which continues past the 180th day 
from enactment (and which may have been discontinued during 
that period) is treated as having occurred after the date of 
enactment (to avoid having to make a complex determination 
regarding how much of the applicable recovery amount for such 
continuing violations should be attributed to the post-
enactment part of the violation).

            G. Benefit Suspension Notice (sec. 203 of ERISA)

                              Present Law

      Under present law (ERISA sec. 203(a)(3)(B)), a plan will 
not fail to satisfy the vesting requirements with respect to a 
participant by reason of suspending payment of the 
participant's benefits while such participant is employed. 
Under the applicable Department of Labor (``DOL'') regulations, 
such a suspension is only permissible if the plan notifies the 
participant during the first calendar month or payroll period 
in which the plan withholds benefit payments. Such notice must 
provide certain information and must also include a copy of the 
plan's provisions relating to the suspension of payments.
      In the case of a plan that does not pay benefits to 
active participants upon attainment of normal retirement age, 
the employer must monitor plan participants to determine when 
any participant who is still employed attains normal retirement 
age. In order to suspend payment of such a participant's 
benefits, generally a plan must, as noted above, promptly 
provide the participant with a suspension notice.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement directs the Secretary of Labor 
to revise the regulations relating to the benefit suspension 
notice to generally permit the information currently required 
to be set forth in a suspension notice to be included in the 
summary plan description. The provision also directs the 
Secretary of Labor to eliminate the requirement that the notice 
include a copy of relevant plan provisions. However, 
individuals reentering the workforce to resume work with a 
former employer after they have begun to receive benefits will 
still receive the notification of the suspension of benefits 
(and a copy of the plan's provisions relating to suspension of 
payments). In addition, if a reduced rate of future benefit 
accruals will apply to a returning employee (as of his or her 
first date of participation in the plan after returning to 
work) who has begun to receive benefits, the notice must 
include a statement that the rate of future benefit accruals 
will be reduced.
      Effective date.--The provision applies to plan years 
beginning after December 31, 2000.

  Subtitle H. Provisions Relating to Plan Amendments (sec. 481 of the 
bill) (sec. 701 of the House bill and sec. 701 of the Senate amendment)

                              Present Law

      Plan amendments to reflect amendments to the law 
generally must be made by the time prescribed for filing the 
income tax return of the employer for the employer's taxable 
year in which the change in the law occurs.
      A plan amendment may not decrease the accrued benefit of 
a plan participant (sec. 411(d)(6)).

                               House Bill

      The House bill permits certain plan amendments made 
pursuant to the changes made by the bill (or regulations issued 
under the provisions of the bill) to be retroactively 
effective. If the plan amendment meets the requirements of the 
bill, then the plan is treated as being operated in accordance 
with its terms and the amendment does not violate the 
prohibition of reductions of accrued benefits. In order for 
this treatment to apply, the plan amendment must be made on or 
before the last day of the first plan year beginning on or 
after January 1, 2003 (January 1, 2005, in the case of a 
governmental plan). If the amendment is required to be made to 
retain qualified status as a result of the changes in the bill 
(or regulations) the amendment must be made retroactively 
effective as of the date on which the change became effective 
with respect to the plan and the plan must be operated in 
compliance until the amendment is made. Amendments that are not 
required to retain qualified status but that are made pursuant 
to the changes made by the bill (or applicable regulations) may 
be made retroactive as of the first day the plan was operated 
in accordance with the amendment.
      Effective date.--The provision is effective on the date 
of enactment.

                            Senate Amendment

      The Senate amendment is the same as the House bill, 
except that the Senate amendment does not provide relief from 
the prohibition on reductions of accrued benefits.

                          Conference Agreement

      The conference agreement follows the House bill, with the 
modification described below. As under the House bill, the 
provision applies to plan amendments required to maintain 
qualified status, as well as other amendments pursuant to the 
provisions of the bill (or applicable regulations). A plan 
amendment is not considered to be pursuant to the bill (or 
applicable regulations) if it has an effective date before the 
effective date of the provision of the bill (or regulations) to 
which it relates. Similarly, the provision does not provide 
relief from section 411(d)(6) for periods prior to the 
effective date of the relevant provision of the bill (or 
regulations) or the plan amendment.
      The conference agreement provides that the Secretary is 
given authority to provide exceptions to the relief from the 
prohibition on reductions in accrued benefits. It is intended 
that the Secretary will not permit inappropriate reductions in 
contributions or benefits that are not directly related to the 
provisions of the bill. For example, it is intended that a plan 
that incorporates the section 415 limits by reference could be 
retroactively amended to impose the section 415 limits in 
effect before the bill. On the other hand, suppose a plan that 
incorporates the section 401(a)(17) limit on compensation by 
reference provides for an employer contribution of 3 percent of 
compensation. It is expected that the Secretary would provide 
that the plan could not be amended retroactively to reduce the 
contribution percentage, even though the reduction will result 
in the same dollar level of contributions for some participants 
because of the increase in compensation taken into account 
under the plan. As another example, suppose that under present 
law a plan is top-heavy and therefore a minimum benefit is 
required under the plan, and that under the provisions of the 
bill, the plan would not be considered to be top heavy. It is 
expected that the Secretary would generally permit plans to be 
retroactively amended to reflect the new top-heavy provisions 
of the bill.

 TITLE V. INCENTIVES FOR PUBLIC SCHOOL CONSTRUCTION AND MODERNIZATION 
  (secs. 501-505 of the bill and secs. 103, 148, 1397E and new secs. 
                      1397F and 1397G of the Code)

                              Present Law

Tax-exempt bonds
            In general
      Interest on debt incurred by States or local governments 
is excluded from income if the proceeds of the borrowing are 
used to carry out governmental functions of those entities or 
the debt is repaid with governmental funds (sec. 103). Like 
other activities carried out and paid for by States and local 
governments, the construction, renovation, and operation of 
public schools is an activity eligible for financing with the 
proceeds of tax-exempt bonds.
      Interest on bonds that nominally are issued by States or 
local governments, but the proceeds of which are used (directly 
or indirectly) by a private person and payment of which is 
derived from funds of such a private person is taxable unless 
the purpose of the borrowing is approved specifically in the 
Code or in a non-Code provision of a revenue Act. These bonds 
are called ``private activity bonds.'' The term ``private 
person'' includes the Federal Government and all other 
individuals and entities other than States or local 
governments.
            Private activities eligible for financing with tax-exempt 
                    private activity bonds
      The Code includes several exceptions permitting States or 
local governments to act as conduits providing tax-exempt 
financing for private activities. Both capital expenditures and 
limited working capital expenditures of charitable 
organizations described in section 501(c)(3) of the Code--
including elementary, secondary, and post-secondary schools--
may be financed with tax-exempt private activity bonds 
(``qualified 501(c)(3) bonds'').
      In most cases, the volume of tax-exempt private activity 
bonds is restricted by aggregate annual limits imposed on bonds 
issued by issuers within each State. These annual volume limits 
equal $50 per resident of the State, or $150 million if 
greater. The annual State private activity bond volume limits 
are scheduled to increase to the greater of $75 per resident of 
the State or $225 million in calendar year 2007. The increase 
will be phased in ratably beginning in calendar year 
2003.1 This increase was enacted by the Tax and 
Trade Relief Extension Act of 1998. Qualified 501(c)(3) bonds 
are among the tax-exempt private activity bonds that are not 
subject to these volume limits.
---------------------------------------------------------------------------
    \1\ Another provision of the conference agreement accelerates this 
increase in the volume limits in 2002.
---------------------------------------------------------------------------
      Private activity tax-exempt bonds may not be used to 
finance schools owned or operated by private, for-profit 
businesses.
            Arbitrage restrictions on tax-exempt bonds
      The Federal income tax does not apply to income of States 
and local governments that is derived from the exercise of an 
essential governmental function. To prevent these tax-exempt 
entities from issuing more Federally subsidized tax-exempt 
bonds than is necessary for the activity being financed or from 
issuing such bonds earlier than necessary, the Code includes 
arbitrage restrictions limiting the ability to profit from 
investment of tax-exempt bond proceeds. In general, arbitrage 
profits may be earned only during specified periods (e.g., 
defined ``temporary periods'') before funds are needed for the 
purpose of the borrowing or on specified types of investments 
(e.g., ``reasonably required reserve or replacement funds''). 
Subject to limited exceptions, investment profits that are 
earned during these periods or on such investments must be 
rebated to the Federal Government.
      The Code includes three exceptions applicable to 
education-related bonds. First, issuers of all types of tax-
exempt bonds are not required to rebate arbitrage profits if 
all of the proceeds of the bonds are spent for the purpose of 
the borrowing within six months after issuance. In the case of 
governmental bonds (including bonds to finance public schools) 
the six-month expenditure exception is treated as satisfied if 
at least 95 percent of the proceeds is spent within six months 
and the remaining five percent is spent within 12 months after 
the bonds are issued.
      Second, in the case of bonds to finance certain 
construction activities, including school construction and 
renovation, the six-month period is extended to 24 months for 
construction proceeds. Arbitrage profits earned on construction 
proceeds are not required to be rebated if all such proceeds 
(other than certain retainage amounts) are spent by the end of 
the 24-month period and prescribed intermediate spending 
percentages are satisfied.
      Third, governmental bonds issued by ``small'' governments 
are not subject to the rebate requirement. Small governments 
are defined as general purpose governmental units that issue no 
more than $5 million of tax-exempt governmental bonds in a 
calendar year. The $5 million limit is increased to $10 million 
if at least $5 million of the bonds are used to finance public 
schools.
      Another exception to the arbitrage restriction, enacted 
as part of the Tax Reform Act of 1984, provides that the pledge 
of income from investments in a Fund established under a 
provision of a State constitution adopted in 1876 as security 
for a limited amount of tax-exempt bonds will not cause 
interest on those bonds to be taxable. The terms of this 
exception are limited to State constitutional or statutory 
restrictions in effect as of October 9, 1969. The Fund consists 
of certain State lands that were set aside for the benefit of 
higher education, the income from mineral rights to these 
lands, and certain other earnings on Fund assets. The State 
constitution directs that monies held in the Fund are to be 
invested in interest-bearing obligations and other securities. 
The State constitution does not permit the expenditure or 
mortgage of the Fund for any purpose. Income from the Fund is 
apportioned between two university systems operated by the 
State. Tax-exempt bonds issued by the two university systems 
are secured by and payable from the income of the Fund. These 
bonds are used to finance buildings and other permanent 
improvements for the universities.
      The General Assembly of the State approved proposed 
constitutional amendments regarding the manner in which amounts 
in the Fund are paid for the benefit of the two university 
systems. These amendments were voted on and passed by the 
State's citizens in November 1999. The State constitutional 
amendments have the effect of permitting the Fund to make 
annual distributions similar to standard university endowment 
funds, rather than the previous practice, which tied 
distributions to annual income performance, creating a variable 
pattern of distributions. Since these amendments were not in 
effect as of October 9, 1969, the amendments eliminate the 
benefits of the 1984 exception from the tax-exempt bond 
arbitrage restrictions.
Qualified Zone Academy Bonds (``QZABs'')
      As an alternative to traditional tax-exempt bonds, 
certain States and local governments are given the authority to 
issue ``qualified zone academy bonds.'' Under present law, $400 
million of qualified zone academy bonds may be issued per year 
in 1998, 1999, 2000, and 2001. The $400 million bond authority 
is allocated each year among the States according to their 
respective populations of individuals below the poverty line. 
Each State, in turn, allocates the credit to qualified zone 
academies within such State. A State may carry over any unused 
allocation into subsequent years (the first two years following 
the unused limitation year; three years for carryforwards from 
1998 or 1999).
      To be a qualified zone academy bond, a bond must satisfy 
several requirements. First, the bond must be issued pursuant 
to an allocation of bond authority from the issuer's State 
educational agency. Second, at least 95 percent of the bond 
proceeds must be used for an eligible purpose at a qualified 
zone academy. Eligible purposes include renovating school 
facilities, acquiring equipment, developing course materials, 
or training teachers. A qualified zone academy is a public 
school (or an academic program within a public school) that is 
designed in cooperation with business and is either (1) located 
in an empowerment zone or enterprise community or (2) attended 
by students at least 35 percent of whom are estimated to be 
eligible for free or reduced-cost lunches under the National 
School Lunch Act. Finally, private businesses must have 
promised to contribute to the qualified zone academy certain 
property or services with a present value equal to at least 10 
percent of the bond proceeds.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

Extension of authority to issue present-law QZABs
      The conference agreement extends authority to issue QZABs 
for two additional years, through December 31, 2003. Except as 
described below, present-law requirements for these bonds are 
retained.
Extension of modified QZAB authority to school construction
      The conference agreement extends authority to issue 
QZABs, with modifications, to public school construction. The 
agreement authorizes issuance of up to $5 billion per year of 
school construction QZABs in 2001, 2002, and 2003. The $5 
billion of annual authority will be allocated to the States 
(including the District of Columbia and U.S. possessions) by 
the Treasury Department on the following basis: 50 percent of 
the aggregate annual amount is allocated to the States based on 
population and 50 percent is allocated based on the portion of 
the State's population that lives in poverty. These allocations 
are to be based on the most recently available Census Bureau 
data. The State allocations are subject to a ``small State 
floor'' of $25 million per State.
      Unissued tax-credit bond authority may be carried forward 
for up to two years. As is true under the current QZAB 
allocation rules, bond authority is treated as allocated on a 
``FIFO'' basis.
      Subject to a special rule for certain larger school 
districts, Governors are granted interim authority to allocate 
their State's authorized school construction QZAB issuance 
among school districts in the State unless State legislatures 
prescribe different allocation rules. For larger local school 
districts, defined as districts having school age populations 
in excess of 40,000, the conference agreement provides a 
minimum allocation (which cannot be overridden by State action) 
in an amount equal to the percentage of the State's total 
population that resides in the school district. The term 
``school age population'' is defined as children ages five 
through seventeen.
      In addition to the $5 billion general aggregate annual 
bond authority, the conference agreement authorizes up to $200 
million of school construction QZABs to be issued to finance 
public schools operated by or for the benefit of Indian tribes. 
This $200 million of additional authority is a one-time 
authorization which may be allocated by the Treasury Department 
among Indian tribes at any time during the five-year period 
when school construction QZABs and present-law QZABs may be 
issued. Both the allocation authority and the authority to 
issue these bonds expires after December 31, 2005.
      School construction is defined as capital expenditures 
for new construction, renovation, or repair or public schools 
(real property of a character subject to the allowance for 
depreciation), including charter schools, and the acquisition 
of functionally related and subordinate land. Unlike present-
law QZABs, contributions by private businesses are optional, 
but not required, for schools receiving school construction 
QZAB financing. Additionally, the school construction QZABs are 
not limited to schools within an empowerment zone or enterprise 
community, or to schools satisfying the free or reduced-cost 
lunch criteria.
Rules applicable to QZABs issued after December 31, 2000 and to school 
        construction QZABs
      The following administrative rules apply to QZABs issued 
after December 31, 2000, and to the new modified QZABs for 
school construction:
      (1) The maximum term of the bonds is 15 years.
      (2) Information reporting requirements similar to the 
requirements that apply under present law to tax-exempt bonds 
(sec. 149(e)) are extended to these bonds.
      (3) Eligible recipients of the tax credits are expanded 
to include all C corporations (but not S corporations or 
individuals).
      (4) Credits accrue to holders on a quarterly basis 
(rather than annually as under the present-law QZAB program).
      (5) Credit rates are set by reference to the daily 
corporate rate index established by the Treasury Department, 
and the credit rate for each bond issue is set as of the day 
before the date the bonds are issued (i.e., sold).
      (6) As under the present-law QZAB program, credits are 
includible in the bondholder's gross income, but tax credits 
may be claimed against both regular income tax and the 
alternative minimum tax.
      (7) All property financed with tax-credit bonds must be 
owned by a State or local government. Further, all such 
property must be used for a qualified public school purpose 
during the entire period that the bonds are outstanding. 
Failure to use the property for a qualified purpose results in 
termination of tax credits beginning on the later of (a) the 
date of bond issuance of (b) three years before the change in 
use occurs. Issuers are obligated to pay the Federal Government 
an amount equal to all credits accruing after the stated date 
(plus interest); bondholders are secondarily liable for this 
amount.
      (8) Tax-credit bonds may not be issued to refinance any 
outstanding debt except certain ``bridge financing,'' defined 
as construction period financing that (a) is issued after the 
date of the conference agreement's enactment; (b) has a term 
not exceeding one year and (c) is issued for a project 
identified for tax-credit bond financing before issuance of the 
bridge financing.
      (9) Arbitrage restrictions similar to those that apply to 
tax-exempt bonds (as modified by the conference agreement) are 
extended to present-law QZABs and school construction QZABs.
      Bond proceeds must be spent for the purpose of the 
borrowing within 48 months after bonds are issued, with 
intermediate spending requirements being prescribed:

------------------------------------------------------------------------
                  Within                         Must spend at least
------------------------------------------------------------------------
12 months.................................  10 percent.
24 months.................................  30 percent.
36 months.................................  60 percent.
48 months.................................  100 percent (less present-
                                             law retainage amounts (not
                                             exceeding 5 percent) which
                                             must be spent within 60
                                             months).
------------------------------------------------------------------------

      Issuers failing to satisfy the intermediate 12, 24, or 
36-month expenditure requirements must pay the Federal 
Government an amount equal to the investment earnings on all 
proceeds of the bond issue.
      Issuers failing to satisfy the 48-month or 60-month 
expenditure requirements must redeem an amount of bonds having 
a face amount equal to the unspent proceeds.
      A ``small governmental unit'' exception is provided to 
these arbitrage restrictions. This exception is coordinated 
with the present-law tax-exempt bond exception for these units 
(as that exception is modified by the agreement) to ensure that 
issuers do not claim double benefits.
      Rules similar to the tax-exempt bond sinking fund 
restrictions are extended to tax- credit bonds. Under these 
rules, all replacement funds constituting a sinking fund under 
the tax-exempt bond rules must be invested in non-interest-
bearing State and Local Government Series (``SLGS'') 
obligations issued by the Treasury.
      (10) A State must allocate its school construction QZAB 
authority in accordance with a qualified allocation plan. A 
qualified allocation plan is to contain, among other things: 
(a) an identification of the State's needs for public school 
facilities, and (b) a description of how the State will make 
allocations to address those needs, including how the State 
will ensure the needs of both rural, suburban, and urban areas 
will be recognized, ensure that the needs of localities with 
the greatest needs will be met and give priority to the role of 
charter schools in achieving State educational objectives. This 
requirement applies to allocations of tax-credit bond authority 
made on the date that is six months after the date the 
conference agreement is enacted.
      Effective date.--These provisions apply to bonds issued 
in calendar years beginning after December 31, 2000.
Increase in the amount of governmental bonds that may be issued by 
        governments qualifying for the ``small governmental unit'' 
        arbitrage rebate exception
      The additional amount of governmental bonds for public 
schools that small governmental units may issue without being 
subject to the arbitrage rebate requirement is increased from 
$5 million to $10 million. Thus, these governmental units may 
issue up to $15 million of governmental bonds in a calendar 
year provided that at least $10 million of the bonds are used 
to finance public school construction expenditures. This 
exception is coordinated with the tax- credit bond exception 
for these units to ensure that issuers do not claim double 
benefits, i.e., both tax-credit bonds and tax-exempt bonds are 
taken into account for purposes of this limitation.
      Effective date.--The provision applies to bonds issued in 
calendar years beginning after December 31, 2000.
Conform provisions relating to arbitrage treatment to reflect state 
        constitutional amendments
      The conference agreement conforms the 1984 exception to 
the State constitutional amendments to permit its continued 
applicability to bonds of the two university systems. 
Limitations on the aggregate amount of bonds which may benefit 
from the exception are not modified.
      Effective date.--The provision takes effect on January 1, 
2001.
Construction bond expenditure rule for governmental bonds for public 
        schools
      The present-law 24-month expenditure exception to the 
arbitrage rebate requirement is liberalized for certain public 
school bonds. Under the agreement, no rebate is required with 
respect to earnings on available construction proceeds of 
public school bonds if the proceeds are spent within 48 months 
after the bonds are issued and the following intermediate 
spending levels are satisfied:

------------------------------------------------------------------------
                  Within                         Must spend at least
------------------------------------------------------------------------
12 months.................................  10 percent.
24 months.................................  30 percent.
36 months.................................  60 percent.
48 months.................................  100 percent (less present-
                                             law retainage amounts (not
                                             exceeding 5 percent) which
                                             must be spent within 60
                                             months).
------------------------------------------------------------------------

      Effective date.--The provision applies to bonds issued 
after December 31, 2000.
Issuance of tax-exempt private activity bonds for certain public school 
        facilities
      The private activities for which tax-exempt bonds may be 
issued are expanded to include elementary and secondary public 
school facilities which are owned by private, for-profit 
corporations pursuant to public-private partnership agreements 
with a State or local educational agency. The term school 
facility includes school buildings and functionally related and 
subordinate land (including stadiums or other athletic 
facilities primarily used for school events) and depreciable 
personal property used in the school facility. The school 
facilities for which these bonds are issued must be operated by 
a public educational agency as part of a system of public 
schools.
      A public-private partnership agreement is defined as an 
arrangement pursuant to which the for-profit corporate party 
constructs, rehabilitates, refurbishes or equips a school 
facility. The agreement must provide that, at the end of the 
contract term, ownership of the bond-financed property is 
transferred to the public school agency party to the agreement 
for no additional consideration.
      Issuance of these bonds is subject to a separate annual 
per-State volume limit equal to the greater of $10 per resident 
($5 million, if greater) in lieu of the present-law State 
private activity bond volume limits. As with the present-law 
State private activity bond volume limits, States decide how to 
allocate the bond authority to State and local government 
agencies. Bond authority that is unused in the year in which it 
arises may be carried forward for up to three years for public 
school projects under rules similar to the carryforward rules 
of the present-law private activity bond volume limits.
      Effective date.--These provisions are effective for bonds 
issued after December 31, 2000.

                 TITLE VI. COMMUNITY RENEWAL PROVISIONS

 A. Renewal Community Provisions (secs. 601-602 of the bill and secs. 
              51, 469, and new secs. 1400E-J of the Code)

                              Present Law

      In recent years, provisions have been added to the 
Internal Revenue Code that target specific geographic areas for 
special Federal income tax treatment. For example, empowerment 
zones and enterprise communities generally provide tax 
incentives for businesses that locate within certain geographic 
areas designated by the Secretaries of Housing and Urban 
Development (``HUD'') and Agriculture.

                               House Bill

      No provision. However, H.R. 4923, as passed by the House, 
authorizes the designation of 40 ``renewal communities'' within 
which special tax incentives will be available. The following 
is a description of the designation process and the tax 
incentives that would be available within the renewal 
communities.
Designation process
      Designation of 40 renewal communities.--The Secretary of 
HUD,2 is authorized to designate up to 40 ``renewal 
communities'' from areas nominated by States and local 
governments. At least eight of the designated communities must 
be in rural areas. The Secretary of HUD is required to publish 
(within four months after enactment) regulations describing the 
nomination and selection process. Designations of renewal 
communities are to be made within 24 months after the 
regulations are published. The designation of an area as a 
renewal community generally will be effective on July 1, 2001, 
and will terminate after December 31, 2009.
---------------------------------------------------------------------------
    \2\ In making the designations, the Secretary of HUD must consult 
with the Secretaries of Agriculture, Commerce, Labor, Treasury, the 
Director of the Office of Management and Budget; and the Administrator 
of the Small Business Administration (and the Secretary of the Interior 
in the case of an area on an Indian reservation).
---------------------------------------------------------------------------
      Eligibility criteria.--To be designated as a renewal 
community, a nominated area must meet the following criteria: 
(1) each census tract must have a poverty rate of at least 20 
percent; 3 (2) in the case of an urban area, at 
least 70 percent of the households have incomes below 80 
percent of the median income of households within the local 
government jurisdiction; (3) the unemployment rate is at least 
1.5 times the national unemployment rate; and (4) the area is 
one of pervasive poverty, unemployment, and general distress. 
Those areas with the highest average ranking of eligibility 
factors (1), (2), and (3) above would be designated as renewal 
communities. A nominated area within the District of Columbia 
becomes a renewal community (without regard to its ranking of 
eligibility factors) provided that it satisfies the area and 
eligibility requirements and the required State and local 
commitments described below.4 The Secretary of HUD 
shall take into account in selecting areas for designation the 
extent to which such areas have a high incidence of crime, as 
well as whether the area has census tracts identified in the 
May 12, 1998, report of the General Accounting Office regarding 
the identification of economically distressed areas.
---------------------------------------------------------------------------
    \3\ Determined using 1990 census data.
    \4\ The designation of a nominated area within the District of 
Columbia as a renewal community becomes effective on January 1, 2003 
(upon the expiration of the designation of the District of Columbia 
Enterprise Zone).
---------------------------------------------------------------------------
      There are no geographic size limitations placed on 
renewal communities. Instead, the boundary of a renewal 
community must be continuous. In addition, the renewal 
community must have a minimum population of 4,000 if the 
community is located within a metropolitan statistical area (at 
least 1,000 in all other cases), and a maximum population of 
not more than 200,000. The population limitations do not apply 
to any renewal community that is entirely within an Indian 
reservation.
      Required State and local commitments.--In order for an 
area to be designated as a renewal community, State and local 
governments are required to submit a written course of action 
in which the State and local governments promise to take at 
least four of the following governmental actions within the 
nominated area: (1) a reduction of tax rates or fees; (2) an 
increase in the level of efficiency of local services; (3) 
crime reduction strategies; (4) actions to remove or streamline 
governmental requirements; (5) involvement by private entities 
and community groups, such as to provide jobs and job training 
and financial assistance; and (6) the gift (or sale at below 
fair market value) of surplus realty by the State or local 
government to community organizations or private companies.
      In addition, the nominating State and local governments 
must promise to promote economic growth in the nominated area 
by repealing or not enforcing four of the following: (1) 
licensing requirements for occupations that do not ordinarily 
require a professional degree; (2) zoning restrictions on home-
based businesses that do not create a public nuisance; (3) 
permit requirements for street vendors who do not create a 
public nuisance; (4) zoning or other restrictions that impede 
the formation of schools or child care centers; and (5) 
franchises or other restrictions on competition for businesses 
providing public services, including but not limited to 
taxicabs, jitneys, cable television, or trash hauling, unless 
such regulations are necessary for and well-tailored to the 
protection of health and safety.
      Empowerment zones and enterprise communities seeking 
designation as renewal communities.--An empowerment zone or 
enterprise community can apply for designation as a renewal 
community. If a renewal community designation is granted, then 
an area's designation as an empowerment zone or enterprise 
community ceases as of the date the area's designation as a 
renewal community takes effect.
Tax incentives for renewal communities
      Under H.R. 4923, the following tax incentives are 
available during the period beginning July 1, 2001, and ending 
December 31, 2009.
      Zero-percent capital gain rate.--H.R. 4923 provides a 
zero-percent capital gains rate for gain from the sale of a 
qualified community asset acquired after June 30, 2001, and 
before January 1, 2010, and held for more than five years. A 
``qualified community asset'' includes: (1) qualified community 
stock (meaning original-issue stock purchased for cash in a 
renewal community business); (2) a qualified community 
partnership interest (meaning a partnership interest acquired 
for cash in a renewal community business); and (3) qualified 
community business property (meaning tangible property 
originally used in a renewal community business by the 
taxpayer) that is purchased or substantially improved after 
June 30, 2001.
      A ``renewal community business'' is similar to the 
present-law definition of an enterprise zone 
business.5 Property will continue to be a qualified 
community asset if sold (or otherwise transferred) to a 
subsequent purchaser, provided that the property continues to 
represent an interest in (or tangible property used in) a 
renewal community business. The termination of an area's status 
as a renewal community will not affect whether property is a 
qualified community asset, but any gain attributable to the 
period before July 1, 2001, or after December 31, 2014, will 
not be eligible for the exclusion.
---------------------------------------------------------------------------
    \5\ An ``enterprise zone business'' is defined in section 1397B and 
is described in connection with the expansion of the empowerment zone 
benefits.
---------------------------------------------------------------------------
      Renewal community employment credit.--Under H.R. 4923, a 
15-percent wage credit is available to employers for the first 
$10,000 of qualified wages paid to each employee who (1) is a 
resident of the renewal community, and (2) performs 
substantially all employment services within the renewal 
community in a trade or business of the employer. The wage 
credit rate applies to qualifying wages paid after June 30, 
2001, and before January 1, 2010.
      Wages that qualify for the credit are wages that are 
considered ``qualified zone wages'' for purposes of the 
empowerment zone wage credit (including coordination with the 
Work Opportunity Tax Credit). In general, any taxable business 
carrying out activities in the renewal community may claim the 
wage credit.
      Commercial revitalization deduction.--H.R. 4923 allows 
each State to allocate up to $12 million of ``commercial 
revitalization expenditures'' to each renewal community located 
within the State for each calendar year after 2001 and before 
2010 ($6 million for the period of July 1, 2001 through 
December 31, 2001). The appropriate State agency will make the 
allocations pursuant to a qualified allocation plan.
      A ``commercial revitalization expenditure'' means the 
cost of a new building or the cost of substantially 
rehabilitating an existing building. The building must be used 
for commercial purposes and be located in a renewal community. 
In the case of the rehabilitation of an existing building, the 
cost of acquiring the building will be treated as qualifying 
expenditures only to the extent that such costs do not exceed 
30 percent of the other rehabilitation expenditures. The 
qualifying expenditures for any building cannot exceed $10 
million.
      A taxpayer can elect either to (a) deduct one-half of the 
commercial revitalization expenditures for the taxable year the 
building is placed in service or (b) amortize all the 
expenditures ratably over the 120-month period beginning with 
the month the building is placed in service. No depreciation is 
allowed for amounts deducted under this provision. The adjusted 
basis is reduced by the amount of the commercial revitalization 
deduction, and the deduction is treated as a depreciation 
deduction in applying the depreciation recapture rules (e.g., 
sec. 1250).
      The commercial revitalization deduction is treated in the 
same manner as the low-income housing credit in applying the 
passive loss rules (sec. 469). Thus, up to $25,000 of 
deductions (together with the other deductions and credits not 
subject to the passive loss limitation by reason of section 
469(i)) are allowed to an individual taxpayer regardless of the 
taxpayer's adjusted gross income. The commercial revitalization 
deduction is allowed in computing a taxpayer's alternative 
minimum taxable income.
      Additional section 179 expensing.--Under H.R. 4923, a 
renewal community business is allowed an additional $35,000 of 
section 179 expensing for qualified renewal property placed in 
service after June 30, 2001, and before January 1, 2010. The 
section 179 expensing allowed to a taxpayer is phased out by 
the amount by which 50 percent of the cost of qualified renewal 
property placed in service during the year by the taxpayer 
exceeds $200,000. The term ``qualified renewal property'' is 
similar to the definition of ``qualified zone property'' used 
in connection with empowerment zones.
      Expensing of environmental remediation costs 
(``brownfields'').--Under H.R. 4923, a renewal community is 
treated as a ``targeted area'' under section 198 (which permits 
the expensing of environmental remediation costs). Thus, 
taxpayers can elect to treat certain environmental remediation 
expenditures that otherwise would be capitalized as deductible 
in the year paid or incurred. This provision applies to 
expenditures incurred after June 30, 2001, and before January 
1, 2010.
      Extension of work opportunity tax credit (``WOTC'').--
H.R. 4923 expands the high-risk youth and qualified summer 
youth categories in the WOTC to include qualified individuals 
who live in a renewal community.
      Effective date.--Renewal communities must be designated 
within 24 months after publication of regulations by HUD. The 
tax benefits available in renewal communities are effective for 
the period beginning July 1, 2001, and ending December 31, 
2009.

                            senate amendment

      No provision. However, S. 3152 authorizes the Secretaries 
of HUD and Agriculture to designate up to 30 renewal zones from 
areas nominated by States and local governments. At least six 
of the designated renewal zones must be in rural areas. The 
Secretary of HUD is required to publish (within four months 
after enactment) regulations describing the nomination and 
selection process. Designations of renewal zones must be made 
before January 1, 2002, and the designations are effective for 
the period beginning on January 1, 2002 through December 31, 
2009.
      The eligibility criteria (as well as the population and 
geographic limitations) are similar to those for renewal 
communities in the House bill, except that S. 3152 provides 
that any State without any empowerment zone would be given 
priority in the designation process. Also, the designations of 
renewal zones must result in (after taking into account 
existing empowerment zones) each State having at least one zone 
designation (empowerment or renewal zone). In addition, S. 3152 
provides that, in lieu of the poverty, income, and unemployment 
criteria, outmigration may be taken into account in the 
designation of one rural renewal zone. Under a separate 
provision in S. 3152, the designation of the District of 
Columbia Enterprise Zone would be extended through December 31, 
2006.
      In order for an area to be designated as a renewal zone, 
State and local governments are required to submit a written 
course of action in which the State and local governments 
promise to take at least four of the governmental actions 
described in H.R. 4923. However, S. 3152 does not contain any 
of the economic growth provision requirements described in 
connection with renewal communities.
      Tax incentives for renewal zones.--Under S. 3152, 
businesses in renewal zones would be eligible for the following 
tax incentives during the period beginning January 1, 2002 and 
ending December 31, 2009: (1) a zero-percent capital gains rate 
for qualifying assets limited to an aggregate amount not to 
exceed $25 million of gain per taxpayer; 6 (2) a 15-
percent wage credit for the first $15,000 of qualifying wages; 
(3) $35,000 in additional 179 expensing for qualifying 
property; (4) and the enhanced tax-exempt bond rules that 
currently apply to businesses in the Round II empowerment 
zones.
---------------------------------------------------------------------------
    \6\ Any gain attributable to the period before January 1, 2002, or 
after December 31, 2014, would not be eligible for the zero-percent 
capital gains rate.
---------------------------------------------------------------------------
      GAO report.--The General Accounting Office will audit and 
report to Congress every three years (beginning on January 31, 
2004) on the renewal zone program and its effect on poverty, 
unemployment, and economic growth within the designated renewal 
zones.
      Effective date.--The 30 new renewal zones must be 
designated by January 1, 2002, and the resulting tax benefits 
are available for the period beginning January 1, 2002, and 
ending December 31, 2009.

                          conference agreement

      The conference agreement follows the provisions of H.R. 
4923 with certain modifications to the designation process for 
renewal communities. The conference agreement authorizes the 
designation of 40 renewal communities, of which at least 12 
must be in rural areas. Of the 12 rural renewal communities, 
one shall be an area within Mississippi, designated by the 
State of Mississippi, that includes at least one census tract 
within Madison County, Mississippi.
      The tax incentives are the same as those described in 
H.R. 4923--i.e., (1) a zero-percent capital gains rate for 
capital gain from the sale of qualifying assets held for more 
than five years; (2) a 15 percent wage credit to employers for 
the first $10,000 of qualified wages paid to qualifying 
employees; (3) a commercial revitalization expenditure; (4) an 
additional $35,000 of section 179 expensing for qualified 
renewal property; and (5) an expansion of the Work Opportunity 
Tax Credit with respect to qualified individuals who live in a 
renewal community.7 The 40 renewal communities must 
be designated by January 1, 2002, and the resulting tax 
benefits are available for the period beginning January 1, 
2002, and ending December 31, 2009.8
---------------------------------------------------------------------------
    \7\ Under the conference agreement, renewal communities are not 
``targeted areas'' for purposes of permitting expensing of certain 
environmental remediation costs. Another provision described below 
extends the brownfields provision for two years and eliminates the 
targeted area requirement.
    \8\ If a renewal community designation is terminated prior to 
December 31, 2009, the tax incentives would cease to be available as of 
the termination date.
---------------------------------------------------------------------------
      The conference agreement provides that, with respect to 
the first 20 designations of nominated areas as renewal 
communities, preference will be given to nominated areas that 
are enterprise communities and empowerment zones under present 
law that otherwise meet the requirements for designation as a 
renewal community.
      The conference agreement includes the priority 
designation with respect to the District of Columbia Enterprise 
Zone (as contained in H.R. 4923). The conference agreement also 
includes the provision from S. 3152 that, in lieu of the 
poverty, income, and unemployment criteria, outmigration may be 
taken into account in the designation of one rural renewal 
community.
      The General Accounting Office will audit and report to 
Congress on January 31, 2004, and again in 2007 and 2010, on 
the renewal community program and its effect on poverty, 
unemployment, and economic growth within the designated renewal 
communities.
      Effective date.--The 40 renewal communities must be 
designated by January 1, 2002, and the resulting tax benefits 
will be available for the period beginning January 1, 2002, and 
ending December 31, 2009.

                   B. Empowerment Zone Tax Incentives

1. Extension and expansion of empowerment zones (secs. 611-615 of the 
        bill and secs. 1391, 1394, 1396, and 1397A of the Code)

                              present law

Round I empowerment zones
      The Omnibus Budget Reconciliation Act of 1993 (``OBRA 
1993'') authorized the designation of nine empowerment zones 
(``Round I empowerment zones'') to provide tax incentives for 
businesses to locate within targeted areas designated by the 
Secretaries of HUD and Agriculture. The Taxpayer Relief Act of 
1997 (``1997 Act'') authorized the designation of two 
additional Round I urban empowerment zones.
      Businesses in the 11 Round I empowerment zones qualify 
for the following tax incentives: (1) a 20-percent wage credit 
for the first $15,000 of wages paid to a zone resident who 
works in the empowerment zone,9 (2) an additional 
$20,000 of section 179 expensing for qualifying zone property, 
and (3) tax-exempt financing for certain qualifying zone 
facilities.10 The tax incentives with respect to the 
empowerment zones designated by OBRA 1993 generally are 
available during the 10-year period of 1995 through 2004. The 
tax incentives with respect to the two additional Round I 
empowerment zones generally are available during the 10-year 
period of 2000 through 2009.11
---------------------------------------------------------------------------
    \9\ For wages paid in calendar years during the period 1994 through 
2001, the credit rate is 20 percent. The credit rate is reduced to 15 
percent for calendar year 2002, 10 percent for calendar year 2003, and 
5 percent for calendar year 2004. No wage credit is available after 
2004 in the original nine empowerment zones.
    \10\ For purposes of these tax incentives, a qualifying business 
does not include a trade or business consisting predominantly of the 
development or holding of intangibles for sale or license (sec. 
1397B(d)(4)). While the provision does not modify the definition of a 
qualifying business, the sponsors of the legislation intend to review 
this issue.
    \11\ Except for the wage credit, which is reduced to 15 percent for 
calendar year 2005, and then reduced by five percentage points in each 
year in 2006 and 2007, with no wage credit available after 2007.
---------------------------------------------------------------------------
Round II empowerment zones
      The 1997 Act also authorized the designation of 20 
additional empowerment zones (``Round II empowerment zones''), 
of which 15 are located in urban areas and five are located in 
rural areas. Businesses in the Round II empowerment zones are 
not eligible for the wage credit, but are eligible to receive 
up to $20,000 of additional section 179 expensing. Businesses 
in the Round II empowerment zones also are eligible for more 
generous tax-exempt financing benefits than those available in 
the Round I empowerment zones. Specifically, the tax-exempt 
financing benefits for the Round II empowerment zones are not 
subject to the State private activity bond volume caps (but are 
subject to separate per-zone volume limitations), and the per-
business size limitations that apply to the Round I empowerment 
zones and enterprise communities (i.e., $3 million for each 
qualified enterprise zone business with a maximum of $20 
million for each principal user for all zones and communities) 
do not apply to qualifying bonds issued for Round II 
empowerment zones. The tax incentives with respect to the Round 
II empowerment zones generally are available during the 10-year 
period of 1999 through 2008.

                               house bill

      No provision. However, as described in greater detail 
below, H.R. 4923 conforms and enhances the tax incentives for 
the Round I and Round II empowerment zones and extends their 
designations through December 31, 2009. H.R. 4923 also 
authorizes the designation of nine new empowerment zones 
(``Round III empowerment zones'').
Extension of tax incentives for Round I and Round II empowerment zones
      The designation of empowerment zone status for Round I 
and II empowerment zones (other than the District of Columbia 
Enterprise Zone) 12 is extended through December 31, 
2009. In addition, the 20-percent wage credit is made available 
in all Round I and II empowerment zones for qualifying wages 
paid or incurred after December 31, 2001. The credit rate 
remains at 20 percent (rather than being phased down) through 
December 31, 2009, in Round I and Round II empowerment zones.
---------------------------------------------------------------------------
    \12\ As previously discussed, under H.R. 4923, the District of 
Columbia Enterprise Zone is given a priority designation as a renewal 
community effective January 1, 2003.
---------------------------------------------------------------------------
      In addition, $35,000 (rather than $20,000) of additional 
section 179 expensing is available for qualified zone property 
placed in service in taxable years beginning after December 31, 
2001, by a qualified business in any of the empowerment 
zones.13 Businesses in the D.C. Enterprise Zone are 
entitled to the additional section 179 expensing until the 
termination of the D.C. zone designation.14 The bill 
also extends an empowerment zone's status as a ``targeted 
area'' under section 198 (thus permitting expensing of 
environmental remediation costs). The bill applies to expenses 
incurred after December 31, 2001, and before January 1, 2010.
---------------------------------------------------------------------------
    \13\ The additional $35,000 of section 179 expensing is available 
throughout all areas that are part of a designated empowerment zone, 
including the non-contiguous ``developable sites'' that were allowed to 
be part of the designated Round II empowerment zones under the 1997 
Act.
    \14\ The D.C. Enterprise Zone is scheduled to terminate on December 
31, 2002.
---------------------------------------------------------------------------
      Businesses located in Round I empowerment zones (other 
than the D.C. Enterprise Zone) 15 also are eligible 
for the more generous tax-exempt bond rules that apply under 
present law to businesses in the Round II empowerment zones 
(sec. 1394(f)). The bill applies to tax-exempt bonds issued 
after December 31, 2001. Bonds that have been issued by 
businesses in Round I zones before January 1, 2002, are not 
taken into account in applying the limitations on the amount of 
new empowerment zone facility bonds that can be issued under 
the bill.
---------------------------------------------------------------------------
    \15\ The present-law rules of sections 1394 and 1400A continue to 
apply with respect to the D.C. Enterprise Zone through its scheduled 
expiration of December 31, 2002.
---------------------------------------------------------------------------
Nine new empowerment zones
      The Secretaries of HUD and Agriculture are authorized to 
designate nine additional empowerment zones (``Round III 
empowerment zones''). Seven of the Round III empowerment zones 
will be located in urban areas, and two will be located in 
rural areas.
      The eligibility and selection criteria for the Round III 
empowerment zones are the same as the criteria that applied to 
the Round II empowerment zones. The Round III empowerment zones 
must be designated by January 1, 2002, and the tax incentives 
with respect to the Round III empowerment zones generally are 
available during the period beginning on January 1, 2002, and 
ending on December 31, 2009.
      Businesses in the Round III empowerment zones are 
eligible for the same tax incentives that, under the bill, are 
available to Round I and Round II empowerment zones (i.e., a 
20-percent wage credit, an additional $35,000 of section 179 
expensing, and the enhanced tax-exempt financing benefits 
presently available to Round II empowerment zones). The Round 
III empowerment zones also are considered ``targeted areas'' 
for purposes of permitting expensing of certain environmental 
remediation costs under section 198.
Effective date
      The extension of the existing empowerment zone 
designations is effective after the date of enactment. The 
extension of the tax benefits to existing empowerment zones 
(i.e., the expanded wage credit, the additional section 179 
expensing, the brownfields designation, and the more generous 
tax-exempt bond rules) generally is effective after December 
31, 2001.
      The new Round III empowerment zones must be designated by 
January 1, 2002, and the tax incentives with respect to the 
Round III empowerment zones generally are available during the 
period beginning on January 1, 2002, and ending on December 31, 
2009.

                            Senate Amendment

      No provision. However, S. 3152 contains a provision that 
conforms and enhances incentives for existing empowerment 
zones. Specifically, the provision extends the designation of 
empowerment zone status for Round I and II empowerment zones 
through December 31, 2009. In addition, a 15-percent wage 
credit is made available in all Round I and II empowerment 
zones, effective in 2002 (except in the case of the two 
additional Round I empowerment zones added by the 1997 Act, for 
which the 15-percent wage credit takes effect in 2005 as 
scheduled under present law). For all the empowerment zones, 
the 15-percent wage credit expires on December 31, 2009.
      In addition, $35,000 (rather than $20,000) of additional 
section 179 expensing is available for qualified zone property 
placed in service in taxable years beginning after December 31, 
2001, by a qualified business in any of the empowerment 
zones.16
---------------------------------------------------------------------------
    \16\ The additional $35,000 of section 179 expensing is available 
throughout all areas that are part of a designated empowerment zone, 
including the non-contiguous ``developable sites'' that were allowed to 
be part of the designated Round II empowerment zones under the 1997 
Act.
---------------------------------------------------------------------------
      Under S. 3152, businesses located in Round I empowerment 
zones are eligible for the more generous tax-exempt bond rules 
that apply under present law to businesses in the Round II 
empowerment zones (sec. 1394(f)). The proposal applies to tax-
exempt bonds issued after December 31, 2001. Bonds that have 
been issued by businesses in Round I zones before January 1, 
2002, are not taken into account in applying the limitations on 
the amount of new empowerment zone facility bonds that can be 
issued under the provision.
      Businesses located in any empowerment zone also qualify 
for a zero-percent capital gains rate for gain from the sale of 
a qualifying zone assets acquired after date of enactment and 
before January 1, 2010, and held for more than five years. 
Assets that qualify for this incentive are similar to the types 
of assets that qualify for the present-law zero percent capital 
gains rate for qualifying D.C. Zone assets. The zero-percent 
capital gains rate is limited to an aggregate amount not to 
exceed $25 million of gain per taxpayer. Gain attributable to 
the period before the date of enactment or after December 31, 
2014, is not eligible for the zero-percent rate.
      Effective date.--The extension of the existing 
empowerment zone designations is effective after the date of 
enactment. The additional section 179 expensing and the more 
generous tax-exempt bond rules for the existing empowerment 
zones is effective after December 31, 2001. The zero-percent 
capital gains rate applies to qualifying property purchased 
after the date of enactment. The 15-percent wage credit 
generally is effective for qualifying wages paid after December 
31, 2001. With respect to the two additional Round I 
empowerment zones, however, the wage credit is effective for 
qualifying wages paid after December 31, 2004.

                          conference agreement

      The conference agreement follows the provisions in H.R. 
4923 with the following modifications. The conference agreement 
does not extend the empowerment zones' status as a ``targeted 
area'' for purposes of permitting expensing of certain 
environmental remediation costs under section 198.17 
In addition, the conference agreement provides that the General 
Accounting Office will audit and report to Congress on January 
31, 2004, and again in 2007 and 2010, on the empowerment zone 
and enterprise community program and its effect on poverty, 
unemployment, and economic growth within the designated areas.
---------------------------------------------------------------------------
    \17\ Another provision described below extends the brownfields 
provision for two years and eliminates the targeted area requirement.
---------------------------------------------------------------------------
2. Rollover of gain from the sale of qualified empowerment zone 
        investments (sec. 616 of the bill and new sec. 1397B of the 
        Code)

                              present law

      In general, gain or loss is recognized on any sale, 
exchange, or other disposition of property. A taxpayer (other 
than a corporation) may elect to roll over without payment of 
tax any capital gain realized upon the sale of qualified small 
business stock held for more than six months where the taxpayer 
uses the proceeds to purchase other qualified small business 
stock within 60 days of the sale of the original stock.

                               house bill

      No provision. However, under H.R. 4923, a taxpayer can 
elect to roll over capital gain from the sale or exchange of 
any qualified empowerment zone asset purchased after the date 
of enactment and held for more than one year (``original zone 
asset'') where the taxpayer uses the proceeds to purchase other 
qualifying empowerment zone assets in the same zone 
(``replacement zone asset'') within 60 days of the sale of the 
original zone asset. The holding period of the replacement zone 
asset includes the holding period of the original zone asset, 
except that the replacement asset must actually be held for 
more than one year to qualify for another tax-free rollover. 
The basis of the replacement zone asset is reduced by the gain 
not recognized on the rollover. However, if the replacement 
zone asset is qualified small business stock (as defined in 
sec. 1202), the exclusion under section 1202 would not apply to 
gain accrued on the original zone asset.18 A 
``qualified empowerment zone asset'' means an asset that would 
be a qualified community asset if the empowerment zone were a 
renewal community (and the asset is acquired after the date of 
enactment of the bill). Assets in the D.C. Enterprise Zone are 
not eligible for the tax-free rollover treatment.19
---------------------------------------------------------------------------
    \18\ See section 1045 for rollover of qualified small business 
stock to other small business stock.
    \19\ However, a qualifying D.C. Zone asset held for more than five 
years is eligible for a 100-percent capital gains exclusion (sec. 
1400B).
---------------------------------------------------------------------------
      Effective date.--The provision is effective for 
qualifying assets purchased after the date of enactment.

                            senate amendment

      No provision.

                          conference agreement

      The conference agreement follows the provision in H.R. 
4923.
3. Increased exclusion of gain from the sale of qualifying empowerment 
        zone stock (sec. 617 of the bill and sec. 1202 of the Code)

                              present law

      Under present law, an individual, subject to limitations, 
may exclude 50 percent of the gain 20 from the sale 
of qualifying small business stock held more than five years 
(sec. 1202).
---------------------------------------------------------------------------
    \20\ The portion of the capital gain included in income is subject 
to a maximum regular tax rate of 28 percent, and 42 percent of the 
excluded gain is a minimum tax preference.
---------------------------------------------------------------------------

                               house bill

      No provision. However, H.R. 4923 includes a provision 
that would increase the exclusion for small business stock to 
60 percent for stock purchased after the date of enactment in a 
corporation that is a qualified business entity and that is 
held for more than five years. A ``qualified business entity'' 
means a corporation that satisfies the requirements of a 
qualifying business under the empowerment zone rules during 
substantially all the taxpayer's holding period.
      Effective date.--The provision is effective for qualified 
stock purchased after the date of enactment.

                            senate amendment

      No provision.

                          conference agreement

      The conference agreement follows the provision in H.R. 
4923.

C. New Markets Tax Credit (sec. 621 of the bill and new sec. 45D of the 
                                 Code)

                              present law

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

                               house bill

      No provision. However, H.R. 4923 includes a provision 
that creates a new tax credit for qualified equity investments 
made to acquire stock in a selected community development 
entity (``CDE''). The maximum annual amount of qualifying 
equity investments is capped as follows:

------------------------------------------------------------------------
           Calendar year            Maximum qualifying equity investment
------------------------------------------------------------------------
2001..............................  $1.0 billion.
2002-2003.........................  1.5 billion per year.
2004-2005.........................  2.0 billion per year.
2006-2007.........................  3.5 billion per year.
------------------------------------------------------------------------

      The amount of the new tax credit to the investor (either 
the original purchaser or a subsequent holder) is (1) a five-
percent credit for the year in which the equity interest is 
purchased from the CDE and the first two anniversary dates 
after the interest is purchased from the CDE, and (2) a six 
percent credit on each anniversary date thereafter for the 
following four years.21 The taxpayer's basis in the 
investment is reduced by the amount of the credit (other than 
for purposes of calculating the capital gain exclusion under 
sections 1202, 1400B, and 1400F). The credit is subject to the 
general business credit rules.
---------------------------------------------------------------------------
    \21\ Thus, a credit would be available on the date on which the 
investment is made and for each of the six anniversary dates 
thereafter.
---------------------------------------------------------------------------
      A CDE is any domestic corporation or partnership (1) 
whose primary mission is serving or providing investment 
capital for low-income communities or low-income persons, (2) 
that maintains accountability to residents of low-income 
communities through representation on governing or advisory 
boards, or otherwise and (3) is certified by the Treasury 
Department as an eligible CDE.22 No later than 60 
days after enactment, the Treasury Department shall issue 
regulations that specify objective criteria to be used by the 
Treasury to allocate the credits among eligible CDEs. In 
allocating the credits, the Treasury Department will give 
priority to entities with records of having successfully 
provided capital or technical assistance to disadvantaged 
businesses or communities.
---------------------------------------------------------------------------
    \22\ A specialized small business investment company and a 
community development financial institution are treated as satisfying 
the requirements for a CDE.
---------------------------------------------------------------------------
      If a CDE fails to sell equity interests to investors up 
to the amount authorized within five years of the 
authorization, then the remaining authorization is canceled. 
The Treasury Department can authorize another CDE to issue 
equity interests for the unused portion. No authorization can 
be made after 2014.
      A ``qualified equity investment'' is defined as stock or 
a similar equity interest acquired directly from a CDE in 
exchange for cash. Substantially all of the investment proceeds 
must be used by the CDE to make ``qualified low-income 
community investments,'' meaning equity investments in, or 
loans to, qualified active businesses located in low-income 
communities, certain financial counseling and other services 
specified in regulations to businesses and residents in low-
income communities.23
---------------------------------------------------------------------------
    \23\ If at least 85 percent of the aggregate gross assets of the 
CDE are invested (directly or indirectly) in equity interests in, or 
loans to, qualified active businesses located in low-income 
communities, then there would be no need to trace the use of the 
proceeds from the particular stock (or other equity ownership) issuance 
with respect to which the credit is claimed.
---------------------------------------------------------------------------
      The stock or equity interest cannot be redeemed (or 
otherwise cashed out) by the CDE for at least seven years. If 
an entity fails to be a CDE during the seven-year period 
following the taxpayer's investment, or if the equity interest 
is redeemed by the issuing CDE during that seven-year period, 
then any credits claimed with respect to the equity interest 
are recaptured (with interest) and no further credits are 
allowed.
      A ``low-income community'' is defined as census tracts 
with either (1) poverty rates of at least 20 percent (based on 
the most recent census data), or (2) median family income which 
does not exceed 80 percent of the greater of metropolitan area 
income or statewide median family income (for a non-
metropolitan census tract, 80 percent of non-metropolitan 
statewide median family income).
      A ``qualified active business'' is defined as a business 
which satisfies the following requirements: (1) at least 50 
percent of the total gross income of the business is derived 
from the active conduct of trade or business activities in low-
income communities; (2) a substantial portion of the use of the 
tangible property of such business is used within low-income 
communities; (3) a substantial portion of the services 
performed for such business by its employees is performed in 
low-income communities; and (4) less than 5 percent of the 
average aggregate of unadjusted bases of the property of such 
business is attributable to certain financial property or to 
collectibles (other than collectibles held for sale to 
customers). There is no requirement that employees of the 
business be residents of the low-income community.
      Rental of improved commercial real estate located in a 
low-income community is a qualified active business, regardless 
of the characteristics of the commercial tenants of the 
property. The purchase and holding of unimproved real estate is 
not a qualified active business. In addition, a qualified 
active business does not include (a) any business consisting 
predominantly of the development or holding of intangibles for 
sale or license; (b) operation of any facility described in 
sec. 144(c)(6)(B); or (c) any business if a significant equity 
interest in such business is held by a person who also holds a 
significant equity interest in the CDE. A qualified active 
business can include an organization that is organized on a 
non-profit basis.
      Effective date.--The provision is effective for qualified 
investments made after December 31, 2000.

                            Senate Amendment

      No provision. However, S. 3152 includes a provision that 
creates a new markets tax credit that is similar to the 
provision in H.R. 4923. Under S. 3152, the maximum annual 
amount of qualifying equity investments is capped as follows:

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

      S. 3152 defines a CDE in the same manner as in H.R. 4923, 
except that the accountability requirement is clarified to 
provide that the CDE must maintain accountability to residents 
of low-income communities through the representation of the 
residents on governing or advisory boards of the CDE. No later 
than 120 days after enactment, the Treasury Department will 
issue guidance that specifies objective criteria to be used by 
the Treasury to allocate the credits among eligible CDEs. In 
allocating the credits, the Treasury Department will give 
priority to entities with records of having successfully 
provided capital or technical assistance to disadvantaged 
businesses or communities,24 as well as to entities 
that intend to invest substantially all of the proceeds they 
receive from their investors in businesses in which persons 
unrelated to the CDE hold the majority equity interest.
---------------------------------------------------------------------------
    \24\ A record of having successfully provided capital or technical 
assistance to disadvantaged businesses or communities could be 
demonstrated by the past actions of the CDE itself or an affiliate 
(e.g., in the case where a new CDE is established by a nonprofit 
organization with a history of providing assistance to disadvantaged 
communities).
---------------------------------------------------------------------------
      Under S. 3152, if a CDE fails to sell equity interests to 
investors up to the amount authorized within five years of the 
authorization, then the remaining authorization is canceled. 
The Treasury Department can authorize another CDE to issue 
equity interests for the unused portion. No authorization can 
be made after 2013.
      Substantially all of the investment proceeds must be used 
by the CDE to make ``qualified low-income community 
investments.'' Qualified low-income community investments 
include: (1) capital or equity investments in, or loans to, 
qualified active businesses located in low-income 
communities,25 (2) certain financial counseling and 
other services specified in regulations to businesses and 
residents in low-income communities, (3) the purchase from 
another CDE of any loan made by such entity that is a qualified 
low income community investment, or (4) an equity investment 
in, or loans to, another CDE.26 Treasury Department 
regulations will provide guidance with respect to the 
``substantially all'' standard.
---------------------------------------------------------------------------
    \25\ Thus, a qualified low-income community investment may include 
an investment in a qualifying business in which the CDE (or a related 
party) holds a significant interest. However, as previously mentioned, 
in allocating the credits among eligible CDEs, the Treasury Department 
will give priority to CDEs that intend to invest substantially all of 
the proceeds they receive from their investors in businesses in which 
persons unrelated to the CDE hold the majority of the equity interest. 
For purposes of this provision, persons are related to each other if 
they are described in sections 267(b) or 707(b)(1).
    \26\ If at least 85 percent of the aggregate gross assets of the 
CDE are invested (directly or indirectly) in equity interests in, or 
loans to, qualified active businesses located in low-income 
communities, then there would be no need to trace the use of the 
proceeds from the particular stock (or other equity ownership) issuance 
with respect to which the credit is claimed.
---------------------------------------------------------------------------
      The definition of a ``low-income community'' is the same 
as in H.R. 4923, except that under S. 3152, the Secretary may 
designate any area within any census tract as a ``low income 
community'' provided that (1) the boundary of the area is 
continuous,27 (2) the area (if it were a census 
tract) would satisfy the poverty rate or median income 
requirements set forth above 28 within the targeted 
area, and (3) an inadequate access to investment capital exists 
in the area.
---------------------------------------------------------------------------
    \27\ It is intended that the continuous boundary that delineates 
the portion of the census tract as a ``low-income community'' should be 
a pre-existing boundary (such as an established neighborhood, 
political, or geographic boundary).
    \28\ A low-income community is defined as census tracts with either 
(1) poverty rates of at least 20 percent (based on the most recent 
census data), or (2) median family income which does not exceed 80 
percent of the greater of metropolitan area income or statewide median 
family income (for a non-metropolitan census tract, 80 percent of non-
metropolitan statewide median family income).
---------------------------------------------------------------------------
      The definition of a ``qualified active business'' is the 
same as in H.R. 4923, except that S. 3152 clarifies that a 
qualified active business can include an organization that is 
organized on a non-profit basis.
      The General Accounting Office will audit and report to 
Congress by January 31, 2004 (and again by January 31, 2007) on 
the new markets tax credit program, including on all qualified 
community development entities that receive an allocation under 
the new markets tax credit.
      Effective date.--The provision is effective for qualified 
investments made after December 31, 2001.

                          Conference Agreement

      The conference agreement follows H.R. 4923 with some 
modifications.
      The definition of a CDE includes the clarification in S. 
3152 regarding the accountability requirement, as well as the 
priority allocation to CDEs with records of having successfully 
provided capital or technical assistance to disadvantaged 
businesses or communities,29 as well as to entities 
that intend to invest substantially all of their investment 
proceeds in businesses in which persons unrelated to the CDE 
hold the majority equity interest.
---------------------------------------------------------------------------
    \29\ A record of having successfully provided capital or technical 
assistance to disadvantaged businesses or communities could be 
demonstrated by the past actions of the CDE itself or an affiliate 
(e.g., in the case where a new CDE is established by a nonprofit 
organization with a history of providing assistance to disadvantaged 
communities).
---------------------------------------------------------------------------
      The conference agreement adopts S. 3152's definitions of 
``qualified low-income community investment'' (which permits 
investments in related businesses) and ``low-income community'' 
(which provides discretion to designate targeted population 
areas). In addition, the definition of a ``qualified active 
business'' includes an organization that is organized on a non-
profit basis.
      Under the conference agreement, the General Accounting 
Office will audit and report to Congress by January 31, 2004, 
and again in 2007 and 2010, on the new markets tax credit 
program, including on all qualified community development 
entities that receive an allocation under the new markets tax 
credit program.

   D. Increase the Low-Income Housing Tax Credit Cap and Make Other 
   Modifications (secs. 631-637 of the bill and sec. 42 of the Code)

                              Present Law

In general
      The low-income housing tax credit may be claimed over a 
10-year period for the cost of rental housing occupied by 
tenants having incomes below specified levels. The credit 
percentage for newly constructed or substantially rehabilitated 
housing that is not Federally subsidized is adjusted monthly by 
the Internal Revenue Service so that the 10 annual installments 
have a present value of 70 percent of the total qualified 
expenditures. The credit percentage for new substantially 
rehabilitated housing that is Federally subsidized and for 
existing housing that is substantially rehabilitated is 
calculated to have a present value of 30 percent qualified 
expenditures.
Credit cap
      The aggregate credit authority provided annually to each 
State is $1.25 per resident, except in the case of projects 
that also receive financing with proceeds of tax-exempt bonds 
issued subject to the private activity bond volume limit and 
certain carry-over amounts,
Expenditure test
      Generally, the building must be placed in service in the 
year in which it receives an allocation to qualify for the 
credit. An exception is provided in the case where the taxpayer 
has expended an amount equal to 10-percent or more of the 
taxpayer's reasonably expected basis in the building by the end 
of the calendar year in which the allocation is received and 
certain other requirements are met.
Basis of building eligible for the credit
      Buildings receiving assistance under the HOME investment 
partnerships act (``HOME'') are not eligible for the enhanced 
credit for buildings located in high cost areas (i.e., 
qualified census tracts and difficult development areas). Under 
the enhanced credit, the 70-percent and 30-percent credit are 
increased to a 91-percent and 39-percent credit, respectfully.
      Eligible basis is generally limited to the portion of the 
building used by qualified low-income tenants for residential 
living and some common areas.
State allocation plans
      Each State must develop a plan for allocating credits and 
such plan must include certain allocation criteria including: 
(1) project location; (2) housing needs characteristics; (3) 
project characteristics; (4) sponsor characteristics; (5) 
participation of local tax-exempts; (6) tenant populations with 
special needs; and (7) public housing waiting lists. The State 
allocation plan must also give preference to housing projects: 
(1) that serve the lowest income tenants; and (2) that are 
obligated to serve qualified tenants for the longest periods.
Credit administration
      There are no explicit requirements that housing credit 
agencies perform a comprehensive market study of the housing 
needs of the low-income individuals in the area to be served by 
the project, nor that such agency conduct site visits to 
monitor for compliance with habitability standards.
Stacking rule
      Authority to allocate credits remains at the State (as 
opposed to local) government level unless State law provides 
otherwise.30 Generally, credits may be allocated 
only from volume authority arising during the calendar year in 
which the building is placed in service, except in the case of: 
(1) credits claimed on additions to qualified basis; (2) 
credits allocated in a later year pursuant to an earlier 
binding commitment made no later than the year in which the 
building is placed in service; and (3) carryover allocations.
---------------------------------------------------------------------------
    \30\ For example, constitutional home rule cities in Illinois are 
guaranteed their proportionate share of the $1.25 amount, based on 
their population relative to that of the State as a whole.
---------------------------------------------------------------------------
      Each State annually receives low-income housing credit 
authority equal to $1.25 per State resident for allocation to 
qualified low-income projects.31 In addition to this 
$1.25 per resident amount, each State's ``housing credit 
ceiling'' includes the following amounts: (1) the unused State 
housing credit ceiling (if any) of such State for the preceding 
calendar year; 32 (2) the amount of the State 
housing credit ceiling (if any) returned in the calendar year; 
33 and (3) the amount of the national pool (if any) 
allocated to such State by the Treasury Department.
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    \31\ A State's population, for these purposes, is the most recent 
estimate of the State's population released by the Bureau of the Census 
before the beginning of the year to which the limitation applies. Also, 
for these purposes, the District of Columbia and the U.S. possessions 
(i.e., Puerto Rico, the Virgin Islands, Guam, the Northern Marianas and 
American Samoa) are treated as States.
    \32\ The unused State housing credit ceiling is the amount (if 
positive) of the previous year's annual credit limitation plus credit 
returns less the credit actually allocated in that year.
    \33\ Credit returns are the sum of any amounts allocated to 
projects within a State which fail to become a qualified low-income 
housing project within the allowable time period plus any amounts 
allocated to a project within a State under an allocation which is 
canceled by mutual consent of the housing credit agency and the 
allocation recipient.
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      The national pool consists of States' unused housing 
credit carryovers. For each State, the unused housing credit 
carryover for a calendar year consists of the excess (if any) 
of the unused State housing credit ceiling for such year over 
the excess (if any) of the aggregate housing credit dollar 
amount allocated for such year over the sum of $1.25 per 
resident and the credit returns for such year. The amounts in 
the national pool are allocated only to a State which allocated 
its entire housing credit ceiling for the preceding calendar 
year, and requested a share in the national pool not later than 
May 1 of the calendar year. The national pool allocation to 
qualified States is made on a pro rata basis equivalent to the 
fraction that a State's population enjoys relative to the total 
population of all qualified States for that year.
      The present-law stacking rule provides that a State is 
treated as using its annual allocation of credit authority 
($1.25 per State resident) and any returns during the calendar 
year followed by any unused credits carried forward from the 
preceding year's credit ceiling and finally any applicable 
allocations from the National pool.

                               House Bill

Credit cap
      No provision. However, H.R. 4923 increases the $1.25 per 
capita cap to $1.75 per capita. This increase is phased-in over 
six years. Also, beginning in 2001 the per capita cap for each 
State is modified so that small population State are given a 
minimum of $2 million of annual credit cap. Therefore the 
credit cap would be the greater of: $1.35 per capita or $2 
million in calendar year 2001; $1.45 per capita or $2 million 
in calendar 2002; $1.55 per capita or $2 million in calendar 
year 2003; $1.65 per capita or $2 million in calendar year 
2004; $1.70 per capita or $2 million in calendar year 2005; and 
$1.75 per capita or $2 million in calendar year 2006. The $1.75 
per capita credit cap and $2 million amount are indexed for 
inflation beginning in 2007.
Expenditure test
      The provisions of H.R. 4923 allow a building which 
receives an allocation in the second half of a calendar to 
qualify under the 10-percent test if the taxpayer expends an 
amount equal to 10-percent or more of the taxpayer's reasonably 
expected basis in the building within six months of receiving 
the allocation regardless of whether the 10-percent test is met 
by the end of the calendar year.
Basis of building eligible for the credit
      The provisions of H.R. 4923 make three changes to the 
basis rules of the credit. First, the definition of qualified 
census tracts for purposes of the enhanced credit is expanded 
to include any census tracts with a poverty rate of 25 percent 
or more. Second, H.R. 4923 extends the credit to a portion of 
the building used as a community service facility not in excess 
of 10 percent of the total eligible basis in the building. A 
community service facility is defined as any facility designed 
to serve primarily individuals whose income is 60 percent or 
less of area median income. Third, H.R. 4923 provides that 
assistance received under the Native American Housing 
Assistance and Self-Determination Act of 1996 is not taken into 
account in determining whether a building is Federally 
subsidized for purposes of the credit. This allows such 
buildings to qualify for something other than the 30-percent 
credit generally applicable to Federally subsidized buildings.
State allocation plans
      The provisions of H.R. 4923 strikes the plan criteria 
relating to participation of local tax-exempts, replacing it 
with two other criteria: tenant populations of individuals with 
children and projects intended for eventual tenant ownership. 
It also provides that the present-law criteria relating to 
sponsor characteristics include whether the project involves 
the use of existing housing as part of a community 
revitalization plan. Also, H.R. 4923 adds a third category of 
housing projects to the preferential list. That third category 
is for projects located in qualified census tracts which 
contribute to a concerted community revitalization plan.
Credit administration
      The provisions of H.R. 4923 require a comprehensive 
market study of the housing needs of the low-income individuals 
in the area to be served by the project and a written 
explanation available to the general public for any allocation 
not made in accordance with the established priorities and 
selection criteria of the housing credit agency. They also 
require site inspections by the housing credit agency to 
monitor compliance with habitability standards applicable to 
the project.
Stacking rule
      The provisions of H.R. 4923 modify the stacking rule so 
that each State would be treated as using its allocation of the 
unused State housing credit ceiling (if any) from the preceding 
calendar before the current year's allocation of credit 
(including any credits returned to the State) and then finally 
any National pool allocations.
Effective date
      In general, H.R. 4923 is effective for calendar years 
beginning after December 31, 2000, and buildings placed-in-
service after such date in the case of projects that also 
receive financing with proceeds of tax-exempt bonds subject to 
the private activity bond volume limit which are issued after 
such date. The increase and indexing of the credit cap is 
effective for calendar years after December 31, 2000.

                            Senate Amendment

Credit cap
      No provision. However, S. 3152 increases the annual State 
credit caps from $1.25 to $1.75 per resident beginning in 2001. 
Also, beginning in 2001 the per capita cap for each State is 
modified so that small population State are given a minimum of 
$2 million of annual credit cap. The $1.75 per capita cap and 
the $2 million amount are indexed for inflation beginning in 
calendar 2002.
Expenditure test
      No provision.
Basis of building eligible for the credit
      The provision in S. 3152 relating to the treatment of 
buildings receiving assistance under the Native American 
Housing Assistance and Self-Determination Act of 1996 is the 
same as one of the provisions in H.R. 4923. The other 
provisions in H.R. 4923 relating to the basis of building 
eligible for the credit are not part of S. 3152.
State allocation plans
      No provision.
Credit administration
      No provision.
Stacking rule
      The provision of H.R. 4923 is included in S. 3152.
Effective date
      The provisions are effective for calendar years beginning 
after December 31, 2000 and buildings placed-in-service after 
such date in the case of projects that also receive financing 
with proceeds of tax-exempt bonds which are issued after such 
date subject to the private activity bond volume limit.

                          Conference Agreement

Credit cap
      The conference agreement follows the provisions of H.R. 
4923 and S. 3152 with a modification increasing the per-capita 
low-income housing credit cap from $1.25 per capita to $1.50 
per capita in calendar year 2001 and to $1.75 per capita in 
calendar year 2002. Beginning in calendar year 2003, the per-
capita portion of the credit cap will be adjusted annually for 
inflation. For small States, a minimum annual cap of $2 million 
is provided for calendar years 2001 and 2002. Beginning in 
calendar year 2003, the small State minimum is adjusted for 
inflation.
Expenditure test
      The conference agreement follows the provision of H.R. 
4923.
Basis of building eligible for the credit
      The conference agreement includes all three of the 
changes to the credit basis rules included in H.R. 4923.
State allocation plans
      The conference agreement includes the provision of H.R. 
4923.
Credit administration
      The conference agreement includes the provision of H.R. 
4923.
Stacking rule
      The conference agreement follows the provisions of H.R. 
4923 and the S. 3152.
Effective date
      The provision is generally effective for calendar years 
beginning after December 31, 2000, and buildings placed-in-
service after such date in the case of projects that also 
receive financing with proceeds of tax-exempt bonds subject to 
the private activity bond volume limit which are issued after 
such date.

 E. Accelerate Scheduled Increase in State Volume Limits on Tax-Exempt 
 Private Activity Bonds (sec. 651 of the bill and sec. 146 of the Code)

                              Present Law

      Interest on bonds issued by States and local governments 
is excluded from income if the proceeds of the bonds are used 
to finance activities conducted and paid for by the 
governmental units (sec. 103). Interest on bonds issued by 
these governmental units to finance activities carried out and 
paid for by private persons (``private activity bonds'') is 
taxable unless the activities are specified in the Internal 
Revenue Code. Private activity bonds on which interest may be 
tax-exempt include bonds for privately operated transportation 
facilities (airports, docks and wharves, mass transit, and high 
speed rail facilities), privately owned and/or provided 
municipal services (water, sewer, solid waste disposal, and 
certain electric and heating facilities), economic development 
(small manufacturing facilities and redevelopment in 
economically depressed areas), and certain social programs 
(low-income rental housing, qualified mortgage bonds, student 
loan bonds, and exempt activities of charitable organizations 
described in sec. 501(c)(3)).
      The volume of tax-exempt private activity bonds that 
States and local governments may issue for most of these 
purposes in each calendar year is limited by State-wide volume 
limits. The current annual volume limits are $50 per resident 
of the State or $150 million if greater. The volume limits do 
not apply to private activity bonds to finance airports, docks 
and wharves, certain governmentally owned, but privately 
operated solid waste disposal facilities, certain high speed 
rail facilities, and to certain types of private activity tax-
exempt bonds that are subject to other limits on their volume 
(qualified veterans' mortgage bonds and certain ``new'' 
empowerment zone and enterprise community bonds).
      The current annual volume limits that apply to private 
activity tax-exempt bonds increase to $75 per resident of each 
State or $225 million, if greater, beginning in calendar year 
2007. The increase is, ratably phased in, beginning with $55 
per capita or $165 million, if greater, in calendar year 2003.

                               House Bill

      No provision. However, H.R. 4923 accelerates the 
scheduled increase in the present-law annual State private 
activity bond volume limits to $75 per resident of each State, 
or $225 million (if greater) beginning in calendar year 2007. 
The increase is phased in as follows, beginning in calendar 
year 2001:


             Calendar year                                             Volume limit

2001...................................  $55 per resident ($165 million if greater).
2002...................................  $60 per resident ($180 million if greater).
2003...................................  $65 per resident ($195 million if greater).
2004, 2005, and 2006...................  $70 per resident ($210 million if greater).
2007 and thereafter....................  $75 per resident ($225 million if greater).


      Effective date.--The provision is effective beginning in 
calendar year 2001 and is fully effective in calendar year 2007 
and thereafter.

                            Senate Amendment

      No provision. However, S. 3152 increases the present-law 
annual State private activity bond volume limits to $75 per 
resident of each State or $225 million (if greater) beginning 
in calendar year 2001. In addition, the $75 per resident and 
the $225 million State limit will be indexed for inflation 
beginning in calendar year 2002.
      Effective date.--The provisions are effective in calender 
years beginning after December 31, 2000.

                          Conference Agreement

      The conference agreement follows the provisions of H.R. 
4923 and S. 3152 with a modification increasing the State 
volume limits from the greater of $50 per resident or $150 
million to the greater of $62.50 per resident or $187.5 million 
in calendar year 2001. The volume limit will increase further, 
to the greater of $75 per resident or $225 million in calendar 
year 2002. Beginning in calendar year 2003, the volume limit 
will be adjusted annually for inflation.

F. Extension and Modification to Expensing of Environmental Remediation 
         Costs (sec. 652 of the bill and sec. 198 of the Code)

                              Present Law

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

                               House Bill

      No provision. However, H.R. 4923 as passed by the House 
extends an empowerment zone's status as a ``targeted area'' 
under section 198. In addition, H.R. 4923 provides that renewal 
communities (as defined in H.R. 4923) also constitute a 
``targeted area'' under section 198.34
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    \34\ Also see provisions above relating to empowerment zones and 
renewal communities.
---------------------------------------------------------------------------
      Effective date.--The provision is effective for 
expenditures incurred after June 30, 2001, and before January 
1, 2010.

                            Senate Amendment

      No provision. However, S. 3152 extends the expiration 
date for eligible expenditures to include those paid or 
incurred before January 1, 2004.
      In addition, S. 3152 eliminates the targeted area 
requirement, thereby, expanding eligible sites to include any 
site containing (or potentially containing) a hazardous 
substance that is certified by the appropriate State 
environmental agency. However, expenditures undertaken at sites 
that are identified on the national priorities list under the 
Comprehensive Environmental Response, Compensation, and 
Liability Act of 1980 would continue to not qualify as eligible 
expenditures.
      Effective date.--The provision to extend the expiration 
date is effective upon the date of enactment. The provision to 
expand the class of eligible sites is effective for 
expenditures paid or incurred after the date of enactment.

                          Conference Agreement

      The conference agreement follows S. 3152. By extending 
and expanding section 198, the conferees do not intend to 
displace the general tax law principle regarding expensing 
versus capitalization of expenditures which continues to apply 
to environmental remediation efforts not specifically covered 
under section 198.

G. Extension of District of Columbia Homebuyer Tax Credit (sec. 653 of 
                  the bill and sec. 1400C of the Code)

                              present law

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

                               house bill

      No provision.

                            senate amendment

      No provision. However, S. 3152 includes a provision that 
extends the first-time homebuyer credit for two years, through 
December 31, 2003. The provision also extends the phase-out 
range for married individuals filing a joint return so that it 
is twice that of individuals. Thus, under the provision, the 
District of Columbia homebuyer credit is phased out for joint 
filers with adjusted gross income between $140,000 and 
$180,000.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                          conference agreement

      The conference agreement follows the provision in S. 3152 
with respect to the extension of the first-time homebuyer 
credit for two years (through December 31, 2003). The 
conference agreement does not include the provision regarding 
the phase-out range.

  TITLE VII. ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL CORRECTIONS 
                               PROVISIONS

                 Subtitle A. Administrative Provisions

 A. Exempt Certain Reports From Elimination Under the Federal Reports 
       Elimination and Sunset Act of 1995 (sec. 701 of the bill)

                              present law

      Section 303 of the Federal Reports Elimination and Sunset 
Act of 1995 eliminates many periodic Federal reporting 
requirements, effective May 15, 2000.

                               house bill

      No provision.

                            senate amendment

      No provision.

                          conference agreement

      The conference agreement exempts certain reports from 
elimination and sunset pursuant to the Federal Reports 
Elimination and Sunset Act of 1995.

   B. Extension of Deadlines for IRS Compliance With Certain Notice 
Requirements (sec. 702 of the bill, secs. 6631 and 6751(a) of the Code)

                              present law

      The Internal Revenue Service Restructuring and Reform Act 
of 1998 (``IRS Restructuring Act of 1998'') imposed several 
notice requirements relating to penalties, interest and 
installment agreements. Section 6715 of the Code, added by 
section 3306 of the IRS Restructuring Act of 1998, requires 
that each notice imposing a penalty include the name of the 
penalty, the Code section under which the penalty is imposed, 
and a computation of the penalty.35 This requirement 
applies to notices issued, and penalties assessed, after 
December 31, 2000.36
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    \35\ Sec. 6715(a).
    \36\ P.L. 105-206, sec. 3306.
---------------------------------------------------------------------------
      Section 6631 of the Code, added by section 3308 of the 
IRS Restructuring Act of 1998, requires that every IRS notice 
sent to an individual taxpayer that includes an amount of 
interest required to be paid by the taxpayer also include a 
detailed computation of the interest charged and a citation to 
the Code section under which such interest is imposed. The 
provision is effective for notices issued after December 31, 
2000.
      Section 3506 of the IRS Restructuring Act of 1998 
requires the IRS to send every taxpayer in an installment 
agreement an annual statement of the initial balance owed, the 
payments made during the year, and the remaining balance. The 
provision became effective on July 1, 2000.

                               house bill

      No provision.

                            senate amendment

      No provision.

                          conference agreement

      It is the understanding of the conferees that due to the 
need for substantial systems modifications, and Year 2000 
programming priorities, the IRS will be unable to fully comply 
with certain notice requirements in accordance with deadlines 
imposed by the IRS Restructuring Act of 1998. The conference 
agreement extends the deadlines for complying with the penalty, 
interest, and installment agreement notice requirements. 
Specifically, the annual installment agreement notice 
requirement is extended from July 1, 2000, to September 1, 
2001. The deadlines for complying with the notice requirements 
relating to the computation of penalties and interest 
37 are both extended to June 30, 2001. In addition, 
for penalty notices issued after June 30, 2001, and before July 
1, 2003, the notice requirements will be treated as met if the 
notice contains a telephone number at which the taxpayer can 
request a copy of the taxpayer's assessment and payment history 
with respect to such penalty. Similarly, for interest notices 
issued after June 30, 2001, and before July 1, 2003, the notice 
requirements will be treated as met if such notice contains a 
telephone number at which the taxpayer can request a copy of 
the taxpayer's payment history relating to interest amounts 
included in such notice.
---------------------------------------------------------------------------
    \37\ Secs. 6715(a) and 6631.
---------------------------------------------------------------------------
      Effective date.--The provision is effective on the date 
of enactment.

 C. Extension of Authority for Undercover Operations (sec. 703 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 must 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. In the Taxpayer 
Bill of Rights II (Public Law 104-168), the authority to churn 
funds from undercover operations was extended for five years, 
through 2000.

                               house bill

      No provision.

                            senate amendment

      No provision.

                          conference agreement

      The conference agreement extends the authority of the IRS 
to ``churn'' the income earned from undercover operations for 
an additional five years, through 2005.
      Effective date.--The provision is effective on the date 
of enactment.

D. Competent Authority and Pre-Filing Agreements (sec. 704 of the bill 
          and secs. 6103, 6110, and new sec. 6105 of the Code)

                              Present Law

Section 6103
      Section 6103 of the Code sets forth the general rule that 
returns and return information are confidential. A return is 
any tax return, information return, declaration of estimated 
tax, or claim for refund filed under the Code on behalf of or 
with respect to any person. The term return also includes any 
amendment or supplement, including supporting schedules or 
attachments or lists, which are supplemental to or are part of 
a filed return. Return information is defined broadly. It 
includes the following information:
            A taxpayer's identity, the nature, source or amount 
        of income, payments, receipts, deductions, exemptions, 
        credits, assets, liabilities, net worth, tax liability, 
        tax withheld, deficiencies, overassessments, or tax 
        payments;
            Whether the taxpayer's return was, is being, or 
        will be examined or subject to other investigation or 
        processing;
            Any other data, received by, recorded by, prepared 
        by, furnished to, or collected by the Secretary with 
        respect to a return or with respect to the 
        determination of the existence, or possible existence, 
        of liability (or the amount thereof) of any person 
        under this title for any tax, penalty, interest, fine, 
        forfeiture, or other imposition, or offense; \38\
---------------------------------------------------------------------------
    \38\ Sec. 6103(b)(2)(A).
---------------------------------------------------------------------------
            Any part of any written determination or any 
        background file document relating to such written 
        determination which is not open to public inspection 
        under section 6110; \39\ and
---------------------------------------------------------------------------
    \39\ Sec. 6103(b)(2)(B).
---------------------------------------------------------------------------
            Any advance pricing agreement entered into by a 
        taxpayer and the Secretary and any background 
        information related to the agreement or any application 
        for an advance pricing agreement.
      The term ``return information'' does not include data in 
a form that cannot be associated with or otherwise identify, 
directly or indirectly, a particular taxpayer.
Secrecy of information exchanged under tax treaties
      U.S. tax treaties typically contain articles governing 
the exchange of information. These articles generally provide 
for the exchange of information between the tax authorities of 
the two countries when such information is necessary for 
carrying out provisions of the treaty or of the countries' 
domestic tax laws. Individuals referred to as ``competent 
authorities'' are designated by each country to make written 
requests for information and to receive information.\40\
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    \40\ The U.S. competent authority is the Secretary of the Treasury 
or his delegate. The U.S. competent authority function has been 
delegated to the Commissioner of Internal Revenue, who has redelegated 
the authority to the Director, International. On interpretive issues, 
the latter acts with the concurrence of the Associate Chief Counsel 
(International) of the IRS.
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      The exchange of information articles typically cover 
information relating to taxes to which the treaty applies, but 
can also apply to other taxes (e.g., excise taxes) not covered 
by the treaty. Many of the treaties permit the exchange of 
information even if the taxpayer involved is not a resident of 
one of the treaty countries. The exchange of information 
articles may be similar to, or represent a variation on, 
Article 26 of the 1996 U.S. model income tax treaty.
      Information that is received under the exchange of 
information articles is subject to secrecy clauses contained in 
the treaties. In this regard, the country requesting 
information under the treaties typically is required to treat 
any information received as secret in the same manner as 
information obtained under its domestic laws. In general, 
disclosure is not permitted other than to persons or 
authorities involved in the administration, assessment, 
collection or enforcement of taxes to which the treaty applies. 
For example, disclosure generally can be made to legislative 
bodies, such as the tax-writing committees of the Congress, and 
the General Accounting Office for purposes of overseeing the 
administration of U.S. tax laws.
      In addition to the exchange of information articles in 
U.S. tax treaties, exchange of information provisions are 
contained in tax information exchange agreements entered into 
between the United States and another country.\41\ In addition, 
information may be exchanged pursuant to the Convention on 
Mutual Administrative Assistance in Tax Matters developed by 
the Council of Europe and the Organization for Economic 
Cooperation and Development (the ``Multilateral Mutual 
Assistance Convention''), which limits the use of exchanged 
information and permits disclosure of such information only 
with the prior authorization of the competent authority of the 
country providing the information.\42\ The United States has 
also entered into a number of implementation and coordination 
agreements with possessions that provide for the exchange of 
tax information. Moreover, the United States has entered into 
various mutual legal assistance treaties with other countries, 
some of which can be used to obtain tax information in criminal 
investigations.
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    \41\ Sections 274(h)(6)(C) and 927(e)(3) specifically provide the 
Secretary of the Treasury the authority to enter into tax information 
exchange agreements. This eliminates the need for Senate ratification, 
which is required for a tax treaty. In addition, all tax information 
exchange agreements are required to include specific non-disclosure 
provisions which provide that ``information received by either country 
will be disclosed only to persons or authorities (including courts and 
administrative bodies) involved in the administration or oversight of, 
or in the determination of appeals in respect of, taxes of the United 
States, or the beneficiary country and will be used by such persons or 
authorities only for such purposes.''
    Sec. 274(h)(6)(C)(i).
    \42\ The U.S. Senate ratified the Multilateral Mutual Assistance 
Convention, subject to certain reservations, in September 1990. The 
Multilateral Mutual Assistance Convention entered into force on April 
1, 1995, and has been signed by the following countries: Denmark, 
Finland, Iceland, the Netherlands, Norway, Sweden, and the United 
States.
---------------------------------------------------------------------------
      Both the confidentiality provisions of section 6103, as 
well as treaty secrecy provisions can cover return information.
Section 6110 and section 7121
      Section 6110 of the Code provides for disclosure of 
written determinations. With certain exceptions, section 6110 
makes the text of any written determination the Internal 
Revenue Service (``IRS'') issues available for public 
inspection. A written determination is any ruling, 
determination letter, technical advice memorandum, or Chief 
Counsel advice. The IRS is required to redact certain material 
before making these documents publicly available.43 
Among the information to be redacted is information 
specifically exempted from disclosure by any statute (other 
than Title 26) that is applicable to the IRS. Once the IRS 
makes the written determination publicly available, the 
background file documents associated with such written 
determination are available for public inspection upon written 
request. Section 6110 defines ``background file documents'' as 
any written material submitted by the taxpayer or other 
requester in support of the request. Background file documents 
also include any communications between the IRS and persons 
outside the IRS concerning such written determination that 
occur before the IRS issues the determination.
---------------------------------------------------------------------------
    \43\ For rulings, determination letters and technical advice 
memoranda, section 6110(c) provides the following exemptions from 
disclosure:
      (1) The names, addresses, and other identifying details of the 
person to whom the written determination pertains and of any other 
person, other than a person with respect to whom a notation is made 
under subsection (d)(1) (relating to third party contacts), identified 
in the written determination or any background file document;
      (2) Information specifically authorized under criteria 
established by an Executive order to be kept secret in the interest of 
national defense or foreign policy, and which is in fact properly 
classified pursuant to such Executive order;
      (3) Information specifically exempted from disclosure by any 
statute (other than [Title 26]) which is applicable to the Internal 
Revenue Service;
      (4) Trade secrets and commercial or financial information 
obtained from a person and privileged or confidential;
      (5) Information the disclosure of which would constitute a 
clearly unwarranted invasion of personal privacy;
      (6) Information contained in or related to examination, 
operating, or condition reports prepared by, or on behalf of, or for 
use of an agency responsible for the regulation or supervision of 
financial institutions; and
      (7) Geological and geophysical information and data, including 
maps, concerning wells.
    For Chief Counsel Advice, paragraphs 2 through 7 do not apply, 
however, material may be deleted in accordance with subsections (b) and 
(c) of the FOIA (except that in applying Exemption 3 of the FOIA, no 
statutory provision of the Code is to be taken into account.) See sec. 
6110(i)(3).
---------------------------------------------------------------------------
      Section 6110 was added to the Code in 1976. The 
legislative history provided that a written determination would 
not be considered a ruling, technical advice memorandum, or 
determination letter, unless the document satisfies three 
criteria:
            (1) The document recites the relevant facts;
            (2) The document explains the applicable provisions 
        of law; and
            (3) The document shows the application of law to 
        the facts.\44\
---------------------------------------------------------------------------
    \44\ H.R. Rep. 94-658, at 315 (1976).
---------------------------------------------------------------------------
      The legislative history further provided that section 
6110 ``does not require public disclosure of a closing 
agreement entered into between the IRS and a taxpayer which 
finally determines the taxpayer's tax liability with respect to 
a taxable year * * * Your committee understands that a closing 
agreement is generally the result of a negotiated settlement 
and, as such, does not necessarily represent the IRS view of 
the law. Your committee intends, however, that the closing 
agreement exception is not to be used as a means of avoiding 
public disclosure of determinations which, under present 
practice, would be issued in a form which would be open to 
public inspection [under the bill].'' \45\
---------------------------------------------------------------------------
    \45\ Id. at 316.
---------------------------------------------------------------------------
      Closing agreements are entered into under the authority 
of section 7121. Closing agreements finally and conclusively 
settle a tax issue between the IRS and a taxpayer. Closing 
agreements may: (1) determine a taxpayer's entire tax liability 
for a previous tax period; or (2) fix the tax treatment of one 
or more specific items affecting tax liability for any tax 
period. Thus, closing agreements may settle the treatment of a 
specific item for periods ending after the execution of the 
agreement. A single closing agreement may cover both the 
determination of a taxpayer's entire tax liability for a 
previous tax period and fix the tax treatment of specific items 
for any tax period.
Freedom of Information Act
      The Freedom of Information Act (``FOIA''), enacted in 
1966, established a statutory right to access government 
information. While the purpose of section 6103 is to restrict 
access to returns and return information, the basic purpose of 
the FOIA is to ensure that the public has access to government 
documents. In general, the FOIA provides that any person has a 
right of access to Federal agency records, except to the extent 
that such records (or portions thereof) are protected from 
disclosure by one of nine exemptions or by one of three special 
law enforcement record exclusions. Exemption 3 of the FOIA 
allows the withholding of information prohibited from 
disclosure by another statute if certain requirements are 
met.\46\ The right of access is enforceable in court.
---------------------------------------------------------------------------
    \46\ 5 U.S.C. sec. 552(b)(3).
---------------------------------------------------------------------------
Pending FOIA requests and litigation involving IRS records
            Records covered by treaty secrecy clauses
      A publisher of tax related material and commentary has 
made a FOIA request for the disclosure of competent authority 
agreements. The request has been pending since March 14, 
2000.\47\ The IRS has not denied the request, nor has it 
produced any documents responsive to the request. At this time, 
no suit has been filed to compel disclosure of these documents, 
although such a suit may be brought in the future.
---------------------------------------------------------------------------
    \47\ The initial FOIA request of March 14, 2000, covered all 
competent authority agreements executed for the United States from 
January 1, 1990, to date. In response to a request from the Department 
of Treasury, by letter dated April 17, 2000, the FOIA request was 
narrowed to cover competent authority agreements executed between 1997 
and 1999. The right to pursue the 1990 through 1996 agreements, 
however, was reserved.
---------------------------------------------------------------------------
      In connection with a separate request, the IRS was sued 
under the FOIA to compel disclosure of Field Service Advice 
memoranda (``FSAs'').\48\ FSAs are prepared by attorneys in the 
IRS National Office of the Office of Chief Counsel. They are 
prepared in response to requests from IRS field personnel for 
legal guidance, usually with respect to issues relating to a 
particular taxpayer. FSAs usually contain a statement of 
issues, facts, legal analysis and conclusions. The primary 
purpose of FSAs is to ensure that IRS field personnel apply the 
law correctly and uniformly. The D.C. Circuit determined that 
FSAs are subject to disclosure. However, the court remanded the 
case to district court to address assertions of privilege, 
including those based on treaty secrecy. A decision on this 
issue by the district court is still pending.\49\
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    \48\ Tax Analysts v. IRS, 117 F.3d 607 (D.C. Cir. 1997).
    \49\ Tax Analysts v. IRS, No. 94-CV-923 (GK) (D.D.C.).
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            Pre-filing agreements
      On February 11, 2000, the IRS issued Notice 2000-12, in 
which the IRS established a pilot program for ``Pre-filing 
Agreements.'' Under this program, large businesses may request 
a review and resolution of specific issues relating to tax 
returns they expect to file between September and December of 
2000. The purpose of the program is to enable taxpayers and the 
IRS to resolve issues that are likely to be disputed in post-
filing audits. Examples of such issues include: (1) asset 
valuation and the allocation of a business's purchase or sale 
price among the assets acquired or sold; (2) the identification 
and documentation of hedging transactions; and (3) the 
determination of ``market'' for taxpayers using the lower of 
cost or market method of inventory valuation in situations 
involving inactive markets. The program is intended to address 
issues for which the law is settled.
      In Notice 2000-12, the IRS stated that pre-filing 
agreements are closing agreements entered into pursuant to 
section 7121. As such, the notice provides that the information 
generated or received by the IRS during the pre-filing 
agreement process constitutes return information. The notice 
further provides that pre-filing agreements are not written 
determinations as defined in section 6110, nor are they subject 
to disclosure under the FOIA.
      Several pre-filing agreements have been completed. A FOIA 
request for these agreements has not been made.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The provision affirms that closing and similar 
agreements, and information exchanged and agreements reached 
pursuant to a tax treaty, are confidential. Further, the 
provision clarifies that such protected documents are not to be 
disclosed under the FOIA or section 6110.
Clarification that return information includes closing agreements and 
        similar dispute resolution agreements
            Protection for closing agreements, pre-filing agreements 
                    and similar agreements not containing an exposition 
                    of the tax law
      The bill provides that agreements entered into under 
section 7121 or similar agreements are confidential return 
information. Similar agreements are intended to include 
negotiated agreements that (1) are the result of an alternative 
dispute resolution or dispute avoidance process relating to 
liability of any person under the Code for any tax, penalty, 
interest, fine or forfeiture or other imposition or offense and 
(2) do not establish, set forth, or resolve the government's 
interpretation of the relevant tax law. This is not meant to 
preclude citation, or repetition of, the Code, Treasury 
regulations, or other published rules.
      It is intended that pre-filing agreements be covered by 
this provision. It is the understanding of the conferees that 
pre-filing agreements do not explain the applicable provisions 
of law or otherwise contain any exposition of the tax law or 
the position of the IRS. In addition, it is not intended that 
the closing and similar agreement exception be used as a means 
of avoiding public disclosure of determinations that, under 
present law, would be issued in a form that would be open to 
public inspection. Thus, technical advice memoranda, chief 
counsel advice or other material clearly available to the 
public under present law section 6110, would not be exempt from 
disclosure by virtue of the fact that such material is 
contained in a background file for a closing agreement. For 
example, if a revenue agent seeks technical advice in 
connection with a pre-filing agreement, such technical advice 
would remain subject to the requirements of section 6110. Since 
the pre-filing agreement program involves only settled issues 
of law, it is the understanding of the conferees that documents 
of this nature generally would not be generated in the pre-
filing agreement process.
      The provision is not intended to foreclose the disclosure 
of tax-exempt organization closing agreements to the extent 
such disclosure is authorized under section 6104.50 
Since section 6103 permits the disclosure of return information 
as authorized by Title 26, a disclosure authorized by section 
6104 is permissible, notwithstanding the fact that a closing 
agreement is return information.
---------------------------------------------------------------------------
    \50\ The D.C. Circuit recently remanded to the district court for 
factual development the issue of whether the closing agreement in that 
case was submitted in support of an exemption application, and 
therefore, subject to disclosure under section 6104. Tax Analysts v. 
IRS, 214 F.3d 179 (D.C. Cir 2000), vacating and remanding 99-2 U.S.T.C. 
(CCH) 794 (D.D.C. 1999).
---------------------------------------------------------------------------
            Report on pre-filing agreement program
      It is intended that the Secretary make publicly available 
an annual report relating to the pre-filing agreement program 
operations for the preceding calendar year. The annual 
reporting requirement is for five years, or the duration of the 
program, whichever is shorter. The report is to include (1) the 
number of pre-filing agreements completed, (2) the number of 
applications received, (3) the number of applications 
withdrawn, (4) the types of issues which are resolved by 
completed agreements, (5) whether the program is being utilized 
by taxpayers who were previously subject to audit by the IRS, 
(6) the average length of time required to complete an 
agreement, (7) the number, if any, and subject of technical 
advice and chief counsel advice memoranda issued to address 
issues arising in connection with any pre-filing agreement, (8) 
any model agreements,51 and (9) any other 
information the Secretary deems appropriate. The first report, 
covering the calendar year 2000, is to be issued no later than 
March 30, 2001. The information required for the annual report 
is subject to the restrictions of section 6103. Therefore, the 
Secretary will disclose information only in a form that cannot 
be associated with or otherwise identify, directly or 
indirectly, a particular taxpayer. The Joint Committee on 
Taxation periodically may review pre-filing agreements to 
determine whether they contain legal interpretations that 
should be disclosed to the public.
---------------------------------------------------------------------------
    \51\ See e.g., Appendix A of Rev. Proc. 2000-38 which is a model 
``Closing Agreement on Final Determination Covering Specific Matters'' 
regarding method of accounting for distributor commissions. Rev. Proc. 
2000-38, 2000-40 I.R.B. 314-315 (October 2, 2000). That model agreement 
does not identify any particular taxpayer but sets forth the substance 
of the agreement.
---------------------------------------------------------------------------
Clarification that information protected by treaty is confidential
            Protection for agreements and information exchanged 
                    pursuant to tax treaty
      The provision adds a new Code section 6105, which 
provides that tax convention information, with limited 
exceptions, cannot be disclosed. Thus, the provision confirms 
that agreements concluded under, and information received 
pursuant to, a tax convention are confidential and can only be 
disclosed as provided in such tax convention.
      Under the provision, a tax convention is defined to 
include any income tax or gift and estate tax convention, or 
any other convention or bilateral agreement (including 
multilateral conventions and agreements and any agreement with 
a possession of the United States) providing for the avoidance 
of double taxation, the prevention of fiscal evasion, 
nondiscrimination with respect to taxes, the exchange of tax 
relevant information with the United States, or mutual 
assistance in tax matters.
      It is the understanding of the conferees that competent 
authority agreements (also referred to as mutual agreements) 
generally do not contain an explanation of the law or 
application of law to facts. Instead, such agreements are 
negotiated arrangements to resolve issues of double taxation. 
Thus, the term tax convention information for purposes of the 
provision includes: (1) any agreement entered into with the 
competent authority of one or more foreign governments pursuant 
to a tax convention; (2) an application for relief under a tax 
convention (sought by either a taxpayer or another competent 
authority); (3) any background information related to such 
agreement or application; (4) documents implementing such 
agreement; and (5) any other information exchanged pursuant to 
a tax convention that is treated as confidential or secret 
under such tax convention. The conferees intend that tax 
convention information would include documents and any other 
information that reflects tax convention information, including 
the association of a particular treaty partner with a specific 
issue or matter.
      The general rule that tax convention information cannot 
be disclosed does not apply to the disclosure of tax convention 
information to persons or authorities (including courts and 
administrative bodies) that are entitled to disclosure under 
the tax convention. It also does not apply to any generally 
applicable procedural rules regarding applications for relief 
under a tax convention. This exception is intended to ensure 
that there is no restriction on the release by the Secretary of 
publicly available procedural rules concerning matters such as 
how or when to make a request for competent authority 
assistance. Thus, certain material generated by IRS, i.e., its 
Competent Authority procedures (primarily reflected in Rev. 
Proc. 96-13), or similar material produced by a treaty partner 
(for example, an Information Circular produced and published by 
the Canadian tax authority) may be made available to the 
public. The general rule does not apply to the disclosure of 
information not relating to a particular taxpayer if, after 
consultation with the parties to a tax convention, the 
Secretary determines that such disclosure would not impair tax 
administration. This is consistent with current practice. An 
example of a general agreement that could be disclosed under 
this provision is the agreement between the competent 
authorities of Mexico and the United States regarding the 
maquiladora industry. That agreement, which was not taxpayer 
specific, was publicized by press release IR-INT-1999-13. The 
conferees intend that the ``impairment of tax administration'' 
for purposes of this provision include, but not be limited to, 
the release of documents that would adversely affect the 
working relationship of the treaty partners. Under the 
provision, except as otherwise provided, taxpayer-specific tax 
convention information could not be publicly disclosed, even if 
it would not impair tax administration.
      A taxpayer-specific competent authority agreement that 
relates to the existence or possible existence of liability (or 
amount thereof) of any person for any tax, penalty, interest, 
fine, forfeiture, or other imposition or offense under the Code 
is return information under section 6103. It is also an 
agreement pursuant to a tax convention under section 6105. 
Return information, including taxpayer-specific competent 
authority agreements, remains subject to the confidentiality 
provisions of section 6103. Thus, civil and criminal penalties 
for the unauthorized disclosure of returns and return 
information continue to apply to return information that is 
also covered by section 6105. However, tax convention 
information that is return information may only be disclosed to 
the extent provided in, and subject to the terms and conditions 
of, the relevant tax convention.
Interaction with FOIA and section 6110
      Under the provision, closing agreements and similar 
agreements would not be considered written determinations for 
purposes of section 6110 and, thus, would not be subject to 
public disclosure. Such agreements would be defined as return 
information under section 6103 and, therefore, such documents 
would be protected from disclosure pursuant to Exemption 3 of 
the FOIA in conjunction with section 6103.
      In addition, under the provision, section 6110 would not 
apply to material covered by section 6105. In the litigation 
over FSAs, there has been some dispute as to whether treaties 
qualify as statutes for purposes of withholding information 
pursuant to Exemption 3 of the FOIA. The conferees believe that 
treaties are the equivalent of statutes for purposes of 
Exemption 3 of the FOIA. Section 6105 satisfies Exemption 3 of 
the FOIA. Taxpayer-specific tax convention information 
concerning a taxpayer's tax liability, such as taxpayer-
specific competent authority agreements, would be exempt from 
the FOIA as both return information under section 6103 and 
information protected from disclosure by tax convention under 
section 6105. Agreements not relating to a particular taxpayer, 
and other tax convention information related to such 
agreements, could be disclosed under FOIA if it is determined 
that the disclosure would not impair tax administration.

                             Effective Date

      The provision applies to disclosures on, or after, the 
date of enactment, and thus, applies to all documents in 
existence on, or created after, the date of enactment.

 E. Increase Joint Committee on Taxation Refund Review Threshold to $2 
        Million (sec. 705 of the bill and sec. 6405 of the Code)

                              Present Law

      No refund or credit in excess of $1,000,000 of any income 
tax, estate or gift tax, or certain other specified taxes, may 
be made until 30 days after the date a report on the refund is 
provided to the Joint Committee on Taxation (sec. 6405). A 
report is also required in the case of certain tentative 
refunds. Additionally, the staff of the Joint Committee on 
Taxation conducts post-audit reviews of large deficiency cases 
and other select issues.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement increases the threshold above 
which refunds must be submitted to the Joint Committee on 
Taxation for review from $1,000,000 to $2,000,000. The staff of 
the Joint Committee on Taxation would continue to exercise its 
existing statutory authority to conduct a program of expanded 
post-audit reviews of large deficiency cases and other select 
issues, and the IRS is expected to cooperate fully in this 
expanded program.
      Effective date.--The provision is effective on the date 
of enactment, except that the higher threshold does not apply 
to a refund or credit with respect to which a report was made 
before the date of enactment.

  F. Clarifying the Allowance of Certain Tax Benefits With Respect to 
 Kidnapped Children (sec. 706 of the bill and secs. 2, 24, 32, and 151 
                              of the Code)

                              Present Law

      The Code generally requires that a taxpayer provide over 
one-half of the support for each individual claimed as that 
taxpayer's dependent. Similarly, the child credit, the 
surviving spouse filing status, and the head of household 
filing status require that a taxpayer satisfy certain 
requirements with regard to individuals that qualify as the 
taxpayer's dependent(s). Finally, the earned income credit for 
taxpayers with qualifying children generally is available only 
if the taxpayer has the same principal place of abode for more 
than one-half the taxable year with an otherwise qualifying 
child.
      Recently published IRS guidance first denied a dependency 
exemption to certain taxpayers with kidnapped children (TAM 
200034029), then allowed such tax benefits to such taxpayers 
(TAM 200038059).

                               House Bill

      No provision. However, H.R. 5117 clarifies that the 
dependency exemption, the child credit, the surviving spouse 
filing status, the head of household filing status, and the 
earned income credit are available to an otherwise qualifying 
taxpayer with respect to a child who is presumed by law 
enforcement authorities to have been kidnapped by someone who 
is not a member of the family of such child or the taxpayer. 
Generally, this treatment continues for all taxable years 
ending during the period that the child is kidnapped. However, 
this treatment ends for the taxable year ending after the 
calender year in which it is determined that the child is dead 
(or, if earlier, in which the child would have attained age 
18).
      Effective date.--The provision is effective for taxable 
years ending after the date of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the provision of H.R. 
5117.

   G. Conforming Changes To Accommodate Reduced Issuances of Certain 
  Treasury Securities (sec. 707 of the bill and sec. 995(f)(4) of the 
                                 Code)

                              Present Law

      Code section 995(f)(4) dealing with the interest charge 
on the deferred tax liability of the shareholders of a domestic 
international sales corporation provides that the interest rate 
be determined by reference to the average investment yield on 
United States Treasury bills with maturities of 52 weeks. In 
addition, provisions of Federal law relating to interest on 
monetary judgments in civil cases recovered in Federal district 
court and on a judgment against the United States affirmed by 
the Supreme Court (Title 28), interest on certain unpaid 
criminal fines and penalties (Title 18), and interest on 
compensation for certain takings of property (Title 40) 
determine the applicable interest rate by reference to 52-week 
Treasury bills.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conferees understand that, as a result of prior 
Congressional efforts at budgetary control, current and 
projected Federal budget surpluses are reducing the need of the 
Treasury Department to issue certain securities. The Treasury 
Department has informed the Congress that on grounds of 
efficient debt management, and predictability and liquidity for 
the financial markets, the Treasury Department has announced it 
is likely to cease issuing 52-week Treasury bills. The 
conference agreement modifies the Code (sec. 995(f)(4)) and 
certain other parts of Federal law relating to interest on 
monetary judgments in civil cases recovered in Federal district 
court and on a judgment against the United States affirmed by 
the Supreme Court (Title 28), interest on certain unpaid 
criminal fines and penalties (Title 18), and interest on 
compensation for certain takings of property (Title 40) that 
make specific reference to yields on 52-week Treasury bills. 
The conference agreement generally replaces the reference to 
52-week Treasury bills with a reference to the weekly average 
one-year constant maturity Treasury yield, as published by the 
Board of Governors of the Federal Reserve System.
      Effective date.--The provision is effective upon the date 
of enactment.

  H. Authorization of Agencies to Use Corrected Consumer Price Index 
                         (sec. 708 of the bill)

                              Present Law

      Code section 1(f) provides for adjustments in the tax 
tables so that inflation will not result in tax increases. 
Numerous other provisions of the Code are indexed as well. 
Section 1(f) provides that inflation is measured by changes in 
the consumer price index (``CPI'') for the preceding year as 
published by the Department of Labor compared to the CPI for 
the calendar year 1992. Section 1(f) directs the Secretary to 
publish tables with applicable tax rates based upon calculated 
inflation adjustments by December 15 of the year before the 
year to which the tables are to apply.
      In addition, payments made under Social Security, certain 
Federal employee retirement programs, and certain payments to 
individuals under various welfare and income support programs 
are adjusted annually by changes in the CPI.
      On September 28, 2000, the Bureau of Labor Statistics 
(``BLS'') announced that the agency had discovered a 
computational error in quality adjustments of air conditioning 
as a part of the cost of housing resulting in errors in the 
reported CPI between January 1999 and August 2000. The BLS 
reported that the CPI levels starting in January 1999 have been 
either 0.0, 0.1, or 0.2 index points lower than the levels that 
would have been published without the error. Consistent with 
agency guidelines and past practice, the BLS announced that it 
is revising the reported CPI back to January 2000 to the fully 
correct levels. The BLS will make no change to reported levels 
for January through December 1999. However, the BLS will make 
the corrected levels of the CPI for 1999 available upon 
request.

                               House Bill

      No provision.

                              Senate Bill

      No provision.

                          Conference Agreement

      The conference agreement authorizes the Secretary of the 
Treasury to use the corrected levels of the CPI for 1999 and 
2000 for all purposes of the Code to which they might apply. 
The conference agreement directs the Secretary to prescribe new 
tables reflecting the correct levels of the 1999 CPI for the 
2000 tax year.
      In addition, the conference agreement provides that the 
Director of the Office of Management and Budget (``OMB'') shall 
assess Federal benefit programs to ascertain the extent to 
which the CPI error has or will result in a shortfall in 
program payments to individuals for 2000 and future years. The 
conference agreement directs the Director to issue guidelines 
to agency administrators to determine the extent, if any, of 
such shortfalls in payments to individuals. The agency 
administrators are to report their findings to the Director and 
to Congress within 30 days. The conference agreement provides 
that, within 60 days of the date of enactment, the Director 
instruct the head of any Federal agency which administers an 
affected program to make a payment or payments to compensate 
for the shortfall and that such payments are targeted to the 
amount of the shortfall experienced by individual 
beneficiaries. Applicable Federal benefit programs include the 
old-age and survivors insurance program, the disability 
insurance program and the supplemental security income program 
under the Social Security Act and other programs as determined 
by the Director. The conference agreement directs the Director 
to report to the Congress on the activities performed pursuant 
to this provision by April 1, 2001.
      The conferees recognize that the error in the CPI was 
computational in nature. The conferees support the BLS's policy 
to incorporate methodological changes only on a prospective 
basis. The conferees also understand that BLS policy provides 
that published indices generally not be revised except for 
those found to be in error for the year in which the error was 
discovered or within the past twelve months. The conferees 
recognize that the errors in the CPI date to as long as 20 
months prior to the announcement of the error. The conferees 
recognize that the BLS's policy of not publishing corrected 
index numbers, beyond those provided as described above, has 
been applied in those rare cases where an error has been 
discovered in the past. However, the conferees understand that 
in the past 25 years the few errors that have been discovered 
have involved sub-indices and have not affected the level of 
the CPI itself. The last time the U.S. City Average All Items 
CPI was revised was in December 1974, when the values for the 
months of April through October 1974 were recalculated and 
released with issuance of the November CPI. Therefore, past 
precedent does not strictly apply to the present situation.
      The conferees believe that integrity of official 
government data is vital to policymakers and private 
individuals and businesses throughout the country. The 
conferees emphasize that the CPI plays an important role in 
economic planning. For this reason the conferees are concerned 
that, while the BLS has published corrected CPI numbers for 
2000, the BLS does not intend to publish corrected CPI numbers 
for 1999 as part of the official CPI series. To its credit, the 
BLS announced the error publicly. The national press reported 
the error.52 In the absence of a correction to the 
official CPI series, the Federal government will be left in the 
position of maintaining, as an official data series, index 
numbers that the Federal government has admitted are incorrect. 
The conferees believe that the public's trust in the integrity 
of official government data is a paramount goal and the 
conferees strongly encourage the Commissioner of the Bureau of 
Labor Statistics to review carefully the agency's current 
policy with respect to publishing as part of an official series 
corrections to data found to be in error for reasons of 
computational error. The conferees believe such a review should 
be made both with respect to the error announced on September 
28, 2000, and as a matter for the future for those rare 
circumstances where such a similar computational error might 
once again arise.
---------------------------------------------------------------------------
    \52\ For example, John M. Berry, ``Inflation Higher Than 
Reported,'' The Washington Post, September 27, 2000, p. E-1, John M. 
Berry, ``Rent Error Leads to Revision Of the CPI,'' The Washington 
Post, September 29, 2000, p. E-3, Nicholas Kulish, ``Major Price Index 
Is Revised Upward As Result of Error,'' The Wall Street Journal, 
September 28, 2000, p. A2, and Nicholas Kulish, ``Second-Period GDP 
Rose at 5.6% Annual Rate,'' The Wall Street Journal, September 29, 
2000, p. A2. The conferees observe that these press reports highlight 
the potential confusion for the public regarding these data. The 
Washington Post reported that ``the CPI figures for 1999 were not 
revised'' (September 29, 2000 story) while The Wall Street Journal 
reported that ``[t]he BLS said a complete revision of all the data sets 
would be released'' (September 28, 2000 story) and ``it [BLS] announced 
that it would revise the index'' (September 29, 2000 story).
---------------------------------------------------------------------------
      Effective date.--The provision is effective on the date 
of enactment.

 I. Prevent Duplication or Acceleration of Loss Through Assumption of 
  Certain Liabilities (sec. 709 of the bill and sec. 358 of the Code)

                              Present Law

      Generally, no gain or loss is recognized when one or more 
persons transfer property to a corporation in exchange for 
stock and immediately after the exchange such person or persons 
control the corporation. However, a transferor recognizes gain 
to the extent it receives money or other property (``boot'') as 
part of the exchange (sec. 351).
      The assumption of liabilities by the controlled 
corporation generally is not treated as boot received by the 
transferor,53 except that the transferor recognizes 
gain to the extent that the liabilities assumed exceed the 
total of the adjusted basis of the property transferred to the 
controlled corporation pursuant to the exchange (sec. 357(c)).
---------------------------------------------------------------------------
    \53\ The assumption of liabilities is treated as boot if it can be 
shown that ``the principal purpose'' of the assumption is tax avoidance 
on the exchange, or is a non-bona fide business purpose (sec. 357(b)).
---------------------------------------------------------------------------
      The assumption of liabilities by the controlled 
corporation generally reduces the transferor's basis in the 
stock of the controlled corporation that assumed the 
liabilities. The transferor's basis in the stock of the 
controlled corporation is the same as the basis of the property 
contributed to the controlled corporation, increased by the 
amount of any gain (or dividend) recognized by the transferor 
on the exchange, and reduced by the amount of any money or 
property received, and by the amount of any loss recognized by 
the transferor (sec. 358). For this purpose, the assumption of 
a liability is treated as money received by the transferor.
      An exception to the general treatment of assumptions of 
liabilities applies to assumptions of liabilities that would 
give rise to a deduction, provided the incurrence of such 
liabilities did not result in the creation or increase of basis 
of any property. The assumption of such liabilities is not 
treated as money received by the transferor in determining 
whether the transferor has gain on the exchange. Similarly, the 
transferor's basis in the stock of the controlled corporation 
is not reduced by the assumption of such liabilities. The 
Internal Revenue Service has ruled that the assumption by an 
accrual basis corporation of certain contingent liabilities for 
soil and groundwater remediation would be covered by this 
exception.54
---------------------------------------------------------------------------
    \54\ Rev. Rul. 95-74, 1995-2 C.B. 36. The ruling addressed a parent 
corporation's transfer to a subsidiary of substantially all the assets 
of a manufacturing business, in exchange for stock and the assumption 
of liabilities associated with the business, including certain 
contingent environmental remediation liabilities. These liabilities 
arose due to contamination of land during the parent corporation's 
operation of the manufacturing business. The transferor had no plan or 
intention to dispose of (or to have the subsidiary issue) any 
subsidiary stock. The IRS ruled that the contingent liabilities would 
not reduce the transferor's basis in the stock of the subsidiary 
because the liabilities had not been taken into account by the 
transferor prior to the transfer and had not given rise to deductions 
or basis for the transferor.
---------------------------------------------------------------------------

                               House Bill

      No provision. However, the conference agreement to the 
Taxpayer Refund and Relief Act of 1999 (H.R. 2488) included an 
earlier version of the legislation, effective for assumptions 
of liabilities after July 14, 1999.

                            Senate Amendment

      No provision. However, the conference agreement to the 
Taxpayer Refund and Relief Act of 1999 (H.R. 2488) included an 
earlier version of the legislation, effective for assumptions 
of liabilities after July 14, 1999. In addition, on October 20, 
1999, the Senate Finance Committee reported a bill (S. 1792) 
that contains a provision that limits the acceleration or 
duplication of losses through assumptions of liabilities. On 
April 4, 2000, Senators Roth and Moynihan introduced a bill 
that contains the same provision (S. 2354).
      Effective date.--The provision in S. 2354 is effective 
for assumptions of liabilities on or after October 19, 1999. 
Except as provided by the Secretary, the rules addressing 
transactions involving partnerships are effective with the same 
effective date. Any rules addressing transactions involving S 
corporations may likewise be effective for assumptions of 
liabilities on or after October 19, 1999 or such later date as 
may be prescribed in such rules.

                          Conference Agreement

      The conference agreement adopts the provision in S. 2354.
      Under the conference agreement, if the basis of stock 
(determined without regard to this provision) received by a 
transferor as part of a tax-free exchange with a controlled 
corporation exceeds the fair market value of the stock, then 
the basis of the stock received is reduced (but not below the 
fair market value) by the amount (determined as of the date of 
the exchange) of any liability that (1) is assumed in exchange 
for such stock, and (2) did not otherwise reduce the 
transferor's basis of the stock by reason of the assumption. 
Except as provided by the Secretary of the Treasury, this 
provision does not apply where the trade or business with which 
the liability is associated is transferred to the corporation 
as part of the exchange, or where substantially all the assets 
with which the liability is associated are transferred to the 
corporation as part of the exchange.
      The exceptions for transfers of a trade or business, or 
of substantially all the assets, with which a liability is 
associated, are intended to obviate the need for valuation or 
basis reduction in such cases. The exceptions are not intended 
to apply to situations involving the selective transfer of 
assets that may bear some relationship to the liability, but 
that do not represent the full scope of the trade or business, 
(or substantially all the assets) with which the liability is 
associated.
      For purposes of the provision, the term ``liability'' 
includes any fixed or contingent obligation to make payment, 
without regard to whether such obligation or potential 
obligation is otherwise taken into account under the Code. The 
determination whether a liability (as more broadly defined for 
purposes of this provision) has been assumed is made in 
accordance with the provisions of section 357(d)(1) of the 
Code. Under the standard of 357(d)(1), a recourse liability is 
treated as assumed if, based on all the facts and 
circumstances, the transferee has agreed to and is expected to 
satisfy such liability (or portion thereof), whether or not the 
transferor has been relieved of the liability. For example, if 
a transferee corporation does not formally assume a recourse 
obligation or potential obligation of the transferor, but 
instead agrees and is expected to indemnify the transferor with 
respect to all or a portion of a such an obligation, then the 
amount that is agreed to be indemnified is treated as assumed 
for purposes of the provision, whether or not the transferor 
has been relieved of such liability. Similarly, a nonrecourse 
liability is treated as assumed by the transferee of any asset 
subject to such liability.55
---------------------------------------------------------------------------
    \55\ Section 357(d)(2) contains a limitation in the case of certain 
nonrecourse liabilities. Also, under section 357, regulations, if 
issued, may provide for different results.
---------------------------------------------------------------------------
      The application of the provision is illustrated in the 
following example: Assume a taxpayer transfers assets with an 
adjusted basis and fair market value of $100 to its wholly-
owned corporation and the corporation assumes $40 of 
liabilities (the payment of which would give rise to a 
deduction). Thus, the value of the stock received by the 
transferor is $60. Under present law, the basis of the stock 
would be $100. The provision requires that the basis of the 
stock be reduced to $60 (i.e., a reduction of $40). Except as 
provided by the Secretary, no basis reduction is required if 
the transferred assets consisted of the trade or business, or 
substantially all the assets, with which the liability is 
associated.
      The provision does not change the tax treatment with 
respect to the transferee corporation.
      The Secretary of the Treasury is directed to prescribe 
rules providing appropriate adjustments to prevent the 
acceleration or duplication of losses through the assumption of 
liabilities (as defined in the provision) in transactions 
involving partnerships. The Secretary may also provide 
appropriate adjustments in the case of transactions involving S 
corporations. In the case of S corporations, such rules may be 
applied instead of the otherwise applicable basis reduction 
rules.
      Effective date.--The provision is effective for 
assumptions of liabilities on or after October 19, 1999. Except 
as provided by the Secretary, the rules addressing transactions 
involving partnerships are effective with the same effective 
date any rules addressing transactions involving S corporations 
may likewise be effective for assumptions of liabilities on or 
after October 19, 1999, or such later date as may be prescribed 
in such rules.

                  Subtitle B. Miscellaneous Provisions

A. Repeal Certain Excise Taxes on Rail Diesel Fuel and Inland Waterway 
 Barge Fuels (sec. 710 of the bill and secs. 4041 and 4042 of the Code)

                              Present Law

      Under present law, diesel fuel used in trains is subject 
to a 4.3-cents-per gallon General Fund excise tax. Similarly, 
fuels used in barges operating on the designated inland 
waterways system is subject to a 4.3-cents-per-gallon General 
Fund excise tax. In both cases, the 4.3-cents- per-gallon 
excise tax rates are permanent.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The 4.3-cents-per-gallon General Fund excise tax rates on 
diesel fuel used in trains and fuels used in barges operating 
on the designated inland waterways system is repealed.
      Effective date.--The provision takes effect on January 1, 
2001.

    B. Repeal of Reduction of Deductions for Mutual Life Insurance 
   Companies and of Policyholder Surplus Accounts of Life Insurance 
Companies (secs. 711-712 of the bill and secs. 809 and 815 of the Code)

                         Prior and Present Law

Reduction in deductions for policyholder dividends and reserves of 
        mutual life insurance companies (sec. 809)
      In general, a corporation may not deduct amounts 
distributed to shareholders with respect to the corporation's 
stock. The Deficit Reduction Act of 1984 added a provision to 
the rules governing insurance companies that was intended to 
remedy the failure of prior law to distinguish between amounts 
returned by mutual life insurance companies to policyholders as 
customers, and amounts distributed to them as owners of the 
mutual company.
      Under the provision, section 809, a mutual life insurance 
company is required to reduce its deduction for policyholder 
dividends by the company's differential earnings amount. If the 
company's differential earnings amount exceeds the amount of 
its deductible policyholder dividends, the company is required 
to reduce its deduction for changes in its reserves by the 
excess of its differential earnings amount over the amount of 
its deductible policyholder dividends. The differential 
earnings amount is the product of the differential earnings 
rate and the average equity base of a mutual life insurance 
company.
      The differential earnings rate is based on the difference 
between the average earnings rate of the 50 largest stock life 
insurance companies and the earnings rate of all mutual life 
insurance companies. The mutual earnings rate applied under the 
provision is the rate for the second calendar year preceding 
the calendar year in which the taxable year begins. Under 
present law, the differential earnings rate cannot be a 
negative number.
      A company's equity base equals the sum of: (1) its 
surplus and capital increased by 50 percent of the amount of 
any provision for policyholder dividends payable in the 
following taxable year; (2) the amount of its nonadmitted 
financial assets; (3) the excess of its statutory reserves over 
its tax reserves; and (4) the amount of any mandatory security 
valuation reserves, deficiency reserves, and voluntary 
reserves. A company's average equity base is the average of the 
company's equity base at the end of the taxable year and its 
equity base at the end of the preceding taxable year.
      A recomputation or ``true-up'' in a subsequent year is 
required if the differential earnings amount for the taxable 
year either exceeds, or is less than, the recomputed 
differential earnings amount. The recomputed differential 
earnings amount is calculated taking into account the average 
mutual earnings rate for the calendar year (rather than the 
second preceding calendar year, as above). The amount of the 
true-up for any taxable year is added to, or deducted from, the 
mutual company's income for the succeeding taxable year.
Distributions to shareholders from policyholders surplus account (sec. 
        815)
      Under the law in effect from 1959 through 1983, a life 
insurance company was subject to a three-phase taxable income 
computation under Federal tax law. Under the three-phase 
system, a company was taxed on the lesser of its gain from 
operations or its taxable investment income (Phase I) and, if 
its gain from operations exceeded its taxable investment 
income, 50 percent of such excess (Phase II). Federal income 
tax on the other 50 percent of the gain from operations 
56 was deferred, and was accounted for as part of a 
policyholder's surplus account and, subject to certain 
limitations, taxed only when distributed to stockholders or 
upon corporate dissolution (Phase III). To determine whether 
amounts had been distributed, a company maintained a 
shareholders surplus account, which generally included the 
company's previously taxed income that would be available for 
distribution to shareholders.57 Distributions to 
shareholders were treated as being first out of the 
shareholders surplus account, then out of the policyholders 
surplus account, and finally out of other accounts.
---------------------------------------------------------------------------
    \56\ The legislative history to the Life Insurance Company Tax Act 
of 1959 states that ``[t]his 50 percent reduction in underwriting gains 
is made because of the claim that it is difficult to establish with 
certainty the actual annual income of life insurance companies. It has 
been pointed out that because of the long-term nature of their 
contracts, amounts, which may appear as income in the current year and 
as proper additions to surplus, may, as a result of subsequent events, 
be needed to fulfill life insurance contracts. Because of this 
difficulty in arriving at true underwriting gains on an annual basis, 
the bill provides for the taxation of only 50 percent of this gain on a 
current basis.'' Report of the Committee on Ways and Means to accompany 
H.R. 4245, H. Rep. No. 34, 86th Cong., 1st Sess. at 13 (1959). 
Similarly, the Senate report provides, ``Although it is believed 
desirable to subject this underwriting income to tax, it is stated that 
because of the long-term nature of insurance contracts it is difficult, 
if not impossible, to determine the true income of life insurance 
companies otherwise than by ascertaining over a long period of time the 
income derived from a contract or block of contracts. Because of this, 
the bill as amended by your committee, like the bill as passed by the 
House, does not attempt to tax on an annual basis all of what might 
appear to be income. In both the House and your committee's bill, half 
of the underwriting income is taxed as it accrues each year. The other 
half of the underwriting income is taxed when it is paid out in a 
distribution to shareholders after the taxed income has been 
distributed, or when it is voluntarily segregated and held for the 
benefit of the shareholders. This other half of the underwriting income 
also is taxed if the cumulative amount exceeds certain prescribed 
limits or if for a specified period of time the company ceases to be a 
life insurance company.'' Report of the Committee on Finance to 
accompany H.R. 4245, S. Rep. No. 291, 86th Cong., 1st Sess. at 7 
(1959).
    \57\ Other events are treated as a subtraction from the 
policyholders surplus account. If for any taxable year the taxpayer is 
not an insurance company, or for any 2 taxable years the company is not 
a life insurance company, then the balance in the policyholder surplus 
account at the close of the preceding taxable year is taken into income 
(former sec. 815(d)(2) as in effect prior to the 1984 Act, which is 
referred to in present-law sec. 815(f)). Further, the policyholder 
surplus account is reduced by the excess of the account over the 
greatest of 3 amounts related to reserves: (1) 15 percent of life 
insurance reserves at the end of the taxable year; (2) 25 percent of 
the amount by which the life insurance reserves at the end of the 
taxable year exceed the life insurance reserve at the end of 1958; or 
(3) 50 percent of the net amount of the premiums and other 
consideration taken into account for the taxable year (former sec. 
815(d)(4)(A)-(C), as in effect prior to the 1984 Act, which is referred 
to in present-law sec. 815(f)).
---------------------------------------------------------------------------
      The Deficit Reduction Act of 1984 included provisions 
that, for 1984 and later years, eliminated further deferral of 
tax on amounts (described above) that previously would have 
been deferred under the three-phase system. Although for 
taxable years after 1983, life insurance companies may not 
enlarge their policyholders surplus account, the companies are 
not taxed on previously deferred amounts unless the amounts are 
treated as distributed to shareholders or subtracted from the 
policyholders surplus account (sec. 815).
      Under present law, any direct or indirect distribution to 
shareholders from an existing policyholders surplus account of 
a stock life insurance company is subject to tax at the 
corporate rate in the taxable year of the 
distribution.58 Present law (like prior law) 
provides that any distribution to shareholders is treated as 
made (1) first out of the shareholders surplus account, to the 
extent thereof, (2) then out of the policyholders surplus 
account, to the extent thereof, and (3) finally, out of other 
accounts.59
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    \58\ Section 815.
    \59\ Section 815(b).
---------------------------------------------------------------------------

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

Reduction in deductions for policyholder dividends and reserves of 
        mutual life insurance companies (sec. 809)
      The conference agreement repeals the rules requiring 
reduction in certain deductions of mutual life insurance 
companies (sec. 809) for taxable years beginning after December 
31, 2000.
      Effective date.--The repeal is effective for taxable 
years beginning after December 31, 2000.
Distributions to shareholders from policyholders surplus account (sec. 
        815)
      The conference agreement repeals the rules relating to 
distributions to shareholders from the policyholders surplus 
account of a life insurance company (sec. 815) for taxable 
years beginning after December 31, 2000.
      Effective date.--The repeal is effective for taxable 
years beginning after December 31, 2000.

  C. Tax-Credit Bonds for the National Railroad Passenger Corporation 
(``Amtrak'') and the Alaska Railroad (sec. 713 of the bill and new sec. 
                            54 of the Code)

                              Present Law

      Present law does not authorize the issuance by any 
private, for-profit corporation of bonds the interest on which 
is tax-exempt or eligible for an income tax credit. Tax-exempt 
bonds may be issued by States or local governments to finance 
their governmental activities or to finance certain capital 
expenditures of private businesses or loans to individuals. 
Additionally, States or local governments may issue tax-credit 
bonds to finance the operation of ``qualified zone academies.''
Tax-exempt bonds
      Interest on bonds issued by States or local governments 
to finance direct activities of those governmental units is 
excluded from tax (sec. 103). In addition, interest on certain 
bonds (``private activity bonds'') issued by States or local 
governments acting as conduits to provide financing for private 
businesses or individuals is excluded from income if the 
purpose of the borrowing is specifically approved in the Code 
(sec. 141). Examples of approved private activities for which 
States or local governments may provide tax-exempt financing 
include transportation facilities (airports, ports, mass 
commuting facilities, and certain high speed intercity rail 
facilities); public works facilities such as water, sewer, and 
solid waste disposal; and certain social welfare programs such 
as low-income rental housing, student loans, and mortgage loans 
to certain first-time homebuyers. High speed intercity rail 
facilities eligible for tax-exempt financing include land, 
rail, and stations (but not rolling stock) for fixed guideway 
rail transportation of passengers and their baggage using 
vehicles that are reasonably expected to operate at speeds in 
excess of 150 miles per hour between scheduled stops.
      Issuance of most private activity bonds is subject to 
annual State volume limits of $50 per resident ($150 million if 
greater). These volume limits are scheduled to increase to $75 
per resident ($225 million if greater) over the period 2003 
through 2007.
      Investment earnings on all tax-exempt bonds, including 
earnings on invested sinking funds associated with such bonds 
is restricted by the Code to prevent the issuance of bonds 
earlier or in a greater amount than necessary for the purpose 
of the borrowing. In general, all profits on investment of such 
proceeds must be rebated to the Federal Government. Interest on 
bonds associated with invested sinking funds is taxable.
Tax-credit bonds for qualified zone academies
      As an alternative to traditional tax-exempt bonds, 
certain States or local governments are given authority to 
issue ``qualified zone academy bonds.'' A total of $400 million 
of qualified zone academy bonds is authorized to be issued in 
each year of 1998 through 2001. The $400 million is allocated 
to States according to their respective populations of 
individuals below the poverty line.
      Qualified zone academy bonds are taxable bonds with 
respect to which the investor receives an income tax credit 
equal to an assumed interest rate set by the Treasury 
Department to allow issuance of the bonds without discount and 
without interest cost to the issuer. The bonds may be used for 
renovating, providing equipment to, developing course materials 
for, or training teachers in eligible schools. Eligible schools 
are elementary and secondary schools with respect to which 
private entities make contributions equaling at least 10 
percent of the bond proceeds.
      Only financial institutions are eligible to claim the 
credits on qualified zone academy bonds. The amount of the 
credit is taken into income. The credit may be claimed against 
both regular income tax and AMT liability.
      There are no arbitrage restrictions applicable to 
investment earnings on qualified zone academy bond proceeds.

                               House Bill

      No provision.

                            Senate Amendment

      No provision, but S. 3152, authorizes the National 
Railroad Passenger Corporation (``Amtrak'') and the Alaska 
Railroad to issue an aggregate amount of $10 billion of tax-
credit bonds to finance its capital projects. Annual issuance 
of the bonds may not exceed $1 billion per year (plus any 
authorized amount that was not issued in previous years) during 
the ten Fiscal Year period, 2001-2010. Unused bond authority 
could be carried forward to succeeding years until used, 
subject to a limitation that no tax-credit bonds could be 
issued after fiscal year 2015.
      Projects eligible for tax-credit bond financing are 
defined as the acquisition, construction of equipment, rolling 
stock, and other capital improvements for (1) the northeast 
rail corridor between Washington, D.C. and Boston, 
Massachusetts; 60 (2) high-speed rail corridors 
designated under section 104(d)(2) of Title 23 of the United 
States Code; and (3) other intercity passenger rail corridors, 
including station rehabilitation or construction, track or 
signal improvements, or grade crossing elimination. Item 3 is 
limited to a maximum of 10 percent of the proceeds of any bond 
issue. At least 70 percent of the authorized tax-credit bonds 
must be issued for projects described in (2) and (3). No more 
than $3 billion of the bonds may be designated for any one 
high-speed rail corridor.
---------------------------------------------------------------------------
    \60\ $92 million of Amtrak's tax-credit bond authority for 
Northeast Corridor projects is set aside for the acquisition and 
installation of platform facilities, performance of railroad force 
account work necessary to complete improvements below grade, and any 
other necessary improvements related to construction at the new 
railroad station at the James A. Farley Post Office Building in New 
York City. Projects finance with this $92 million of tax-credit bonds 
are not subject to the Senate contribution requirement, described 
below.
---------------------------------------------------------------------------
      As with qualified zone academy bonds, the interest rate 
on Amtrak/Alaska Railroad tax-credit bonds will be set to allow 
issuance of the bonds at par, i.e., without any interest cost 
to Amtrak or the Alaska Railroad. In general, proceeds of 
Amtrak/Alaska Railroad tax-credit bonds would have to be spent 
within 36 months after the bonds are issued. As of the date the 
bonds were issued, Amtrak or the Alaska Railroad must certify 
that it reasonably expects--
      (1) to incur a binding obligation with a third party to 
spend at least 10 percent of the bond proceeds within six 
months (or in the case of self-constructed property, to have 
commenced construction or preliminary engineering studies 
within six months);
      (2) to spend the bond proceeds with due diligence; and
      (3) to spend at least 95 percent of the proceeds for 
qualifying capital costs within three years.
      Amtrak/Alaska Railroad tax-credit bonds may only be 
issued for projects that are approved by the Department of 
Transportation and, in the case of Amtrak, with respect to 
which there are binding commitments from one or more States to 
make matching contributions of at least 20 percent of the 
project cost. Projects having State matching contributions in 
excess of 20 percent are given a preference. The State matching 
contributions, along with earnings on investment of the tax-
credit bond proceeds must be invested in a trust account (i.e., 
a sinking fund) and used along with earnings on the trust 
account for repayment of the principal amount of the bonds.
      Amtrak/Alaska Railroad tax-credit bonds can be owned (and 
income tax credits claimed) by any taxpayer. The amount of the 
credit will be included in the bondholder's income. 
Additionally, provisions are included in the proposal to allow 
the credits to be stripped and sold to different investors than 
the investors in the bond principal.
      The required State matching contribution may not be 
derived from Federal monies. Any Federal Highway Trust Fund 
monies transferred to the States are treated as Federal monies 
for this purpose. During the period when tax-credit bonds are 
authorized, Amtrak and the Alaska Railroad are not allowed to 
receive any Highway Trust Fund monies other than those 
authorized on the date of the provision's enactment.
      Amtrak is required annually to submit a five-year capital 
plan to Congress, and to satisfy independent oversight 
requirements with respect to the management of tax-credit-bond-
financed projects. Finally, the Treasury Department is required 
to certify annually that funds deposited in the escrow accounts 
for repayment of tax-credit bonds issued by Amtrak (with actual 
and projected earnings thereon) are sufficient to ensure full 
repayment of the bond principal.
      Effective date.--The provision is effective for tax 
credit bonds issued by Amtrak or the Alaska Railroad after 
September 30, 2000.

                          conference agreement

      The conference agreement follows the Senate amendment, 
with several modifications and clarifications.
      First, the expenditure requirements applicable to these 
tax credit bonds are modified to add an actual expenditure 
requirement to the Senate amendment's reasonable expectations 
test. Under the actual expenditure requirement, unless at least 
95 percent of the bond proceeds is spent within 3 years after 
the bonds are issued, unspent proceeds must be used to redeem 
bonds within 90 days after the end of the period. An exception 
allows the expenditure period to be extended to four years if 
(1) at least 75 percent of the proceeds are spent within the 
initial three year period, (2) the issuer has proceeded with 
due diligence to spend the proceeds within the initial three-
year period, and (3) the issuer pays to the Federal Government 
all earnings on unspent proceeds that accrue after the end of 
the initial three-year period. If the issuer qualifies for the 
exception, but fails to satisfy its spending requirements, 
unspent proceeds must be used to redeem bonds within 90 days 
after the end of the four-year period.
      Second, the definition of qualified expenditures is 
modified to preclude the use of bond proceeds to refinance 
outstanding debt except for ``bridge'' and similar financing 
incurred for a qualified project pending issuance of tax-credit 
bonds. Qualified bridge financing is defined as financing that 
(1) is issued after the date of enactment of the provision, (2) 
has a term of not more than three years, (3) is used to finance 
or acquire capital improvements that qualify for tax-credit 
bond financing, and (4) is issued in anticipation of being 
refinanced with proceeds of tax-credit bonds.
      Third, provisions are added requiring that tax-credit-
bond-financed property be continuously used for a qualified 
purpose throughout the term of the bonds.
      Fourth, clarification is provided that the use of tax-
credit bond proceeds to redeem bonds (except as required above 
and except with regard to not more than five percent of the 
bond proceeds) is not a qualified expenditure. A further 
modification allows Amtrak to treat as a qualified project 
expenditure, expenditure of not more than 0.5 percent of bond 
proceeds for costs of complying with the oversight requirements 
imposed on that railroad by the conference agreement.
      Fifth, clarification is provided that the tax credit rate 
is determined on the date the bonds are sold (rather than the 
actual issuance date, if different).
      Sixth, the Senate amendment is modified to require actual 
deposit in to the Trust Account securing repayment of the bonds 
of the required State contributions before any tax-credit bonds 
are issued.
      Seventh, for bonds issued by Amtrak, the Senate amendment 
is modified to require (in addition to approval by the 
Secretary of Transportation) a finding by the Inspector General 
of the Department of Transportation that there is ``a 
reasonable likelihood'' that the proposed projects will result 
``in a positive incremental financial contribution'' to Amtrak 
and to specify criteria to be used in making this 
determination.
      Return on investment.--The measurements used to evaluate 
the amount of return on investment shall include (1) the 
positive incremental financial contribution to Amtrak, 
including all system-wide impacts and (2) the value of the net 
cash flow to Amtrak produced over the life of the program, 
discounted to current dollars. Such net cash flow should take 
into consideration operating efficiencies produced as a result 
of the total capital investment as well as incremental 
passenger related, mail and express, State and other revenue as 
a result of the total capital investment.
      Leveraging of funds.--The measurements used to evaluate 
the leveraging of funds shall include (1) the amount of public 
and private match provided for the program, (2) the percentage 
of public and private match provided for the program relative 
to Amtrak's contribution and (3) the stability or reliability 
of state and local capital and operating support.
      Cost effectiveness.--The measurement used to evaluate 
cost effectiveness is the incremental cost to Amtrak per 
incremental passenger or the incremental cost to Amtrak per 
incremental revenue generated as a result of the capital 
investment.
      Safety improvement.--The measurements used to evaluate 
safety improvement shall include (1) the prevention or 
reduction of customer or third party injuries and (2) the 
prevention or reduction of employee injuries.
      Mobility improvement.--The measurements used to evaluate 
the level of mobility improvement shall include (1) travel time 
savings and (2) low income households served.
      Feasibility.--The measurements used to evaluate 
feasibility shall include (1) timing of program implementation, 
(2) technical feasibility and (3) likelihood of public and 
private participation.
      Eighth, clarification is provided that the tax-credit 
bonds are the obligation of the issuing railroad 
notwithstanding the existence of the Trust Account securing 
their repayment. As in the case of other tax-preferred debt, no 
implied Federal Guarantee arises by virtue of the availability 
of tax credits on these bonds.
      Ninth, the Senate amendment is modified to provide that 
funds in the Trust Account that are not required to redeem 
bonds may be used for additional qualified projects.

D. Farm, Fish, and Ranch Risk Management Accounts (``FFARRM Accounts'') 
          (sec. 714 of the bill and new sec. 468C of the Code)

                              present law

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

                               house bill

      No provision.

                            senate amendment

      No provision. However, S. 3152 allows taxpayers engaged 
in an eligible business to establish FFARRM accounts. An 
eligible business is any trade or business of farming in which 
the taxpayer actively participates, including the operation of 
a nursery or sod farm or the raising or harvesting of crop-
bearing or ornamental trees. An eligible business also is the 
trade or business of commercial fishing as that term is defined 
under section (3) of the Magnuson-Stevens Fishery Conservation 
and Management Act (16 U.S.C. 1802) and includes the trade or 
business of catching, taking or harvesting fish that are 
intended to enter commerce through sale, barter or trade.
      Contributions to a FFARRM account are deductible and are 
limited to 20 percent of the taxable income that is 
attributable to the eligible business. The deduction is taken 
into account in determining adjusted gross income and reduces 
the income attributable to the eligible business for all income 
tax purposes other than the determination of the 20 percent of 
eligible income limitation on contributions to a FFARRM 
account. Contributions to a FFARRM account do not reduce 
earnings from self-employment. Accordingly, distributions are 
not included in self-employment income.
      A FFARRM account is taxed as a grantor trust and any 
earnings are required to be distributed currently. Thus, any 
income earned in the FFARRM account is taxed currently to the 
farmer or fisherman who established the account. Amounts can 
remain on deposit in a FFARRM account for up to five years. Any 
amount that has not been distributed by the close of the fourth 
year following the year of deposit is deemed to be distributed 
and includible in the gross income of the account owner.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

                          conference agreement

      The conference agreement follows the provision of S. 
3152.

   E. Extension and Modification of Enhanced Deduction for Corporate 
  Donations of Computer Technology (sec. 715 of the bill and sec. 170 
                          (e)(6) of the Code)

                              present law

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

                               house bill

      No provision.

                            senate amendment

      No provision. However, S. 3152 includes a provision that 
extends the current enhanced deduction for donations of 
computer technology and equipment through December 31, 2003. In 
addition, S. 3152 expands the enhanced deduction to include 
donations to public libraries.
      Effective date.--The provision is effective upon the date 
of enactment.

                          conference agreement

      The conference agreement follows S. 3152 with a 
modification that qualified contributions include gifts made no 
later than three years after the date the taxpayer acquired or 
substantially completed the construction of the donated 
property.
      Effective date.--The provision is effective for 
contributions made after December 31, 2000.

   F. Settlement of Certain Discrimination Claims Brought by Farmers 
      Against the Department of Agriculture (sec. 716 of the bill)

                              Present Law

Income tax
      Gross income means ``income from whatever source 
derived'' except for certain items specifically excluded by 
statute.61 Sources of income include compensation 
for services, interest, dividends, capital gains, rents, 
royalties, gross profits from a trade or business, income from 
the discharge of indebtedness, and income from S corporations, 
partnerships, trusts, and estates. In determining taxable 
income, a taxpayer's gross income is reduced by exemptions and 
deductions. Absent any applicable exemption or exclusion, an 
amount received by an individual in the settlement of a lawsuit 
generally is includible in gross income.
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    \61\ Section 61.
---------------------------------------------------------------------------

                               House Bill

      No provision. However, H.R. 2233 excludes from gross 
income any cash received or cancellation of indebtedness income 
as a result of the settlement of certain claims brought by 
certain farmers against the Department of Agriculture for 
discrimination in farm credit and benefit programs. The bill 
further provides that such amounts are not included in the 
gross estate of any qualified person for estate tax purposes. 
Finally, the bill provides that these amounts are not to be (1) 
considered income or resources in determining eligibility for, 
(2) used to deny or reduce funds under, or (3) used as a basis 
for determining the amount of assistance under, any program 
funded in whole or in part with Federal funds. The bill is 
limited to certified members of the plaintiff class in the 
settlement of two consolidated class action suits. The two 
suits are Pigford, et al. v. Glickman No. 97-1978 (D.D.C.)(PLF) 
and Brewington, et al. v. Glickman No. 98-1693 (D.D.C.)(PLF).
      Effective date.--The provision is effective after the 
date of enactment.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement follows the provision of H.R. 
2233, with modifications. The conference agreement provision 
provides an exclusion of certain amounts from gross income for 
purposes of Subtitle A of the Internal Revenue Code. This 
exclusion applies to any (1) cash payment received before, on, 
or after the date of enactment by or made on behalf of, a 
person under the settlement of these two claims or (2) 
cancellation of indebtedness income pursuant to the settlement 
of these two claims. The conference agreement does not include 
the provision of H.R. 2233 that provides an exclusion of 
amounts from the gross estate of any qualified person, for 
estate tax purposes. Further, the conference agreement does not 
include the provision of H.R. 2233 providing that amounts are 
not to be (1) considered income or resources in determining 
eligibility for, (2) used to deny or reduce funds under, or (3) 
used as a basis for determining the amount of assistance under, 
any program funded in whole or in part with Federal funds.

G. Extension of the Adoption Tax Credit (sec. 717 of the bill and sec. 
                            23 of the Code)

                              Present Law

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

                               House Bill

      No provision.

                            senate amendment

      No provision. However, S. 3152 extends the adoption 
credit for the adoption of nonspecial needs children for two 
years through December 31, 2003.
      Effective date.--The provision is effective on the date 
of enactment.

                          Conference Agreement

      The conference agreement extends the credit for 
nonspecial needs adoptions to include qualified adoption 
expenses paid or incurred prior to December 31, 2005, and 
increases the maximum credit by $1,000 per year beginning for 
taxable years beginning after December 31, 2000 and until the 
maximum credit reaches $10,000 per year for taxable years 
beginning after December 31, 2004. In the case of special needs 
adoptions, the maximum credit is increased by $2,000 per year 
for taxable years beginning after December 31, 2000 until the 
maximum credit reaches $12,000 per year for taxable years 
beginning after December 31, 2002.
      Additionally, for taxable years beginning after December 
31, 2000, the income limitation for the credit is increased to 
$150,000 of modified AGI, and is phased out ratably for 
taxpayers with modified AGI between $150,000 and $190,000.
      Effective date.--The provision is effective for taxable 
years beginning after December 31, 2000.

 H. Study of Tax Treatment With Respect to Certain Offshore Insurance 
                    Companies (sec. 718 of the bill)

                              Present Law

      Under present law, under the rules of subchapter L of the 
Code, a life insurance company is subject to tax on its life 
insurance company taxable income. Similarly, a property and 
casualty insurance company is subject to tax on its taxable 
income, which is calculated by taking into account the 
company's underwriting income and investment income, as well as 
gains and other income items. An insurance company may enter 
into a reinsurance contract or agreement with another insurer, 
whereby risks, or portions of risks, are transferred from one 
insurer to another or are shared or allocated among insurers.
      Present law provides rules governing allocation in the 
case of reinsurance agreements that involve tax avoidance or 
evasion. Under this rule, in the case of two or more related 
persons that are parties to a reinsurance agreement (or an 
agent of a party to a reinsurance agreement), the Treasury 
Secretary may allocate between or among such persons income 
(whether investment income, premium or otherwise), deductions, 
assets, reserves, credits, and other items related to the 
agreement. The Treasury Secretary may also recharacterize any 
such items or make any other adjustment. The Secretary may make 
the allocation, recharacterization or adjustment if he 
determines that it is necessary to reflect the proper source 
and character of the taxable income (or other item) of each 
related person or agent.62
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    \62\ H.R. 4192 (106th Cong., 2d. Sess.,) introduced April 5, 2000, 
would modify these rules relating to reinsurance transactions. That 
bill would provide that if a domestic person directly or indirectly 
reinsurances a U.S. risk with a related foreign reinsurer, then the 
investment income of the domestic person would be increased by the 
product of (1) the reserves or liabilities related to the U.S. risk 
ceded to the foreign reinsurer, and (2) the average applicable Federal 
mid-term rate.
---------------------------------------------------------------------------
      Other rules also provide for the allocation of income and 
deductions among taxpayers. In any case of two or more 
organizations owned or controlled directly or indirectly by the 
same interests, the Treasury Secretary may distribute, 
apportion, or allocate gross income, deductions, credits, or 
allowances between or among the organizations, if he determines 
that it is necessary in order to prevent evasion of taxes or 
clearly to reflect the income of the organizations.

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement provides that the Secretary of 
the Treasury is to conduct a study on the extent to which U.S. 
tax on investment income of U.S. insurance companies is being 
avoided through the use of affiliated corporations in Bermuda 
or other offshore locations. In conducting the study, the 
Treasury Secretary is to address issues concerning the 
application of current U.S. tax law in preventing such 
avoidance, changes to U.S. tax law that may be needed to 
prevent such avoidance, and is to make appropriate 
recommendations. The Treasury Secretary is to submit the study 
and recommendations to the House Committee on Ways and Means 
and the Senate Committee on Finance no later than December 31, 
2001.

I. Treatment of Indian Tribes as Non-Profit Organizations and State or 
    Local Governments for Purposes of the Federal Unemployment Tax 
      (``FUTA'') (sec. 719 of the bill and sec. 3306 of the Code)

                              Present Law

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

                               House Bill

      No provision.

                            Senate Amendment

      No provision. However, S. 3152 provides that an Indian 
tribe (including any subdivision, subsidiary, or business 
enterprise chartered and wholly owned by an Indian tribe) is 
treated like a non-profit organization or State or local 
government for FUTA purposes (i.e., given an election to choose 
the reimbursement treatment).
      Effective date.--The provision generally is effective 
with respect to service performed beginning on or after the 
date of enactment. Under a transition rule, service performed 
in the employ of an Indian tribe is not treated as employment 
for FUTA purposes if: (1) it is service which is performed 
before the date of enactment and with respect to which FUTA tax 
has not been paid; and (2) such Indian tribe reimburses a State 
unemployment fund for unemployment benefits paid for service 
attributable to such tribe for such period.

                          Conference Agreement

      The conference agreement follows the provision of S. 
3152.

                 Subtitle C. Tax Technical Corrections

                               House Bill

      No provision.

                            Senate Amendment

      No provision.

                          Conference Agreement

      The conference agreement includes tax technical 
corrections.63 Except as otherwise provided, the 
technical corrections contained in the bill generally are 
effective as if included in the originally enacted related 
legislation. The provisions under the IRS Restructuring Act of 
1998 relating to innocent spouse and to procedural and 
administrative issues (other than the provision relating to 
clarification of Tax Court authority to issue appealable 
decisions) are effective upon the date of enactment of the 
bill.
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    \63\ In addition to other tax technical corrections, the bill 
contains the technical corrections contained in H.R. 2488, the 
Financial Freedom Act of 1999 (106th Cong., 1st Sess., reported by the 
House Committee on Ways and Means, H. Rept. 106-238, July 16, 1999, 
393-397), as passed by the House, and S. 1429, the Taxpayer Refund Act 
of 1999 (reported by the Senate Committee on Finance, S. Rept. 106-120, 
July 23, 1999, 221-225), as passed by the Senate. (The technical 
corrections were not included in the conference agreement to H.R. 2488, 
the Taxpayer Refund and Relief Act of 1999 (106th Cong., 1st Sess., H. 
Rept. 106-289, Aug. 4, 1999, 542-543). The Taxpayer Refund and Relief 
Act of 1999 was vetoed by President Clinton.) However, the bill does 
not include the following provisions enacted in other legislation: 
sections 1601(b)(2) and (c) of H.R. 2488 (and section 504(c) of S. 
1429), relating to the Vaccine Trust Fund, which were enacted in the 
``Ticket to Work and Work Incentives Improvement Act of 1999'' (P.L. 
106-170, sec. 523(b)).
---------------------------------------------------------------------------
Amendments relating to the Ticket to Work and Work Incentives 
        Improvement Act of 1999 (sec. 721 of the bill)
      Research credit.--The provision clarifies the anti-double 
dip rule coordinating the research credit (sec. 41) and the 
Puerto Rico economic activity credit (sec. 30A). It is arguable 
that the present-law provisions could be construed so that the 
amount of wages on which a taxpayer could claim the section 30A 
credit is reduced only by the amount of credit claimed under 
section 41, rather than by the amount of wages upon which the 
section 41 credit is based. This result is inconsistent with 
the legislative history of the original provisions. The 
provision deletes the words ``or credit'' after ``deduction'' 
in section 280C(c)(1), and adds a new subsection in section 30A 
specifying that wages or other expenses taken into account for 
section 30A may not be taken into account for section 41.
      Taxable REIT subsidiaries.--The provision clarifies that 
a REIT's redetermined rents (described in sec. 857(b)(7)(B)) 
that are subject to tax under section 857(b)(7)(A) do not 
include amounts received from a taxable REIT subsidiary that 
would be excluded from unrelated business taxable income (under 
sec. 512(b)(3), relating to certain rents, if received by 
certain types of organizations described in sec. 511(a)(2)).
      Partnership basis adjustments.--The provision provides 
that the rule in the consolidated return regulations (Treas. 
Reg. sec. 1.1502-34) aggregating stock ownership for purposes 
of section 332 (relating to complete liquidation of a 
subsidiary that is a controlled corporation) also applies for 
purposes of section 732(f) (relating to basis adjustments to 
assets of a controlled corporation received in a partnership 
distribution).
Amendments related to the Tax and Trade Relief Extension Act of 1998 
        (sec. 722 of the bill)
      Exempt organizations.--The provision clarifies that 
nonexempt charitable trusts and nonexempt private foundations 
are subject to the public disclosure requirements of section 
6104(d).
      Capital gains.--The provision clarifies that if (1) a 
charitable remainder trust sold section 1250 property after 
July 28, 1997, and before January 1, 1998, (2) the property was 
held more than one year but not more than 18 months, and (3) 
the capital gain is distributed after December 31, 1997, then 
any capital gain attributable to depreciation will be taxed at 
25 percent (rather than 28 percent). Treasury has published a 
notice (Notice 99-17, 1999-14 I.R.B., April 5, 1999) providing 
that the gain is taxed at 25 percent.
Amendments related to the Internal Revenue Service Restructuring and 
        Reform Act of 1998 (sec. 723 of the bill)
            Innocent spouse
      Timing of request for relief.--Confusion currently exists 
as to the appropriate point at which a request for innocent 
spouse relief should be made by the taxpayer and considered by 
the IRS. Some have read the statute to prohibit consideration 
by the IRS of requests for relief until after an assessment has 
been made, i.e., after the examination has been concluded, and 
if challenged, judicially determined. Others have read the 
statute to permit claims for relief from deficiencies to be 
made upon the filing of the return before any preliminary 
determination as to whether a deficiency exists or whether the 
return will be examined. The consideration of innocent spouse 
relief requires that the IRS focus on the particular items 
causing a deficiency; until such items are identified, the IRS 
cannot consider these claims. Congress did not intend that 
taxpayers be prohibited from seeking innocent spouse relief 
until after an assessment has been made; Congress intended the 
proper time to raise and have the IRS consider a claim to be at 
the same point where a deficiency is being considered and 
asserted by the IRS. This is the least disruptive for both the 
taxpayer and the IRS since it allows both to focus on the 
innocent spouse issue while also focusing on the items that 
might cause a deficiency. It also permits every issue, 
including the innocent spouse issue, to be resolved in single 
administrative and judicial process. The bill clarifies the 
intended time by permitting the election under (b) and (c) to 
be made at any point after a deficiency has been asserted by 
the IRS. A deficiency is considered to have been asserted by 
the IRS at the time the IRS states that additional taxes may be 
owed. Most commonly, this occurs during the Examination 
process. It does not require an assessment to have been made, 
nor does it require the exhaustion of administrative remedies 
in order for a taxpayer to be permitted to request innocent 
spouse relief.
      Allowance of refunds.--The current placement in the 
statute of the provision for allowance of refunds may 
inappropriately suggest that the provision applies only to the 
United States Tax Court, whereas it was intended to apply 
administratively and in all courts. The bill clarifies this by 
moving the provision to its own subsection.
      Non-exclusivity of judicial remedy.--Some have suggested 
that the IRS Restructuring Act administrative and judicial 
process for innocent spouse relief was intended to be the 
exclusive avenue by which relief could be sought. The bill 
clarifies Congressional intent that the procedures of section 
6015(e) were intended to be additional, non-exclusive avenues 
by which innocent spouse relief could be considered.
      Time for filing a petition with the Tax Court.--As 
enacted, the time period for seeking a redetermination in the 
Tax Court of innocent spouse relief begins on the date of the 
determination as opposed to the day after the determination. 
This period is one day shorter than that generally applicable 
to petition the Tax Court with respect to a deficiency notice 
(sec. 6213) and the period during which collection activities 
are prohibited and the limitations period is suspended. The 
bill clarifies the computation of this period and conforms it 
to the generally applicable 90-day period for petitioning the 
Tax Court. Conforming amendments are made as to the period for 
which collection activities are prohibited and collection 
limitations suspended.
      Waiver of final determination upon agreement as to 
relief.--Congress intended in enacting section 6015 to provide 
a simple and efficient procedure by which the IRS could 
consider relief, and if relief was denied (in whole or in part) 
and the spouse requesting such relief did not agree with such 
denial, such issue could be considered by the Tax Court. 
Congress did not intend to require a rigid formal process when 
the IRS and the spouse requesting relief agreed on the extent 
of relief to be granted. However, the provisions of section 
6015(e) have been interpreted as requiring the issuance in all 
circumstances of a formal ``Notice of Determination,'' which 
contains a statement of the time period within which a petition 
may be filed with the Tax Court and which delays final 
resolution of the request for relief until the expiration of 
the period for filing a petition with the Tax Court. The 
issuance of the Notice of Determination is confusing to the 
taxpayer when the requested relief was fully granted or when 
the IRS and the taxpayer otherwise agreed on the application of 
the innocent spouse provisions to the taxpayer's case. It also 
may cause unnecessary filings with the Tax Court and delay the 
closing of the case until the time for filing with the Tax 
Court expires.
      Congress has addressed the analogous situation in the 
deficiency context in section 6213(d). In such situations, upon 
written agreement, the IRS may adjust the taxpayer's liability 
as agreed, and no additional formal notice is necessary. The 
bill reflects that an analogous waiver was intended to apply in 
the innocent spouse context. The bill consequently permits 
taxpayers and the IRS to enter into a similar written agreement 
in innocent spouse cases, which allows for the taxpayer's 
liability to be immediately adjusted as agreed, and makes 
unnecessary a formal Notice of Determination or Tax Court 
review. This written agreement is to specify the details of the 
agreement between the IRS and the taxpayer as to the nature and 
extent of innocent spouse relief that will be provided. 
Conforming amendments are made as to the period for which 
collection activities are prohibited and collection limitations 
suspended.
            Procedural and administrative issues
      Disputes involving $50,000 or less.--The provision 
clarifies that the small case procedures of the Tax Court are 
available with respect to innocent spouse disputes and disputes 
continuing from the pre-levy administrative due process 
hearing. The small case procedures provide an accessible forum 
for taxpayers who have small claims with less formal rules of 
evidence and procedure. Use of the procedure is optional to the 
taxpayer, with the concurrence of the Tax Court. In view of the 
recent enactment of the innocent spouse and pre-levy 
administrative due process hearing provisions, it is 
anticipated that the Tax Court will give careful consideration 
to (1) a motion by the Commissioner of Internal Revenue to 
remove the small case designation (as authorized by Rules 172 
and 173 of the Tax Court Rules) when the orderly conduct of the 
work of the Court or the administration of the tax laws would 
be better served by a regular trial of the case, as well as (2) 
the financial impact upon the taxpayer, including additional 
legal fees and costs, of not utilizing small case treatment. 
For example, removing the small case designation may be 
appropriate when a decision in the case will provide a 
precedent for the disposition of a substantial number of other 
cases. It is anticipated that motions by the Commissioner to 
remove the small case designation will be made infrequently.
      Authority to enjoin collection actions.--While a dispute 
is pending under the pre-levy administrative due process 
hearing procedures, levy action is statutorily suspended for 
that period. The Tax Court and district courts are expressly 
granted authority to enjoin improper levy action in general, 
but that authority does not explicitly extend to improper levy 
action that occurs during the period when levy action is 
statutorily suspended under the administrative due process 
provisions. The provision clarifies the ability of the courts 
(including the Tax Court) to enjoin levy during the period that 
levy is required to be suspended with respect to a dispute 
under the pre-levy administrative due process hearing 
procedures.
      Clarification of permissible extension of limitations 
period for installment agreements.--Uncertainty exists as to 
whether the permissible extension of the period of limitations 
in the context of installment agreements is governed by 
reference to an agreement of the parties pursuant to section 
6502 or by reference to the period of time during which the 
installment agreement is in effect pursuant to sections 
6331(k)(3) and (i)(5). The provision clarifies that the 
permissible extension of the period of limitations in the 
context of installment agreements is governed by the pertinent 
provisions of section 6502.
      Clarification of Tax Court authority to issue appealable 
decisions.--The statutory provision for judicial review of a 
dispute concerning the pre-levy administrative due process 
hearing may be unclear as to whether a determination of the Tax 
Court is an appealable decision. The provision clarifies that 
the determination of the Tax Court (other than under the small 
case procedures) in a dispute concerning the pre-levy 
administrative due process hearing is a decision of the Tax 
Court and would be reviewable as such.
            Other issues
      IRS restructuring.--When the Office of the Chief 
Inspector was replaced by the Treasury Inspector General for 
Tax Administration (TIGTA) under the IRS Restructuring and 
Reform Act of 1998, Inspection's responsibilities were assigned 
to the TIGTA. TIGTA personnel are Treasury, rather than IRS, 
personnel. TIGTA personnel still need to make investigative 
disclosures to carry out the duties they took over from 
Inspection and their additional tax administration 
responsibilities. However, section 6103(k)(6) refers only to 
``internal revenue'' personnel. The provision clarifies that 
section 6103(k)(6) permits TIGTA personnel to make 
investigative disclosures.
      Compliance.--Section 3509 of the IRS Restructuring and 
Reform Act of 1998 expanded the disclosure rules of section 
6110 to also cover Chief Counsel advice (sec. 6110(i)). This is 
a conforming change related to ongoing investigations. The 
provision adds to section 6110(g)(5)(A), after the words 
technical advice memorandum, ``or Chief Counsel advice.''
Amendments related to the Taxpayer Relief Act of 1997 (sec. 724 of the 
        bill)
      Deficiency created by overstatement of refundable child 
credit.--The provision treats the refundable portion of the 
child credit under section 24(d) as part of a ``deficiency.'' 
Thus, the usual assessment procedures applicable to income 
taxes will apply to both the nonrefundable and the refundable 
portions of the child credit. (This will reverse the conclusion 
reached by Internal Revenue Service Chief Counsel Memorandum 
199948027 interpreting present law.)
      Roth IRAs.--Code section 3405 provides for withholding 
with respect to designated distributions from certain tax-
favored arrangements, including IRAs. In general, section 
3405(e)(1)(B)(ii) excludes from the definition of a designated 
distribution the portion of any distribution which it is 
reasonable to believe is excludable from gross income. However, 
all distributions from IRAs are treated as includible in 
income. The exception was consistent with prior law when all 
IRA distributions were taxable, but does not account for the 
tax-free nature of certain Roth IRA distributions. The 
provision extends the exception to Roth IRAs.
      Capital gain election.--The provision provides that an 
election to recognize gain or loss made pursuant to section 
311(e) of the Taxpayer Relief Act of 1997 does not apply to 
assets disposed of in a recognition transaction within one year 
of the date the election would otherwise have been effective. 
Thus, for example, if an asset is sold in 2001, no election may 
be made with respect to that asset. In addition, it is 
clarified that the deemed sale and repurchase by reason of the 
election is not taken into account in applying the wash sale 
rules of section 1091.
      Straight-line depreciation under AMT.--The provision 
clarifies that the Taxpayer Relief Act of 1997 did not change 
the requirement that the straight-line method of depreciation 
be used in computing the alternative minimum tax (``AMT'') 
depreciation allowance for section 1250 property. It is 
arguable that the changes made by that Act could be read as 
inadvertently allowing accelerated depreciation under the AMT 
for section 1250 property which is allowed accelerated 
depreciation under the regular tax.
      Transportation benefits.--Under present law, salary 
reduction amounts are generally treated as compensation for 
purposes of the limits on contributions and benefits under 
qualified plans. In addition, an employer can elect whether or 
not to include such amounts for nondiscrimination testing 
purposes. The IRS Reform Act permitted employers to offer a 
cash option in lieu of qualified transportation benefits. The 
provision treats salary reduction amounts used for qualified 
transportation benefits the same as other salary reduction 
amounts for purposes of defining compensation under the 
qualified plan rules.
      Tax Court jurisdiction.--The Tax Court recently held that 
its jurisdiction pursuant to section 7436 extends only to 
employment status, not to the amount of employment tax in 
dispute (Henry Randolph Consulting v. Comm'r, 112 T.C. #1, Jan. 
6, 1999). The provision provides that the Tax Court also has 
jurisdiction over the amount.
Amendments related to the Balanced Budget Act of 1997 (sec. 725 of the 
        bill)
      Tobacco floor stocks tax.--The provision clarifies that 
the floor stocks taxes imposed on January 1, 2000, and January 
1, 2002, apply only to cigarettes rather than to all tobacco 
products. As enacted, the law could be construed as ambiguous, 
referring to imposition on all tobacco products but imposing 
liability only with respect to cigarettes.
      Tobacco excise tax.--Conforming amendments are provided 
to two provisions to reflect the fact that the tax on cigarette 
papers is not imposed on ``books'' of papers since January 1, 
2000.
      Coordination of trade rules and tobacco excise tax.--
Clarification is provided that the penalty on reimporting 
cigarettes other than for return to a manufacturer (effective 
January 1, 2000) does not apply to cigarettes re-imported by 
individuals to the extent those cigarettes can be entered into 
the U.S. without duty or tax under the Harmonized Tariff 
Schedule.
Amendment related to the Small Business Job Protection Act of 1996 
        (sec. 726 of the bill)
      Work opportunity tax credit.--Section 51(d)(2) refers to 
eligibility for the work opportunity tax credit with respect to 
certain welfare recipients without taking into account the 
enactment of the temporary assistance for needy families 
(``TANF'') program. The provisions conform references in the 
work opportunity tax credit to the operation of TANF.
      Electing small business trusts holding S corporation 
stock.--The provision allows an electing small business trust 
(sec. 1361(e)) to have an organization described in section 
170(c)(1) (relating to State and local governments) as a 
beneficiary if the organization holds a contingent interest and 
is not a potential current beneficiary.
      Definition of lump-sum distribution.--Section 1401(b) of 
the Small Business Job Protection Act of 1996 Act repealed 5-
year averaging for lump-sum distributions. The definition of 
lump-sum distribution was preserved for other provisions, 
primarily those relating to NUA in employer securities. The 
definition was moved from section 402(d)(4)(A) to section 
402(e)(4)(D)(i). This definition included the following 
sentence: ``A distribution of an annuity contract from a trust 
or annuity plan referred to in the first sentence of this 
subparagraph shall be treated as a lump sum distribution.'' The 
provision adds this language back into the definition of lump-
sum distribution. The sentence is relevant to section 
401(k)(10)(B), which permits certain distributions if made as a 
``lump-sum distribution.''
      IRAs for nonworking spouses.--Section 1427 of the Small 
Business Job Protection Act of 1996 expanded the IRA deduction 
for nonworking spouses. The maximum permitted IRA contributions 
is generally limited by the individual's earned income. 
However, under present law, it is possible for a nonworking (or 
lesser earning) spouse to make IRA contributions in excess of 
the couple's combined earned income. The following example 
illustrates present law.
            Example: Suppose H and W retire in the middle of 
        January, 1999. In that year, H earns $1,000 and W earns 
        $500. Both are active participants in an employer-
        sponsored retirement plan. Their modified AGI is 
        $60,000. They make no Roth IRA contributions. Before 
        application of the income phase-out rules, the maximum 
        deductible IRA contribution that H can make is $1,000 
        (sec. 219(b)(1)). After application of the income 
        phase-out rule in section 219(g), H's maximum 
        contribution is $200, and H contributes that amount to 
        an IRA. Under 408(o)(2)(B), H can make nondeductible 
        contributions of $800 ($1,000-$200).
            W's maximum permitted deductible contribution under 
        section 219(c)(1)(B), before the income phase-out, is 
        $1,300 (the sum of H and W's earned income ($1,500), 
        less H's deductible IRA contribution ($200)). Under the 
        income phase-out, W's deductible contribution is 
        limited to $200, and she can make a nondeductible 
        contribution of $1,000 ($1,300-$200).
            The total permitted contributions for H and W are 
        $2,300 ($1,000 for H plus $1,300 for W). The combined 
        contribution should be limited to $1,500, their 
        combined earned income.
      The provision provides that the contributions for the 
spouse with the lesser income cannot exceed the combined earned 
income of the spouses.
Amendment related to the Revenue Reconciliation Act of 1990 (sec. 727 
        of the bill)
      Qualified tertiary injectant expenses.--The provision 
clarifies that the enhanced oil recovery credit (sec. 43) 
applies with respect to qualified tertiary injectant expenses 
described in section 193(b) that are paid or incurred in 
connection with a qualified enhanced oil recovery project, and 
that are deductible for the taxable year (regardless of the 
provision allowing the deduction). Purchased and self-produced 
injectants are treated the same for purposes of the section 43 
credit.
Amendments to other acts (sec. 728 of the bill)
      Insurance.--The legislative history of section 7702A(a) 
(enacted in the Technical and Miscellaneous Revenue Act of 
1988) indicated that if a life insurance contract became a 
modified endowment contract (``MEC''), then the MEC status 
could not be eliminated by exchanging the MEC for another 
contract. Section 7702A(a)((2), however, arguably might be read 
to allow a policyholder to exchange a MEC for a contract that 
does not fail the 7-pay test of section 7702A(b), then exchange 
the second contract for a third contract, which would not 
literally have been received in exchange for a contract that 
failed to meet the 7-pay test. The provision clarifies section 
7702A(a)(2) to correspond to the legislative history, effective 
as if enacted with the Technical and Miscellaneous Revenue Act 
of 1988 (generally, for contracts entered into on or after June 
21, 1988).
      Insurance.--Under section 7702A, if a life insurance 
contract that is not a modified endowment contract is actually 
or deemed exchanged for a new life insurance contract, then the 
7-pay limit under the new contract is first be computed without 
reference to the premium paid using the cash surrender value of 
the old contract, and then would be reduced by \1/7\ of the 
premium paid taking into account the cash surrender value of 
the old contract. For example, if the old contract had a cash 
surrender value of $14,000 and the 7-pay premium on the new 
contract would equal $10,000 per year but for the fact that 
there was an exchange, the 7-pay premium on the new contract 
would equal $8,000 ($10,000-$14,000/7). However, section 
7702A(c)(3)(A) arguably might be read to suggest that if the 
cash surrender value on the new contract was $0 in the first 
two years (due to surrender charges), then the 7-pay premium 
might be $10,000 in this example, unintentionally permitting 
policyholders to engage in a series of ``material changes'' to 
circumvent the premium limitations in section 7702A. The 
provision clarifies section 7702A(c)(3)(A) to refer to the cash 
surrender value of the old contract, effective as if enacted 
with the Technical and Miscellaneous Revenue Act of 1988 
(generally, for contracts entered into on or after June 21, 
1988).
      Worthless securities.--Section 165(g)(3) provides a 
special rule for worthless securities of an affiliated 
corporation. The test for affiliation in section 165(g)(3)(A) 
is the 80-percent vote test for affiliated groups under section 
1504(a) that was in effect prior to 1984. When section 1504(a) 
was amended in the Deficit Reduction Act of 1984 to adopt the 
vote and value test of present law, no corresponding change was 
made to section 165(g)(3)(A), even though the tests had been 
identical until then. The provision conforms the affiliation 
test of section 165(g)(3)(A) to the test in section 1504(a)(2), 
effective for taxable years beginning after December 31, 1984.
      Exception for certain annuities under OID rules.--The 
Deficit Reduction Act of 1984 expanded the prior-law rules for 
inclusion in income of original issue discount (``OID'') on 
debt instruments. That Act provided an exception from the 
definition of a debt instrument for certain annuity contracts, 
including any annuity contract to which section 72 applies and 
that is issued by an insurance company subject to tax under 
subchapter L of the Code (and meets certain other requirements) 
(sec. 1275(a)(1)(B)(ii)). The provision clarifies that an 
annuity contract otherwise meeting the applicable requirements 
also comes within the exception of section 1275(a)(1)(B)(ii) if 
it is issued by an entity described in section 501(c) and 
exempt from tax under section 501(a), that would be subject to 
tax as an insurance company under subchapter L if it were not 
exempt under section 501(a). For example, the provision 
clarifies that an annuity contract otherwise meeting the 
requirements that is issued by a fraternal beneficiary society 
which is exempt from Federal income tax under section 501(a), 
and which is described in section 501(c)(8), comes within the 
exception under section 1275(a)(1)(B)(ii). However, an annuity 
contract issued by a foreign insurer that is not subject to tax 
in the U.S. as an insurance company under subchapter L with 
respect to the contract does not come within the exception 
under section 1275(a)(1)(B)(ii). It is understood that 
charitable gift annuities (as defined in sec. 501(m)) depend 
(in whole or in substantial part) on the life expectancy of one 
or more individuals, and thus come within the exception under 
section 1275(a)(1)(B)(i). The provision is effective as if 
included with section 41 of the Deficit Reduction Act of 1984 
(i.e., for taxable years ending after July 18, 1984).
      Losses from section 1256 contracts.--Section 6411 allows 
tentative refunds for NOL carrybacks, business credit 
carrybacks and, for corporations only, capital loss carrybacks. 
Individuals normally cannot carry back a capital loss. However, 
section 1212(c) does allow a carryback of section 1256 losses, 
if elected by the taxpayer. The provision amends section 
6411(a) by including a reference to section 1212(c), effective 
as if included with section 504 of the Economic Recovery Tax 
Act of 1981.
      Highway Trust Fund.--The provision modifies 
administrative procedures of the Highway Trust Fund to conform 
to the 1993 repeal of the special tax rate applicable to 
ethanol prior to 1994. The provision is effective for taxes 
received after the date of enactment. This ensures that 
retroactive adjustments, if any, are not made to the Highway 
Trust Fund.
      Conforming amendment for expenditures from Vaccine Injury 
Compensation Trust Fund.--The provision makes a conforming 
amendment to the expenditure purposes of the Vaccine Injury 
Compensation Trust Fund to enable certain payments to be made 
from the Trust Fund.
Clerical changes (sec. 729 of the bill)
      The bill makes a number of clerical and typographical 
amendments to the Code.

                     EXCLUSION FROM PAYGO SCORECARD

                              present law

      Under the Balanced Budget and Emergency Deficit Control 
Act of 1985, as amended, tax reduction legislation is subject 
to a ``pay-as-you-go'' (PAYGO) requirement. The PAYGO system 
tracks legislation that may increase budget deficits using a 
``scorecard'' (estimated by the Office of Management and 
Budget). Any revenue loss would have to be offset by other 
revenue increases, reductions in direct spending or a 
combination of the two.

                               house bill

      No provision.

                            senate amendment

      No provision.

                          conference agreement

      The conference agreement provides that, upon enactment of 
the Act, the Director of the Office of Management and Budget 
shall not make any estimate of the changes in direct spending 
outlays and receipts under section 252(d) of the Balanced 
Budget and Emergency Deficit Control Act of 1985 resulting from 
the enactment of the Act.

                        TAX COMPLEXITY ANALYSIS

      The following tax complexity analysis is provided 
pursuant to section 4022(b) of the Internal Revenue Service 
Reform and Restructuring Act of 1998, which requires the staff 
of the Joint Committee on Taxation (in consultation with the 
Internal Revenue Service (``IRS'') and the Treasury Department) 
to provide a complexity analysis of tax legislation reported by 
the House Committee on Ways and Means, the Senate Committee on 
Finance, or a Conference Report containing tax provisions. The 
complexity analysis is required to report on the complexity and 
administrative issues raised by provisions that directly or 
indirectly amend the Internal Revenue Code and that have 
widespread applicability to individuals or small businesses. 
For each such provision identified by the staff of the Joint 
Committee on Taxation, a summary description of the provision 
is provided, along with an estimate of the number of affected 
taxpayers, and a discussion regarding the relevant complexity 
and administrative issues. Time constraints prevented the staff 
of the Joint Committee on Taxation from consulting with the IRS 
regarding the provisions in the conference agreement that have 
widespread applicability.
1. Increase deduction for business meals (sec. 204 of the conference 
        agreement)
Summary description of provision
      The provision increases the deductible percentage of 
business meal (food and beverage) expenses to 70 percent, 
effective for taxable years beginning after December 31, 2000.
Number of affected taxpayers
      It is estimated that almost all small businesses will be 
affected by the provision.
Discussion
      Because the provision increases the percentage deduction 
only with respect to meals and not entertainment, small 
businesses may have to keep additional records to distinguish 
between the two types of expenditures. The provision may lead 
to additional disputes between small businesses and the IRS 
regarding the nature of an expenditure, particularly in 
business situations where the meal and entertainment is 
provided as a package for a single price. No new regulatory 
changes would be needed to implement the provision (although a 
conforming change to regulations to reflect the increasing 
percentage would be appropriate).
2. Accelerate 100-percent self-employed health insurance deduction 
        (sec. 301 of the conference agreement)
Summary description of provision
      The provision accelerates the increase in the deduction 
for health insurance expenses of self-employed individuals so 
that the deduction is 100 percent in years beginning after 
December 31, 2000.
Number of affected taxpayers
      It is estimated that the provision will affect three 
million small businesses.
Discussion
      It is not anticipated that individuals or small 
businesses will need to keep additional records due to the 
provision. It is not anticipated that the provision will result 
in an increase in disputes with the IRS, or increase tax return 
preparation costs. It is not anticipated that regulatory 
guidance will be needed to implement the provision. 
Accelerating the 100-percent deduction may simplify the 
preparation of tax returns for self-employed individuals, 
because they will no longer need to keep track of the percent 
of health insurance expenses that are deductible, and will need 
to perform one less calculation.


 medicare, medicaid, and schip benefits improvement and protection act 
                                of 2000

      The conference agreement would enact the provisions of 
H.R. 5543, as introduced on October 25, 2000. The text of that 
bill follows:

SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT; REFERENCES 
                    TO OTHER ACTS; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Medicare, 
Medicaid, and SCHIP Benefits Improvement and Protection Act of 
2000''.
    (b) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in this Act an amendment 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 that section or other provision of the Social Security Act.
    (c) References to Other Acts.--In this Act:
            (1) Balanced budget act of 1997.--The term ``BBA'' 
        means the Balanced Budget Act of 1997 (Public Law 105-
        33; 111 Stat. 251).
            (2) Medicare, medicaid, and schip balanced budget 
        refinement act of 1999.--The term ``BBRA'' means the 
        Medicare, Medicaid, and SCHIP Balanced Budget 
        Refinement Act of 1999 (Appendix F, 113 Stat. 1501A-
        321), as enacted into law by section 1000(a)(6) of 
        Public Law 106-113.
    (d) Table of Contents.--The table of contents of this Act 
is as follows:

Sec. 1. Short title; amendments to Social Security Act; references to 
          other Acts; table of contents.

               TITLE I--MEDICARE BENEFICIARY IMPROVEMENTS

                Subtitle A--Improved Preventive Benefits

Sec. 101. Coverage of biennial screening pap smear and pelvic exams.
Sec. 102. Coverage of screening for glaucoma.
Sec. 103. Coverage of screening colonoscopy for average risk 
          individuals.
Sec. 104. Modernization of screening mammography benefit.
Sec. 105. Coverage of medical nutrition therapy services for 
          beneficiaries with diabetes or a renal disease.

               Subtitle B--Other Beneficiary Improvements

Sec. 111. Acceleration of reduction of beneficiary copayment for 
          hospital outpatient department services.
Sec. 112. Preservation of coverage of drugs and biologicals under part B 
          of the medicare program.
Sec. 113. Elimination of time limitation on medicare benefits for 
          immunosuppressive drugs.
Sec. 114. Imposition of billing limits on prescription drugs.

             Subtitle C--Demonstration Projects and Studies

Sec. 121. Demonstration project for disease management for severely 
          chronically ill medicare beneficiaries.
Sec. 122. Cancer prevention and treatment demonstration for ethnic and 
          racial minorities.
Sec. 123. Study on medicare coverage of routine thyroid screening.
Sec. 124. MedPAC study on consumer coalitions.
Sec. 125. Study on limitation on State payment for medicare cost-sharing 
          affecting access to services for qualified medicare 
          beneficiaries.
Sec. 126. Institute of Medicine study on waiver of 24-month waiting 
          period for medicare disability eligibility for amyotrophic 
          lateral sclerosis (ALS) and other devastating diseases.
Sec. 127. Studies on preventive interventions in primary care for older 
          Americans.
Sec. 128. MedPAC study and report on medicare coverage of cardiac and 
          pulmonary rehabilitation therapy services.

                TITLE II--RURAL HEALTH CARE IMPROVEMENTS

             Subtitle A--Critical Access Hospital Provisions

Sec. 201. Clarification of no beneficiary cost-sharing for clinical 
          diagnostic laboratory tests furnished by critical access 
          hospitals.
Sec. 202. Assistance with fee schedule payment for professional services 
          under all-inclusive rate.
Sec. 203. Exemption of critical access hospital swing beds from SNF PPS.
Sec. 204. Payment in critical access hospitals for emergency room on-
          call physicians.
Sec. 205. Treatment of ambulance services furnished by certain critical 
          access hospitals.
Sec. 206. GAO study on certain eligibility requirements for critical 
          access hospitals.

              Subtitle B--Other Rural Hospitals Provisions

Sec. 211. Equitable treatment for rural disproportionate share 
          hospitals.
Sec. 212. Option to base eligibility for medicare dependent, small rural 
          hospital program on discharges during 2 of the 3 most recently 
          audited cost reporting periods.
Sec. 213. Extension of option to use rebased target amounts to all sole 
          community hospitals.
Sec. 214. MedPAC analysis of impact of volume on per unit cost of rural 
          hospitals with psychiatric units.

                   Subtitle C--Other Rural Provisions

Sec. 221. Assistance for providers of ambulance services in rural areas.
Sec. 222. Payment for certain physician assistant services.
Sec. 223. Revision of medicare reimbursement for telehealth services.
Sec. 224. Expanding access to rural health clinics.
Sec. 225. MedPAC study on low-volume, isolated rural health care 
          providers.

                TITLE III--PROVISIONS RELATING TO PART A

                 Subtitle A--Inpatient Hospital Services

Sec. 301. Revision of acute care hospital payment update for 2001.
Sec. 302. Additional modification in transition for indirect medical 
          education (IME) percentage adjustment.
Sec. 303. Decrease in reductions for disproportionate share hospital 
          (DSH) payments.
Sec. 304. Wage index improvements.
Sec. 305. Payment for inpatient services of rehabilitation hospitals.
Sec. 306. Payment for inpatient services of psychiatric hospitals.
Sec. 307. Payment for inpatient services of long-term care hospitals.

 Subtitle B--Adjustments to PPS Payments for Skilled Nursing Facilities

Sec. 311. Elimination of reduction in skilled nursing facility (SNF) 
          market basket update in 2001.
Sec. 312. Increase in nursing component of PPS Federal rate.
Sec. 313. Application of SNF consolidated billing requirement limited to 
          part A covered stays.
Sec. 314. Adjustment of rehabilitation RUGs to correct anomaly in 
          payment rates.
Sec. 315. Establishment of process for geographic reclassification.

                        Subtitle C--Hospice Care

Sec. 321. Full market basket increase for 2001.
Sec. 322. Clarification of physician certification.
Sec. 323. MedPAC report on access to, and use of, hospice benefit.

                      Subtitle D--Other Provisions

Sec. 331. Relief from medicare part A late enrollment penalty for group 
          buy-in for State and local retirees.
Sec. 332. Posting of information on nursing facility staffing.

                 TITLE IV--PROVISIONS RELATING TO PART B

                Subtitle A--Hospital Outpatient Services

Sec. 401. Revision of hospital outpatient PPS payment update.
Sec. 402. Clarifying process and standards for determining eligibility 
          of devices for pass-through payments under hospital outpatient 
          PPS.
Sec. 403. Application of OPD PPS transitional corridor payments to 
          certain hospitals that did not submit a 1996 cost report.
Sec. 404. Application of rules for determining provider-based status for 
          certain entities.
Sec. 405. Treatment of children's hospitals under prospective payment 
          system.
Sec. 406. Inclusion of temperature monitored cryoablation in 
          transitional pass-through for certain medical devices, drugs, 
          and biologicals under OPD PPS.

         Subtitle B--Provisions Relating to Physicians' Services

Sec. 411. GAO studies relating to physicians' services.
Sec. 412. Physician group practice demonstration.
Sec. 413. Study on enrollment procedures for groups that retain 
          independent contractor physicians.

                       Subtitle C--Other Services

Sec. 421. 1-year extension of moratorium on therapy caps; report on 
          standards for supervision of physical therapy assistants.
Sec. 422. Update in renal dialysis composite rate.
Sec. 423. Payment for ambulance services.
Sec. 424. Ambulatory surgical centers.
Sec. 425. Full update for durable medical equipment.
Sec. 426. Full update for orthotics and prosthetics.
Sec. 427. Establishment of special payment provisions and requirements 
          for prosthetics and certain custom fabricated orthotic items.
Sec. 428. Replacement of prosthetic devices and parts.
Sec. 429. Revised part B payment for drugs and biologicals and related 
          services.
Sec. 430. Contrast enhanced diagnostic procedures under hospital 
          prospective payment system.
Sec. 431. Qualifications for community mental health centers.
Sec. 432. Modification of medicare billing requirements for certain 
          Indian providers.
Sec. 433. GAO study on coverage of surgical first assisting services of 
          certified registered nurse first assistants.
Sec. 434. MedPAC study and report on medicare reimbursement for services 
          provided by certain providers.
Sec. 435. MedPAC study and report on medicare coverage of services 
          provided by certain nonphysician providers.
Sec. 436. GAO study and report on the costs of emergency and medical 
          transportation services.
Sec. 437. GAO studies and reports on medicare payments.
Sec. 438. MedPAC study on access to outpatient pain management services.

              TITLE V--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

Sec. 501. 1-year additional delay in application of 15 percent reduction 
          on payment limits for home health services.
Sec. 502. Restoration of full home health market basket update for home 
          health services for fiscal year 2001.
Sec. 503. Temporary two-month extension of periodic interim payments.
Sec. 504. Use of telehealth in delivery of home health services.
Sec. 505. Study on costs to home health agencies of purchasing 
          nonroutine medical supplies.
Sec. 506. Treatment of branch offices; GAO study on supervision of home 
          health care provided in isolated rural areas.
Sec. 507. Clarification of the homebound definition under the medicare 
          home health benefit.

              Subtitle B--Direct Graduate Medical Education

Sec. 511. Increase in floor for direct graduate medical education 
          payments.
Sec. 512. Change in distribution formula for Medicare+Choice-related 
          nursing and allied health education costs.

      Subtitle C--Changes in Medicare Coverage and Appeals Process

Sec. 521. Revisions to medicare appeals process.
Sec. 522. Revisions to medicare coverage process.

            Subtitle D--Improving Access to New Technologies

Sec. 531. Reimbursement improvements for new clinical laboratory tests 
          and durable medical equipment.
Sec. 532. Retention of HCPCS level III codes.
Sec. 533. Recognition of new medical technologies under inpatient 
          hospital PPS.

                      Subtitle E--Other Provisions

Sec. 541. Increase in reimbursement for bad debt.
Sec. 542. Treatment of certain physician pathology services under 
          medicare.
Sec. 543. Extension of advisory opinion authority.
Sec. 544. Change in annual MedPAC reporting.
Sec. 545. Development of patient assessment instruments.
Sec. 546. GAO report on impact of the Emergency Medical Treatment and 
          Active Labor Act (EMTALA) on hospital emergency departments.

 TITLE VI--PROVISIONS RELATING TO PART C (MEDICARE+CHOICE PROGRAM) AND 
                 OTHER MEDICARE MANAGED CARE PROVISIONS

               Subtitle A--Medicare+Choice Payment Reforms

Sec. 601. Increase in minimum payment amount.
Sec. 602. Increase in minimum percentage increase.
Sec. 603. 10-year phase-in of risk adjustment.
Sec. 604. Transition to revised Medicare+Choice payment rates.
Sec. 605. Revision of payment rates for ESRD patients enrolled in 
          Medicare+Choice plans.
Sec. 606. Permitting premium reductions as additional benefits under 
          Medicare+Choice plans.
Sec. 607. Full implementation of risk adjustment for congestive heart 
          failure enrollees for 2001.
Sec. 608. Expansion of application of Medicare+Choice new entry bonus.
Sec. 609. Report on inclusion of certain costs of the Department of 
          Veterans Affairs and military facility services in calculating 
          Medicare+Choice payment rates.

                Subtitle B--Other Medicare+Choice Reforms

Sec. 611. Payment of additional amounts for new benefits covered during 
          a contract term.
Sec. 612. Restriction on implementation of significant new regulatory 
          requirements mid-year.
Sec. 613. Timely approval of marketing material that follows model 
          marketing language.
Sec. 614. Avoiding duplicative regulation.
Sec. 615. Election of uniform local coverage policy for Medicare+Choice 
          plan covering multiple localities.
Sec. 616. Eliminating health disparities in Medicare+Choice program.
Sec. 617. Medicare+Choice program compatibility with employer or union 
          group health plans.
Sec. 618. Special medigap enrollment antidiscrimination provision for 
          certain beneficiaries.
Sec. 619. Restoring effective date of elections and changes of elections 
          of Medicare+Choice plans.
Sec. 620. Permitting ESRD beneficiaries to enroll in another 
          Medicare+Choice plan if the plan in which they are enrolled is 
          terminated.
Sec. 621. Providing choice for skilled nursing facility services under 
          the Medicare+Choice program.
Sec. 622. Providing for accountability of Medicare+Choice plans.

                 Subtitle C--Other Managed Care Reforms

Sec. 631. 1-year extension of social health maintenance organization 
          (SHMO) demonstration project.
Sec. 632. Revised terms and conditions for extension of medicare 
          community nursing organization (CNO) demonstration project.
Sec. 633. Extension of medicare municipal health services demonstration 
          projects.
Sec. 634. Service area expansion for medicare cost contracts during 
          transition period.

                           TITLE VII--MEDICAID

Sec. 701. DSH payments.
Sec. 702. New prospective payment system for Federally-qualified health 
          centers and rural health clinics.
Sec. 703. Streamlined approval of continued State-wide section 1115 
          Medicaid waivers.
Sec. 704. Medicaid county-organized health systems.
Sec. 705. Deadline for issuance of final regulation relating to Medicaid 
          upper payment limits.
Sec. 706. Alaska FMAP.

          TITLE VIII--STATE CHILDREN'S HEALTH INSURANCE PROGRAM

Sec. 801. Special rule for redistribution and availability of unused 
          fiscal year 1998 and 1999 SCHIP allotments.
Sec. 802. Authority to pay Medicaid expansion SCHIP costs from title XXI 
          appropriation.

                       TITLE IX--OTHER PROVISIONS

                        Subtitle A--PACE Program

Sec. 901. Extension of transition for current waivers.
Sec. 902. Continuing of certain operating arrangements permitted.
Sec. 903. Flexibility in exercising waiver authority.

   Subtitle B--Outreach to Eligible Low-Income Medicare Beneficiaries

Sec. 911. Outreach on availability of Medicare cost-sharing assistance 
          to eligible low-income Medicare beneficiaries.

            Subtitle C--Maternal and Child Health Block Grant

Sec. 921. Increase in authorization of appropriations for the maternal 
          and child health services block grant.

                          Subtitle D--Diabetes

Sec. 931. Increase in appropriations for special diabetes programs for 
          type I diabetes and Indians.
Sec. 932. Appropriations for Ricky Ray Hemophilia Relief Fund.

               TITLE I--MEDICARE BENEFICIARY IMPROVEMENTS

                Subtitle A--Improved Preventive Benefits

SEC. 101. COVERAGE OF BIENNIAL SCREENING PAP SMEAR AND PELVIC EXAMS.

    (a) In General.--
            (1) Biennial screening pap smear.--Section 
        1861(nn)(1) (42 U.S.C. 1395x(nn)(1)) is amended by 
        striking ``3 years'' and inserting ``2 years''.
            (2) Biennial screening pelvic exam.--Section 
        1861(nn)(2) (42 U.S.C. 1395x(nn)(2)) is amended by 
        striking ``3 years'' and inserting ``2 years''.
    (b) Effective Date.--The amendments made by subsection (a) 
apply to items and services furnished on or after July 1, 2001.

SEC. 102. COVERAGE OF SCREENING FOR GLAUCOMA.

    (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)) 
is amended--
            (1) by striking ``and'' at the end of subparagraph 
        (S);
            (2) by inserting ``and'' at the end of subparagraph 
        (T); and
            (3) by adding at the end the following:
            ``(U) screening for glaucoma (as defined in 
        subsection (uu)) for individuals determined to be at 
        high risk for glaucoma, individuals with a family 
        history of glaucoma and individuals with diabetes;''.
    (b) Services Described.--Section 1861 (42 U.S.C. 1395x) is 
amended by adding at the end the following new subsection:

                        ``Screening for Glaucoma

    ``(uu) The term `screening for glaucoma' means a dilated 
eye examination with an intraocular pressure measurement, and a 
direct ophthalmoscopy or a slit-lamp biomicroscopic examination 
for the early detection of glaucoma which is furnished by or 
under the direct supervision of an optometrist or 
ophthalmologist who is legally authorized to furnish such 
services under State law (or the State regulatory mechanism 
provided by State law) of the State in which the services are 
furnished, as would otherwise be covered if furnished by a 
physician or as an incident to a physician's professional 
service, if the individual involved has not had such an 
examination in the preceding year.''.
    (c) Conforming Amendment.--Section 1862(a)(1)(F) (42 U.S.C. 
1395y(a)(1)(F)) is amended--
            (1) by striking ``and,''; and
            (2) by adding at the end the following: ``and, in 
        the case of screening for glaucoma, which is performed 
        more frequently than is provided under section 
        1861(uu),''.
    (d) Effective Date.--The amendments made by this section 
shall apply to services furnished on or after January 1, 2002.

SEC. 103. COVERAGE OF SCREENING COLONOSCOPY FOR AVERAGE RISK 
                    INDIVIDUALS.

    (a) In General.--Section 1861(pp) (42 U.S.C. 1395x(pp)) is 
amended--
            (1) in paragraph (1)(C), by striking ``In the case 
        of an individual at high risk for colorectal cancer, 
        screening colonoscopy'' and inserting ``Screening 
        colonoscopy''; and
            (2) in paragraph (2), by striking ``In paragraph 
        (1)(C), an'' and inserting ``An''.
    (b) Frequency Limits for Screening Colonoscopy.--Section 
1834(d) (42 U.S.C. 1395m(d)) is amended--
            (1) in paragraph (2)(E)(ii), by inserting before 
        the period at the end the following: ``or, in the case 
        of an individual who is not at high risk for colorectal 
        cancer, if the procedure is performed within the 119 
        months after a previous screening colonoscopy'';
            (2) in paragraph (3)--
                    (A) in the heading by striking ``for 
                individuals at high risk for colorectal 
                cancer'';
                    (B) in subparagraph (A), by striking ``for 
                individuals at high risk for colorectal cancer 
                (as defined in section 1861(pp)(2))'';
                    (C) in subparagraph (E), by inserting 
                before the period at the end the following: 
                ``or for other individuals if the procedure is 
                performed within the 119 months after a 
                previous screening colonoscopy or within 47 
                months after a previous screening flexible 
                sigmoidoscopy''.
    (c) Effective Date.--The amendments made by this section 
apply to colorectal cancer screening services provided on or 
after July 1, 2001.

SEC. 104. MODERNIZATION OF SCREENING MAMMOGRAPHY BENEFIT.

    (a) Inclusion in Physician Fee Schedule.--Section 
1848(j)(3) (42 U.S.C. 1395w-4(j)(3)) is amended by inserting 
``(13),'' after ``(4),''.
    (b) Conforming Amendment.--Section 1834(c) (42 U.S.C. 
1395m(c)) is amended to read as follows:
    ``(c) Payment and Standards for Screening Mammography.--
            ``(1) In general.--With respect to expenses 
        incurred for screening mammography (as defined in 
        section 1861(jj)), payment may be made only--
                    ``(A) for screening mammography conducted 
                consistent with the frequency permitted under 
                paragraph (2); and
                    ``(B) if the screening mammography is 
                conducted by a facility that has a certificate 
                (or provisional certificate) issued under 
                section 354 of the Public Health Service Act.
            ``(2) Frequency covered.--
                    ``(A) In general.--Subject to revision by 
                the Secretary under subparagraph (B)--
                            ``(i) no payment may be made under 
                        this part for screening mammography 
                        performed on a woman under 35 years of 
                        age;
                            ``(ii) payment may be made under 
                        this part for only one screening 
                        mammography performed on a woman over 
                        34 years of age, but under 40 years of 
                        age; and
                            ``(iii) in the case of a woman over 
                        39 years of age, payment may not be 
                        made under this part for screening 
                        mammography performed within 11 months 
                        following the month in which a previous 
                        screening mammography was performed.
                    ``(B) Revision of frequency.--
                            ``(i) Review.--The Secretary, in 
                        consultation with the Director of the 
                        National Cancer Institute, shall review 
                        periodically the appropriate frequency 
                        for performing screening mammography, 
                        based on age and such other factors as 
                        the Secretary believes to be pertinent.
                            ``(ii) Revision of frequency.--The 
                        Secretary, taking into consideration 
                        the review made under clause (i), may 
                        revise from time to time the frequency 
                        with which screening mammography may be 
                        paid for under this subsection.''.
    (c) Effective Date.--The amendments made by subsections (a) 
and (b) apply with respect to screening mammographies furnished 
on or after January 1, 2002.
    (d) Payment for New Technologies.--
            (1) Tests furnished in 2001.--
                    (A) Screening.--For a screening mammography 
                (as defined in section 1861(jj) of the Social 
                Security Act (42 U.S.C. 1395(jj))) furnished 
                during the period beginning on April 1, 2001, 
                and ending on December 31, 2001, that uses a 
                new technology, payment for such screening 
                mammography shall be made as follows:
                            (i) In the case of a technology 
                        which directly takes a digital image 
                        (without involving film) and 
                        subsequently analyzes such resulting 
                        image with software to identify 
                        possible problem areas, in an amount 
                        equal to 150 percent of the amount of 
                        payment under section 1848 of such Act 
                        (42 U.S.C. 1395w-4) for a bilateral 
                        diagnostic mammography (under HCPCS 
                        code 76091) for such year.
                            (ii) In the case of a technology 
                        which allows conversion of a standard 
                        film mammogram into a digital image and 
                        subsequently analyzes such resulting 
                        image with software to identify 
                        possible problem areas, in an amount 
                        equal to the limit that would otherwise 
                        be applied under section 1834(c)(3) of 
                        such Act (42 U.S.C. 1395m(c)(3)) for 
                        2001, increased by $15.
                    (B) Bilateral diagnostic mammography.--For 
                a bilateral diagnostic mammography (under HCPCS 
                code 76091) furnished during the period 
                beginning on April 1, 2001, and ending on 
                December 31, 2001, that uses a new technology 
                described in subparagraph (A)(i), payment for 
                such mammography shall be the amount of payment 
                provided for under such subparagraph.
        The Secretary of Health and Human Services may 
        implement the provisions of this paragraph by program 
        memorandum or otherwise.
            (2) Consideration of new hcpcs code for new 
        technologies after 2001.--The Secretary shall 
        determine, for such screening mammographies performed 
        after 2001, whether the assignment of a new HCPCS code 
        is appropriate for screening mammography that uses a 
        new technology. If the Secretary determines that a new 
        code is appropriate for such screening mammography, the 
        Secretary shall provide for such new code for such 
        tests furnished after 2001.
            (3) New technology described.--For purposes of this 
        subsection, a new technology with respect to a 
        screening mammography is an advance in technology with 
        respect to the test or equipment that results in the 
        following:
                    (A) A significant increase or decrease in 
                the resources used in the test or in the 
                manufacture of the equipment.
                    (B) A significant improvement in the 
                performance of the test or equipment.
                    (C) A significant advance in medical 
                technology that is expected to significantly 
                improve the treatment of medicare 
                beneficiaries.
            (4) HCPCS code defined.--The term ``HCPCS code'' 
        means an alphanumeric code under the Health Care 
        Financing Administration Common Procedure Coding System 
        (HCPCS).

SEC. 105. COVERAGE OF MEDICAL NUTRITION THERAPY SERVICES FOR 
                    BENEFICIARIES WITH DIABETES OR A RENAL DISEASE.

    (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), 
as amended by section 102(a), is amended--
            (1) in subparagraph (T), by striking ``and'' at the 
        end;
            (2) in subparagraph (U), by inserting ``and'' at 
        the end; and
            (3) by adding at the end the following new 
        subparagraph:
            ``(V) medical nutrition therapy services (as 
        defined in subsection (vv)(1)) in the case of a 
        beneficiary with diabetes or a renal disease who--
                    ``(i) has not received diabetes outpatient 
                self-management training services within a time 
                period determined by the Secretary; and
                    ``(ii) meets such other criteria determined 
                by the Secretary after consideration of 
                protocols established by dietitian or nutrition 
                professional organizations;''.
    (b) Services Described.--Section 1861 (42 U.S.C. 1395x), as 
amended by section 102(b), is amended by adding at the end the 
following:

``Medical Nutrition Therapy Services; Registered Dietitian or Nutrition 
                              Professional

    ``(vv)(1) The term `medical nutrition therapy services' 
means nutritional diagnostic, therapy, and counseling services 
for the purpose of disease management which are furnished by a 
registered dietitian or nutrition professional (as defined in 
paragraph (2)) pursuant to a referral by a physician (as 
defined in subsection (r)(1)).
    ``(2) Subject to paragraph (3), the term `registered 
dietitian or nutrition professional' means an individual who--
            ``(A) holds a baccalaureate or higher degree 
        granted by a regionally accredited college or 
        university in the United States (or an equivalent 
        foreign degree) with completion of the academic 
        requirements of a program in nutrition or dietetics, as 
        accredited by an appropriate national accreditation 
        organization recognized by the Secretary for this 
        purpose;
            ``(B) has completed at least 900 hours of 
        supervised dietetics practice under the supervision of 
        a registered dietitian or nutrition professional; and
            ``(C)(i) is licensed or certified as a dietitian or 
        nutrition professional by the State in which the 
        services are performed; or
            ``(ii) in the case of an individual in a State that 
        does not provide for such licensure or certification, 
        meets such other criteria as the Secretary establishes.
    ``(3) Subparagraphs (A) and (B) of paragraph (2) shall not 
apply in the case of an individual who, as of the date of the 
enactment of this subsection, is licensed or certified as a 
dietitian or nutrition professional by the State in which 
medical nutrition therapy services are performed.''.
    (c) Payment.--Section 1833(a)(1) (42 U.S.C. 1395l(a)(1)) is 
amended--
            (1) by striking ``and'' before ``(S)''; and
            (2) by inserting before the semicolon at the end 
        the following: ``, and (T) with respect to medical 
        nutrition therapy services (as defined in section 
        1861(vv)), the amount paid shall be 80 percent of the 
        lesser of the actual charge for the services or 85 
        percent of the amount determined under the fee schedule 
        established under section 1848(b) for the same services 
        if furnished by a physician''.
    (d) Application of Limits on Billing.--Section 
1842(b)(18)(C) (42 U.S.C. 1395u(b)(18)(C)) is amended by adding 
at the end the following new clause:
            ``(vi) A registered dietitian or nutrition 
        professional.''.
    (e) Effective Date.--The amendments made by this section 
apply to services furnished on or after January 1, 2002.
    (f) Study.--Not later than July 1, 2003, the Secretary of 
Health and Human Services shall submit to Congress a report 
that contains recommendations with respect to the expansion to 
other medicare beneficiary populations of the medical nutrition 
therapy services benefit (furnished under the amendments made 
by this section).

               Subtitle B--Other Beneficiary Improvements

SEC. 111. ACCELERATION OF REDUCTION OF BENEFICIARY COPAYMENT FOR 
                    HOSPITAL OUTPATIENT DEPARTMENT SERVICES.

    (a) Reducing the Upper Limit on Beneficiary Copayment.--
            (1) In general.--Section 1833(t)(8)(C) (42 U.S.C. 
        1395l(t)(8)(C)) is amended to read as follows:
                    ``(C) Limitation on copayment amount.--
                            ``(i) To inpatient hospital 
                        deductible amount.--In no case shall 
                        the copayment amount for a procedure 
                        performed in a year exceed the amount 
                        of the inpatient hospital deductible 
                        established under section 1813(b) for 
                        that year.
                            ``(ii) To specified percentage.--
                        The Secretary shall reduce the national 
                        unadjusted copayment amount for a 
                        covered OPD service (or group of such 
                        services) furnished in a year in a 
                        manner so that the effective copayment 
                        rate (determined on a national 
                        unadjusted basis) for that service in 
                        the year does not exceed the following 
                        percentage:
                                    ``(I) For procedures 
                                performed in 2001, 60 percent.
                                    ``(II) For procedures 
                                performed in 2002 or 2003, 55 
                                percent.
                                    ``(III) For procedures 
                                performed in 2004, 50 percent.
                                    ``(IV) For procedures 
                                performed in 2005, 45 percent.
                                    ``(V) For procedures 
                                performed in 2006 and 
                                thereafter, 40 percent.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) applies with respect to services 
        furnished on or after January 1, 2001.
    (b) Construction Regarding Limiting Increases in Cost-
Sharing.--Nothing in this Act or the Social Security Act shall 
be construed as preventing a hospital from waiving the amount 
of any coinsurance for outpatient hospital services under the 
medicare program under title XVIII of the Social Security Act 
that may have been increased as a result of the implementation 
of the prospective payment system under section 1833(t) of the 
Social Security Act (42 U.S.C. 1395l(t)).
    (c) GAO Study of Reduction in Medigap Premium Levels 
Resulting From Reductions in Coinsurance.--The Comptroller 
General of the United States shall work, in concert with the 
National Association of Insurance Commissioners, to evaluate 
the extent to which the premium levels for medicare 
supplemental policies reflect the reductions in coinsurance 
resulting from the amendment made by subsection (a). Not later 
than April 1, 2004, the Comptroller General shall submit to 
Congress a report on such evaluation and the extent to which 
the reductions in beneficiary coinsurance effected by such 
amendment have resulted in actual savings to medicare 
beneficiaries.

SEC. 112. PRESERVATION OF COVERAGE OF DRUGS AND BIOLOGICALS UNDER PART 
                    B OF THE MEDICARE PROGRAM.

    (a) In General.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)) 
is amended, in each of subparagraphs (A) and (B), by striking 
``(including drugs and biologicals which cannot, as determined 
in accordance with regulations, be self-administered)'' and 
inserting ``(including drugs and biologicals which are not 
usually self-administered by the patient)''.
    (b) Effective Date.--The amendment made by subsection (a) 
applies to drugs and biologicals administered on or after the 
date of the enactment of this Act.

SEC. 113. ELIMINATION OF TIME LIMITATION ON MEDICARE BENEFITS FOR 
                    IMMUNOSUPPRESSIVE DRUGS.

    (a) In General.--Section 1861(s)(2)(J) (42 U.S.C. 
1395x(s)(2)(J)) is amended by striking ``, but only'' and all 
that follows up to the semicolon at the end.
    (b) Conforming Amendments.--
            (1) Extended coverage.--Section 1832 (42 U.S.C. 
        1395k) is amended--
                    (A) by striking subsection (b); and
                    (B) by redesignating subsection (c) as 
                subsection (b).
            (2) Pass-through; report.--Section 227 of BBRA is 
        amended by striking subsection (d).
    (c) Effective Date.--The amendment made by subsection (a) 
shall apply to drugs furnished on or after the date of the 
enactment of this Act.

SEC. 114. IMPOSITION OF BILLING LIMITS ON PRESCRIPTION DRUGS.

    (a) In General.--Section 1842(o) (42 U.S.C. 1395u(o)) is 
amended by adding at the end the following new paragraph:
    ``(3)(A) Payment for a charge for any drug or biological 
for which payment may be made under this part may be made under 
this part only on an assignment-related basis.
    ``(B) The provisions of subsection (b)(18)(B) shall apply 
to charges for such drugs or biologicals in the same manner as 
they apply to services furnished by a practitioner described in 
subsection (b)(18)(C).''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to items furnished on or after January 1, 2001.

             Subtitle C--Demonstration Projects and Studies

SEC. 121. DEMONSTRATION PROJECT FOR DISEASE MANAGEMENT FOR SEVERELY 
                    CHRONICALLY ILL MEDICARE BENEFICIARIES.

    (a) In General.--The Secretary of Health and Human Services 
shall conduct a demonstration project under this section (in 
this section referred to as the ``project'') to demonstrate the 
impact on costs and health outcomes of applying disease 
management to medicare beneficiaries with diagnosed, advanced-
stage congestive heart failure, diabetes, or coronary heart 
disease. In no case may the number of participants in the 
project exceed 30,000 at any time.
    (b) Voluntary Participation.--
            (1) Eligibility.--Medicare beneficiaries are 
        eligible to participate in the project only if--
                    (A) they meet specific medical criteria 
                demonstrating the appropriate diagnosis and the 
                advanced nature of their disease;
                    (B) their physicians approve of 
                participation in the project; and
                    (C) they are not enrolled in a 
                Medicare+Choice plan.
            (2) Benefits.--A beneficiary who is enrolled in the 
        project shall be eligible--
                    (A) for disease management services related 
                to their chronic health condition; and
                    (B) for payment for all costs for 
                prescription drugs without regard to whether or 
                not they relate to the chronic health 
                condition, except that the project may provide 
                for modest cost-sharing with respect to 
                prescription drug coverage.
    (c) Contracts With Disease Management Organizations.--
            (1) In general.--The Secretary of Health and Human 
        Services shall carry out the project through contracts 
        with up to three disease management organizations. The 
        Secretary shall not enter into such a contract with an 
        organization unless the organization demonstrates that 
        it can produce improved health outcomes and reduce 
        aggregate medicare expenditures consistent with 
        paragraph (2).
            (2) Contract provisions.--Under such contracts--
                    (A) such an organization shall be required 
                to provide for prescription drug coverage 
                described in subsection (b)(2)(B);
                    (B) such an organization shall be paid a 
                fee negotiated and established by the Secretary 
                in a manner so that (taking into account 
                savings in expenditures under parts A and B of 
                the medicare program under title XVIII of the 
                Social Security Act) there will be a net 
                reduction in expenditures under the medicare 
                program as a result of the project; and
                    (C) such an organization shall guarantee, 
                through an appropriate arrangement with a 
                reinsurance company or otherwise, the net 
                reduction in expenditures described in 
                subparagraph (B).
            (3) Payments.--Payments to such organizations shall 
        be made in appropriate proportion from the Trust Funds 
        established under title XVIII of the Social Security 
        Act.
    (d) Application of Medigap Protections to Demonstration 
Project Enrollees.--(1) Subject to paragraph (2), the 
provisions of section 1882(s)(3) (other than clauses (i) 
through (iv) of subparagraph (B)) and 1882(s)(4) of the Social 
Security Act shall apply to enrollment (and termination of 
enrollment) in the demonstration project under this section, in 
the same manner as they apply to enrollment (and termination of 
enrollment) with a Medicare+Choice organization in a 
Medicare+Choice plan.
    (2) In applying paragraph (1)--
            (A) any reference in clause (v) or (vi) of section 
        1882(s)(3)(B) of such Act to 12 months is deemed a 
        reference to the period of the demonstration project; 
        and
            (B) the notification required under section 
        1882(s)(3)(D) of such Act shall be provided in a manner 
        specified by the Secretary of Health and Human 
        Services.
    (e) Duration.--The project shall last for not longer than 3 
years.
    (f) Waiver.--The Secretary of Health and Human Services 
shall waive such provisions of title XVIII of the Social 
Security Act as may be necessary to provide for payment for 
services under the project in accordance with subsection 
(c)(3).
    (g) Report.--The Secretary of Health and Human Services 
shall submit to Congress an interim report on the project not 
later than 2 years after the date it is first implemented and a 
final report on the project not later than 6 months after the 
date of its completion. Such reports shall include information 
on the impact of the project on costs and health outcomes and 
recommendations on the cost-effectiveness of extending or 
expanding the project.

SEC. 122. CANCER PREVENTION AND TREATMENT DEMONSTRATION FOR ETHNIC AND 
                    RACIAL MINORITIES.

    (a) Demonstration.--
            (1) In general.--The Secretary of Health and Human 
        Services (in this section referred to as the 
        ``Secretary'') shall conduct demonstration projects (in 
        this section referred to as ``demonstration projects'') 
        for the purpose of developing models and evaluating 
        methods that--
                    (A) improve the quality of items and 
                services provided to target individuals in 
                order to facilitate reduced disparities in 
                early detection and treatment of cancer;
                    (B) improve clinical outcomes, 
                satisfaction, quality of life, and appropriate 
                use of medicare-covered services and referral 
                patterns among those target individuals with 
                cancer;
                    (C) eliminate disparities in the rate of 
                preventive cancer screening measures, such as 
                pap smears and prostate cancer screenings, 
                among target individuals; and
                    (D) promote collaboration with community-
                based organizations to ensure cultural 
                competency of health care professionals and 
                linguistic access for persons with limited 
                English proficiency.
            (2) Target individual defined.--In this section, 
        the term ``target individual'' means an individual of a 
        racial and ethnic minority group, as defined by section 
        1707 of the Public Health Service Act, who is entitled 
        to benefits under part A, and enrolled under part B, of 
        title XVIII of the Social Security Act.
    (b) Program Design.--
            (1) Initial design.--Not later than 1 year after 
        the date of the enactment of this Act, the Secretary 
        shall evaluate best practices in the private sector, 
        community programs, and academic research of methods 
        that reduce disparities among individuals of racial and 
        ethnic minority groups in the prevention and treatment 
        of cancer and shall design the demonstration projects 
        based on such evaluation.
            (2) Number and project areas.--Not later than 2 
        years after the date of the enactment of this Act, the 
        Secretary shall implement at least 9 demonstration 
        projects, including the following:
                    (A) 2 projects for each of the 4 major 
                racial and ethnic minority groups (American 
                Indians (including Alaska Natives, Eskimos, and 
                Aleuts); Asian Americans and Pacific Islanders; 
                Blacks; and Hispanics. The 2 projects must 
                target different ethnic subpopulations.
                    (B) 1 project within the Pacific Islands.
                    (C) At least 1 project each in a rural area 
                and inner-city area.
            (3) Expansion of projects; implementation of 
        demonstration project results.--If the initial report 
        under subsection (c) contains an evaluation that 
        demonstration projects--
                    (A) reduce expenditures under the medicare 
                program under title XVIII of the Social 
                Security Act; or
                    (B) do not increase expenditures under the 
                medicare program and reduce racial and ethnic 
                health disparities in the quality of health 
                care services provided to target individuals 
                and increase satisfaction of beneficiaries and 
                health care providers;
        the Secretary shall continue the existing demonstration 
        projects and may expand the number of demonstration 
        projects.
    (c) Report to Congress.--
            (1) In general.--Not later than 2 years after the 
        date the Secretary implements the initial demonstration 
        projects, and biannually thereafter, the Secretary 
        shall submit to Congress a report regarding the 
        demonstration projects.
            (2) Contents of report.--Each report under 
        paragraph (1) shall include the following:
                    (A) A description of the demonstration 
                projects.
                    (B) An evaluation of--
                            (i) the cost-effectiveness of the 
                        demonstration projects;
                            (ii) the quality of the health care 
                        services provided to target individuals 
                        under the demonstration projects; and
                            (iii) beneficiary and health care 
                        provider satisfaction under the 
                        demonstration projects.
                    (C) Any other information regarding the 
                demonstration projects that the Secretary 
                determines to be appropriate.
    (d) Waiver Authority.--The Secretary shall waive compliance 
with the requirements of title XVIII of the Social Security Act 
to such extent and for such period as the Secretary determines 
is necessary to conduct demonstration projects.
    (e) Funding.--
            (1) Demonstration projects.--
                    (A) State projects.--Except as provided in 
                subparagraph (B), the Secretary shall provide 
                for the transfer from the Federal Hospital 
                Insurance Trust Fund and the Federal 
                Supplementary Insurance Trust Fund under title 
                XVIII of the Social Security Act, in such 
                proportions as the Secretary determines to be 
                appropriate, of such funds as are necessary for 
                the costs of carrying out the demonstration 
                projects.
                    (B) Territory projects.--In the case of a 
                demonstration project described in subsection 
                (b)(2)(B), amounts shall be available only as 
                provided in any Federal law making 
                appropriations for the territories.
            (2) Limitation.--In conducting demonstration 
        projects, the Secretary shall ensure that the aggregate 
        payments made by the Secretary do not exceed the sum of 
        the amount which the Secretary would have paid under 
        the program for the prevention and treatment of cancer 
        if the demonstration projects were not implemented, 
        plus $25,000,000.

SEC. 123. STUDY ON MEDICARE COVERAGE OF ROUTINE THYROID SCREENING.

    (a) Study.--The Secretary of Health and Human Services 
shall request the National Academy of Sciences, and as 
appropriate in conjunction with the United States Preventive 
Services Task Force, to conduct a study on the addition of 
coverage of routine thyroid screening using a thyroid 
stimulating hormone test as a preventive benefit provided to 
medicare beneficiaries under title XVIII of the Social Security 
Act for some or all medicare beneficiaries. In conducting the 
study, the Academy shall consider the short-term and long-term 
benefits, and costs to the medicare program, of such addition.
    (b) Report.--Not later than 2 years after the date of the 
enactment of this Act, the Secretary of Health and Human 
Services shall submit a report on the findings of the study 
conducted under subsection (a) to the Committee on Ways and 
Means and the Committee on Commerce of the House of 
Representatives and the Committee on Finance of the Senate.

SEC. 124. MEDPAC STUDY ON CONSUMER COALITIONS.

    (a) Study.--The Medicare Payment Advisory Commission shall 
conduct a study that examines the use of consumer coalitions in 
the marketing of Medicare+Choice plans under the medicare 
program under title XVIII of the Social Security Act. The study 
shall examine--
            (1) the potential for increased efficiency in the 
        medicare program through greater beneficiary knowledge 
        of their health care options, decreased marketing costs 
        of Medicare+Choice organizations, and creation of a 
        group market;
            (2) the implications of Medicare+Choice plans and 
        medicare supplemental policies (under section 1882 of 
        the Social Security Act (42 U.S.C. 1395ss)) offering 
        medicare beneficiaries in the same geographic location 
        different benefits and premiums based on their 
        affiliation with a consumer coalition;
            (3) how coalitions should be governed, how they 
        should be accountable to the Secretary of Health and 
        Human Services, and how potential conflicts of interest 
        in the activities of consumer coalitions should be 
        avoided; and
            (4) how such coalitions should be funded.
    (b) Report.--Not later than 1 year after the date of the 
enactment of this Act, the Commission shall submit to Congress 
a report on the study conducted under subsection (a). The 
report shall include a recommendation on whether and how a 
demonstration project might be conducted for the operation of 
consumer coalitions under the medicare program.
    (c) Consumer Coalition Defined.--For purposes of this 
section, the term ``consumer coalition'' means a nonprofit, 
community-based group of organizations that--
            (1) provides information to medicare beneficiaries 
        about their health care options under the medicare 
        program; and
            (2) negotiates benefits and premiums for medicare 
        beneficiaries who are members or otherwise affiliated 
        with the group of organizations with Medicare+Choice 
        organizations offering Medicare+Choice plans, issuers 
        of medicare supplemental policies, issuers of long-term 
        care coverage, and pharmacy benefit managers.

SEC. 125. STUDY ON LIMITATION ON STATE PAYMENT FOR MEDICARE COST-
                    SHARING AFFECTING ACCESS TO SERVICES FOR QUALIFIED 
                    MEDICARE BENEFICIARIES.

    (a) In General.--The Secretary of Health and Human Services 
shall conduct a study to determine if access to certain 
services (including mental health services) for qualified 
medicare beneficiaries has been affected by limitations on a 
State's payment for medicare cost-sharing for such 
beneficiaries under section 1902(n) of the Social Security Act 
(42 U.S.C. 1396a(n)). As part of such study, the Secretary 
shall analyze the effect of such payment limitation on 
providers who serve a disproportionate share of such 
beneficiaries.
    (b) Report.--Not later than 1 year after the date of the 
enactment of this Act, the Secretary shall submit to Congress a 
report on the study under subsection (a). The report shall 
include recommendations regarding any changes that should be 
made to the State payment limits under section 1902(n) for 
qualified medicare beneficiaries to ensure appropriate access 
to services.

SEC. 126. INSTITUTE OF MEDICINE STUDY ON WAIVER OF 24-MONTH WAITING 
                    PERIOD FOR MEDICARE DISABILITY ELIGIBILITY FOR 
                    AMYOTROPHIC LATERAL SCLEROSIS (ALS) AND OTHER 
                    DEVASTATING DISEASES.

    (a) Study.--The Secretary of Health and Human Services 
shall enter into a contract with the Institute of Medicine to 
conduct a study that examines the appropriateness of waiving 
the 24-month waiting period for eligibility for benefits under 
the medicare program under title XVIII of the Social Security 
Act applicable under section 226(b) of such Act (42 U.S.C. 
426(b)) for individuals with a devastating disease. For 
purposes of this section, the term ``devastating disease'' 
means amyotrophic lateral sclerosis (ALS) and includes any 
other disease that is as rapidly debilitating as ALS.
    (b) Report.--The contract shall provide for the submission 
to Congress and the Secretary of a report on the study 
conducted under subsection (a) by not later than 18 months 
after the date of the enactment of this Act.

SEC. 127. STUDIES ON PREVENTIVE INTERVENTIONS IN PRIMARY CARE FOR OLDER 
                    AMERICANS.

    (a) Studies.--The Secretary of Health and Human Services, 
acting through the United States Preventive Services Task 
Force, shall conduct a series of studies designed to identify 
preventive interventions that can be delivered in the primary 
care setting and that are most valuable to older Americans.
    (b) Mission Statement.--The mission statement of the United 
States Preventive Services Task Force is amended to include the 
evaluation of services that are of particular relevance to 
older Americans.
    (c) Report.--Not later than 1 year after the date of the 
enactment of this Act, and annually thereafter, the Secretary 
of Health and Human Services shall submit to Congress a report 
on the conclusions of the studies conducted under subsection 
(a), together with recommendations for such legislation and 
administrative actions as the Secretary considers appropriate.

SEC. 128. MEDPAC STUDY AND REPORT ON MEDICARE COVERAGE OF CARDIAC AND 
                    PULMONARY REHABILITATION THERAPY SERVICES.

    (a) Study.--
            (1) In general.--The Medicare Payment Advisory 
        Commission shall conduct a study on coverage of cardiac 
        and pulmonary rehabilitation therapy services under the 
        medicare program under title XVIII of the Social 
        Security Act.
            (2) Focus.--In conducting the study under paragraph 
        (1), the Commission shall focus on the appropriate--
                    (A) qualifying diagnoses required for 
                coverage of cardiac and pulmonary 
                rehabilitation therapy services;
                    (B) level of physician direct involvement 
                and supervision in furnishing such services; 
                and
                    (C) level of reimbursement for such 
                services.
    (b) Report.--Not later than 18 months after the date of the 
enactment of this Act, the Commission shall submit to Congress 
a report on the study conducted under subsection (a) together 
with such recommendations for legislation and administrative 
action as the Commission determines appropriate.

                TITLE II--RURAL HEALTH CARE IMPROVEMENTS

            Subtitle A--Critical Access Hospital Provisions

SEC. 201. CLARIFICATION OF NO BENEFICIARY COST-SHARING FOR CLINICAL 
                    DIAGNOSTIC LABORATORY TESTS FURNISHED BY CRITICAL 
                    ACCESS HOSPITALS.

    (a) Payment Clarification.--Section 1834(g) (42 U.S.C. 
1395m(g)) is amended by adding at the end the following new 
paragraph:
            ``(4) No beneficiary cost-sharing for clinical 
        diagnostic laboratory services.--No coinsurance, 
        deductible, copayment, or other cost-sharing otherwise 
        applicable under this part shall apply with respect to 
        clinical diagnostic laboratory services furnished as an 
        outpatient critical access hospital service. Nothing in 
        this title shall be construed as providing for payment 
        for clinical diagnostic laboratory services furnished 
        as part of outpatient critical access hospital 
        services, other than on the basis described in this 
        subsection.''.
    (b) Technical and Conforming Amendments.--
            (1) Paragraphs (1)(D)(i) and (2)(D)(i) of section 
        1833(a) (42 U.S.C. 1395l(a)) are each amended by 
        striking ``or which are furnished on an outpatient 
        basis by a critical access hospital''.
            (2) Section 403(d)(2) of BBRA (113 Stat. 1501A-371) 
        is amended by striking ``The amendment made by 
        subsection (a) shall apply'' and inserting ``Paragraphs 
        (1) through (3) of section 1834(g) of the Social 
        Security Act (as amended by paragraph (1)) apply''.
    (c) Effective Dates.--The amendment made--
            (1) by subsection (a) applies to services furnished 
        on or after the date of the enactment of BBRA;
            (2) by subsection (b)(1) applies as if included in 
        the enactment of section 403(e)(1) of BBRA (113 Stat. 
        1501A-371); and
            (3) by subsection (b)(2) applies as if included in 
        the enactment of section 403(d)(2) of BBRA (113 Stat. 
        1501A-371).

SEC. 202. ASSISTANCE WITH FEE SCHEDULE PAYMENT FOR PROFESSIONAL 
                    SERVICES UNDER ALL-INCLUSIVE RATE.

    (a) In General.--Section 1834(g)(2)(B) (42 U.S.C. 
1395m(g)(2)(B)) is amended by inserting ``115 percent of'' 
before ``such amounts''.
    (b) Effective Date.--The amendment made by subsection (a) 
applies with respect to items and services furnished on or 
after April 1, 2001.

SEC. 203. EXEMPTION OF CRITICAL ACCESS HOSPITAL SWING BEDS FROM SNF 
                    PPS.

    (a) In General.--Section 1888(e)(7) (42 U.S.C. 
1395yy(e)(7)) is amended--
            (1) in the heading, by striking ``Transition for'' 
        and inserting ``Treatment of'';
            (2) in subparagraph (A), by striking ``In 
        general.--The'' and inserting ``Transition.--Subject to 
        subparagraph (C), the'';
            (3) in subparagraph (A), by inserting ``(other than 
        critical access hospitals)'' after ``facilities 
        described in subparagraph (B)'';
            (4) in subparagraph (B), by striking ``, for which 
        payment'' and all that follows before the period; and
            (5) by adding at the end the following new 
        subparagraph:
                    ``(C) Exemption from pps of swing-bed 
                services furnished in critical access 
                hospitals.--The prospective payment system 
                established under this subsection shall not 
                apply to services furnished by a critical 
                access hospital pursuant to an agreement under 
                section 1883.''.
    (b) Payment on a Reasonable Cost Basis for Swing Bed 
Services Furnished by Critical Access Hospitals.--Section 
1883(a) (42 U.S.C. 1395tt(a)) is amended--
            (1) in paragraph (2)(A), by inserting ``(other than 
        a critical access hospital)'' after ``any hospital''; 
        and
            (2) by adding at the end the following new 
        paragraph:
    ``(3) Notwithstanding any other provision of this title, a 
critical access hospital shall be paid for covered skilled 
nursing facility services furnished under an agreement entered 
into under this section on the basis of the reasonable costs of 
such services (as determined under section 1861(v)).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to cost reporting periods beginning on or after the 
date of the enactment of this Act.

SEC. 204. PAYMENT IN CRITICAL ACCESS HOSPITALS FOR EMERGENCY ROOM ON-
                    CALL PHYSICIANS.

    (a) In General.--Section 1834(g) (42 U.S.C. 1395m(g)), as 
amended by section 201(a), is further amended by adding at the 
end the following new paragraph:
            ``(5) Coverage of costs for emergency room on-call 
        physicians.--In determining the reasonable costs of 
        outpatient critical access hospital services under 
        paragraphs (1) and (2)(A), the Secretary shall 
        recognize as allowable costs, amounts (as defined by 
        the Secretary) for reasonable compensation and related 
        costs for emergency room physicians who are on-call (as 
        defined by the Secretary) but who are not present on 
        the premises of the critical access hospital involved, 
        and are not otherwise furnishing physicians' services 
        and are not on-call at any other provider or 
        facility.''.
    (b) Effective Date.--The amendment made by subsection (a) 
applies to cost reporting periods beginning on or after October 
1, 2001.

SEC. 205. TREATMENT OF AMBULANCE SERVICES FURNISHED BY CERTAIN CRITICAL 
                    ACCESS HOSPITALS.

    (a) In General.--Section 1834(l) (42 U.S.C. 1395m(l)) is 
amended by adding at the end the following new paragraph:
            ``(8) Services furnished by critical access 
        hospitals.--Notwithstanding any other provision of this 
        subsection, the Secretary shall pay the reasonable 
        costs incurred in furnishing ambulance services if such 
        services are furnished--
                    ``(A) by a critical access hospital (as 
                defined in section 1861(mm)(1)), or
                    ``(B) by an entity that is owned and 
                operated by a critical access hospital,
        but only if the critical access hospital or entity is 
        the only provider or supplier of ambulance services 
        that is located within a 35-mile drive of such critical 
        access hospital.''.
    (b) Conforming Amendment.--Section 1833(a)(1)(R) (42 U.S.C. 
1395l(a)(1)(R)) is amended--
            (1) by striking ``ambulance service,'' and 
        inserting ``ambulance services, (i)''; and
            (2) by inserting before the comma at the end the 
        following: ``and (ii) with respect to ambulance 
        services described in section 1834(l)(8), the amounts 
        paid shall be the amounts determined under section 
        1834(g) for outpatient critical access hospital 
        services''.
    (c) Effective Date.--The amendments made by this section 
apply to services furnished on or after the date of the 
enactment of this Act.

SEC. 206. GAO STUDY ON CERTAIN ELIGIBILITY REQUIREMENTS FOR CRITICAL 
                    ACCESS HOSPITALS.

    (a) Study.--The Comptroller General of the United States 
shall conduct a study on the eligibility requirements for 
critical access hospitals under section 1820(c) of the Social 
Security Act (42 U.S.C. 1395i-4(c)) with respect to limitations 
on average length of stay and number of beds in such a 
hospital, including an analysis of--
            (1) the feasibility of having a distinct part unit 
        as part of a critical access hospital for purposes of 
        the medicare program under title XVIII of such Act, and
            (2) the effect of seasonal variations in patient 
        admissions on critical access hospital eligibility 
        requirements with respect to limitations on average 
        annual length of stay and number of beds.
    (b) Report.--Not later than 1 year after the date of the 
enactment of this Act, the Comptroller General shall submit to 
Congress a report on the study conducted under subsection (a) 
together with recommendations regarding--
            (1) whether distinct part units should be permitted 
        as part of a critical access hospital under the 
        medicare program;
            (2) if so permitted, the payment methodologies that 
        should apply with respect to services provided by such 
        units;
            (3) whether, and to what extent, such units should 
        be included in or excluded from the bed limits 
        applicable to critical access hospitals under the 
        medicare program; and
            (4) any adjustments to such eligibility 
        requirements to account for seasonal variations in 
        patient admissions.

              Subtitle B--Other Rural Hospitals Provisions

SEC. 211. EQUITABLE TREATMENT FOR RURAL DISPROPORTIONATE SHARE 
                    HOSPITALS.

    (a) Application of Uniform Threshold.--Section 
1886(d)(5)(F)(v) (42 U.S.C. 1395ww(d)(5)(F)(v)) is amended--
            (1) in subclause (II), by inserting ``(or 15 
        percent, for discharges occurring on or after April 1, 
        2001)'' after ``30 percent'';
            (2) in subclause (III), by inserting ``(or 15 
        percent, for discharges occurring on or after April 1, 
        2001)'' after ``40 percent''; and
            (3) in subclause (IV), by inserting ``(or 15 
        percent, for discharges occurring on or after April 1, 
        2001)'' after ``45 percent''.
    (b) Adjustment of Payment Formulas.--
            (1) Sole community hospitals.--Section 
        1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is amended--
                    (A) in clause (iv)(VI), by inserting after 
                ``10 percent'' the following: ``or, for 
                discharges occurring on or after April 1, 2001, 
                is equal to the percent determined in 
                accordance with clause (x)''; and
                    (B) by adding at the end the following new 
                clause:
    ``(x) For purposes of clause (iv)(VI) (relating to sole 
community hospitals), in the case of a hospital for a cost 
reporting period with a disproportionate patient percentage (as 
defined in clause (vi)) that--
            ``(I) is less than 17.3, the disproportionate share 
        adjustment percentage is determined in accordance with 
        the following formula: (P-15)(.65) + 2.5;
            ``(II) is equal to or exceeds 17.3, but is less 
        than 30.0, such adjustment percentage is equal to 4 
        percent; or
            ``(III) is equal to or exceeds 40, such adjustment 
        percentage is equal to 5 percent,
where `P' is the hospital's disproportionate patient percentage 
(as defined in clause (vi)).''.
            (2) Rural referral centers.--Such section is 
        further amended--
                    (A) in clause (iv)(V), by inserting after 
                ``clause (viii)'' the following: ``or, for 
                discharges occurring on or after April 1, 2001, 
                is equal to the percent determined in 
                accordance with clause (xi)''; and
                    (B) by adding at the end the following new 
                clause:
    ``(xi) For purposes of clause (iv)(V) (relating to rural 
referral centers), in the case of a hospital for a cost 
reporting period with a disproportionate patient percentage (as 
defined in clause (vi)) that--
            ``(I) is less than 17.3, the disproportionate share 
        adjustment percentage is determined in accordance with 
        the following formula: (P-15)(.65) + 2.5;
            ``(II) is equal to or exceeds 17.3, but is less 
        than 30.0, such adjustment percentage is equal to 4 
        percent; or
            ``(III) is equal to or exceeds 30, such adjustment 
        percentage is determined in accordance with the 
        following formula: (P-30)(.6) + 4,
where `P' is the hospital's disproportionate patient percentage 
(as defined in clause (vi)).''.
            (3) Small rural hospitals generally.--Such section 
        is further amended--
                    (A) in clause (iv)(III), by inserting after 
                ``4 percent'' the following: ``or, for 
                discharges occurring on or after April 1, 2001, 
                is equal to the percent determined in 
                accordance with clause (xii)''; and
                    (B) by adding at the end the following new 
                clause:
    ``(xii) For purposes of clause (iv)(III) (relating to small 
rural hospitals generally), in the case of a hospital for a 
cost reporting period with a disproportionate patient 
percentage (as defined in clause (vi)) that--
            ``(I) is less than 17.3, the disproportionate share 
        adjustment percentage is determined in accordance with 
        the following formula: (P-15)(.65) + 2.5;
            ``(II) is equal to or exceeds 17.3, such adjustment 
        percentage is equal to 4 percent,

where `P' is the hospital's disproportionate patient percentage 
(as defined in clause (vi)).''.
            (4) Hospitals that are both sole community 
        hospitals and rural referral centers.--Such section is 
        further amended, in clause (iv)(IV), by inserting after 
        ``clause (viii)'' the following: ``or, for discharges 
        occurring on or after April 1, 2001, the greater of the 
        percentages determined under clause (x) or (xi)''.
            (5) Urban hospitals with less than 100 beds.--Such 
        section is further amended--
                    (A) in clause (iv)(II), by inserting after 
                ``5 percent'' the following: ``or, for 
                discharges occurring on or after April 1, 2001, 
                is equal to the percent determined in 
                accordance with clause (xiii)''; and
                    (B) by adding at the end the following new 
                clause:
    ``(xiii) For purposes of clause (iv)(II) (relating to urban 
hospitals with less than 100 beds), in the case of a hospital 
for a cost reporting period with a disproportionate patient 
percentage (as defined in clause (vi)) that--
            ``(I) is less than 17.3, the disproportionate share 
        adjustment percentage is determined in accordance with 
        the following formula: (P-15)(.65) + 2.5;
            ``(II) is equal to or exceeds 17.3, but is less 
        than 40.0, such adjustment percentage is equal to 4 
        percent; or
            ``(III) is equal to or exceeds 40, such adjustment 
        percentage is equal to 5 percent,
where `P' is the hospital's disproportionate patient percentage 
(as defined in clause (vi)).''.

SEC. 212. OPTION TO BASE ELIGIBILITY FOR MEDICARE DEPENDENT, SMALL 
                    RURAL HOSPITAL PROGRAM ON DISCHARGES DURING 2 OF 
                    THE 3 MOST RECENTLY AUDITED COST REPORTING PERIODS.

    (a) In General.--Section 1886(d)(5)(G)(iv)(IV) (42 U.S.C. 
1395ww(d)(5)(G)(iv)(IV)) is amended by inserting ``, or 2 of 
the 3 most recently audited cost reporting periods for which 
the Secretary has a settled cost report,'' after ``1987''.
    (b) Effective Date.--The amendment made by this section 
shall apply with respect to cost reporting periods beginning on 
or after April 1, 2001.

SEC. 213. EXTENSION OF OPTION TO USE REBASED TARGET AMOUNTS TO ALL SOLE 
                    COMMUNITY HOSPITALS.

    (a) In General.--Section 1886(b)(3)(I)(i) (42 U.S.C. 
1395ww(b)(3)(I)(i)) is amended--
            (1) in the matter preceding subclause (I), by 
        striking ``that for its cost reporting period beginning 
        during 1999'' and all that follows through ``for such 
        target amount'' and inserting ``there shall be 
        substituted for the amount otherwise determined under 
        subsection (d)(5)(D)(i), if such substitution results 
        in a greater amount of payment under this section for 
        the hospital'';
            (2) in subclause (I), by striking ``target amount 
        otherwise applicable'' and all that follows through 
        ``target amount')'' and inserting ``the amount 
        otherwise applicable to the hospital under subsection 
        (d)(5)(D)(i) (referred to in this clause as the 
        `subsection (d)(5)(D)(i) amount')''; and
            (3) in each of subclauses (II) and (III), by 
        striking ``subparagraph (C) target amount'' and 
        inserting ``subsection (d)(5)(D)(i) amount''.
    (b) Effective Date.--The amendments made by this section 
shall take effect as if included in the enactment of section 
405 of BBRA (113 Stat. 1501A-372).

SEC. 214. MEDPAC ANALYSIS OF IMPACT OF VOLUME ON PER UNIT COST OF RURAL 
                    HOSPITALS WITH PSYCHIATRIC UNITS.

    The Medicare Payment Advisory Commission, in its study 
conducted pursuant to subsection (a) of section 411 of BBRA 
(113 Stat. 1501A-377), shall include--
            (1) in such study an analysis of the impact of 
        volume on the per unit cost of rural hospitals with 
        psychiatric units; and
            (2) in its report under subsection (b) of such 
        section a recommendation on whether special treatment 
        for such hospitals may be warranted.

                   Subtitle C--Other Rural Provisions

SEC. 221. ASSISTANCE FOR PROVIDERS OF AMBULANCE SERVICES IN RURAL 
                    AREAS.

    (a) Transitional Assistance in Certain Mileage Rates.--
Section 1834(l) (42 U.S.C. 1395m(l)) is amended by adding at 
the end the following new paragraph:
            ``(8) Transitional assistance for rural 
        providers.--In the case of ground ambulance services 
        furnished on or after the date on which the Secretary 
        implements the fee schedule under this subsection and 
        before January 1, 2004, for which the transportation 
        originates in a rural area (as defined in section 
        1886(d)(2)(D)) or in a rural census tract of a 
        metropolitan statistical area (as determined under the 
        most recent modification of the Goldsmith Modification, 
        originally published in the Federal Register on 
        February 27, 1992 (57 Fed. Reg. 6725)), the fee 
        schedule established under this subsection shall 
        provide that, with respect to the payment rate for 
        mileage for a trip above 17 miles, and up to 50 miles, 
        the rate otherwise established shall be increased by 
        not less than \1/2\ of the additional payment per mile 
        established for the first 17 miles of such a trip 
        originating in a rural area.''.
    (b) GAO Studies on the Costs of Ambulance Services 
Furnished in Rural Areas.--
            (1) Study.--The Comptroller General of the United 
        States shall conduct a study on each of the matters 
        described in paragraph (2).
            (2) Matters described.--The matters referred to in 
        paragraph (1) are the following:
                    (A) The cost of efficiently providing 
                ambulance services for trips originating in 
                rural areas, with special emphasis on 
                collection of cost data from rural providers.
                    (B) The means by which rural areas with low 
                population densities can be identified for the 
                purpose of designating areas in which the cost 
                of providing ambulance services would be 
                expected to be higher than similar services 
                provided in more heavily populated areas 
                because of low usage. Such study shall also 
                include an analysis of the additional costs of 
                providing ambulance services in areas 
                designated under the previous sentence.
            (3) Report.--Not later than June 30, 2002, the 
        Comptroller General shall submit to Congress a report 
        on the results of the studies conducted under paragraph 
        (1) and shall include recommendations on steps that 
        should be taken to assure access to ambulance services 
        in rural areas.
    (c) Adjustment in Rural Rates.--In providing for 
adjustments under subparagraph (D) of section 1834(l)(2) of the 
Social Security Act (42 U.S.C. 1395m(l)(2)) for years beginning 
with 2004, the Secretary of Health and Human Services shall 
take into consideration the recommendations contained in the 
report under subsection (b)(2) and shall adjust the fee 
schedule payment rates under such section for ambulance 
services provided in low density rural areas based on the 
increased cost (if any) of providing such services in such 
areas.
    (d) Effective Date.--The amendment made by subsection (a) 
applies to services furnished on or after the date the 
Secretary implements the fee schedule under section 1834(l) of 
the Social Security Act (42 U.S.C. 1395m(l)). In applying such 
amendment to services furnished on or after such date and 
before January 1, 2002, the amount of the rate increase 
provided under such amendment shall be equal to $1.25 per mile.

SEC. 222. PAYMENT FOR CERTAIN PHYSICIAN ASSISTANT SERVICES.

    (a) Payment for Certain Physician Assistant Services.--
Section 1842(b)(6)(C) (42 U.S.C. 1395u(b)(6)(C)) is amended--
            (1) by striking ``for such services provided before 
        January 1, 2003,''; and
            (2) by striking the semicolon at the end and 
        inserting a comma.
    (b) Effective Date.--The amendments made by subsection (a) 
shall take effect on the date of the enactment of this Act.

SEC. 223. REVISION OF MEDICARE REIMBURSEMENT FOR TELEHEALTH SERVICES.

    (a) Time Limit for BBA Provision.--Section 4206(a) of BBA 
(42 U.S.C. 1395l note) is amended by striking ``Not later than 
January 1, 1999'' and inserting ``For services furnished on and 
after January 1, 1999, and before July 1, 2001''.
    (b) Expansion of Medicare Payment for Telehealth 
Services.--Section 1834 (42 U.S.C. 1395m) is amended by adding 
at the end the following new subsection:
    ``(m) Payment for Telehealth Services.--
            ``(1) In general.--The Secretary shall pay for 
        telehealth services that are furnished via a 
        telecommunications system by a physician (as defined in 
        section 1861(r)) or a practitioner (described in 
        section 1842(b)(18)(C)) to an eligible telehealth 
        individual enrolled under this part notwithstanding 
        that the individual physician or practitioner providing 
        the telehealth service is not at the same location as 
        the beneficiary. For purposes of the preceding 
        sentence, in the case of any Federal telemedicine 
        demonstration program conducted in Alaska or Hawaii, 
        the term `telecommunications system' includes store-
        and-forward technologies that provide for the 
        asynchronous transmission of health care information in 
        single or multimedia formats.
            ``(2) Payment amount.--
                    ``(A) Distant site.--The Secretary shall 
                pay to a physician or practitioner located at a 
                distant site that furnishes a telehealth 
                service to an eligible telehealth individual an 
                amount equal to the amount that such physician 
                or practitioner would have been paid under this 
                title had such service been furnished without 
                the use of a telecommunications system.
                    ``(B) Facility fee for originating site.--
                With respect to a telehealth service, subject 
                to section 1833(a)(1)(U), there shall be paid 
                to the originating site a facility fee equal 
                to--
                            ``(i) for the period beginning on 
                        July 1, 2001, and ending on December 
                        31, 2001, and for 2002, $20; and
                            ``(ii) for a subsequent year, the 
                        facility fee specified in clause (i) or 
                        this clause for the preceding year 
                        increased by the percentage increase in 
                        the MEI (as defined in section 
                        1842(i)(3)) for such subsequent year.
                    ``(C) Telepresenter not required.--Nothing 
                in this subsection shall be construed as 
                requiring an eligible telehealth individual to 
                be presented by a physician or practitioner at 
                the originating site for the furnishing of a 
                service via a telecommunications system, unless 
                it is medically necessary (as determined by the 
                physician or practitioner at the distant site).
            ``(3) Limitation on beneficiary charges.--
                    ``(A) Physician and practitioner.--The 
                provisions of section 1848(g) and subparagraphs 
                (A) and (B) of section 1842(b)(18) shall apply 
                to a physician or practitioner receiving 
                payment under this subsection in the same 
                manner as they apply to physicians or 
                practitioners under such sections.
                    ``(B) Originating site.--The provisions of 
                section 1842(b)(18) shall apply to originating 
                sites receiving a facility fee in the same 
                manner as they apply to practitioners under 
                such section.
            ``(4) Definitions.--For purposes of this 
        subsection:
                    ``(A) Distant site.--The term `distant 
                site' means the site at which the physician or 
                practitioner is located at the time the service 
                is provided via a telecommunications system.
                    ``(B) Eligible telehealth individual.--The 
                term `eligible telehealth individual' means an 
                individual enrolled under this part who 
                receives a telehealth service furnished at an 
                originating site.
                    ``(C) Originating site.--
                            ``(i) In general.--The term 
                        `originating site' means only those 
                        sites described in clause (ii) at which 
                        the eligible telehealth individual is 
                        located at the time the service is 
                        furnished via a telecommunications 
                        system and only if such site is 
                        located--
                                    ``(I) in an area that is 
                                designated as a rural health 
                                professional shortage area 
                                under section 332(a)(1)(A) of 
                                the Public Health Service Act 
                                (42 U.S.C. 254e(a)(1)(A));
                                    ``(II) in a county that is 
                                not included in a Metropolitan 
                                Statistical Area; or
                                    ``(III) from an entity that 
                                participates in a Federal 
                                telemedicine demonstration 
                                project that has been approved 
                                by (or receives funding from) 
                                the Secretary of Health and 
                                Human Services as of December 
                                31, 2000.
                            ``(ii) Sites described.--The sites 
                        referred to in clause (i) are the 
                        following sites:
                                    ``(I) The office of a 
                                physician or practitioner.
                                    ``(II) A critical access 
                                hospital (as defined in section 
                                1861(mm)(1)).
                                    ``(III) A rural health 
                                clinic (as defined in section 
                                1861(aa)(s)).
                                    ``(IV) A Federally 
                                qualified health center (as 
                                defined in section 
                                1861(aa)(4)).
                                    ``(V) A hospital (as 
                                defined in section 1861(e)).
                            ``(D) Physician.--The term 
                        ``physician'' has the meaning given 
                        that term in section 1861(r).
                            ``(E) Practitioner.--The term 
                        `practitioner' has the meaning given 
                        that term in section 1842(b)(18)(C).
                    ``(F) Telehealth service.--
                            ``(i) In general.--The term 
                        `telehealth service' means professional 
                        consultations, office visits, and 
                        office psychiatry services (identified 
                        as of July 1, 2000, by HCPCS codes 
                        99241-99275, 99201-99215, 90804-90809, 
                        and 90862 (and as subsequently modified 
                        by the Secretary)), and any additional 
                        service specified by the Secretary.
                            ``(ii) Yearly update.--The 
                        Secretary shall establish a process 
                        that provides, on an annual basis, for 
                        the addition or deletion of services 
                        (and HCPCS codes), as appropriate, to 
                        those specified in clause (i) for 
                        authorized payment under paragraph 
                        (1).''.
    (c) Conforming Amendment.--Section 1833(a)(1) (42 U.S.C. 
1395l(1)), as amended by section 105(c), is further amended--
            (1) by striking ``and (T)'' and inserting ``(T)''; 
        and
            (2) by inserting before the semicolon at the end 
        the following: ``, and (U) with respect to facility 
        fees described in section 1834(m)(2)(B), the amounts 
        paid shall be 80 percent of the lesser of the actual 
        charge or the amounts specified in such section''.
    (d) Study and Report on Additional Coverage.--
            (1) Study.--The Secretary of Health and Human 
        Services shall conduct a study to identify--
                    (A) settings and sites for the provision of 
                telehealth services that are in addition to 
                those permitted under section 1834(m) of the 
                Social Security Act, as added by subsection 
                (b);
                    (B) practitioners that may be reimbursed 
                under such section for furnishing telehealth 
                services that are in addition to the 
                practitioners that may be reimbursed for such 
                services under such section; and
                    (C) geographic areas in which telehealth 
                services may be reimbursed that are in addition 
                to the geographic areas where such services may 
                be reimbursed under such section.
            (2) Report.--Not later than 2 years after the date 
        of the enactment of this Act, the Secretary shall 
        submit to Congress a report on the study conducted 
        under paragraph (1) together with such recommendations 
        for legislation that the Secretary determines are 
        appropriate.
    (e) Effective Date.--The amendments made by subsections (b) 
and (c) shall be effective for services furnished on or after 
July 1, 2001.

SEC. 224. EXPANDING ACCESS TO RURAL HEALTH CLINICS.

    (a) In General.--The matter in section 1833(f) (42 U.S.C. 
1395l(f)) preceding paragraph (1) is amended by striking 
``rural hospitals'' and inserting ``hospitals''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to services furnished on or after July 1, 2001.

SEC. 225. MEDPAC STUDY ON LOW-VOLUME, ISOLATED RURAL HEALTH CARE 
                    PROVIDERS.

    (a) Study.--The Medicare Payment Advisory Commission shall 
conduct a study on the effect of low patient and procedure 
volume on the financial status of low-volume, isolated rural 
health care providers participating in the medicare program 
under title XVIII of the Social Security Act.
    (b) Report.--Not later than 18 months after the date of the 
enactment of this Act, the Commission shall submit to Congress 
a report on the study conducted under subsection (a) 
indicating--
            (1) whether low-volume, isolated rural health care 
        providers are having, or may have, significantly 
        decreased medicare margins or other financial 
        difficulties resulting from any of the payment 
        methodologies described in subsection (c);
            (2) whether the status as a low-volume, isolated 
        rural health care provider should be designated under 
        the medicare program and any criteria that should be 
        used to qualify for such a status; and
            (3) any changes in the payment methodologies 
        described in subsection (c) that are necessary to 
        provide appropriate reimbursement under the medicare 
        program to low-volume, isolated rural health care 
        providers (as designated pursuant to paragraph (2)).
    (c) Payment Methodologies Described.--The payment 
methodologies described in this subsection are the following:
            (1) The prospective payment system for hospital 
        outpatient department services under section 1833(t) of 
        the Social Security Act (42 U.S.C. 1395l(t)).
            (2) The fee schedule for ambulance services under 
        section 1834(l) of such Act (42 U.S.C. 1395m(l)).
            (3) The prospective payment system for inpatient 
        hospital services under section 1886 of such Act (42 
        U.S.C. 1395ww).
            (4) The prospective payment system for routine 
        service costs of skilled nursing facilities under 
        section 1888(e) of such Act (42 U.S.C. 1395yy(e)).
            (5) The prospective payment system for home health 
        services under section 1895 of such Act (42 U.S.C. 
        1395fff).

                TITLE III--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

SEC. 301. REVISION OF ACUTE CARE HOSPITAL PAYMENT UPDATE FOR 2001.

    (a) In General.--Section 1886(b)(3)(B)(i) (42 U.S.C. 
1395ww(b)(3)(B)(i)) is amended--
            (1) in subclause (XVI), by striking ``minus 1.1 
        percentage points for hospitals (other than sole 
        community hospitals) in all areas, and the market 
        basket percentage increase for sole community 
        hospitals,'' and inserting ``for hospitals in all 
        areas,'';
            (2) in subclause (XVII)--
                    (A) by striking ``minus 1.1 percentage 
                points'' and inserting ``minus 0.55 percentage 
                points; and
                    (B) by striking ``and'' at the end;
            (3) by redesignating subclause (XVIII) as subclause 
        (XIX);
            (4) in subclause (XIX), as so redesignated, by 
        striking ``fiscal year 2003'' and inserting ``fiscal 
        year 2004''; and
            (5) by inserting after subclause (XVII) the 
        following new subclause:
            ``(XVIII) for fiscal year 2003, the market basket 
        percentage increase minus 0.55 percentage points for 
        hospitals in all areas, and''.
    (b) Special Rule for Payment for Fiscal Year 2001.--
Notwithstanding the amendment made by subsection (a), for 
purposes of making payments for fiscal year 2001 for inpatient 
hospital services furnished by subsection (d) hospitals (as 
defined in section 1886(d)(1)(B) of the Social Security Act (42 
U.S.C. 1395ww(d)(1)(B)), the ``applicable percentage increase'' 
referred to in section 1886(b)(3)(B)(i) of such Act (42 U.S.C. 
1395ww(b)(3)(B)(i))--
            (1) for discharges occurring on or after October 1, 
        2000, and before April 1, 2001, shall be determined in 
        accordance with subclause (XVI) of such section as in 
        effect on the day before the date of the enactment of 
        this Act; and
            (2) for discharges occurring on or after April 1, 
        2001, and before October 1, 2001, shall be equal to--
                    (A) the market basket percentage increase 
                plus 1.1 percentage points for hospitals (other 
                than sole community hospitals) in all areas; 
                and
                    (B) the market basket percentage increase 
                for sole community hospitals.
    (c) Consideration of Price of Blood and Blood Products in 
Market Basket Index.--The Secretary of Health and Human 
Services shall, when next (after the date of the enactment of 
this Act) rebasing and revising the hospital market basket 
index (as defined in section 1886(b)(3)(B)(iii) of the Social 
Security Act (42 U.S.C. 1395ww(b)(3)(B)(iii))), consider the 
prices of blood and blood products purchased by hospitals and 
determine whether those prices are adequately reflected in such 
index.
    (d) MedPAC Study and Report Regarding Certain Hospital 
Costs.--
            (1) Study.--The Medicare Payment Advisory 
        Commission shall conduct a study on--
                    (A) any increased costs incurred by 
                subsection (d) hospitals (as defined in 
                paragraph (1)(B) of section 1886(d) of the 
                Social Security Act (42 U.S.C. 1395ww(d))) in 
                providing inpatient hospital services to 
                medicare beneficiaries under title XVIII of 
                such Act during the period beginning on October 
                1, 1983, and ending on September 30, 1999, that 
                were attributable to--
                            (i) complying with new blood safety 
                        measure requirements; and
                            (ii) providing such services using 
                        new technologies;
                    (B) the extent to which the prospective 
                payment system for such services under such 
                section provides adequate and timely 
                recognition of such increased costs;
                    (C) the prospects for (and to the extent 
                practicable, the magnitude of) cost increases 
                that hospitals will incur in providing such 
                services that are attributable to complying 
                with new blood safety measure requirements and 
                providing such services using new technologies 
                during the 10 years after the date of the 
                enactment of this Act; and
                    (D) the feasibility and advisability of 
                establishing mechanisms under such payment 
                system to provide for more timely and accurate 
                recognition of such cost increases in the 
                future.
            (2) Consultation.--In conducting the study under 
        this subsection, the Commission shall consult with 
        representatives of the blood community, including--
                    (A) hospitals;
                    (B) organizations involved in the 
                collection, processing, and delivery of blood; 
                and
                    (C) organizations involved in the 
                development of new blood safety technologies.
            (3) Report.--Not later than 1 year after the date 
        of the enactment of this Act, the Commission shall 
        submit to Congress a report on the study conducted 
        under paragraph (1) together with such recommendations 
        for legislation and administrative action as the 
        Commission determines appropriate.
    (e) Adjustment for Inpatient Case Mix Changes.--
            (1) In general.--Section 1886(d)(3)(A) (42 U.S.C. 
        1395ww(d)(3)(A)) is amended by adding at the end the 
        following new clause:
            ``(vi) Insofar as the Secretary determines that the 
        adjustments under paragraph (4)(C)(i) for a previous 
        fiscal year (or estimates that such adjustments for a 
        future fiscal year) did (or are likely to) result in a 
        change in aggregate payments under this subsection 
        during the fiscal year that are a result of changes in 
        the coding or classification of discharges that do not 
        reflect real changes in case mix, the Secretary may 
        adjust the average standardized amounts computed under 
        this paragraph for subsequent fiscal years so as to 
        eliminate the effect of such coding or classification 
        changes.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) applies to discharges occurring on or 
        after October 1, 2001.

SEC. 302. ADDITIONAL MODIFICATION IN TRANSITION FOR INDIRECT MEDICAL 
                    EDUCATION (IME) PERCENTAGE ADJUSTMENT.

    (a) In General.--Section 1886(d)(5)(B)(ii) (42 U.S.C. 
1395ww(d)(5)(B)(ii)) is amended--
            (1) in subclause (V) by striking ``and'' at the 
        end;
            (2) by redesignating subclause (VI) as subclause 
        (VII);
            (3) in subclause (VII) as so redesignated, by 
        striking ``2001'' and inserting ``2002''; and
            (4) by inserting after subclause (V) the following 
        new subclause:
                    ``(VI) during fiscal year 2002, `c' is 
                equal to 1.57; and''.
    (b) Special Rule for Payment for Fiscal Year 2001.--
Notwithstanding paragraph (5)(B)(ii)(V) of section 1886(d) of 
the Social Security Act (42 U.S.C. 1395ww(d)(5)(B)(ii)(V)), for 
purposes of making payments for subsection (d) hospitals (as 
defined in paragraph (1)(B) of such section) with indirect 
costs of medical education, the indirect teaching adjustment 
factor referred to in paragraph (5)(B)(ii) of such section 
shall be determined, for discharges occurring on or after April 
1, 2001, and before October 1, 2001, as if ``c'' in paragraph 
(5)(B)(ii)(V) of such section equalled 1.66 rather than 1.54.
    (c) Conforming Amendment Relating to Determination of 
Standardized Amount.--Section 1886(d)(2)(C)(i) (42 U.S.C. 
1395ww(d)(2)(C)(i)) is amended by inserting ``or of section 302 
of the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000'' after ``Balanced Budget Refinement Act 
of 1999''.
    (d) Clerical Amendments.--Section 1886(d)(5)(B) (42 U.S.C. 
1395ww(d)(5)(B)), as amended by subsection (a), is further 
amended by moving the indentation of each of the following 2 
ems to the left:
            (1) Clauses (ii), (v), and (vi).
            (2) Subclauses (I), (II), (III), (IV), (V), and 
        (VII) of clause (ii).
            (3) Subclauses (I) and (II) of clause (vi) and the 
        flush sentence at the end of such clause.

SEC. 303. DECREASE IN REDUCTIONS FOR DISPROPORTIONATE SHARE HOSPITAL 
                    (DSH) PAYMENTS.

    (a) In General.--Section 1886(d)(5)(F)(ix) (42 U.S.C. 
1395ww(d)(5)(F)(ix)) is amended--
            (1) in subclause (III), by striking ``each of'' and 
        by inserting ``and 2 percent, respectively'' after ``3 
        percent''; and
            (2) in subclause (IV), by striking ``4 percent'' 
        and inserting ``3 percent''.
    (b) Special Rule for Payment for Fiscal Year 2001.--
Notwithstanding the amendment made by subsection (a)(1), for 
purposes of making disproportionate share payments for 
subsection (d) hospitals (as defined in section 1886(d)(1)(B) 
of the Social Security Act (42 U.S.C. 1395ww(d)(1)(B))) for 
fiscal year 2001, the additional payment amount otherwise 
determined under clause (ii) of section 1886(d)(5)(F) of the 
Social Security Act (42 U.S.C. 1395ww(d)(5)(F))--
            (1) for discharges occurring on or after October 1, 
        2000, and before April 1, 2001, shall be adjusted as 
        provided by clause (ix)(III) of such section as in 
        effect on the day before the date of the enactment of 
        this Act; and
            (2) for discharges occurring on or after April 1, 
        2001, and before October 1, 2001, shall, instead of 
        being reduced by 3 percent as provided by clause 
        (ix)(III) of such section as in effect after the date 
        of the enactment of this Act, be reduced by 1 percent.
    (c) Conforming Amendments Relating to Determination of 
Standardized Amount.--Section 1886(d)(2)(C)(iv) (42 U.S.C. 
1395ww(d)(2)(C)(iv)), is amended--
            (1) by striking ``1989 or'' and inserting 
        ``1989,''; and
            (2) by inserting ``, or the enactment of section 
        303 of the Medicare, Medicaid, and SCHIP Benefits 
        Improvement and Protection Act of 2000'' after 
        ``Omnibus Budget Reconciliation Act of 1990''.
    (d) Technical Amendment.--
            (1) In general.--Section 1886(d)(5)(F)(i) (42 
        U.S.C. 1395ww(d)(5)(F)(i)) is amended by striking ``and 
        before October 1, 1997,''.
            (2) Effective date.--The amendment made by 
        paragraph (1) is effective as if included in the 
        enactment of BBA.
    (e) Reference to Changes in DSH for Rural Hospitals.--For 
additional changes in the DSH program for rural hospitals, see 
section 211.

SEC. 304. WAGE INDEX IMPROVEMENTS.

    (a) Duration of Wage Index Reclassification; Use of 3-Year 
Wage Data.--Section 1886(d)(10)(D) (42 U.S.C. 1395ww(d)(10)(D)) 
is amended by adding at the end the following new clauses:
    ``(v) Any decision of the Board to reclassify a subsection 
(d) hospital for purposes of the adjustment factor described in 
subparagraph (C)(i)(II) for fiscal year 2001 or any fiscal year 
thereafter shall be effective for a period of 3 fiscal years, 
except that the Secretary shall establish procedures under 
which a subsection (d) hospital may elect to terminate such 
reclassification before the end of such period.
    ``(vi) Such guidelines shall provide that, in making 
decisions on applications for reclassification for the purposes 
described in clause (v) for fiscal year 2003 and any succeeding 
fiscal year, the Board shall base any comparison of the average 
hourly wage for the hospital with the average hourly wage for 
hospitals in an area on--
            ``(I) an average of the average hourly wage amount 
        for the hospital from the most recently published 
        hospital wage survey data of the Secretary (as of the 
        date on which the hospital applies for 
        reclassification) and such amount from each of the two 
        immediately preceding surveys; and
            ``(II) an average of the average hourly wage amount 
        for hospitals in such area from the most recently 
        published hospital wage survey data of the Secretary 
        (as of the date on which the hospital applies for 
        reclassification) and such amount from each of the two 
        immediately preceding surveys.''.
    (b) Process To Permit Statewide Wage Index Calculation and 
Application.--
            (1) In general.--The Secretary of Health and Human 
        Services shall establish a process (based on the 
        voluntary process utilized by the Secretary of Health 
        and Human Services under section 1848 of the Social 
        Security Act (42 U.S.C. 1395w-4) for purposes of 
        computing and applying a statewide geographic wage 
        index) under which an appropriate statewide entity may 
        apply to have all the geographic areas in a State 
        treated as a single geographic area for purposes of 
        computing and applying the area wage index under 
        section 1886(d)(3)(E) of such Act (42 U.S.C. 
        1395ww(d)(3)(E)). Such process shall be established by 
        October 1, 2001, for reclassifications beginning in 
        fiscal year 2003.
            (2) Prohibition on individual hospital 
        reclassification.--Notwithstanding any other provision 
        of law, if the Secretary applies a statewide geographic 
        wage index under paragraph (1) with respect to a State, 
        any application submitted by a hospital in that State 
        under section 1886(d)(10) of the Social Security Act 
        (42 U.S.C. 1395ww(d)(10)) for geographic 
        reclassification shall not be considered.
    (c) Collection of Information on Occupational Mix.--
            (1) In general.--The Secretary of Health and Human 
        Services shall provide for the collection of data every 
        3 years on occupational mix for employees of each 
        subsection (d) hospital (as defined in section 
        1886(d)(1)(D) of the Social Security Act (42 U.S.C. 
        1395ww(d)(1)(D))) in the provision of inpatient 
        hospital services, in order to construct an 
        occupational mix adjustment in the hospital area wage 
        index applied under section 1886(d)(3)(E) of such Act 
        (42 U.S.C. 1395ww(d)(3)(E)).
            (2) Application.--The third sentence of section 
        1886(d)(3)(E) (42 U.S.C. 1395ww(d)(3)(E)) is amended by 
        striking ``To the extent determined feasible by the 
        Secretary, such survey shall measure'' and inserting 
        ``Not less often than once every 3 years the Secretary 
        (through such survey or otherwise) shall measure''.
            (3) Effective date.--By not later than September 
        30, 2003, for application beginning October 1, 2004, 
        the Secretary shall first complete--
                    (A) the collection of data under paragraph 
                (1); and
                    (B) the measurement under the third 
                sentence of section 1886(d)(3)(E), as amended 
                by paragraph (2).

SEC. 305. PAYMENT FOR INPATIENT SERVICES OF REHABILITATION HOSPITALS.

    (a) Assistance With Administrative Costs Associated With 
Completion of Patient Assessment.--Section 1886(j)(3)(B) (42 
U.S.C. 1395ww(j)(3)(B)) is amended by striking ``98 percent'' 
and inserting ``98 percent for fiscal year 2001 and 100 percent 
for fiscal year 2002''.
    (b) Election To Apply Full Prospective Payment Rate Without 
Phase-In.--
            (1) In general.--Paragraph (1) of section 1886(j) 
        (42 U.S.C. 1395ww(j)) is amended--
                    (A) in subparagraph (A), by inserting 
                ``other than a facility making an election 
                under subparagraph (F)'' before ``in a cost 
                reporting period'';
                    (B) in subparagraph (B), by inserting ``or, 
                in the case of a facility making an election 
                under subparagraph (F), for any cost reporting 
                period described in such subparagraph,'' after 
                ``2002,''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(F) Election to apply full prospective 
                payment system.--A rehabilitation facility may 
                elect, not later than 30 days before its first 
                cost reporting period for which the payment 
                methodology under this subsection applies to 
                the facility, to have payment made to the 
                facility under this subsection under the 
                provisions of subparagraph (B) (rather than 
                subparagraph (A)) for each cost reporting 
                period to which such payment methodology 
                applies.''.
            (2) Clarification.--Paragraph (3)(B) of such 
        section is amended by inserting ``but not taking into 
        account any payment adjustment resulting from an 
        election permitted under paragraph (1)(F)'' after 
        ``paragraphs (4) and (6)''.
    (c) Effective Date.--The amendments made by this section 
take effect as if included in the enactment of BBA.

SEC. 306. PAYMENT FOR INPATIENT SERVICES OF PSYCHIATRIC HOSPITALS.

    With respect to hospitals described in clause (i) of 
section 1886(d)(1)(B) of the Social Security Act (42 U.S.C. 
1395ww(d)(1)(B)) and psychiatric units described in the matter 
following clause (v) of such section, in making incentive 
payments to such hospitals under section 1886(b)(1)(A) of such 
Act (42 U.S.C. 1395ww(b)(1)(A)) for cost reporting periods 
beginning on or after October 1, 2000, and before October 1, 
2001, the Secretary of Health and Human Services, in clause 
(ii) of such section, shall substitute ``3 percent'' for ``2 
percent''.

SEC. 307. PAYMENT FOR INPATIENT SERVICES OF LONG-TERM CARE HOSPITALS.

    (a) Increased Target Amounts and Caps for Long-Term Care 
Hospitals Before Implementation of the Prospective Payment 
System.--
            (1) In general.--Section 1886(b)(3) (42 U.S.C. 
        1395ww(b)(3)) is amended--
                    (A) in subparagraph (H)(ii)(III), by 
                inserting ``subject to subparagraph (J),'' 
                after ``2002,''; and
                    (B) by adding at the end the following new 
                subparagraph:
    ``(J) For cost reporting periods beginning during fiscal 
year 2001, for a hospital described in subsection 
(d)(1)(B)(iv)--
            ``(i) the limiting or cap amount otherwise 
        determined under subparagraph (H) shall be increased by 
        2 percent; and
            ``(ii) the target amount otherwise determined under 
        subparagraph (A) shall be increased by 25 percent 
        (subject to the limiting or cap amount determined under 
        subparagraph (H), as increased by clause (i)).''.
            (2) Application.--The amendments made by subsection 
        (a) and by section 122 of BBRA (113 Stat. 1501A-331) 
        shall not be taken into account in the development and 
        implementation of the prospective payment system under 
        section 123 of BBRA (113 Stat. 1501A-331).
    (b) Implementation of Prospective Payment System for Long-
Term Care Hospitals.--
            (1) Modification of requirement.--In developing the 
        prospective payment system for payment for inpatient 
        hospital services provided in long-term care hospitals 
        described in section 1886(d)(1)(B)(iv) of the Social 
        Security Act (42 U.S.C. 1395ww(d)(1)(B)(iv)) under the 
        medicare program under title XVIII of such Act required 
        under section 123 of BBRA, the Secretary of Health and 
        Human Services shall examine the feasibility and the 
        impact of basing payment under such a system on the use 
        of existing (or refined) hospital diagnosis-related 
        groups (DRGs) that have been modified to account for 
        different resource use of long-term care hospital 
        patients as well as the use of the most recently 
        available hospital discharge data. The Secretary shall 
        examine and may provide for appropriate adjustments to 
        the long-term hospital payment system, including 
        adjustments to DRG weights, area wage adjustments, 
        geographic reclassification, outliers, updates, and a 
        disproportionate share adjustment consistent with 
        section 1886(d)(5)(F) of the Social Security Act (42 
        U.S.C. 1395ww(d)(5)(F)).
            (2) Default implementation of system based on 
        existing drg methodology.--If the Secretary is unable 
        to implement the prospective payment system under 
        section 123 of the BBRA by October 1, 2002, the 
        Secretary shall implement a prospective payment system 
        for such hospitals that bases payment under such a 
        system using existing hospital diagnosis-related groups 
        (DRGs), modified where feasible to account for resource 
        use of long-term care hospital patients using the most 
        recently available hospital discharge data for such 
        services furnished on or after that date.

 Subtitle B--Adjustments to PPS Payments for Skilled Nursing Facilities

SEC. 311. ELIMINATION OF REDUCTION IN SKILLED NURSING FACILITY (SNF) 
                    MARKET BASKET UPDATE IN 2001.

    (a) In General.--Section 1888(e)(4)(E)(ii) (42 U.S.C. 
1395yy(e)(4)(E)(ii)) is amended--
            (1) by redesignating subclauses (II) and (III) as 
        subclauses (III) and (IV), respectively;
            (2) in subclause (III), as so redesignated--
                    (A) by striking ``each of fiscal years 2001 
                and 2002'' and inserting ``each of fiscal years 
                2002 and 2003''; and
                    (B) by striking ``minus 1 percentage 
                point'' and inserting ``minus 0.5 percentage 
                points''; and
            (3) by inserting after subclause (I) the following 
        new subclause:
                                    ``(II) for fiscal year 
                                2001, the rate computed for the 
                                previous fiscal year increased 
                                by the skilled nursing facility 
                                market basket percentage change 
                                for the fiscal year;''.
    (b) Special Rule for Payment for Fiscal Year 2001.--
Notwithstanding the amendments made by subsection (a), for 
purposes of making payments for covered skilled nursing 
facility services under section 1888(e) of the Social Security 
Act (42 U.S.C. 1395yy(e)) for fiscal year 2001, the Federal per 
diem rate referred to in paragraph (4)(E)(ii) of such section--
            (1) for the period beginning on October 1, 2000, 
        and ending on March 31, 2001, shall be the rate 
        determined in accordance with the law as in effect on 
        the day before the date of the enactment of this Act; 
        and
            (2) for the period beginning on April 1, 2001, and 
        ending on September 30, 2001, shall be the rate that 
        would have been determined under such section if ``plus 
        1 percentage point'' had been substituted for ``minus 1 
        percentage point'' under subclause (II) of such 
        paragraph (as in effect on the day before the date of 
        the enactment of this Act).
    (c) Relation to Temporary Increase in BBRA.--The increases 
provided under section 101 of BBRA (113 Stat. 1501A-325) shall 
be in addition to any increase resulting from the amendments 
made by subsection (a).
    (d) GAO Report on Adequacy of SNF Payment Rates.--Not later 
than July 1, 2002, the Comptroller General of the United States 
shall submit to Congress a report on the adequacy of medicare 
payment rates to skilled nursing facilities and the extent to 
which medicare contributes to the financial viability of such 
facilities. Such report shall take into account the role of 
private payors, medicaid, and case mix on the financial 
performance of these facilities, and shall include an analysis 
(by specific RUG classification) of the number and 
characteristics of such facilities.
    (e) HCFA Study of Classification Systems for SNF 
Residents.--
            (1) Study.--The Secretary of Health and Human 
        Services shall conduct a study of the different systems 
        for categorizing patients in medicare skilled nursing 
        facilities in a manner that accounts for the relative 
        resource utilization of different patient types.
            (2) Report.--Not later than January 1, 2005, the 
        Secretary shall submit to Congress a report on the 
        study conducted under subsection (a). Such report shall 
        include such recommendations regarding changes in law 
        as may be appropriate.

SEC. 312. INCREASE IN NURSING COMPONENT OF PPS FEDERAL RATE.

    (a) In General.--The Secretary of Health and Human Services 
shall increase by 16.66 percent the nursing component of the 
case-mix adjusted Federal prospective payment rate specified in 
Tables 3 and 4 of the final rule published in the Federal 
Register by the Health Care Financing Administration on July 
31, 2000 (65 Fed. Reg. 46770), effective for services furnished 
on or after April 1, 2001, and before October 1, 2002.
    (b) GAO Audit of Nursing Staff Ratios.--
            (1) Audit.--The Comptroller General of the United 
        States shall conduct an audit of nursing staffing 
        ratios in a representative sample of medicare skilled 
        nursing facilities. Such sample shall cover selected 
        States and shall include broad representation with 
        respect to size, ownership, location, and medicare 
        volume. Such audit shall include an examination of 
        payroll records and medicaid cost reports of individual 
        facilities.
            (2) Report.--Not later than August 1, 2002, the 
        Comptroller General shall submit to Congress a report 
        on the audits conducted under paragraph (1). Such 
        report shall include an assessment of the impact of the 
        increased payments under this subtitle on increased 
        nursing staff ratios and shall make recommendations as 
        to whether increased payments under subsection (a) 
        should be continued.

SEC. 313. APPLICATION OF SNF CONSOLIDATED BILLING REQUIREMENT LIMITED 
                    TO PART A COVERED STAYS.

    (a) In General.--Section 1862(a)(18) (42 U.S.C. 
1395y(a)(18)) is amended by striking ``or of a part of a 
facility that includes a skilled nursing facility (as 
determined under regulations),'' and inserting ``during a 
period in which the resident is provided covered post-hospital 
extended care services (or, for services described in section 
1861(s)(2)(D), which are furnished to such an individual 
without regard to such period),''.
    (b) Conforming Amendments.--(1) Section 1842(b)(6)(E) (42 
U.S.C. 1395u(b)(6)(E)) is amended--
            (A) by inserting ``by, or under arrangements made 
        by, a skilled nursing facility'' after ``furnished'';
            (B) by striking ``or of a part of a facility that 
        includes a skilled nursing facility (as determined 
        under regulations)''; and
            (C) by striking ``(without regard to whether or not 
        the item or service was furnished by the facility, by 
        others under arrangement with them made by the 
        facility, under any other contracting or consulting 
        arrangement, or otherwise)''.
    (2) Section 1842(t) (42 U.S.C. 1395u(t)) is amended by 
striking ``by a physician'' and ``or of a part of a facility 
that includes a skilled nursing facility (as determined under 
regulations),''.
    (3) Section 1866(a)(1)(H)(ii)(I) (42 U.S.C. 
1395cc(a)(1)(H)(ii)(I)) is amended by inserting after ``who is 
a resident of the skilled nursing facility'' the following: 
``during a period in which the resident is provided covered 
post-hospital extended care services (or, for services 
described in section 1861(s)(2)(D), that are furnished to such 
an individual without regard to such period)''.
    (c) Effective Date.--The amendments made by subsections (a) 
and (b) apply to services furnished on or after January 1, 
2001.
    (d) Oversight.--The Secretary of Health and Human Services, 
through the Office of the Inspector General in the Department 
of Health and Human Services or otherwise, shall monitor 
payments made under part B of the title XVIII of the Social 
Security Act for items and services furnished to residents of 
skilled nursing facilities during a time in which the residents 
are not being provided medicare covered post-hospital extended 
care services to ensure that there is not duplicate billing for 
services or excessive services provided.

SEC. 314. ADJUSTMENT OF REHABILITATION RUGS TO CORRECT ANOMALY IN 
                    PAYMENT RATES.

    (a) Adjustment for Rehabilitation RUGS.--
            (1) In general.--For purposes of computing payments 
        for covered skilled nursing facility services under 
        paragraph (1) of section 1888(e) of the Social Security 
        Act (42 U.S.C. 1395yy(e)) for such services furnished 
        on or after April 1, 2001, and before the date 
        described in section 101(c)(2) of BBRA (113 Stat. 
        1501A-324), the Secretary of Health and Human Services 
        shall increase by 6.7 percent the adjusted Federal per 
        diem rate otherwise determined under paragraph (4) of 
        such section (but for this section) for covered skilled 
        nursing facility services for RUG-III rehabilitation 
        groups described in paragraph (2) furnished to an 
        individual during the period in which such individual 
        is classified in such a RUG-III category.
            (2) Rehabilitation groups described.--The RUG-III 
        rehabilitation groups for which the adjustment 
        described in paragraph (1) applies are RUC, RUB, RUA, 
        RVC, RVB, RVA, RHC, RHB, RHA, RMC, RMB, RMA, RLB, and 
        RLA, as specified in Tables 3 and 4 of the final rule 
        published in the Federal Register by the Health Care 
        Financing Administration on July 31, 2000 (65 Fed. Reg. 
        46770).
    (b) Correction With Respect to Rehabilitation RUGs.--
            (1) In general.--Section 101(b) of BBRA (113 Stat. 
        1501A-324) is amended by striking ``CA1, RHC, RMC, and 
        RMB'' and inserting ``and CA1''.
            (2) Effective date.--The amendment made by 
        paragraph (1) applies to services furnished on or after 
        April 1, 2001.
    (c) Review by Office of Inspector General.--The Inspector 
General of the Department of Health and Human Services shall 
review the medicare payment structure for services classified 
within rehabilitation resource utilization groups (RUGs) (as in 
effect after the date of the enactment of the BBRA) to assess 
whether payment incentives exist for the delivery of inadequate 
care. Not later than October 1, 2001, the Inspector General 
shall submit to Congress a report on such review.

SEC. 315. ESTABLISHMENT OF PROCESS FOR GEOGRAPHIC RECLASSIFICATION.

    (a) In General.--The Secretary of Health and Human Services 
may establish a procedure for the geographic reclassification 
of a skilled nursing facility for purposes of payment for 
covered skilled nursing facility services under the prospective 
payment system established under section 1888(e) of the Social 
Security Act (42 U.S.C. 1395yy(e)). Such procedure may be based 
upon the method for geographic reclassifications for inpatient 
hospitals established under section 1886(d)(10) of the Social 
Security Act (42 U.S.C. 1395ww(d)(10)).
    (b) Requirement for Skilled Nursing Facility Wage Data.--In 
no case may the Secretary implement the procedure under 
subsection (a) before such time as the Secretary has collected 
data necessary to establish an area wage index for skilled 
nursing facilities based on wage data from such facilities.

                        Subtitle C--Hospice Care

SEC. 321. FULL MARKET BASKET INCREASE FOR 2001.

    (a) In General.--Section 1814(i)(1)(C)(ii) (42 U.S.C. 
1395f(i)(1)(C)(ii)) is amended--
            (1) by redesignating subclause (VII) as subclause 
        (IX);
            (2) in subclause (VI)--
                    (A) by striking ``through 2002'' and 
                inserting ``through 2000''; and
                    (B) by striking ``and'' at the end; and
            (3) by inserting after subclause (VI) the following 
        new subclauses:
            ``(VII) for fiscal year 2001, the market basket 
        percentage increase for the fiscal year;
            ``(VIII) for fiscal year 2002, the market basket 
        percentage increase for the fiscal year minus 0.25 
        percentage points; and''.
    (b) Transition During Fiscal Year 2001.--Notwithstanding 
the amendments made by subsection (a), for purposes of making 
payments for hospice care under section 1814(i) of the Social 
Security Act (42 U.S.C. 1395f(i)) for fiscal year 2001, the 
payment rates referred to in paragraph (1)(C) of such section--
            (1) for the period beginning on October 1, 2000, 
        and ending on March 31, 2001, shall be the rate 
        determined in accordance with the law as in effect on 
        the day before the date of the enactment of this Act; 
        and
            (2) for the period beginning on April 1, 2001, and 
        ending on September 30, 2001, shall be the rate that 
        would have been determined under paragraph (1) if 
        ``plus 1.0 percentage points'' were substituted for 
        ``minus 1.0 percentage points'' under paragraph 
        (1)(C)(ii)(VI) of such section for fiscal year 2001.
    (c) Conforming Amendments to BBRA.--
            (1) In general.--Section 131 of BBRA (113 Stat. 
        1501A-333) is repealed.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall take effect as if included in the 
        enactment of BBRA.
    (d) Technical Amendment.--Section 1814(a)(7)(A)(ii) (42 
U.S.C. 1395f(a)(7)(A)(ii)) is amended by striking the period at 
the end and inserting a semicolon.

SEC. 322. CLARIFICATION OF PHYSICIAN CERTIFICATION.

    (a) Certification Based on Normal Course of Illness.--
            (1) In general.--Section 1814(a) (42 U.S.C. 
        1395f(a)) is amended by adding at the end the following 
        new sentence: ``The certification regarding terminal 
        illness of an individual under paragraph (7) shall be 
        based on the physician's or medical director's clinical 
        judgment regarding the normal course of the 
        individual's illness.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) applies to certifications made on or 
        after the date of the enactment of this Act.
    (b) Study and Report on Physician Certification Requirement 
for Hospice Benefits.--
            (1) Study.--The Secretary of Health and Human 
        Services shall conduct a study to examine the 
        appropriateness of the certification regarding terminal 
        illness of an individual under section 1814(a)(7) of 
        the Social Security Act (42 U.S.C. 1395f(a)(7)) that is 
        required in order for such individual to receive 
        hospice benefits under the medicare program under title 
        XVIII of such Act. In conducting such study, the 
        Secretary shall take into account the effect of the 
        amendment made by subsection (a).
            (2) Report.--Not later than 2 years after the date 
        of the enactment of this Act, the Secretary of Health 
        and Human Services shall submit to Congress a report on 
        the study conducted under paragraph (1), together with 
        any recommendations for legislation that the Secretary 
        deems appropriate.

SEC. 323. MEDPAC REPORT ON ACCESS TO, AND USE OF, HOSPICE BENEFIT.

    (a) In General.--The Medicare Payment Advisory Commission 
shall conduct a study to examine the factors affecting the use 
of hospice benefits under the medicare program under title 
XVIII of the Social Security Act, including a delay in the time 
(relative to death) of entry into a hospice program, and 
differences in such use between urban and rural hospice 
programs and based upon the presenting condition of the 
patient.
    (b) Report.--Not later than 18 months after the date of the 
enactment of this Act, the Commission shall submit to Congress 
a report on the study conducted under subsection (a), together 
with any recommendations for legislation that the Commission 
deems appropriate.

                      Subtitle D--Other Provisions

SEC. 331. RELIEF FROM MEDICARE PART A LATE ENROLLMENT PENALTY FOR GROUP 
                    BUY-IN FOR STATE AND LOCAL RETIREES.

    (a) In General.--Section 1818 (42 U.S.C. 1395i-2) is 
amended--
            (1) in subsection (c)(6), by inserting before the 
        semicolon at the end the following: ``and shall be 
        subject to reduction in accordance with subsection 
        (d)(6)''; and
            (2) by adding at the end of subsection (d) the 
        following new paragraph:
    ``(6)(A) In the case where a State, a political subdivision 
of a State, or an agency or instrumentality of a State or 
political subdivision thereof determines to pay, for the life 
of each individual, the monthly premiums due under paragraph 
(1) on behalf of each of the individuals in a qualified State 
or local government retiree group who meets the conditions of 
subsection (a), the amount of any increase otherwise applicable 
under section 1839(b) (as applied and modified by subsection 
(c)(6) of this section) with respect to the monthly premium for 
benefits under this part for an individual who is a member of 
such group shall be reduced by the total amount of taxes paid 
under section 3101(b) of the Internal Revenue Code of 1986 by 
such individual and under section 3111(b) by the employers of 
such individual on behalf of such individual with respect to 
employment (as defined in section 3121(b) of such Code).
    ``(B) For purposes of this paragraph, the term `qualified 
State or local government retiree group' means all of the 
individuals who retire prior to a specified date that is before 
January 1, 2002, from employment in 1 or more occupations or 
other broad classes of employees of--
            ``(i) the State;
            ``(ii) a political subdivision of the State; or
            ``(iii) an agency or instrumentality of the State 
        or political subdivision of the State.''.
    (b) Effective Date.--The amendments made by subsection (a) 
apply to premiums for months beginning with July 1, 2001.

SEC. 332. POSTING OF INFORMATION ON NURSING FACILITY STAFFING.

    (a) Medicare.--Section 1819(b) (42 U.S.C. 1395i-3(b)) is 
amended by adding at the end the following new paragraph:
            ``(8) Information on nurse staffing.--
                    ``(A) In general.--A skilled nursing 
                facility shall post daily for each shift the 
                current number of licensed and unlicensed 
                nursing staff directly responsible for resident 
                care in the facility. The information shall be 
                displayed in a uniform manner (as specified by 
                the Secretary) and in a clearly visible place.
                    ``(B) Publication of data.--A skilled 
                nursing facility shall, upon request, make 
                available to the public the nursing staff data 
                described in subparagraph (A).''.
    (b) Medicaid.--Section 1919(b) (42 U.S.C. 1395r(b)) is 
amended by adding at the end the following new paragraph:
            ``(8) Information on nurse staffing.--
                    ``(A) In general.--A nursing facility shall 
                post daily for each shift the current number of 
                licensed and unlicensed nursing staff directly 
                responsible for resident care in the facility. 
                The information shall be displayed in a uniform 
                manner (as specified by the Secretary) and in a 
                clearly visible place.
                    ``(B) Publication of data.--A nursing 
                facility shall, upon request, make available to 
                the public the nursing staff data described in 
                subparagraph (A).''.

                TITLE IV--PROVISIONS RELATING TO PART B

                Subtitle A--Hospital Outpatient Services

SEC. 401. REVISION OF HOSPITAL OUTPATIENT PPS PAYMENT UPDATE.

    (a) In General.--Section 1833(t)(3)(C)(iii) (42 U.S.C. 
1395l(t)(3)(C)(iii)) is amended by striking ``in each of 2000, 
2001, and 2002'' and inserting ``in each of 2000 and 2002''.
    (b) Adjustment for Case Mix Changes.--
            (1) In general.--Section 1833(t)(3)(C) (42 U.S.C. 
        1395l(t)(3)(C)) is amended--
                    (A) by redesignating clause (iii) as clause 
                (iv); and
                    (B) by inserting after clause (ii) the 
                following new clause:
                            ``(iii) Adjustment for service mix 
                        changes.--Insofar as the Secretary 
                        determines that the adjustments for 
                        service mix under paragraph (2) for a 
                        previous year (or estimates that such 
                        adjustments for a future year) did (or 
                        are likely to) result in a change in 
                        aggregate payments under this 
                        subsection during the year that are a 
                        result of changes in the coding or 
                        classification of covered OPD services 
                        that do not reflect real changes in 
                        service mix, the Secretary may adjust 
                        the conversion factor computed under 
                        this subparagraph for subsequent years 
                        so as to eliminate the effect of such 
                        coding or classification changes.''.
            (2) Effective date.--The amendments made by 
        paragraph (1) shall take effect as if included in the 
        enactment of BBA.

SEC. 402. CLARIFYING PROCESS AND STANDARDS FOR DETERMINING ELIGIBILITY 
                    OF DEVICES FOR PASS-THROUGH PAYMENTS UNDER HOSPITAL 
                    OUTPATIENT PPS.

    (a) In General.--Section 1833(t)(6) (42 U.S.C. 1395l(t)(6)) 
is amended--
            (1) by redesignating subparagraphs (C) and (D) as 
        subparagraphs (D) and (E), respectively; and
            (2) by striking subparagraph (B) and inserting the 
        following new subparagraphs:
                    ``(B) Use of categories in determining 
                eligibility of a device for pass-through 
                payments.--The following provisions apply for 
                purposes of determining whether a medical 
                device qualifies for additional payments under 
                clause (ii) or (iv) of subparagraph (A):
                            ``(i) Establishment of initial 
                        categories.--The Secretary shall 
                        initially establish under this clause 
                        categories of medical devices based on 
                        type of device by April 1, 2001. Such 
                        categories shall be established in a 
                        manner such that each medical device 
                        that meets the requirements of clause 
                        (ii) or (iv) of subparagraph (A) as of 
                        as of January 1, 2001, is included in 
                        such a category and no such device is 
                        included in more than one category. For 
                        purposes of the preceding sentence, 
                        whether a medical device meets such 
                        requirements as of such date shall be 
                        determined on the basis of the program 
                        memoranda issued before such date or if 
                        the Secretary determines the medical 
                        device would have been included in the 
                        program memoranda but for the 
                        requirement of subparagraph (A)(iv)(I). 
                        The categories may be established under 
                        this clause by program memorandum or 
                        otherwise, after consultation with 
                        groups representing hospitals, 
                        manufacturers of medical devices, and 
                        other affected parties.
                            ``(ii) Establishing criteria for 
                        additional categories.--
                                    ``(I) In general.--The 
                                Secretary shall establish 
                                criteria that will be used for 
                                creation of additional 
                                categories (other than those 
                                established under clause (i)) 
                                through rulemaking (which may 
                                include use of an interim final 
                                rule with comment period).
                                    ``(II) Standard.--Such 
                                categories shall be established 
                                under this clause in a manner 
                                such that no medical device is 
                                described by more than one 
                                category. Such criteria shall 
                                include a test of whether the 
                                average cost of devices that 
                                would be included in a category 
                                and are in use at the time the 
                                category is established is not 
                                insignificant, as described in 
                                subparagraph (A)(iv)(II).
                                    ``(III) Deadline.--Criteria 
                                shall first be established 
                                under this clause by July 1, 
                                2001. The Secretary may 
                                establish in compelling 
                                circumstances categories under 
                                this clause before the date 
                                such criteria are established.
                                    ``(IV) Adding categories.--
                                The Secretary shall promptly 
                                establish a new category of 
                                medical devices under this 
                                clause for any medical device 
                                that meets the requirements of 
                                subparagraph (A)(iv) and for 
                                which none of the categories in 
                                effect (or that were previously 
                                in effect) is appropriate.
                            ``(iii) Period for which category 
                        is in effect.--A category of medical 
                        devices established under clause (i) or 
                        clause (ii) shall be in effect for a 
                        period of at least 2 years, but not 
                        more than 3 years, that begins--
                                    ``(I) in the case of a 
                                category established under 
                                clause (i), on the first date 
                                on which payment was made under 
                                this paragraph for any device 
                                described by such category 
                                (including payments made during 
                                the period before April 1, 
                                2001); and
                                    ``(II) in the case of any 
                                other category, on the first 
                                date on which payment is made 
                                under this paragraph for any 
                                medical device that is 
                                described by such category.
                            ``(iv) Requirements treated as 
                        met.--A medical device shall be treated 
                        as meeting the requirements of 
                        subparagraph (A)(iv) if--
                                    ``(I) the device is 
                                described by a category 
                                established and in effect under 
                                clause (i); or
                                    ``(II) the device is 
                                described by a category 
                                established and in effect under 
                                clause (ii) and an application 
                                under section 515 of the 
                                Federal Food, Drug, and 
                                Cosmetic Act has been approved 
                                with respect to the device, or 
                                the device has been cleared for 
                                market under section 510(k) of 
                                such Act, or the device is 
                                exempt from the requirements of 
                                section 510(k) of such Act 
                                pursuant to subsection (l) or 
                                (m) of section 510 of such Act 
                                or section 520(g) of such Act.
                        Nothing in this clause shall be 
                        construed as requiring an application 
                        or prior approval (other than that 
                        described in subclause (II)) in order 
                        for a covered device to qualify for 
                        payment under this paragraph.
                    ``(C) Limited period of payment.--
                            ``(i) Drugs and biologicals.--The 
                        payment under this paragraph with 
                        respect to a drug or biological shall 
                        only apply during a period of at least 
                        2 years, but not more than 3 years, 
                        that begins--
                                    ``(I) on the first date 
                                this subsection is implemented 
                                in the case of a drug or 
                                biological described in clause 
                                (i), (ii), or (iii) of 
                                subparagraph (A) and in the 
                                case of a drug or biological 
                                described in subparagraph 
                                (A)(iv) and for which payment 
                                under this part is made as an 
                                outpatient hospital service 
                                before such first date; or
                                    ``(II) in the case of a 
                                drug or biological described in 
                                subparagraph (A)(iv) not 
                                described in subclause (I), on 
                                the first date on which payment 
                                is made under this part for the 
                                drug or biological as an 
                                outpatient hospital service.
                            ``(ii) Medical devices.--Payment 
                        shall be made under this paragraph with 
                        respect to a medical device only if 
                        such device--
                                    ``(I) is described by a 
                                category of medical devices 
                                established and in effect under 
                                subparagraph (B); and
                                    ``(II) is provided as part 
                                of a service (or group of 
                                services) paid for under this 
                                subsection and provided during 
                                the period for which such 
                                category is in effect under 
                                such subparagraph.''.
    (b) Conforming Amendments.--Section 1833(t) (42 U.S.C. 
1395l(t)) is further amended--
            (1) in paragraph (6)(A)(iv)(II), by striking ``the 
        cost of the device, drug, or biological'' and inserting 
        ``the cost of the drug or biological or the average 
        cost of the category of devices'';
            (2) in paragraph (6)(D) (as redesignated by 
        subsection (a)(1)), by striking ``subparagraph 
        (D)(iii)'' in the matter preceding clause (i) and 
        inserting ``subparagraph (E)(iii)''; and
            (3) in paragraph (12)(E), by striking ``additional 
        payments (consistent with paragraph (6)(B))'' and 
        inserting ``additional payments, the determination and 
        deletion of initial and new categories (consistent with 
        subparagraphs (B) and (C) of paragraph (6))''.
    (c) Effective Date.--The amendments made by this section 
take effect on the date of the enactment of this Act.
    (d) Transition.--
            (1) In general.--In the case of a medical device 
        provided as part of a service (or group of services) 
        furnished during the period before initial categories 
        are implemented under subparagraph (B)(i) of section 
        1833(t)(6) of the Social Security Act (as amended by 
        subsection (a)), payment shall be made for such device 
        under such section in accordance with the provisions in 
        effect before the date of the enactment of this Act, 
        except that, beginning on the date that is 30 days 
        after the date of the enactment of this Act, payment 
        shall also be made for such a device that is not 
        included in a program memorandum described in such 
        subparagraph if the Secretary of Health and Human 
        Services determines that the device is likely to be 
        described by such an initial category or would have 
        been included in such program memoranda but for the 
        requirement of subparagraph (A)(iv)(I) of that section.
            (2) Application of current process.--
        Notwithstanding any other provision of law, the 
        Secretary shall continue to accept applications with 
        respect to medical devices under the process 
        established pursuant to paragraph (6) of section 
        1833(t) of the Social Security Act (as in effect on the 
        day before the date of the enactment of this Act) 
        through December 1, 2000, and any device--
                    (A) with respect to which an application 
                was submitted (pursuant to such process) on or 
                before such date; and
                    (B) that meets the requirements of clause 
                (ii) or (iv) of subparagraph (A) of such 
                paragraph (as determined pursuant to such 
                process),
        shall be treated as a device with respect to which an 
        initial category is required to be established under 
        subparagraph (B)(i) of such paragraph (as amended by 
        subsection (a)(2)).

SEC. 403. APPLICATION OF OPD PPS TRANSITIONAL CORRIDOR PAYMENTS TO 
                    CERTAIN HOSPITALS THAT DID NOT SUBMIT A 1996 COST 
                    REPORT.

    (a) In General.--Section 1833(t)(7)(F)(ii)(I) (42 U.S.C. 
1395l(t)(7)(F)(ii)(I)) is amended by inserting ``(or in the 
case of a hospital that did not submit a cost report for such 
period, during the first subsequent cost reporting period 
ending before 2001 for which the hospital submitted a cost 
report)'' after ``1996''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect as if included in the enactment of BBRA.

SEC. 404. APPLICATION OF RULES FOR DETERMINING PROVIDER-BASED STATUS 
                    FOR CERTAIN ENTITIES.

    (a) Grandfather.--Notwithstanding any other provision of 
law, for purposes of making determinations of provider-based 
status under title XVIII of the Social Security Act on or after 
October 1, 2000, any facility or organization that is treated 
as provider-based in relation to a hospital or critical access 
hospital under such title as of October 1, 2000--
            (1) shall continue to be treated as provider-based 
        in relation to such hospital or critical access 
        hospital under such title during the 2-year period 
        beginning on October 1, 2000; and
            (2) the requirements, limitations, and exclusions 
        specified in paragraphs (d), (e), (f), and (h) of 
        section 413.65 of title 42, Code of Federal Regulations 
        shall not apply to such facility or organization in 
        relation to such hospital or critical access hospital 
        until after the end of such 2-year period.
    (b) Temporary Criteria.--For purposes of title XVIII of the 
Social Security Act--
            (1) a facility or organization for which a 
        determination of provider-based status in relation to a 
        hospital or critical access hospital is requested on or 
        after October 1, 2000, and before October 1, 2002, may 
        not be treated as not having provider-based status in 
        relation to such a hospital for any period before a 
        determination is made with respect to such status 
        pursuant to such request; and
            (2) in making a determination with respect to such 
        status for any facility or organization in relationship 
        to such a hospital on or after October 1, 2000, the 
        following rules apply:
                    (A) The facility or organization shall be 
                treated as satisfying any requirements and 
                standards for geographic location in relation 
                to such a hospital if the facility or 
                organization--
                            (i) satisfies the requirements of 
                        section 413.65(d)(7) of title 42, Code 
                        of Federal Regulations; or
                            (ii) is located not more than 35 
                        miles from the main campus of the 
                        hospital or critical access hospital.
                    (B) The facility or organization shall be 
                treated as satisfying any of the requirements 
                and standards for geographic location in 
                relation to such a hospital if the facility or 
                organization is owned and operated by a 
                hospital or critical access hospital that--
                            (i) is owned or operated by a unit 
                        of State or local government, is a 
                        public or private nonprofit corporation 
                        that is formally granted governmental 
                        powers by a unit of State or local 
                        government, or is a private hospital 
                        that has a contract with a State or 
                        local government that includes the 
                        operation of clinics located off the 
                        main campus of the hospital to assure 
                        access in a well-defined service area 
                        to health care services for low-income 
                        individuals who are not entitled to 
                        benefits under title XVIII (or medical 
                        assistance under a State plan under 
                        title XIX) of such Act; and
                            (ii) has a disproportionate share 
                        adjustment percentage (as determined 
                        under section 1886(d)(5)(F) of such Act 
                        (42 U.S.C. 1395ww(d)(5)(F))) greater 
                        than 11.75 percent or is described in 
                        clause (i)(II) of such section.
    (c) Definitions.--For purposes of this section, the terms 
``hospital'' and ``critical access hospital'' have the meanings 
given such terms in subsections (e) and (mm)(1), respectively, 
of section 1861 of the Social Security Act (42 U.S.C. 1395x).

SEC. 405. TREATMENT OF CHILDREN'S HOSPITALS UNDER PROSPECTIVE PAYMENT 
                    SYSTEM.

    (a) In General.--Section 1833(t) (42 U.S.C. 1395l(t)) is 
amended--
            (1) in the heading of paragraph (7)(D)(ii), by 
        inserting ``and children's hospitals'' after ``cancer 
        hospitals''; and
            (2) in paragraphs (7)(D)(ii) and (11), by striking 
        ``section 1886(d)(1)(B)(v)'' and inserting ``clause 
        (iii) or (v) of section 1886(d)(1)(B)''.
    (b) Effective Date.--The amendments made by subsection (a) 
apply as if included in the enactment of section 202 of BBRA 
(113 Stat. 1501A-342).

SEC. 406. INCLUSION OF TEMPERATURE MONITORED CRYOABLATION IN 
                    TRANSITIONAL PASS-THROUGH FOR CERTAIN MEDICAL 
                    DEVICES, DRUGS, AND BIOLOGICALS UNDER OPD PPS.

    (a) In General.--Section 1833(t)(6)(A)(ii) (42 U.S.C. 
1395l(t)(6)(A)(ii)) is amended by inserting ``or temperature 
monitored cryoablation'' after ``device of brachytherapy''.
    (b) Effective Date.--The amendment made by subsection (a) 
applies to devices furnished on or after April 1, 2001.

        Subtitle B--Provisions Relating to Physicians' Services

SEC. 411. GAO STUDIES RELATING TO PHYSICIANS' SERVICES.

    (a) Study of Specialist Physicians' Services Furnished in 
Physicians' Offices and Hospital Outpatient Department 
Services.--
            (1) Study.--The Comptroller General of the United 
        States shall conduct a study to examine the 
        appropriateness of furnishing in physicians' offices 
        specialist physicians' services (such as 
        gastrointestinal endoscopic physicians' services) which 
        are ordinarily furnished in hospital outpatient 
        departments. In conducting this study, the Comptroller 
        General shall--
                    (A) review available scientific and 
                clinical evidence about the safety of 
                performing procedures in physicians' offices 
                and hospital outpatient departments;
                    (B) assess whether resource-based practice 
                expense relative values established by the 
                Secretary of Health and Human Services under 
                the medicare physician fee schedule under 
                section 1848 of the Social Security Act (42 
                U.S.C. 1395w-4) for such specialist physicians' 
                services furnished in physicians' offices and 
                hospital outpatient departments create an 
                incentive to furnish such services in 
                physicians' offices instead of hospital 
                outpatient departments; and
                    (C) assess the implications for access to 
                care for medicare beneficiaries if the medicare 
                program were not to cover such services in 
                physicians' offices.
            (2) Report.--Not later than July 1, 2001, the 
        Comptroller General shall submit to Congress a report 
        on such study and include such recommendations as the 
        Comptroller General determines to be appropriate.
    (b) Study of the Resource-Based Practice Expense System.--
            (1) Study.--The Comptroller General of the United 
        States shall conduct a study on the refinements to the 
        practice expense relative value units during the 
        transition to a resource-based practice expense system 
        for physician payments under the medicare program under 
        title XVIII of the Social Security Act. Such study 
        shall examine how the Secretary of Health and Human 
        Services has accepted and used the practice expense 
        data submitted under section 212 of BBRA (113 Stat. 
        1501A-350).
            (2) Report.--Not later than July 1, 2001, the 
        Comptroller General shall submit to Congress a report 
        on the study conducted under paragraph (1) together 
        with recommendations regarding--
                    (A) improvements in the process for 
                acceptance and use of practice expense data 
                under section 212 of BBRA;
                    (B) any change or adjustment that is 
                appropriate to ensure full access to a spectrum 
                of care for beneficiaries under the medicare 
                program; and
                    (C) the appropriateness of payments to 
                physicians.

SEC. 412. PHYSICIAN GROUP PRACTICE DEMONSTRATION.

    (a) In General.--Title XVIII is amended by inserting after 
section 1866 the following new sections:


 ``demonstration of application of physician volume increases to group 
                               practices


    ``Sec. 1866A. (a) Demonstration Program Authorized.--
            ``(1) In general.--The Secretary shall conduct 
        demonstration projects to test and, if proven 
        effective, expand the use of incentives to health care 
        groups participating in the program under this title 
        that--
                    ``(A) encourage coordination of the care 
                furnished to individuals under the programs 
                under parts A and B by institutional and other 
                providers, practitioners, and suppliers of 
                health care items and services;
                    ``(B) encourage investment in 
                administrative structures and processes to 
                ensure efficient service delivery; and
                    ``(C) reward physicians for improving 
                health outcomes.
        Such projects shall focus on the efficiencies of 
        furnishing health care in a group-practice setting as 
        compared to the efficiencies of furnishing health care 
        in other health care delivery systems.
            ``(2) Administration by contract.--Except as 
        otherwise specifically provided, the Secretary may 
        administer the program under this section in accordance 
        with section 1866B.
            ``(3) Definitions.--For purposes of this section, 
        terms have the following meanings:
                    ``(A) Physician.--Except as the Secretary 
                may otherwise provide, the term `physician' 
                means any individual who furnishes services 
                which may be paid for as physicians' services 
                under this title.
                    ``(B) Health care group.--The term `health 
                care group' means a group of physicians (as 
                defined in subparagraph (A)) organized at least 
                in part for the purpose of providing 
                physicians' services under this title. As the 
                Secretary finds appropriate, a health care 
                group may include a hospital and any other 
                individual or entity furnishing items or 
                services for which payment may be made under 
                this title that is affiliated with the health 
                care group under an arrangement structured so 
                that such individual or entity participates in 
                a demonstration under this section and will 
                share in any bonus earned under subsection (d).
    ``(b) Eligibility Criteria.--
            ``(1) In general.--The Secretary is authorized to 
        establish criteria for health care groups eligible to 
        participate in a demonstration under this section, 
        including criteria relating to numbers of health care 
        professionals in, and of patients served by, the group, 
        scope of services provided, and quality of care.
            ``(2) Payment method.--A health care group 
        participating in the demonstration under this section 
        shall agree with respect to services furnished to 
        beneficiaries within the scope of the demonstration (as 
        determined under subsection (c))--
                    ``(A) to be paid on a fee-for-service 
                basis; and
                    ``(B) that payment with respect to all such 
                services furnished by members of the health 
                care group to such beneficiaries shall (where 
                determined appropriate by the Secretary) be 
                made to a single entity.
            ``(3) Data reporting.--A health care group 
        participating in a demonstration under this section 
        shall report to the Secretary such data, at such times 
        and in such format as the Secretary requires, for 
        purposes of monitoring and evaluation of the 
        demonstration under this section.
    ``(c) Patients Within Scope of Demonstration.--
            ``(1) In general.--The Secretary shall specify, in 
        accordance with this subsection, the criteria for 
        identifying those patients of a health care group who 
        shall be considered within the scope of the 
        demonstration under this section for purposes of 
        application of subsection (d) and for assessment of the 
        effectiveness of the group in achieving the objectives 
        of this section.
            ``(2) Other criteria.--The Secretary may establish 
        additional criteria for inclusion of beneficiaries 
        within a demonstration under this section, which may 
        include frequency of contact with physicians in the 
        group or other factors or criteria that the Secretary 
        finds to be appropriate.
            ``(3) Notice requirements.--In the case of each 
        beneficiary determined to be within the scope of a 
        demonstration under this section with respect to a 
        specific health care group, the Secretary shall ensure 
        that such beneficiary is notified of the incentives, 
        and of any waivers of coverage or payment rules, 
        applicable to such group under such demonstration.
    ``(d) Incentives.--
            ``(1) Performance target.--The Secretary shall 
        establish for each health care group participating in a 
        demonstration under this section--
                    ``(A) a base expenditure amount, equal to 
                the average total payments under parts A and B 
                for patients served by the health care group on 
                a fee-for-service basis in a base period 
                determined by the Secretary; and
                    ``(B) an annual per capita expenditure 
                target for patients determined to be within the 
                scope of the demonstration, reflecting the base 
                expenditure amount adjusted for risk and 
                expected growth rates.
            ``(2) Incentive bonus.--The Secretary shall pay to 
        each participating health care group (subject to 
        paragraph (4)) a bonus for each year under the 
        demonstration equal to a portion of the medicare 
        savings realized for such year relative to the 
        performance target.
            ``(3) Additional bonus for process and outcome 
        improvements.--At such time as the Secretary has 
        established appropriate criteria based on evidence the 
        Secretary determines to be sufficient, the Secretary 
        shall also pay to a participating health care group 
        (subject to paragraph (4)) an additional bonus for a 
        year, equal to such portion as the Secretary may 
        designate of the saving to the program under this title 
        resulting from process improvements made by and patient 
        outcome improvements attributable to activities of the 
        group.
            ``(4) Limitation.--The Secretary shall limit bonus 
        payments under this section as necessary to ensure that 
        the aggregate expenditures under this title (inclusive 
        of bonus payments) with respect to patients within the 
        scope of the demonstration do not exceed the amount 
        which the Secretary estimates would be expended if the 
        demonstration projects under this section were not 
        implemented.


        ``provisions for administration of demonstration program


    ``Sec. 1866B. (a) General Administrative Authority.--
            ``(1) Beneficiary eligibility.--Except as otherwise 
        provided by the Secretary, an individual shall only be 
        eligible to receive benefits under the program under 
        section 1866A (in this section referred to as the 
        `demonstration program') if such individual--
                    ``(A) is enrolled in under the program 
                under part B and entitled to benefits under 
                part A; and
                    ``(B) is not enrolled in a Medicare+Choice 
                plan under part C, an eligible organization 
                under a contract under section 1876 (or a 
                similar organization operating under a 
                demonstration project authority), an 
                organization with an agreement under section 
                1833(a)(1)(A), or a PACE program under section 
                1894.
            ``(2) Secretary's discretion as to scope of 
        program.--The Secretary may limit the implementation of 
        the demonstration program to--
                    ``(A) a geographic area (or areas) that the 
                Secretary designates for purposes of the 
                program, based upon such criteria as the 
                Secretary finds appropriate;
                    ``(B) a subgroup (or subgroups) of 
                beneficiaries or individuals and entities 
                furnishing items or services (otherwise 
                eligible to participate in the program), 
                selected on the basis of the number of such 
                participants that the Secretary finds 
                consistent with the effective and efficient 
                implementation of the program;
                    ``(C) an element (or elements) of the 
                program that the Secretary determines to be 
                suitable for implementation; or
                    ``(D) any combination of any of the limits 
                described in subparagraphs (A) through (C).
            ``(3) Voluntary receipt of items and services.--
        Items and services shall be furnished to an individual 
        under the demonstration program only at the 
        individual's election.
            ``(4) Agreements.--The Secretary is authorized to 
        enter into agreements with individuals and entities to 
        furnish health care items and services to beneficiaries 
        under the demonstration program.
            ``(5) Program standards and criteria.--The 
        Secretary shall establish performance standards for the 
        demonstration program including, as applicable, 
        standards for quality of health care items and 
        services, cost-effectiveness, beneficiary satisfaction, 
        and such other factors as the Secretary finds 
        appropriate. The eligibility of individuals or entities 
        for the initial award, continuation, and renewal of 
        agreements to provide health care items and services 
        under the program shall be conditioned, at a minimum, 
        on performance that meets or exceeds such standards.
            ``(6) Administrative review of decisions affecting 
        individuals and entities furnishing services.--An 
        individual or entity furnishing services under the 
        demonstration program shall be entitled to a review by 
        the program administrator (or, if the Secretary has not 
        contracted with a program administrator, by the 
        Secretary) of a decision not to enter into, or to 
        terminate, or not to renew, an agreement with the 
        entity to provide health care items or services under 
        the program.
            ``(7) Secretary's review of marketing materials.--
        An agreement with an individual or entity furnishing 
        services under the demonstration program shall require 
        the individual or entity to guarantee that it will not 
        distribute materials that market items or services 
        under the program without the Secretary's prior review 
        and approval.
            ``(8) Payment in full.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), an individual or entity 
                receiving payment from the Secretary under a 
                contract or agreement under the demonstration 
                program shall agree to accept such payment as 
                payment in full, and such payment shall be in 
                lieu of any payments to which the individual or 
                entity would otherwise be entitled under this 
                title.
                    ``(B) Collection of deductibles and 
                coinsurance.--Such individual or entity may 
                collect any applicable deductible or 
                coinsurance amount from a beneficiary.
    ``(b) Contracts for Program Administration.--
            ``(1) In general.--The Secretary may administer the 
        demonstration program through a contract with a program 
        administrator in accordance with the provisions of this 
        subsection.
            ``(2) Scope of program administrator contracts.--
        The Secretary may enter into such contracts for a 
        limited geographic area, or on a regional or national 
        basis.
            ``(3) Eligible contractors.--The Secretary may 
        contract for the administration of the program with--
                    ``(A) an entity that, under a contract 
                under section 1816 or 1842, determines the 
                amount of and makes payments for health care 
                items and services furnished under this title; 
                or
                    ``(B) any other entity with substantial 
                experience in managing the type of program 
                concerned.
            ``(4) Contract award, duration, and renewal.--
                    ``(A)  In general.--A contract under this 
                subsection shall be for an initial term of up 
                to three years, renewable for additional terms 
                of up to three years.
                    ``(B) Noncompetitive award and renewal for 
                entities administering part a or part b 
                payments.--The Secretary may enter or renew a 
                contract under this subsection with an entity 
                described in paragraph (3)(A) without regard to 
                the requirements of section 5 of title 41, 
                United States Code.
            ``(5) Applicability of federal acquisition 
        regulation.--The Federal Acquisition Regulation shall 
        apply to program administration contracts under this 
        subsection.
            ``(6) Performance standards.--The Secretary shall 
        establish performance standards for the program 
        administrator including, as applicable, standards for 
        the quality and cost-effectiveness of the program 
        administered, and such other factors as the Secretary 
        finds appropriate. The eligibility of entities for the 
        initial award, continuation, and renewal of program 
        administration contracts shall be conditioned, at a 
        minimum, on performance that meets or exceeds such 
        standards.
            ``(7) Functions of program administrator.--A 
        program administrator shall perform any or all of the 
        following functions, as specified by the Secretary:
                    ``(A) Agreements with entities furnishing 
                health care items and services.--Determine the 
                qualifications of entities seeking to enter or 
                renew agreements to provide services under the 
                demonstration program, and as appropriate enter 
                or renew (or refuse to enter or renew) such 
                agreements on behalf of the Secretary.
                    ``(B) Establishment of payment rates.--
                Negotiate or otherwise establish, subject to 
                the Secretary's approval, payment rates for 
                covered health care items and services.
                    ``(C) Payment of claims or fees.--
                Administer payments for health care items or 
                services furnished under the program.
                    ``(D) Payment of bonuses.--Using such 
                guidelines as the Secretary shall establish, 
                and subject to the approval of the Secretary, 
                make bonus payments as described in subsection 
                (c)(2)(A)(ii) to entities furnishing items or 
                services for which payment may be made under 
                the program.
                    ``(E) Oversight.--Monitor the compliance of 
                individuals and entities with agreements under 
                the program with the conditions of 
                participation.
                    ``(F) Administrative review.--Conduct 
                reviews of adverse determinations specified in 
                subsection (a)(6).
                    ``(G) Review of marketing materials.--
                Conduct a review of marketing materials 
                proposed by an entity furnishing services under 
                the program.
                    ``(H) Additional functions.--Perform such 
                other functions as the Secretary may specify.
            ``(8) Limitation of liability.--The provisions of 
        section 1157(b) shall apply with respect to activities 
        of contractors and their officers, employees, and 
        agents under a contract under this subsection.
            ``(9) Information sharing.--Notwithstanding section 
        1106 and section 552a of title 5, United States Code, 
        the Secretary is authorized to disclose to an entity 
        with a program administration contract under this 
        subsection such information (including medical 
        information) on individuals receiving health care items 
        and services under the program as the entity may 
        require to carry out its responsibilities under the 
        contract.
    ``(c) Rules Applicable to Both Program Agreements and 
Program Administration Contracts.--
            ``(1) Records, reports, and audits.--The Secretary 
        is authorized to require entities with agreements to 
        provide health care items or services under the 
        demonstration program, and entities with program 
        administration contracts under subsection (b), to 
        maintain adequate records, to afford the Secretary 
        access to such records (including for audit purposes), 
        and to furnish such reports and other materials 
        (including audited financial statements and performance 
        data) as the Secretary may require for purposes of 
        implementation, oversight, and evaluation of the 
        program and of individuals' and entities' effectiveness 
        in performance of such agreements or contracts.
            ``(2) Bonuses.--Notwithstanding any other provision 
        of law, but subject to subparagraph (B)(ii), the 
        Secretary may make bonus payments under the 
        demonstration program from the Federal Health Insurance 
        Trust Fund and the Federal Supplementary Medical 
        Insurance Trust Fund in amounts that do not exceed the 
        amounts authorized under the program in accordance with 
        the following:
                    ``(A) Payments to program administrators.--
                The Secretary may make bonus payments under the 
                program to program administrators.
                    ``(B) Payments to entities furnishing 
                services.--
                            ``(i) In general.--Subject to 
                        clause (ii), the Secretary may make 
                        bonus payments to individuals or 
                        entities furnishing items or services 
                        for which payment may be made under the 
                        demonstration program, or may authorize 
                        the program administrator to make such 
                        bonus payments in accordance with such 
                        guidelines as the Secretary shall 
                        establish and subject to the 
                        Secretary's approval.
                            ``(ii) Limitations.--The Secretary 
                        may condition such payments on the 
                        achievement of such standards related 
                        to efficiency, improvement in processes 
                        or outcomes of care, or such other 
                        factors as the Secretary determines to 
                        be appropriate.
            ``(3) Antidiscrimination limitation.--The Secretary 
        shall not enter into an agreement with an entity to 
        provide health care items or services under the 
        demonstration program, or with an entity to administer 
        the program, unless such entity guarantees that it will 
        not deny, limit, or condition the coverage or provision 
        of benefits under the program, for individuals eligible 
        to be enrolled under such program, based on any health 
        status-related factor described in section 2702(a)(1) 
        of the Public Health Service Act.
    ``(d) Limitations on Judicial Review.--The following 
actions and determinations with respect to the demonstration 
program shall not be subject to review by a judicial or 
administrative tribunal:
            ``(1) Limiting the implementation of the program 
        under subsection (a)(2).
            ``(2) Establishment of program participation 
        standards under subsection (a)(5) or the denial or 
        termination of, or refusal to renew, an agreement with 
        an entity to provide health care items and services 
        under the program.
            ``(3) Establishment of program administration 
        contract performance standards under subsection (b)(6), 
        the refusal to renew a program administration contract, 
        or the noncompetitive award or renewal of a program 
        administration contract under subsection (b)(4)(B).
            ``(5) Establishment of payment rates, through 
        negotiation or otherwise, under a program agreement or 
        a program administration contract.
            ``(6) A determination with respect to the program 
        (where specifically authorized by the program authority 
        or by subsection (c)(2))--
                    ``(A) as to whether cost savings have been 
                achieved, and the amount of savings; or
                    ``(B) as to whether, to whom, and in what 
                amounts bonuses will be paid.
    ``(e) Application Limited to Parts A and B.--None of the 
provisions of this section or of the demonstration program 
shall apply to the programs under part C.
    ``(f) Reports to Congress.--Not later than two years after 
the date of the enactment of this section, and biennially 
thereafter for six years, the Secretary shall report to 
Congress on the use of authorities under the demonstration 
program. Each report shall address the impact of the use of 
those authorities on expenditures, access, and quality under 
the programs under this title.''.
    (b) GAO Report.--Not later than 2 years after the date on 
which the demonstration project under section 1866A of the 
Social Security Act, as added by subsection (a), is 
implemented, the Comptroller General of the United States shall 
submit to Congress a report on such demonstration project. The 
report shall include such recommendations with respect to 
changes to the demonstration project that the Comptroller 
General determines appropriate.

SEC. 413. STUDY ON ENROLLMENT PROCEDURES FOR GROUPS THAT RETAIN 
                    INDEPENDENT CONTRACTOR PHYSICIANS.

    (a) In General.--The Comptroller General of the United 
States shall conduct a study of the current medicare enrollment 
process for groups that retain independent contractor 
physicians with particular emphasis on hospital-based 
physicians, such as emergency department staffing groups. In 
conducting the evaluation, the Comptroller General shall 
consult with groups that retain independent contractor 
physicians and shall--
            (1) review the issuance of individual medicare 
        provider numbers and the possible medicare program 
        integrity vulnerabilities of the current process;
            (2) review direct and indirect costs associated 
        with the current process incurred by the medicare 
        program and groups that retain independent contractor 
        physicians;
            (3) assess the effect on program integrity by the 
        enrollment of groups that retain independent contractor 
        hospital-based physicians; and
            (4) develop suggested procedures for the enrollment 
        of these groups.
    (b) Report.--Not later than 1 year after the date of the 
enactment of this Act, the Comptroller General shall submit to 
Congress a report on the study conducted under subsection (a).

                       Subtitle C--Other Services

SEC. 421. 1-YEAR EXTENSION OF MORATORIUM ON THERAPY CAPS; REPORT ON 
                    STANDARDS FOR SUPERVISION OF PHYSICAL THERAPY 
                    ASSISTANTS.

    (a) In General.--Section 1833(g)(4) (42 U.S.C. 1395l(g)(4)) 
is amended by striking ``2000 and 2001.'' and inserting ``2000, 
2001, and 2002.''.
    (b) Conforming Amendment To Continue Focused Medical 
Reviews of Claims During Moratorium Period.--Section 221(a)(2) 
of BBRA (113 Stat. 1501A-351) is amended by striking ``(under 
the amendment made by paragraph (1)(B))''.
    (c) Study on Standards for Supervision of Physical 
Therapist Assistants.--
            (1) Study.--The Secretary of Health and Human 
        Services shall conduct a study of the implications--
                    (A) of eliminating the ``in the room'' 
                supervision requirement for medicare payment 
                for services of physical therapy assistants who 
                are supervised by physical therapists; and
                    (B) of such requirement on the cap imposed 
                under section 1833(g) of the Social Security 
                Act (42 U.S.C. 1395l(g)) on physical therapy 
                services.
            (2) Report.--Not later than 18 months after the 
        date of the enactment of this Act, the Secretary shall 
        submit to Congress a report on the study conducted 
        under paragraph (1).

SEC. 422. UPDATE IN RENAL DIALYSIS COMPOSITE RATE.

    (a) Update.--
            (1) In general.--The last sentence of section 
        1881(b)(7) (42 U.S.C. 1395rr(b)(7)) is amended by 
        striking ``for such services furnished on or after 
        January 1, 2001, by 1.2 percent'' and inserting ``for 
        such services furnished on or after January 1, 2001, by 
        2.4 percent''.
            (2) Prohibition on Exemptions.--
                    (A) In general.--Subject to subparagraph 
                (B), the Secretary of Health and Human Services 
                may not provide for an exception under section 
                1881(b)(7) of the Social Security Act (42 
                U.S.C. 1395rr(b)(7)) on or after December 31, 
                2000.
                    (B) Special rules for 2000.--
                            (i) In general.--Any exemption rate 
                        under such section 1881(b)(7) in effect 
                        on December 31, 2000, shall continue in 
                        effect so long as such rate is greater 
                        than the composite rate as updated by 
                        the amendment made by paragraph (1).
                            (ii) Resubmission of certain 
                        applications.--In the case of an 
                        application for an exemption rate under 
                        such section that was filed by a 
                        facility during 2000 that was not 
                        approved by the Secretary of Health and 
                        Human Services, the facility may submit 
                        an application for an exemption rate 
                        for that year by not later than July 1, 
                        2001.
    (b) Development of ESRD Market Basket.--
            (1) Development.--The Secretary of Health and Human 
        Services shall collect data and develop an ESRD market 
        basket whereby the Secretary can estimate, before the 
        beginning of a year, the percentage by which the costs 
        for the year of the mix of labor and nonlabor goods and 
        services included in the ESRD composite rate under 
        section 1881(b)(7) of the Social Security Act (42 
        U.S.C. 1395rr(b)(7)) will exceed the costs of such mix 
        of goods and services for the preceding year. In 
        developing such index, the Secretary may take into 
        account measures of changes in--
                    (A) technology used in furnishing dialysis 
                services;
                    (B) the manner or method of furnishing 
                dialysis services; and
                    (C) the amounts by which the payments under 
                such section for all services billed by a 
                facility for a year exceed the aggregate 
                allowable audited costs of such services for 
                such facility for such year.
            (2) Report.--The Secretary of Health and Human 
        Services shall submit to Congress a report on the index 
        developed under paragraph (1) no later than July 1, 
        2002, and shall include in the report recommendations 
        on the appropriateness of an annual or periodic update 
        mechanism for renal dialysis services under the 
        medicare program under title XVIII of the Social 
        Security Act based on such index.
    (c) Inclusion of Additional Services in Composite Rate.--
            (1) Development.--The Secretary of Health and Human 
        Services shall develop a system which includes, to the 
        maximum extent feasible, in the composite rate used for 
        payment under section 1881(b)(7) of the Social Security 
        Act (42 U.S.C. 1395rr(b)(7)), payment for clinical 
        diagnostic laboratory tests and drugs (including drugs 
        paid under section 1881(b)(11)(B) of such Act (42 
        U.S.C. 1395rr(b)(11)(B)) that are routinely used in 
        furnishing dialysis services to medicare beneficiaries 
        but which are currently separately billable by renal 
        dialysis facilities.
            (2) Report.--The Secretary shall include, as part 
        of the report submitted under subsection (b)(2), a 
        report on the system developed under paragraph (1) and 
        recommendations on the appropriateness of incorporating 
        the system into medicare payment for renal dialysis 
        services.
    (d) GAO Study on Access to Services.--
            (1) Study.--The Comptroller General of the United 
        States shall study access of medicare beneficiaries to 
        renal dialysis services. Such study shall include 
        whether there is a sufficient supply of facilities to 
        furnish needed renal dialysis services, whether 
        medicare payment levels are appropriate, taking into 
        account audited costs of facilities for all services 
        furnished, to ensure continued access to such services, 
        and improvements in access (and quality of care) that 
        may result in the increased use of long nightly and 
        short daily hemodialysis modalities.
            (2) Report.--Not later than January 1, 2003, the 
        Comptroller General shall submit to Congress a report 
        on the study conducted under paragraph (1).

SEC. 423. PAYMENT FOR AMBULANCE SERVICES.

    (a) Restoration of Full CPI Increase for 2001.--Section 
1834(l)(3) (42 U.S.C. 1395m(l)(3)) is amended by striking 
``reduced in the case of 2001 and 2002'' each place it appears 
and inserting ``reduced in the case of 2002''.
    (b) Mileage Payments.--Section 1834(l)(2)(E) (42 U.S.C. 
1395m(l)(2)(E)) is amended by inserting before the period at 
the end the following: ``, except that, beginning on the date 
on which the Secretary implements such fee schedule, such 
phase-in shall provide for full payment of any national mileage 
rate for ambulance services provided by suppliers that are paid 
by carriers in any of the 50 States where payment by a carrier 
for such services for all such suppliers in such State did not, 
prior to the implementation of the fee schedule, include a 
separate amount for all mileage within the county from which 
the beneficiary is transported''.
    (c) Effective Date.--The amendment made by subsection (a) 
applies to services furnished on or after the date on which the 
Secretary of Health and Human Services implements the fee 
schedule under section 1834(l) of the Social Security Act (42 
U.S.C. 1395m(l)).

SEC. 424. AMBULATORY SURGICAL CENTERS.

    (a) Delay in Implementation of Prospective Payment 
System.--The Secretary of Health and Human Services may not 
implement a revised prospective payment system for services of 
ambulatory surgical facilities under section 1833(i) of the 
Social Security Act (42 U.S.C. 1395l(i)) before January 1, 
2002.
    (b) Extending Phase-In to 4 Years.--Section 226 of the BBRA 
(113 Stat. 1501A-354) is amended by striking paragraphs (1) and 
(2) and inserting the following:
            ``(1) in the first year of its implementation, only 
        a proportion (specified by the Secretary and not to 
        exceed \1/4\) of the payment for such services shall be 
        made in accordance with such system and the remainder 
        shall be made in accordance with current regulations; 
        and
            ``(2) in each of the following 2 years a proportion 
        (specified by the Secretary and not to exceed \1/2\, 
        and \3/4\, respectively) of the payment for such 
        services shall be made under such system and the 
        remainder shall be made in accordance with current 
        regulations.''.
    (c) Deadline for Use of 1999 or Later Cost Surveys.--
Section 226 of BBRA (113 Stat. 1501A-354) is amended by adding 
at the end the following:
``By not later than January 1, 2003, the Secretary shall 
incorporate data from a 1999 medicare cost survey or a 
subsequent cost survey for purposes of implementing or revising 
such system.''.

SEC. 425. FULL UPDATE FOR DURABLE MEDICAL EQUIPMENT.

    (a) In General.--Section 1834(a)(14) (42 U.S.C. 
1395m(a)(14)) is amended--
            (1) by redesignating subparagraph (D) as 
        subparagraph (F);
            (2) in subparagraph (C)--
                    (A) by striking ``through 2002'' and 
                inserting ``through 2000''; and
                    (B) by striking ``and'' at the end; and
            (3) by inserting after subparagraph (C) the 
        following new subparagraphs:
                    ``(D) for 2001, the percentage increase in 
                the Consumer Price Index for all urban 
                consumers (U.S. city average) for the 12-month 
                period ending with June 2000;
                    ``(E) for 2002, 0 percentage points; and''.
    (b) Conforming Amendments to BBRA.--Subsection (a) of 
section 228 of BBRA (113 Stat. 1501A-356) is amended--
            (1) in the matter preceding paragraph (1), by 
        striking ``for such items'';
            (2) in paragraph (1), by inserting ``oxygen and 
        oxygen equipment for'' after ``(1)''; and
            (3) in paragraph (2), by inserting ``all such 
        covered items for'' after ``(2)''.
    (c) Effective Date.--The amendments made by subsection (b) 
shall take effect as if included in the enactment of BBRA.

SEC. 426. FULL UPDATE FOR ORTHOTICS AND PROSTHETICS.

    Section 1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is 
amended--
            (1) by redesignating clause (vi) as clause (viii);
            (2) in clause (v)--
                    (A) by striking ``through 2002'' and 
                inserting ``through 2000''; and
                    (B) by striking ``and'' at the end; and
            (3) by inserting after clause (v) the following new 
        clause:
                            ``(vi) for 2001, the percentage 
                        increase in the consumer price index 
                        for all urban consumers (U.S. city 
                        average) for the 12-month period ending 
                        with June 2000;
                            ``(vii) for 2002, 1 percent; and''.

SEC. 427. ESTABLISHMENT OF SPECIAL PAYMENT PROVISIONS AND REQUIREMENTS 
                    FOR PROSTHETICS AND CERTAIN CUSTOM FABRICATED 
                    ORTHOTIC ITEMS.

    (a) In General.--Section 1834(h)(1) (42 U.S.C. 1395m(h)(1)) 
is amended by adding at the end the following:
                    ``(F) Special payment rules for certain 
                prosthetics and custom fabricated orthotics.--
                            ``(i) In general.--No payment shall 
                        be made under this subsection for an 
                        item of custom fabricated orthotics 
                        described in clause (ii) or for an item 
                        of prosthetics unless such item is--
                                    ``(I) furnished by a 
                                qualified practitioner; and
                                    ``(II) fabricated by a 
                                qualified practitioner or a 
                                qualified supplier at a 
                                facility that meets such 
                                criteria as the Secretary 
                                determines appropriate.
                            ``(ii) Description of custom 
                        fabricated item.--
                                    ``(I) In general.--An item 
                                described in this clause is an 
                                item of custom fabricated 
                                orthotics that requires 
                                education, training, and 
                                experience to custom fabricate 
                                and that is included in a list 
                                established by the Secretary in 
                                subclause (II). Such an item 
                                does not include shoes and shoe 
                                inserts.
                                    ``(II) List of items.--The 
                                Secretary, in consultation with 
                                appropriate experts in 
                                orthotics (including national 
                                organizations representing 
                                manufacturers of orthotics), 
                                shall establish and update as 
                                appropriate a list of items to 
                                which this subparagraph 
                                applies. No item may be 
                                included in such list unless 
                                the item is individually 
                                fabricated for the patient over 
                                a positive model of the 
                                patient.
                            ``(iii) Qualified practitioner 
                        defined.--In this subparagraph, the 
                        term `qualified practitioner' means a 
                        physician or other individual who--
                                    ``(I) is a qualified 
                                physical therapist or a 
                                qualified occupational 
                                therapist;
                                    ``(II) in the case of a 
                                State that provides for the 
                                licensing of orthotics and 
                                prosthetics, is licensed in 
                                orthotics or prosthetics by the 
                                State in which the item is 
                                supplied; or
                                    ``(III) in the case of a 
                                State that does not provide for 
                                the licensing of orthotics and 
                                prosthetics, is specifically 
                                trained and educated to provide 
                                or manage the provision of 
                                prosthetics and custom-designed 
                                or fabricated orthotics, and is 
                                certified by the American Board 
                                for Certification in Orthotics 
                                and Prosthetics, Inc. or by the 
                                Board for Orthotist/Prosthetist 
                                Certification, or is 
                                credentialed and approved by a 
                                program that the Secretary 
                                determines, in consultation 
                                with appropriate experts in 
                                orthotics and prosthetics, has 
                                training and education 
                                standards that are necessary to 
                                provide such prosthetics and 
                                orthotics.
                            ``(iv) Qualified supplier 
                        defined.--In this subparagraph, the 
                        term `qualified supplier' means any 
                        entity that is accredited by the 
                        American Board for Certification in 
                        Orthotics and Prosthetics, Inc. or by 
                        the Board for Orthotist/Prosthetist 
                        Certification, or accredited and 
                        approved by a program that the 
                        Secretary determines has accreditation 
                        and approval standards that are 
                        essentially equivalent to those of such 
                        Board.''.
    (b) Effective Date.--Not later than 1 year after the date 
of the enactment of this Act, the Secretary of Health and Human 
Services shall promulgate revised regulations to carry out the 
amendment made by subsection (a) using a negotiated rulemaking 
process under subchapter III of chapter 5 of title 5, United 
States Code.
    (c) GAO Study and Report.--
            (1) Study.--The Comptroller General of the United 
        States shall conduct a study on HCFA Ruling 96-1, 
        issued on September 1, 1996, with respect to 
        distinguishing orthotics from durable medical equipment 
        under the medicare program under title XVIII of the 
        Social Security Act. The study shall assess the 
        following matters:
                    (A) The compliance of the Secretary of 
                Health and Human Services with the 
                Administrative Procedures Act (under chapter 5 
                of title 5, United States Code) in making such 
                ruling.
                    (B) The potential impact of such ruling on 
                the health care furnished to medicare 
                beneficiaries under the medicare program, 
                especially those beneficiaries with 
                degenerative musculoskeletal conditions.
                    (C) The potential for fraud and abuse under 
                the medicare program if payment were provided 
                for orthotics used as a component of durable 
                medical equipment only when made under the 
                special payment provision for certain 
                prosthetics and custom fabricated orthotics 
                under section 1834(h)(1)(F) of the Social 
                Security Act, as added by subsection (a) and 
                furnished by qualified practitioners under that 
                section.
                    (D) The impact on payments under titles 
                XVIII and XIX of the Social Security Act if 
                such ruling were overturned.
            (2) Report.--Not later than 6 months after the date 
        of the enactment of this Act, the Comptroller General 
        shall submit to Congress a report on the study 
        conducted under paragraph (1).

SEC. 428. REPLACEMENT OF PROSTHETIC DEVICES AND PARTS.

    (a) In General.--Section 1834(h)(1) (42 U.S.C. 
1395m(h)(1)), as amended by section 427(a), is further amended 
by adding at the end the following new subparagraph:
                    ``(G) Replacement of prosthetic devices and 
                parts.--
                            ``(i) In general.--Payment shall be 
                        made for the replacement of prosthetic 
                        devices which are artificial limbs, or 
                        for the replacement of any part of such 
                        devices, without regard to continuous 
                        use or useful lifetime restrictions if 
                        an ordering physician determines that 
                        the provision of a replacement device, 
                        or a replacement part of such a device, 
                        is necessary because of any of the 
                        following:
                                    ``(I) A change in the 
                                physiological condition of the 
                                patient.
                                    ``(II) An irreparable 
                                change in the condition of the 
                                device, or in a part of the 
                                device.
                                    ``(III) The condition of 
                                the device, or the part of the 
                                device, requires repairs and 
                                the cost of such repairs would 
                                be more than 60 percent of the 
                                cost of a replacement device, 
                                or, as the case may be, of the 
                                part being replaced.
                            ``(ii) Confirmation may be required 
                        if replacement device or part is less 
                        than 3 years old.--If a physician 
                        determines that a replacement device, 
                        or a replacement part, is necessary 
                        pursuant to clause (i)--
                                    ``(I) such determination 
                                shall be controlling; and
                                    ``(II) such replacement 
                                device or part shall be deemed 
                                to be reasonable and necessary 
                                for purposes of section 
                                1862(a)(1)(A);
                        except that if the device, or part, 
                        being replaced is less than 3 years old 
                        (calculated from the date on which the 
                        beneficiary began to use the device or 
                        part), the Secretary may also require 
                        confirmation of necessity of the 
                        replacement device, or, as the case may 
                        be, the replacement part.''.
    (b) Preemption of Rule.--The provisions of section 
1834(h)(1)(G) as added by subsection (a) shall supersede any 
rule that as of the date of the enactment of this Act may have 
applied a 5-year replacement rule with regard to prosthetic 
devices.
    (c) Effective Date.--The amendment made by subsection (a) 
shall apply to items replaced on or after April 1, 2001.

SEC. 429. REVISED PART B PAYMENT FOR DRUGS AND BIOLOGICALS AND RELATED 
                    SERVICES.

    (a) Recommendations for Revised Payment Methodology for 
Drugs and Biologicals.--
            (1) Study.--
                    (A) In general.--The Comptroller General of 
                the United States shall conduct a study on the 
                reimbursement for drugs and biologicals under 
                the current medicare payment methodology 
                (provided under section 1842(o) of the Social 
                Security Act (42 U.S.C. 1395u(o)) and for 
                related services under part B of title XVIII of 
                such Act. In the study, the Comptroller General 
                shall--
                            (i) identify the average prices at 
                        which such drugs and biologicals are 
                        acquired by physicians and other 
                        suppliers;
                            (ii) quantify the difference 
                        between such average prices and the 
                        reimbursement amount under such 
                        section; and
                            (iii) determine the extent to which 
                        (if any) payment under such part is 
                        adequate to compensate physicians, 
                        providers of services, or other 
                        suppliers of such drugs and biologicals 
                        for costs incurred in the 
                        administration, handling, or storage of 
                        such drugs or biologicals.
                    (B) Consultation.--In conducting the study 
                under subparagraph (A), the Comptroller General 
                shall consult with physicians, providers of 
                services, and suppliers of drugs and 
                biologicals under the medicare program under 
                title XVIII of such Act, as well as other 
                organizations involved in the distribution of 
                such drugs and biologicals to such physicians, 
                providers of services, and suppliers.
            (2) Report.--Not later than 9 months after the date 
        of the enactment of this Act, the Comptroller General 
        shall submit to Congress and to the Secretary of Health 
        and Human Services a report on the study conducted 
        under this subsection, and shall include in such report 
        recommendations for revised payment methodologies 
        described in paragraph (3).
            (3) Recommendations for revised payment 
        methodologies.--
                    (A) In general.--The Comptroller General 
                shall provide specific recommendations for 
                revised payment methodologies for reimbursement 
                for drugs and biologicals and for related 
                services under the medicare program. The 
                Comptroller General may include in the 
                recommendations--
                            (i) proposals to make adjustments 
                        under subsection (c) of section 1848 of 
                        the Social Security Act (42 U.S.C. 
                        1395w-4) for the practice expense 
                        component of the physician fee schedule 
                        under such section for the costs 
                        incurred in the administration, 
                        handling, or storage of certain 
                        categories of such drugs and 
                        biologicals, if appropriate; and
                            (ii) proposals for new payments to 
                        providers of services or suppliers for 
                        such costs, if appropriate.
                    (B) Ensuring patient access to care.--In 
                making recommendations under this paragraph, 
                the Comptroller General shall ensure that any 
                proposed revised payment methodology is 
                designed to ensure that medicare beneficiaries 
                continue to have appropriate access to health 
                care services under the medicare program.
                    (C) Matters considered.--In making 
                recommendations under this paragraph, the 
                Comptroller General shall consider--
                            (i) the method and amount of 
                        reimbursement for similar drugs and 
                        biologicals made by large group health 
                        plans;
                            (ii) as a result of any revised 
                        payment methodology, the potential for 
                        patients to receive inpatient or 
                        outpatient hospital services in lieu of 
                        services in a physician's office; and
                            (iii) the effect of any revised 
                        payment methodology on the delivery of 
                        drug therapies by hospital outpatient 
                        departments.
                    (D) Coordination with bbra study.--In 
                making recommendations under this paragraph, 
                the Comptroller General shall conclude and take 
                into account the results of the study provided 
                for under section 213(a) of BBRA (113 Stat. 
                1501A-350).
    (b) Implementation of New Payment Methodology.--
            (1) In general.--Notwithstanding any other 
        provision of law, based on the recommendations 
        contained in the report under subsection (a), the 
        Secretary of Health and Human Services, subject to 
        paragraph (2), shall revise the payment methodology 
        under section 1842(o) of the Social Security Act (42 
        U.S.C. 1395u(o)) for drugs and biologicals furnished 
        under part B of the medicare program. To the extent the 
        Secretary determines appropriate, the Secretary may 
        provide for the adjustments to payments amounts 
        referred to in subsection (a)(3)(A)(i) or additional 
        payments referred to in subsection (a)(2)(A)(ii).
            (2) Limitation.--In revising the payment 
        methodology under paragraph (1), in no case may the 
        estimated aggregate payments for drugs and biologicals 
        under the revised system (including additional payments 
        referred to in subsection (a)(3)(A)(ii)) exceed the 
        aggregate amount of payment for such drugs and 
        biologicals, as projected by the Secretary, that would 
        have been made under the payment methodology in effect 
        under such section 1842(o).
    (c) Temporary Injunction Against Reductions in Payment 
Rates.--Notwithstanding any other provision of law, the 
Administrator of the Health Care Financing Administration may 
not directly or indirectly increase or decrease the rates of 
reimbursement (in effect on September 1, 2000) for drugs and 
biologicals under the current medicare payment methodology 
(provided under section 1842(o) of such Act (42 U.S.C. 
1395u(o)) until such time as the Secretary has reviewed the 
report submitted under subsection (a)(2).

SEC. 430. CONTRAST ENHANCED DIAGNOSTIC PROCEDURES UNDER HOSPITAL 
                    PROSPECTIVE PAYMENT SYSTEM.

    (a) Separate Classification.--Section 1833(t)(2) (42 U.S.C. 
1395l(t)(2)) is amended--
            (1) by striking ``and'' at the end of subparagraph 
        (E);
            (2) by striking the period at the end of 
        subparagraph (F) and inserting ``; and''; and
            (3) by inserting after subparagraph (F) the 
        following new subparagraph:
                    ``(G) the Secretary shall create additional 
                groups of covered OPD services that classify 
                separately those procedures that utilize 
                contrast media from those that do not.''.
    (b) Conforming Amendment.--Section 1861(t)(1) (42 U.S.C. 
1395x(t)(1)) is amended by inserting ``(including contrast 
agents)'' after ``only such drugs''.
    (c) Effective Date.--The amendments made by this section 
apply to items and services furnished on or after January 1, 
2001.

SEC. 431. QUALIFICATIONS FOR COMMUNITY MENTAL HEALTH CENTERS.

    (a) Medicare Program.--Section 1861(ff)(3)(B) (42 U.S.C. 
1395x(ff)(3)(B)) is amended by striking ``entity'' and all that 
follows and inserting the following: ``entity that--
            ``(i)(I) provides the mental health services 
        described in section 1913(c)(1) of the Public Health 
        Service Act; or
            ``(II) in the case of an entity operating in a 
        State that by law precludes the entity from providing 
        itself the service described in subparagraph (E) of 
        such section, provides for such service by contract 
        with an approved organization or entity (as determined 
        by the Secretary);
            ``(ii) meets applicable licensing or certification 
        requirements for community mental health centers in the 
        State in which it is located; and
            ``(iii) meets such additional conditions as the 
        Secretary shall specify to ensure (I) the health and 
        safety of individuals being furnished such services, 
        (II) the effective and efficient furnishing of such 
        services, and (III) the compliance of such entity with 
        the criteria described in section 1931(c)(1) of the 
        Public Health Service Act.''.
    (b) Effective Date.--The amendment made by subsection (a) 
applies with respect to community mental health centers with 
respect to services furnished on or after the first day of the 
third month beginning after the date of the enactment of this 
Act.

SEC. 432. MODIFICATION OF MEDICARE BILLING REQUIREMENTS FOR CERTAIN 
                    INDIAN PROVIDERS.

    (a) In General.--Section 1880(a) (42 U.S.C. 1395qq(a)) is 
amended by adding at the end the following new sentence: ``A 
hospital or a free-standing ambulatory care clinic (as defined 
by the Secretary), whether operated by the Indian Health 
Service or by an Indian tribe or tribal organization (as those 
terms are defined in section 4 of the Indian Health Care 
Improvement Act), shall be eligible for payments for services 
for which payment is made pursuant to section 1848, 
notwithstanding sections 1814(c) and 1835(d), if and for so 
long as it meets all of the requirements which are applicable 
generally to such payments, services, hospitals, and 
clinics.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to services furnished on or after January 1, 2001.

SEC. 433. GAO STUDY ON COVERAGE OF SURGICAL FIRST ASSISTING SERVICES OF 
                    CERTIFIED REGISTERED NURSE FIRST ASSISTANTS.

    (a) Study.--The Comptroller General of the United States 
shall conduct a study on the effect on the medicare program 
under title XVIII of the Social Security Act and on medicare 
beneficiaries of coverage under the program of surgical first 
assisting services of certified registered nurse first 
assistants. The Comptroller General shall consider the 
following when conducting the study:
            (1) Any impact on the quality of care furnished to 
        medicare beneficiaries by reason of such coverage.
            (2) Appropriate education and training requirements 
        for certified registered nurse first assistants who 
        furnish such first assisting services.
            (3) Appropriate rates of payment under the program 
        to such certified registered nurse first assistants for 
        furnishing such services, taking into account the costs 
        of compensation, overhead, and supervision attributable 
        to certified registered nurse first assistants.
    (b) Report.--Not later than 1 year after the date of the 
enactment of this Act, the Comptroller General shall submit to 
Congress a report on the study conducted under subsection (a).

SEC. 434. MEDPAC STUDY AND REPORT ON MEDICARE REIMBURSEMENT FOR 
                    SERVICES PROVIDED BY CERTAIN PROVIDERS.

    (a) Study.--The Medicare Payment Advisory Commission shall 
conduct a study on the appropriateness of the current payment 
rates under the medicare program under title XVIII of the 
Social Security Act for services provided by a--
            (1) certified nurse-midwife (as defined in 
        subsection (gg)(2) of section 1861 of such Act (42 
        U.S.C. 1395x);
            (2) physician assistant (as defined in subsection 
        (aa)(5)(A) of such section);
            (3) nurse practitioner (as defined in such 
        subsection); and
            (4) clinical nurse specialist (as defined in 
        subsection (aa)(5)(B) of such section).
    (b) Report.--Not later than 18 months after the date of the 
enactment of this Act, the Commission shall submit to Congress 
a report on the study conducted under subsection (a), together 
with any recommendations for legislation that the Commission 
determines to be appropriate as a result of such study.

SEC. 435. MEDPAC STUDY AND REPORT ON MEDICARE COVERAGE OF SERVICES 
                    PROVIDED BY CERTAIN NONPHYSICIAN PROVIDERS.

    (a) Study.--
            (1) In general.--The Medicare Payment Advisory 
        Commission shall conduct a study to determine the 
        appropriateness of providing coverage under the 
        medicare program under title XVIII of the Social 
        Security Act for services provided by a--
                    (A) surgical technologist;
                    (B) marriage counselor;
                    (C) marriage and family therapist;
                    (D) pastoral care counselor; and
                    (E) licensed professional counselor of 
                mental health.
            (2) Costs to program.--The study shall consider the 
        short-term and long-term benefits, and costs to the 
        medicare program, of providing the coverage described 
        in paragraph (1).
    (b) Report.--Not later than 18 months after the date of the 
enactment of this Act, the Commission shall submit to Congress 
a report on the study conducted under subsection (a), together 
with any recommendations for legislation that the Commission 
determines to be appropriate as a result of such study.

SEC. 436. GAO STUDY AND REPORT ON THE COSTS OF EMERGENCY AND MEDICAL 
                    TRANSPORTATION SERVICES.

    (a) Study.--The Comptroller General of the United States 
shall conduct a study on the costs of providing emergency and 
medical transportation services across the range of acuity 
levels of conditions for which such transportation services are 
provided.
    (b) Report.--Not later than 18 months after the date of the 
enactment of this Act, the Comptroller General shall submit to 
Congress a report on the study conducted under subsection (a), 
together with recommendations for any changes in methodology or 
payment level necessary to fairly compensate suppliers of 
emergency and medical transportation services and to ensure the 
access of beneficiaries under the medicare program under title 
XVIII of the Social Security Act.

SEC. 437. GAO STUDIES AND REPORTS ON MEDICARE PAYMENTS.

    (a) GAO Study on HCFA Post-Payment Audit Process.--
            (1) Study.--The Comptroller General of the United 
        States shall conduct a study on the post-payment audit 
        process under the medicare program under title XVIII of 
        the Social Security Act as such process applies to 
        physicians, including the proper level of resources 
        that the Health Care Financing Administration should 
        devote to educating physicians regarding--
                    (A) coding and billing;
                    (B) documentation requirements; and
                    (C) the calculation of overpayments.
            (2) Report.--Not later than 18 months after the 
        date of the enactment of this Act, the Comptroller 
        General shall submit to Congress a report on the study 
        conducted under paragraph (1) together with specific 
        recommendations for changes or improvements in the 
        post-payment audit process described in such paragraph.
    (b) GAO Study on Administration and Oversight.--
            (1) Study.--The Comptroller General of the United 
        States shall conduct a study on the aggregate effects 
        of regulatory, audit, oversight, and paperwork burdens 
        on physicians and other health care providers 
        participating in the medicare program under title XVIII 
        of the Social Security Act.
            (2) Report.--Not later than 18 months after the 
        date of the enactment of this Act, the Comptroller 
        General shall submit to Congress a report on the study 
        conducted under paragraph (1) together with 
        recommendations regarding any area in which--
                    (A) a reduction in paperwork, an ease of 
                administration, or an appropriate change in 
                oversight and review may be accomplished; or
                    (B) additional payments or education are 
                needed to assist physicians and other health 
                care providers in understanding and complying 
                with any legal or regulatory requirements.

SEC. 438. MEDPAC STUDY ON ACCESS TO OUTPATIENT PAIN MANAGEMENT 
                    SERVICES.

    (a) Study.--The Medicare Payment Advisory Commission shall 
conduct a study on the barriers to coverage and payment for 
outpatient interventional pain medicine procedures under the 
medicare program under title XVIII of the Social Security Act. 
Such study shall examine--
            (1) the specific barriers imposed under the 
        medicare program on the provision of pain management 
        procedures in hospital outpatient departments, 
        ambulatory surgery centers, and physicians' offices; 
        and
            (2) the consistency of medicare payment policies 
        for pain management procedures in those different 
        settings.
    (b) Report.--Not later than 1 year after the date of the 
enactment of this Act, the Commission shall submit to Congress 
a report on the study.

             TITLE V--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

SEC. 501. 1-YEAR ADDITIONAL DELAY IN APPLICATION OF 15 PERCENT 
                    REDUCTION ON PAYMENT LIMITS FOR HOME HEALTH 
                    SERVICES.

    (a) In General.--Section 1895(b)(3)(A)(i) (42 U.S.C. 
1395fff(b)(3)(A)(i)) is amended--
            (1) by redesignating subclause (II) as subclause 
        (III);
            (2) in subclause (III), as redesignated, by 
        striking ``described in subclause (I)'' and inserting 
        ``described in subclause (II)''; and
            (3) by inserting after subclause (I) the following 
        new subclause:
                                    ``(II) For the 12-month 
                                period beginning after the 
                                period described in subclause 
                                (I), such amount (or amounts) 
                                shall be equal to the amount 
                                (or amounts) determined under 
                                subclause (I), updated under 
                                subparagraph (B).''.
    (b) Change in Report.--Section 302(c) of BBRA (113 Stat. 
1501A-360) is amended--
            (1) by striking ``Not later than'' and all that 
        follows through ``(42 U.S.C. 1395fff)'' and inserting 
        ``Not later than April 1, 2002''; and
            (2) by striking ``Secretary'' and inserting 
        ``Comptroller General of the United States''.
    (c) Case Mix Adjustment Corrections.--
            (1) In general.--Section 1895(b)(3)(B) (42 U.S.C. 
        1395fff(b)(3)(B)) is amended by adding at the end the 
        following new clause:
                            ``(iv) Adjustment for case mix 
                        changes.--Insofar as the Secretary 
                        determines that the adjustments under 
                        paragraph (4)(A)(i) for a previous 
                        fiscal year (or estimates that such 
                        adjustments for a future fiscal year) 
                        did (or are likely to) result in a 
                        change in aggregate payments under this 
                        subsection during the fiscal year that 
                        are a result of changes in the coding 
                        or classification of different units of 
                        services that do not reflect real 
                        changes in case mix, the Secretary may 
                        adjust the standard prospective payment 
                        amount (or amounts) under paragraph (3) 
                        for subsequent fiscal years so as to 
                        eliminate the effect of such coding or 
                        classification changes.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) applies to episodes concluding on or 
        after October 1, 2001.

SEC. 502. RESTORATION OF FULL HOME HEALTH MARKET BASKET UPDATE FOR HOME 
                    HEALTH SERVICES FOR FISCAL YEAR 2001.

    (a) In General.--Section 1861(v)(1)(L)(x) (42 U.S.C. 
1395x(v)(1)(L)(x)) is amended--
            (1) by striking ``2001,''; and
            (2) by adding at the end the following: ``With 
        respect to cost reporting periods beginning during 
        fiscal year 2001, the update to any limit under this 
        subparagraph shall be the home health market basket 
        index.''.
    (b) Special Rule for Payment for Fiscal Year 2001 Based on 
Adjusted Prospective Payment Amounts.--
            (1) In general.--Notwithstanding the amendments 
        made by subsection (a), for purposes of making payments 
        under section 1895(b) of the Social Security Act (42 
        U.S.C. 1395fff(b)) for home health services for fiscal 
        year 2001, the Secretary of Health and Human Services 
        shall--
                    (A) with respect to episodes and visits 
                ending on or after October 1, 2000, and before 
                April 1, 2001, use the final standardized and 
                budget neutral prospective payment amounts for 
                60 day episodes and standardized average per 
                visit amounts for fiscal year 2001 as published 
                by the Secretary in the Federal Register of the 
                July 3, 2000 (65 Federal Register 41128-41214); 
                and
                    (B) with respect to episodes and visits 
                ending on or after April 1, 2001, and before 
                October 1, 2001, use such amounts increased by 
                2.2 percent.
            (2) No effect on other payments or 
        determinations.--The Secretary shall not take the 
        provisions of paragraph (1) into account for purposes 
        of payments, determinations, or budget neutrality 
        adjustments under section 1895 of the Social Security 
        Act.

SEC. 503. TEMPORARY TWO-MONTH EXTENSION OF PERIODIC INTERIM PAYMENTS.

    (a) Temporary Extension.--Notwithstanding subsection (d) of 
section 4603 of BBA (42 U.S.C. 1395fff note), as amended by 
section 5101(c)(2) of the Tax and Trade Relief Extension Act of 
1998 (contained in division J of Public Law 105-277)), the 
amendments made by subsection (b) of such section 4603 shall 
not take effect until December 1, 2000, in the case of a home 
health agency that was receiving periodic interim payments 
under section 1815(e)(2) as of September 30, 2000.
    (b) Payment Rule.--The amount of such periodic interim 
payment made to a home health agency by reason of subsection 
(a) during each of November and December, 2000, shall be equal 
to the amount of such payment made to the agency in their last 
full monthly periodic interim payment. Such amount of payment 
shall be included in the tentative settlement of the last cost 
report for the home health agency under the payment system in 
effect prior to the implementation of the prospective payment 
system under section 1895(b) of the Social Security Act (42 
U.S.C. 1395fff(b)).

SEC. 504. USE OF TELEHEALTH IN DELIVERY OF HOME HEALTH SERVICES.

    Section 1895 (42 U.S.C. 1395fff) is amended by adding at 
the end the following new subsection:
    ``(e) Construction Related to Home Health Services.--
            ``(1) Telecommunications.--Nothing in this section 
        shall be construed as preventing a home health agency 
        furnishing a home health unit of service for which 
        payment is made under the prospective payment system 
        established by this section for such units of service 
        from furnishing services via a telecommunication system 
        if such services--
                    ``(A) do not substitute for in-person home 
                health services ordered as part of a plan of 
                care certified by a physician pursuant to 
                section 1814(a)(2)(C) or section 1835(a)(2)(A); 
                and
                    ``(B) are not considered a home health 
                visit for purposes of eligibility or payment 
                under this title.
            ``(2) Physician certification.--Nothing in this 
        section shall be construed as waiving the requirement 
        for a physician certification under section 
        1814(a)(2)(C) or section 1835(a)(2)(A) of such Act (42 
        U.S.C. 1395f(a)(2)(C), 1395n(a)(2)(A)) for the payment 
        for home health services, whether or not furnished via 
        a telecommunications system.''.

SEC. 505. STUDY ON COSTS TO HOME HEALTH AGENCIES OF PURCHASING 
                    NONROUTINE MEDICAL SUPPLIES.

    (a) Study.--The Comptroller General of the United States 
shall conduct a study on variations in prices paid by home 
health agencies furnishing home health services under the 
medicare program under title XVIII of the Social Security Act 
in purchasing nonroutine medical supplies, including ostomy 
supplies, and volumes if such supplies used, shall determine 
the effect (if any) of variations on prices and volumes in the 
provision of such services.
    (b) Report.--Not later than October 1, 2001, the 
Comptroller General shall submit to Congress a report on the 
study conducted under subsection (a), and shall include in the 
report recommendations respecting whether payment for 
nonroutine medical supplies furnished in connection with home 
health services should be made separately from the prospective 
payment system for such services.

SEC. 506. TREATMENT OF BRANCH OFFICES; GAO STUDY ON SUPERVISION OF HOME 
                    HEALTH CARE PROVIDED IN ISOLATED RURAL AREAS.

    (a) Treatment of Branch Offices.--
            (1) In general.--Notwithstanding any other 
        provision of law, in determining for purposes of title 
        XVIII of the Social Security Act whether an office of a 
        home health agency constitutes a branch office or a 
        separate home health agency, neither the time nor 
        distance between a parent office of the home health 
        agency and a branch office shall be the sole 
        determinant of a home health agency's branch office 
        status.
            (2) Consideration of forms of technology in 
        definition of supervision.--The Secretary of Health and 
        Human Services may include forms of technology in 
        determining what constitutes ``supervision'' for 
        purposes of determining a home heath agency's branch 
        office status under paragraph (1).
    (b) GAO Study.--
            (1) Study.--The Comptroller General of the United 
        States shall conduct a study of the provision of 
        adequate supervision to maintain quality of home health 
        services delivered under the medicare program under 
        title XVIII of the Social Security Act in isolated 
        rural areas. The study shall evaluate the methods that 
        home health agency branches and subunits use to 
        maintain adequate supervision in the delivery of 
        services to clients residing in those areas, how these 
        methods of supervision compare to requirements that 
        subunits independently meet medicare conditions of 
        participation, and the resources utilized by subunits 
        to meet such conditions.
            (2) Report.--Not later than January 1, 2002, the 
        Comptroller General shall submit to Congress a report 
        on the study conducted under paragraph (1). The report 
        shall include recommendations on whether exceptions are 
        needed for subunits and branches of home health 
        agencies under the medicare program to maintain access 
        to the home health benefit or whether alternative 
        policies should be developed to assure adequate 
        supervision and access and recommendations on whether a 
        national standard for supervision is appropriate.

SEC. 507. CLARIFICATION OF THE HOMEBOUND DEFINITION UNDER THE MEDICARE 
                    HOME HEALTH BENEFIT.

    (a) Clarification.--
            (1) In general.--Sections 1814(a) and 1835(a) (42 
        U.S.C. 1395f(a) and 1395n(a)) are each amended--
                    (A) in the last sentence, by striking ``, 
                and that absences of the individual from home 
                are infrequent or of relatively short duration, 
                or are attributable to the need to receive 
                medical treatment''; and
                    (B) by adding at the end the following new 
                sentences: ``Any absence of an individual from 
                the home attributable to the need to receive 
                health care treatment, including regular 
                absences for the purpose of participating in 
                therapeutic, psychosocial, or medical treatment 
                in an adult day-care program that is licensed 
                or certified by a State, or accredited, to 
                furnish adult day-care services in the State 
                shall not disqualify an individual from being 
                considered to be `confined to his home'. Any 
                other absence of an individual from the home 
                shall not so disqualify an individual if the 
                absence is of infrequent or of relatively short 
                duration. For purposes of the preceding 
                sentence, any absence for the purpose of 
                attending a religious service shall be deemed 
                to be an absence of infrequent or short 
                duration.''.
            (2) Effective date.--The amendments made by 
        paragraph (1) shall apply to items and services 
        provided on or after the date of enactment of this Act.
    (b) Study.--
            (1) In general.--The Comptroller General of the 
        United States shall conduct an evaluation of the effect 
        of the amendment on the cost of and access to home 
        health services under the medicare program under title 
        XVIII of the Social Security Act.
            (2) Report.--Not later than 1 year after the date 
        of the enactment of this Act, the Comptroller General 
        shall submit to Congress a report on the study 
        conducted under paragraph (1).

             Subtitle B--Direct Graduate Medical Education

SEC. 511. INCREASE IN FLOOR FOR DIRECT GRADUATE MEDICAL EDUCATION 
                    PAYMENTS.

    Section 1886(h)(2)(D)(iii) (42 U.S.C. 1395ww(h)(2)(D)(iii)) 
is amended--
            (1) in the heading, by striking ``in fiscal year 
        2001 at 70 percent of'' and inserting ``for''; and
            (2) by inserting after ``70 percent'' the 
        following: ``, and for the cost reporting period 
        beginning during fiscal year 2002 shall not be less 
        than 85 percent,''.

SEC. 512. CHANGE IN DISTRIBUTION FORMULA FOR MEDICARE+CHOICE-RELATED 
                    NURSING AND ALLIED HEALTH EDUCATION COSTS.

    (a) In General.--Section 1886(l)(2)(C) (42 U.S.C. 
1395ww(l)(2)(C)) is amended by striking all that follows 
``multiplied by'' and inserting the following: ``the ratio of--
                            ``(i) the product of (I) the 
                        Secretary's estimate of the ratio of 
                        the amount of payments made under 
                        section 1861(v) to the hospital for 
                        nursing and allied health education 
                        activities for the hospital's cost 
                        reporting period ending in the second 
                        preceding fiscal year, to the 
                        hospital's total inpatient days for 
                        such period, and (II) the total number 
                        of inpatient days (as established by 
                        the Secretary) for such period which 
                        are attributable to services furnished 
                        to individuals who are enrolled under a 
                        risk sharing contract with an eligible 
                        organization under section 1876 and who 
                        are entitled to benefits under part A 
                        or who are enrolled with a 
                        Medicare+Choice organization under part 
                        C; to
                            ``(ii) the sum of the products 
                        determined under clause (i) for such 
                        cost reporting periods.''.
    (b) Effective Date.--The amendment made by subsection (a) 
applies to portions of cost reporting periods occurring on or 
after January 1, 2001.

      Subtitle C--Changes in Medicare Coverage and Appeals Process

SEC. 521. REVISIONS TO MEDICARE APPEALS PROCESS.

    (a) Conduct of Reconsiderations of Determinations by 
Independent Contractors.--Section 1869 (42 U.S.C. 1395ff) is 
amended to read as follows:


                       ``determinations; appeals


    ``Sec. 1869. (a) Initial Determinations.--
            ``(1) Promulgations of regulations.--The Secretary 
        shall promulgate regulations and make initial 
        determinations with respect to benefits under part A or 
        part B in accordance with those regulations for the 
        following:
                    ``(A) The initial determination of whether 
                an individual is entitled to benefits under 
                such parts.
                    ``(B) The initial determination of the 
                amount of benefits available to the individual 
                under such parts.
                    ``(C) Any other initial determination with 
                respect to a claim for benefits under such 
                parts, including an initial determination by 
                the Secretary that payment may not be made, or 
                may no longer be made, for an item or service 
                under such parts, an initial determination made 
                by a utilization and quality control peer 
                review organization under section 1154(a)(2), 
                and an initial determination made by an entity 
                pursuant to a contract (other than a contract 
                under section 1852) with the Secretary to 
                administer provisions of this title or title 
                XI.
            ``(2) Deadlines for making initial 
        determinations.--
                    ``(A) In general.--Subject to subparagraph 
                (B), in promulgating regulations under 
                paragraph (1), initial determinations shall be 
                concluded by not later than the 45-day period 
                beginning on the date the fiscal intermediary 
                or the carrier, as the case may be, receives a 
                claim for benefits from an individual as 
                described in paragraph (1). Notice of such 
                determination shall be mailed to the individual 
                filing the claim before the conclusion of such 
                45-day period.
                    ``(B) Clean claims.--Subparagraph (A) shall 
                not apply with respect to any claim that is 
                subject to the requirements of section 
                1816(c)(2) or section 1842(c)(2).
            ``(3) Redeterminations.--
                    ``(A) In general.--In promulgating 
                regulations under paragraph (1) with respect to 
                initial determinations, such regulations shall 
                provide for a fiscal intermediary or a carrier 
                to make a redetermination with respect to a 
                claim for benefits that is denied in whole or 
                in part.
                    ``(B) Limitations.--
                            ``(i) Appeals rights.--No initial 
                        determination may be reconsidered or 
                        appealed under subsection (b) unless 
                        the fiscal intermediary or carrier has 
                        made a redetermination of that initial 
                        determination under this paragraph.
                            ``(ii) Decision maker.--No 
                        redetermination may be made by any 
                        individual involved in the initial 
                        determination.
                    ``(C) Deadlines.--
                            ``(i) Filing for redetermination.--
                        A redetermination under subparagraph 
                        (A) shall be available only if notice 
                        is filed with the Secretary to request 
                        the redetermination by not later than 
                        the end of the 120-day period beginning 
                        on the date the individual receives 
                        notice of the initial determination 
                        under paragraph (2).
                    ``(ii) Concluding redeterminations.--
                Redeterminations shall be concluded by not 
                later than the 30-day period beginning on the 
                date the fiscal intermediary or the carrier, as 
                the case may be, receives a request for a 
                redetermination. Notice of such determination 
                shall be mailed to the individual filing the 
                claim before the conclusion of such 30-day 
                period.
                    ``(D) Construction.--For purposes of the 
                succeeding provisions of this section a 
                redetermination under this paragraph shall be 
                considered to be part of the initial 
                determination.
    ``(b) Appeal Rights.--
            ``(1) In general.--
                    ``(A) Reconsideration of initial 
                determination.--Subject to subparagraph (D), 
                any individual dissatisfied with any initial 
                determination under subsection (a)(1) shall be 
                entitled to reconsideration of the 
                determination, and, subject to subparagraphs 
                (D) and (E), a hearing thereon by the Secretary 
                to the same extent as is provided in section 
                205(b) and to judicial review of the 
                Secretary's final decision after such hearing 
                as is provided in section 205(g). For purposes 
                of the preceding sentence, any reference to the 
                `Commissioner of Social Security' or the 
                `Social Security Administration' in subsection 
                (g) or (l) of section 205 shall be considered a 
                reference to the `Secretary' or the `Department 
                of Health and Human Services', respectively.
                    ``(B) Representation by provider or 
                supplier.--
                            ``(i) In general.--Sections 206(a), 
                        1102, and 1871 shall not be construed 
                        as authorizing the Secretary to 
                        prohibit an individual from being 
                        represented under this section by a 
                        person that furnishes or supplies the 
                        individual, directly or indirectly, 
                        with services or items, solely on the 
                        basis that the person furnishes or 
                        supplies the individual with such a 
                        service or item.
                            ``(ii) Mandatory waiver of right to 
                        payment from beneficiary.--Any person 
                        that furnishes services or items to an 
                        individual may not represent an 
                        individual under this section with 
                        respect to the issue described in 
                        section 1879(a)(2) unless the person 
                        has waived any rights for payment from 
                        the beneficiary with respect to the 
                        services or items involved in the 
                        appeal.
                            ``(iii) Prohibition on payment for 
                        representation.--If a person furnishes 
                        services or items to an individual and 
                        represents the individual under this 
                        section, the person may not impose any 
                        financial liability on such individual 
                        in connection with such representation.
                            ``(iv) Requirements for 
                        representatives of a beneficiary.--The 
                        provisions of section 205(j) and 
                        section 206 (other than subsection 
                        (a)(4) of such section) regarding 
                        representation of claimants shall apply 
                        to representation of an individual with 
                        respect to appeals under this section 
                        in the same manner as they apply to 
                        representation of an individual under 
                        those sections.
                    ``(C) Succession of rights in cases of 
                assignment.--The right of an individual to an 
                appeal under this section with respect to an 
                item or service may be assigned to the provider 
                of services or supplier of the item or service 
                upon the written consent of such individual 
                using a standard form established by the 
                Secretary for such an assignment.
                    ``(D) Time limits for filing appeals.--
                            ``(i) Reconsiderations.--
                        Reconsideration under subparagraph (A) 
                        shall be available only if the 
                        individual described in subparagraph 
                        (A) files notice with the Secretary to 
                        request reconsideration by not later 
                        than the end of the 180-day period 
                        beginning on the date the individual 
                        receives notice of the redetermination 
                        under subsection (a)(3), or within such 
                        additional time as the Secretary may 
                        allow.
                            ``(ii) Hearings conducted by the 
                        secretary.--The Secretary shall 
                        establish in regulations time limits 
                        for the filing of a request for a 
                        hearing by the Secretary in accordance 
                        with provisions in sections 205 and 
                        206.
                    ``(E) Amounts in controversy.--
                            ``(i) In general.--A hearing (by 
                        the Secretary) shall not be available 
                        to an individual under this section if 
                        the amount in controversy is less than 
                        $100, and judicial review shall not be 
                        available to the individual if the 
                        amount in controversy is less than 
                        $1,000.
                            ``(ii) Aggregation of claims.--In 
                        determining the amount in controversy, 
                        the Secretary, under regulations, shall 
                        allow two or more appeals to be 
                        aggregated if the appeals involve--
                                    ``(I) the delivery of 
                                similar or related services to 
                                the same individual by one or 
                                more providers of services or 
                                suppliers, or
                                    ``(II) common issues of law 
                                and fact arising from services 
                                furnished to two or more 
                                individuals by one or more 
                                providers of services or 
                                suppliers.
                    ``(F) Expedited proceedings.--
                            ``(i) Expedited determination.--In 
                        the case of an individual who has 
                        received notice by a provider of 
                        services that the provider of services 
                        plans--
                                    ``(I) to terminate services 
                                provided to an individual and a 
                                physician certifies that 
                                failure to continue the 
                                provision of such services is 
                                likely to place the 
                                individual's health at 
                                significant risk, or
                                    ``(II) to discharge the 
                                individual from the provider of 
                                services,

                        the individual may request, in writing 
                        or orally, an expedited determination 
                        or an expedited reconsideration of an 
                        initial determination made under 
                        subsection (a)(1), as the case may be, 
                        and the Secretary shall provide such 
                        expedited determination or expedited 
                        reconsideration.
                            ``(ii) Expedited hearing.--In a 
                        hearing by the Secretary under this 
                        section, in which the moving party 
                        alleges that no material issues of fact 
                        are in dispute, the Secretary shall 
                        make an expedited determination as to 
                        whether any such facts are in dispute 
                        and, if not, shall render a decision 
                        expeditiously.
                    ``(G) Reopening and revision of 
                determinations.--The Secretary may reopen or 
                revise any initial determination or 
                reconsidered determination described in this 
                subsection under guidelines established by the 
                Secretary in regulations.
    ``(c) Conduct of Reconsiderations by Independent 
Contractors.--
            ``(1) In general.--The Secretary shall enter into 
        contracts with qualified independent contractors to 
        conduct reconsiderations of initial determinations made 
        under subparagraphs (B) and (C) of subsection (a)(1). 
        Contracts shall be for an initial term of three years 
        and shall be renewable on a triennial basis thereafter.
            ``(2) Qualified independent contractor.--For 
        purposes of this subsection, the term `qualified 
        independent contractor' means an entity or organization 
        that is independent of any organization under contract 
        with the Secretary that makes initial determinations 
        under subsection (a)(1), and that meets the 
        requirements established by the Secretary consistent 
        with paragraph (3).
            ``(3) Requirements.--Any qualified independent 
        contractor entering into a contract with the Secretary 
        under this subsection shall meet the all of the 
        following requirements:
                    ``(A) In general.--The qualified 
                independent contractor shall perform such 
                duties and functions and assume such 
                responsibilities as may be required by the 
                Secretary to carry out the provisions of this 
                subsection, and shall have sufficient training 
                and expertise in medical science and legal 
                matters to make reconsiderations under this 
                subsection.
                    ``(B) Reconsiderations.--
                            ``(i) In general.--The qualified 
                        independent contractor shall review 
                        initial determinations. In the case an 
                        initial determination made with respect 
                        to whether an item or service is 
                        reasonable and necessary for the 
                        diagnosis or treatment of illness or 
                        injury (under section 1862(a)(1)(A)), 
                        such review shall include consideration 
                        of the facts and circumstances of the 
                        initial determination by a panel of 
                        physicians or other appropriate health 
                        care professionals and any decisions 
                        with respect to the reconsideration 
                        shall be based on applicable 
                        information, including clinical 
                        experience and medical, technical, and 
                        scientific evidence.
                            ``(ii) Effect of national and local 
                        coverage determinations.--
                                    ``(I) National coverage 
                                determinations.--If the 
                                Secretary has made a national 
                                coverage determination pursuant 
                                to the requirements established 
                                under the third sentence of 
                                section 1862(a), such 
                                determination shall be binding 
                                on the qualified independent 
                                contractor in making a decision 
                                with respect to a 
                                reconsideration under this 
                                section.
                                    ``(II) Local coverage 
                                determinations.--If the 
                                Secretary has made a local 
                                coverage determination, such 
                                determination shall not be 
                                binding on the qualified 
                                independent contractor in 
                                making a decision with respect 
                                to a reconsideration under this 
                                section. Notwithstanding the 
                                previous sentence, the 
                                qualified independent 
                                contractor shall consider the 
                                local coverage determination in 
                                making such decision.
                                    ``(III) Absence of national 
                                or local coverage 
                                determination.--In the absence 
                                of such a national coverage 
                                determination or local coverage 
                                determination, the qualified 
                                independent contractor shall 
                                make a decision with respect to 
                                the reconsideration based on 
                                applicable information, 
                                including clinical experience 
                                and medical, technical, and 
                                scientific evidence.
                    ``(C) Deadlines for decisions.--
                            ``(i) Reconsiderations.--Except as 
                        provided in clauses (iii) and (iv), the 
                        qualified independent contractor shall 
                        conduct and conclude a reconsideration 
                        under subparagraph (B), and mail the 
                        notice of the decision with respect to 
                        the reconsideration by not later than 
                        the end of the 30-day period beginning 
                        on the date a request for 
                        reconsideration has been timely filed.
                            ``(ii) Consequences of failure to 
                        meet deadline.--In the case of a 
                        failure by the qualified independent 
                        contractor to mail the notice of the 
                        decision by the end of the period 
                        described in clause (i) or to provide 
                        notice by the end of the period 
                        described in clause (iii), as the case 
                        may be, the party requesting the 
                        reconsideration or appeal may request a 
                        hearing before the Secretary, 
                        notwithstanding any requirements for a 
                        reconsidered determination for purposes 
                        of the party's right to such hearing.
                            ``(iii) Expedited 
                        reconsiderations.--The qualified 
                        independent contractor shall perform an 
                        expedited reconsideration under 
                        subsection (b)(1)(F) as follows:
                                    ``(I) Deadline for 
                                decision.--Notwithstanding 
                                section 216(j) and subject to 
                                clause (iv), not later than the 
                                end of the 72-hour period 
                                beginning on the date the 
                                qualified independent 
                                contractor has received a 
                                request for such 
                                reconsideration and has 
                                received such medical or other 
                                records needed for such 
                                reconsideration, the qualified 
                                independent contractor shall 
                                provide notice (by telephone 
                                and in writing) to the 
                                individual and the provider of 
                                services and attending 
                                physician of the individual of 
                                the results of the 
                                reconsideration. Such 
                                reconsideration shall be 
                                conducted regardless of whether 
                                the provider of services or 
                                supplier will charge the 
                                individual for continued 
                                services or whether the 
                                individual will be liable for 
                                payment for such continued 
                                services.
                                    ``(II) Consultation with 
                                beneficiary.--In such 
                                reconsideration, the qualified 
                                independent contractor shall 
                                solicit the views of the 
                                individual involved.
                                    ``(III) Special rule for 
                                hospital discharges.--A 
                                reconsideration of a discharge 
                                from a hospital shall be 
                                conducted under this clause in 
                                accordance with the provisions 
                                of paragraphs (2), (3), and (4) 
                                of section 1154(e) as in effect 
                                on the date that precedes the 
                                date of the enactment of this 
                                subparagraph.
                            ``(iv) Extension.--An individual 
                        requesting a reconsideration under this 
                        subparagraph may be granted such 
                        additional time as the individual 
                        specifies (not to exceed 14 days) for 
                        the qualified independent contractor to 
                        conclude the reconsideration. The 
                        individual may request such additional 
                        time in orally or in writing.
                    ``(D) Limitation on individual reviewing 
                determinations.--
                            ``(i) Physicians and health care 
                        professional.--No physician or health 
                        care professional under the employ of a 
                        qualified independent contractor may 
                        review--
                                    ``(I) determinations 
                                regarding health care services 
                                furnished to a patient if the 
                                physician or health care 
                                professional was directly 
                                responsible for furnishing such 
                                services; or
                                    ``(II) determinations 
                                regarding health care services 
                                provided in or by an 
                                institution, organization, or 
                                agency, if the physician or any 
                                member of the family of the 
                                physician or health care 
                                professional has, directly or 
                                indirectly, a significant 
                                financial interest in such 
                                institution, organization, or 
                                agency.
                            ``(ii) Family described.--For 
                        purposes of this paragraph, the family 
                        of a physician or health care 
                        professional includes the spouse (other 
                        than a spouse who is legally separated 
                        from the physician or health care 
                        professional under a decree of divorce 
                        or separate maintenance), children 
                        (including stepchildren and legally 
                        adopted children), grandchildren, 
                        parents, and grandparents of the 
                        physician or health care professional.
                    ``(E) Explanation of decision.--Any 
                decision with respect to a reconsideration of a 
                qualified independent contractor shall be in 
                writing, and shall include a detailed 
                explanation of the decision as well as a 
                discussion of the pertinent facts and 
                applicable regulations applied in making such 
                decision, and in the case of a determination of 
                whether an item or service is reasonable and 
                necessary for the diagnosis or treatment of 
                illness or injury (under section 1862(a)(1)(A)) 
                an explanation of the medical and scientific 
                rational for the decision.
                    ``(F) Notice requirements.--Whenever a 
                qualified independent contractor makes a 
                decision with respect to a reconsideration 
                under this subsection, the qualified 
                independent contractor shall promptly notify 
                the entity responsible for the payment of 
                claims under part A or part B of such decision.
                    ``(G) Dissemination of decisions on 
                reconsiderations.--Each qualified independent 
                contractor shall make available all decisions 
                with respect to reconsiderations of such 
                qualified independent contractors to fiscal 
                intermediaries (under section 1816), carriers 
                (under section 1842), peer review organizations 
                (under part B of title XI), Medicare+Choice 
                organizations offering Medicare+Choice plans 
                under part C, other entities under contract 
                with the Secretary to make initial 
                determinations under part A or part B or title 
                XI, and to the public. The Secretary shall 
                establish a methodology under which qualified 
                independent contractors shall carry out this 
                subparagraph.
                    ``(H) Ensuring consistency in decisions.--
                Each qualified independent contractor shall 
                monitor its decisions with respect to 
                reconsiderations to ensure the consistency of 
                such decisions with respect to requests for 
                reconsideration of similar or related matters.
                    ``(I) Data collection.--
                            ``(i) In general.--Consistent with 
                        the requirements of clause (ii), a 
                        qualified independent contractor shall 
                        collect such information relevant to 
                        its functions, and keep and maintain 
                        such records in such form and manner as 
                        the Secretary may require to carry out 
                        the purposes of this section and shall 
                        permit access to and use of any such 
                        information and records as the 
                        Secretary may require for such 
                        purposes.
                            ``(ii) Type of data collected.--
                        Each qualified independent contractor 
                        shall keep accurate records of each 
                        decision made, consistent with 
                        standards established by the Secretary 
                        for such purpose. Such records shall be 
                        maintained in an electronic database in 
                        a manner that provides for 
                        identification of the following:
                                    ``(I) Specific claims that 
                                give rise to appeals.
                                    ``(II) Situations 
                                suggesting the need for 
                                increased education for 
                                providers of services, 
                                physicians, or suppliers.
                                    ``(III) Situations 
                                suggesting the need for changes 
                                in national or local coverage 
                                policy.
                                    ``(IV) Situations 
                                suggesting the need for changes 
                                in local medical review 
                                policies.
                            ``(iii) Annual reporting.--Each 
                        qualified independent contractor shall 
                        submit annually to the Secretary (or 
                        otherwise as the Secretary may request) 
                        records maintained under this paragraph 
                        for the previous year.
                    ``(J) Hearings by the secretary.--The 
                qualified independent contractor shall (i) 
                prepare such information as is required for an 
                appeal of a decision of the contractor with 
                respect to a reconsideration to the Secretary 
                for a hearing, including as necessary, 
                explanations of issues involved in the decision 
                and relevant policies, and (ii) participate in 
                such hearings as required by the Secretary.
            ``(4) Number of qualified independent 
        contractors.--The Secretary shall enter into contracts 
        with not fewer than 12 qualified independent 
        contractors under this subsection.
            ``(5) Limitation on qualified independent 
        contractor liability.--No qualified independent 
        contractor having a contract with the Secretary under 
        this subsection and no person who is employed by, or 
        who has a fiduciary relationship with, any such 
        qualified independent contractor or who furnishes 
        professional services to such qualified independent 
        contractor, shall be held by reason of the performance 
        of any duty, function, or activity required or 
        authorized pursuant to this subsection or to a valid 
        contract entered into under this subsection, to have 
        violated any criminal law, or to be civilly liable 
        under any law of the United States or of any State (or 
        political subdivision thereof) provided due care was 
        exercised in the performance of such duty, function, or 
        activity.
    ``(d) Deadlines for Hearings by the Secretary.--
            ``(1) Hearing by administrative law judge.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), an administrative law judge 
                shall conduct and conclude a hearing on a 
                decision of a qualified independent contractor 
                under subsection (c) and render a decision on 
                such hearing by not later than the end of the 
                90-day period beginning on the date a request 
                for hearing has been timely filed.
                    ``(B) Waiver of deadline by party seeking 
                hearing.--The 90-day period under subparagraph 
                (A) shall not apply in the case of a motion or 
                stipulation by the party requesting the hearing 
                to waive such period.
            ``(2) Departmental appeals board review.--
                    ``(A) In general.--The Departmental Appeals 
                Board of the Department of Health and Human 
                Services shall conduct and conclude a review of 
                the decision on a hearing described in 
                paragraph (1) and make a decision or remand the 
                case to the administrative law judge for 
                reconsideration by not later than the end of 
                the 90-day period beginning on the date a 
                request for review has been timely filed.
                    ``(B) DAB hearing procedure.--In reviewing 
                a decision on a hearing under this paragraph, 
                the Departmental Appeals Board shall review the 
                case de novo.
            ``(3) Consequences of failure to meet deadlines.--
                    ``(A) Hearing by administrative law 
                judge.--In the case of a failure by an 
                administrative law judge to render a decision 
                by the end of the period described in paragraph 
                (1), the party requesting the hearing may 
                request a review by the Departmental Appeals 
                Board of the Department of Health and Human 
                Services, notwithstanding any requirements for 
                a hearing for purposes of the party's right to 
                such a review.
                    ``(B) Departmental appeals board review.--
                In the case of a failure by the Departmental 
                Appeals Board to render a decision by the end 
                of the period described in paragraph (2), the 
                party requesting the hearing may seek judicial 
                review, notwithstanding any requirements for a 
                hearing for purposes of the party's right to 
                such judicial review.
    ``(e) Administrative Provisions.--
            ``(1) Limitation on review of certain 
        regulations.--A regulation or instruction that relates 
        to a method for determining the amount of payment under 
        part B and that was initially issued before January 1, 
        1981, shall not be subject to judicial review.
            ``(2) Outreach.--The Secretary shall perform such 
        outreach activities as are necessary to inform 
        individuals entitled to benefits under this title and 
        providers of services and suppliers with respect to 
        their rights of, and the process for, appeals made 
        under this section. The Secretary shall use the toll-
        free telephone number maintained by the Secretary under 
        section 1804(b) to provide information regarding appeal 
        rights and respond to inquiries regarding the status of 
        appeals.
            ``(3) Continuing education requirement for 
        qualified independent contractors and administrative 
        law judges.--The Secretary shall provide to each 
        qualified independent contractor, and, in consultation 
        with the Commissioner of Social Security, to 
        administrative law judges that decide appeals of 
        reconsiderations of initial determinations or other 
        decisions or determinations under this section, such 
        continuing education with respect to coverage of items 
        and services under this title or policies of the 
        Secretary with respect to part B of title XI as is 
        necessary for such qualified independent contractors 
        and administrative law judges to make informed 
        decisions with respect to appeals.
            ``(4) Reports.--
                    ``(A) Annual report to congress.--The 
                Secretary shall submit to Congress an annual 
                report describing the number of appeals for the 
                previous year, identifying issues that require 
                administrative or legislative actions, and 
                including any recommendations of the Secretary 
                with respect to such actions. The Secretary 
                shall include in such report an analysis of 
                determinations by qualified independent 
                contractors with respect to inconsistent 
                decisions and an analysis of the causes of any 
                such inconsistencies.
                    ``(B) Survey.--Not less frequently than 
                every 5 years, the Secretary shall conduct a 
                survey of a valid sample of individuals 
                entitled to benefits under this title who have 
                filed appeals of determinations under this 
                section, providers of services, and suppliers 
                to determine the satisfaction of such 
                individuals or entities with the process for 
                appeals of determinations provided for under 
                this section and education and training 
                provided by the Secretary with respect to that 
                process. The Secretary shall submit to Congress 
                a report describing the results of the survey, 
                and shall include any recommendations for 
                administrative or legislative actions that the 
                Secretary determines appropriate.''.
    (b) Applicability of Requirements and Limitations on 
Liability of Qualified Independent Contractors to 
Medicare+Choice Independent Appeals Contractors.--Section 
1852(g)(4) (42 U.S.C. 1395w-22(g)(4)) is amended by adding at 
the end the following: ``The provisions of section 1869(c)(5) 
shall apply to independent outside entities under contract with 
the Secretary under this paragraph.''.
    (c) Conforming Amendment.--Section 1154(e) (42 U.S.C. 
1320c-3(e)) is amended by striking paragraphs (2), (3), and 
(4).
    (d) Effective Date.--The amendments made by this section 
apply with respect to initial determinations made on or after 
October 1, 2002.

SEC. 522. REVISIONS TO MEDICARE COVERAGE PROCESS.

    (a) Review of Determinations.--Section 1869 (42 U.S.C. 
1395ff), as amended by section 521, is further amended by 
adding at the end the following new subsection:
    ``(f) Review of Coverage Determinations.--
            ``(1) National coverage determinations.--
                    ``(A) In general.--Review of any national 
                coverage determination shall be subject to the 
                following limitations:
                            ``(i) Such a determination shall 
                        not be reviewed by any administrative 
                        law judge.
                            ``(ii) Such a determination shall 
                        not be held unlawful or set aside on 
                        the ground that a requirement of 
                        section 553 of title 5, United States 
                        Code, or section 1871(b) of this title, 
                        relating to publication in the Federal 
                        Register or opportunity for public 
                        comment, was not satisfied.
                            ``(iii) Upon the filing of a 
                        complaint by an aggrieved party, such a 
                        determination shall be reviewed by the 
                        Departmental Appeals Board of the 
                        Department of Health and Human 
                        Services. In conducting such a review, 
                        the Departmental Appeals Board shall 
                        review the record and shall permit 
                        discovery and the taking of evidence to 
                        evaluate the reasonableness of the 
                        determination, if the Board determines 
                        that the record is incomplete or lacks 
                        adequate information to support the 
                        validity of the determination. In 
                        reviewing such a determination, the 
                        Departmental Appeals Board shall defer 
                        only to the reasonable findings of 
                        fact, reasonable interpretations of 
                        law, and reasonable applications of 
                        fact to law by the Secretary.
                            ``(iv) A decision of the 
                        Departmental Appeals Board constitutes 
                        a final agency action and is subject to 
                        judicial review.
                    ``(B) Definition of national coverage 
                determination.--For purposes of this section, 
                the term `national coverage determination' 
                means a determination by the Secretary with 
                respect to whether or not a particular item or 
                service is covered nationally under this title, 
                but does not include a determination of what 
                code, if any, is assigned to a particular item 
                or service covered under this title or a 
                determination with respect to the amount of 
                payment made for a particular item or service 
                so covered.
            ``(2) Local coverage determination.--
                    ``(A) In general.--Review of any local 
                coverage determination shall be subject to the 
                following limitations:
                            ``(i) Upon the filing of a 
                        complaint by an aggrieved party, such a 
                        determination shall be reviewed by an 
                        administrative law judge of the Social 
                        Security Administration. The 
                        administrative law judge shall review 
                        the record and shall permit discovery 
                        and the taking of evidence to evaluate 
                        the reasonableness of the 
                        determination, if the administrative 
                        law judge determines that the record is 
                        incomplete or lacks adequate 
                        information to support the validity of 
                        the determination. In reviewing such a 
                        determination, the administrative law 
                        judge shall defer only to the 
                        reasonable findings of fact, reasonable 
                        interpretations of law, and reasonable 
                        applications of fact to law by the 
                        Secretary.
                            ``(ii) Upon the filing of a 
                        complaint by an aggrieved party, a 
                        decision of an administrative law judge 
                        under clause (i) shall be reviewed by 
                        the Departmental Appeals Board of the 
                        Department of Health and Human 
                        Services.
                            ``(iii) A decision of the 
                        Departmental Appeals Board constitutes 
                        a final agency action and is subject to 
                        judicial review.
                    ``(B) Definition of local coverage 
                determination.--For purposes of this section, 
                the term `local coverage determination' means a 
                determination by a fiscal intermediary or a 
                carrier under part A or part B, as applicable, 
                respecting whether or not a particular item or 
                service is covered on an intermediary- or 
                carrier-wide basis under such parts, in 
                accordance with section 1862(a)(1)(A).
            ``(3) No material issues of fact in dispute.--In 
        the case of a determination that may otherwise be 
        subject to review under paragraph (1)(A)(iii) or 
        paragraph (2)(A)(i), where the moving party alleges 
        that--
                    ``(A) there are no material issues of fact 
                in dispute, and
                    ``(B) the only issue of law is the 
                constitutionality of a provision of this title, 
                or that a regulation, determination, or ruling 
                by the Secretary is invalid,

        the moving party may seek review by a court of 
        competent jurisdiction without filing a complaint under 
        such paragraph and without otherwise exhausting other 
        administrative remedies.
            ``(4) Pending national coverage determinations.--
                    ``(A) In general.--In the event the 
                Secretary has not issued a national coverage or 
                noncoverage determination with respect to a 
                particular type or class of items or services, 
                an aggrieved person (as described in paragraph 
                (5)) may submit to the Secretary a request to 
                make such a determination with respect to such 
                items or services. By not later than the end of 
                the 90-day period beginning on the date the 
                Secretary receives such a request 
                (notwithstanding the receipt by the Secretary 
                of new evidence (if any) during such 90-day 
                period), the Secretary shall take one of the 
                following actions:
                            ``(i) Issue a national coverage 
                        determination, with or without 
                        limitations.
                            ``(ii) Issue a national noncoverage 
                        determination.
                            ``(iii) Issue a determination that 
                        no national coverage or noncoverage 
                        determination is appropriate as of the 
                        end of such 90-day period with respect 
                        to national coverage of such items or 
                        services.
                            ``(iv) Issue a notice that states 
                        that the Secretary has not completed a 
                        review of the request for a national 
                        coverage determination and that 
                        includes an identification of the 
                        remaining steps in the Secretary's 
                        review process and a deadline by which 
                        the Secretary will complete the review 
                        and take an action described in 
                        subclause (I), (II), or (III).
                    ``(B) In the case of an action described in 
                clause (i)(IV), if the Secretary fails to take 
                an action referred to in such clause by the 
                deadline specified by the Secretary under such 
                clause, then the Secretary is deemed to have 
                taken an action described in clause (i)(III) as 
                of the deadline.
                    ``(C) When issuing a determination under 
                clause (i), the Secretary shall include an 
                explanation of the basis for the determination. 
                An action taken under clause (i) (other than 
                subclause (IV)) is deemed to be a national 
                coverage determination for purposes of review 
                under subparagraph (A).
            ``(5) Standing.--An action under this subsection 
        seeking review of a national coverage determination or 
        local coverage determination may be initiated only by 
        individuals entitled to benefits under part A, or 
        enrolled under part B, or both, who are in need of the 
        items or services that are the subject of the coverage 
        determination.
            ``(6) Publication on the internet of decisions of 
        hearings of the secretary.--Each decision of a hearing 
        by the Secretary with respect to a national coverage 
        determination shall be made public, and the Secretary 
        shall publish each decision on the Medicare Internet 
        site of the Department of Health and Human Services. 
        The Secretary shall remove from such decision any 
        information that would identify any individual, 
        provider of services, or supplier.
            ``(7) Annual report on national coverage 
        determinations.--
                    ``(A) In general.--Not later than December 
                1 of each year, beginning in 2001, the 
                Secretary shall submit to Congress a report 
                that sets forth a detailed compilation of the 
                actual time periods that were necessary to 
                complete and fully implement national coverage 
                determinations that were made in the previous 
                fiscal year for items, services, or medical 
                devices not previously covered as a benefit 
                under this title, including, with respect to 
                each new item, service, or medical device, a 
                statement of the time taken by the Secretary to 
                make and implement the necessary coverage, 
                coding, and payment determinations, including 
                the time taken to complete each significant 
                step in the process of making and implementing 
                such determinations.
                    ``(B) Publication of reports on the 
                internet.--The Secretary shall publish each 
                report submitted under clause (i) on the 
                medicare Internet site of the Department of 
                Health and Human Services.
            ``(8) Construction.--Nothing in this subsection 
        shall be construed as permitting administrative or 
        judicial review pursuant to this section insofar as 
        such review is explicitly prohibited or restricted 
        under another provision of law.''.
    (b) Establishment of a Process for Coverage 
Determinations.--Section 1862(a) (42 U.S.C. 1395y(a)) is 
amended by adding at the end the following new sentence: ``In 
making a national coverage determination (as defined in 
paragraph (1)(B) of section 1869(f)) the Secretary shall ensure 
that the public is afforded notice and opportunity to comment 
prior to implementation by the Secretary of the determination; 
meetings of advisory committees established under section 
1114(f) with respect to the determination are made on the 
record; in making the determination, the Secretary has 
considered applicable information (including clinical 
experience and medical, technical, and scientific evidence) 
with respect to the subject matter of the determination; and in 
the determination, provide a clear statement of the basis for 
the determination (including responses to comments received 
from the public), the assumptions underlying that basis, and 
make available to the public the data (other than proprietary 
data) considered in making the determination.''.
    (c) Improvements to the Medicare Advisory Committee 
Process.--Section 1114 (42 U.S.C. 1314) is amended by adding at 
the end the following new subsection:
    ``(i)(1) Any advisory committee appointed under subsection 
(f) to advise the Secretary on matters relating to the 
interpretation, application, or implementation of section 
1862(a)(1) shall assure the full participation of a nonvoting 
member in the deliberations of the advisory committee, and 
shall provide such nonvoting member access to all information 
and data made available to voting members of the advisory 
committee, other than information that--
            ``(A) is exempt from disclosure pursuant to 
        subsection (a) of section 552 of title 5, United States 
        Code, by reason of subsection (b)(4) of such section 
        (relating to trade secrets); or
            ``(B) the Secretary determines would present a 
        conflict of interest relating to such nonvoting member.
    ``(2) If an advisory committee described in paragraph (1) 
organizes into panels of experts according to types of items or 
services considered by the advisory committee, any such panel 
of experts may report any recommendation with respect to such 
items or services directly to the Secretary without the prior 
approval of the advisory committee or an executive committee 
thereof.''.
    (d) Effective Date.--The amendments made by this section 
apply with respect to--
            (1) a review of any national or local coverage 
        determination filed,
            (2) a request to make such a determination made,
            (3) a national coverage determination made,
on or after October 1, 2001.

            Subtitle D--Improving Access to New Technologies

SEC. 531. REIMBURSEMENT IMPROVEMENTS FOR NEW CLINICAL LABORATORY TESTS 
                    AND DURABLE MEDICAL EQUIPMENT.

    (a) Payment Rule for New Laboratory Tests.--Section 
1833(h)(4)(B)(viii) (42 U.S.C. 1395l(h)(4)(B)(viii)) is amended 
by inserting before the period at the end the following: ``(or 
100 percent of such median in the case of a clinical diagnostic 
laboratory test performed on or after January 1, 2001, that the 
Secretary determines is a new test for which no limitation 
amount has previously been established under this 
subparagraph)''.
    (b) Establishment of Coding and Payment Procedures for New 
Clinical Diagnostic Laboratory Tests and Other Items on a Fee 
Schedule.--Not later than 1 year after the date of the 
enactment of this Act, the Secretary of Health and Human 
Services shall establish procedures for coding and payment 
determinations for the categories of new clinical diagnostic 
laboratory tests and new durable medical equipment under part B 
of the title XVIII of the Social Security Act that permit 
public consultation in a manner consistent with the procedures 
established for implementing coding modifications for ICD-9-CM.
    (c) Report on Procedures Used for Advanced, Improved 
Technologies.--Not later than 1 year after the date of the 
enactment of this Act, the Secretary of Health and Human 
Services shall submit to Congress a report that identifies the 
specific procedures used by the Secretary under part B of title 
XVIII of the Social Security Act to adjust payments for 
clinical diagnostic laboratory tests and durable medical 
equipment which are classified to existing codes where, because 
of an advance in technology with respect to the test or 
equipment, there has been a significant increase or decrease in 
the resources used in the test or in the manufacture of the 
equipment, and there has been a significant improvement in the 
performance of the test or equipment. The report shall include 
such recommendations for changes in law as may be necessary to 
assure fair and appropriate payment levels under such part for 
such improved tests and equipment as reflects increased costs 
necessary to produce improved results.

SEC. 532. RETENTION OF HCPCS LEVEL III CODES.

    (a) In General.--The Secretary of Health and Human Services 
shall maintain and continue the use of level III codes of the 
HCPCS coding system (as such system was in effect on August 16, 
2000) through December 31, 2003, and shall make such codes 
available to the public.
    (b) Definition.--For purposes of this section, the term 
``HCPCS Level III codes'' means the alphanumeric codes for 
local use under the Health Care Financing Administration Common 
Procedure Coding System (HCPCS).

SEC. 533. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER INPATIENT 
                    HOSPITAL PPS.

    (a) Expediting Recognition of New Technologies Into 
Inpatient PPS Coding System.--
            (1) Report.--Not later than April 1, 2001, the 
        Secretary of Health and Human Services shall submit to 
        Congress a report on methods of expeditiously 
        incorporating new medical services and technologies 
        into the clinical coding system used with respect to 
        payment for inpatient hospital services furnished under 
        the medicare program under title XVIII of the Social 
        Security Act, together with a detailed description of 
        the Secretary's preferred methods to achieve this 
        purpose.
            (2) Implementation.--Not later than October 1, 
        2001, the Secretary shall implement the preferred 
        methods described in the report transmitted pursuant to 
        paragraph (1).
    (b) Ensuring Appropriate Payments for Hospitals 
Incorporating New Medical Services and Technologies.--
            (1) Establishment of mechanism.--Section 1886(d)(5) 
        (42 U.S.C. 1395ww(d)(5)) is amended by adding at the 
        end the following new subparagraphs:
    ``(K)(i) Effective for discharges beginning on or after 
October 1, 2001, the Secretary shall establish a mechanism to 
recognize the costs of new medical services and technologies 
under the payment system established under this subsection. 
Such mechanism shall be established after notice and 
opportunity for public comment (in the publications required by 
subsection (e)(5) for a fiscal year or otherwise).
    ``(ii) The mechanism established pursuant to clause (i) 
shall--
            ``(I) apply to a new medical service or technology 
        if, based on the estimated costs incurred with respect 
        to discharges involving such service or technology, the 
        DRG prospective payment rate otherwise applicable to 
        such discharges under this subsection is inadequate;
            ``(II) provide for the collection of data with 
        respect to the costs of a new medical service or 
        technology described in subclause (I) for a period of 
        not less than two years and not more than three years 
        beginning on the date on which an inpatient hospital 
        code is issued with respect to the service or 
        technology;
            ``(III) subject to paragraph (4)(C)(iii), provide 
        for additional payment to be made under this subsection 
        with respect to discharges involving a new medical 
        service or technology described in subclause (I) that 
        occur during the period described in subclause (II) in 
        an amount that adequately reflects the estimated 
        average cost of such service or technology; and
            ``(IV) provide that discharges involving such a 
        service or technology that occur after the close of the 
        period described in subclause (II) will be classified 
        within a new or existing diagnosis-related group with a 
        weighting factor under paragraph (4)(B) that is derived 
        from cost data collected with respect to discharges 
        occurring during such period.
    ``(iii) For purposes of clause (ii)(II), the term 
`inpatient hospital code' means any code that is used with 
respect to inpatient hospital services for which payment may be 
made under this subsection and includes an alphanumeric code 
issued under the International Classification of Diseases, 9th 
Revision, Clinical Modification (`ICD-9-CM') and its subsequent 
revisions.
    ``(iv) For purposes of clause (ii)(III), the term 
`additional payment' means, with respect to a discharge for a 
new medical service or technology described in clause (ii)(I), 
an amount that exceeds the prospective payment rate otherwise 
applicable under this subsection to discharges involving such 
service or technology that would be made but for this 
subparagraph.
    ``(v) The requirement under clause (ii)(III) for an 
additional payment may be satisfied by means of a new-
technology group (described in subparagraph (L)), an add-on 
payment, a payment adjustment, or any other similar mechanism 
for increasing the amount otherwise payable with respect to a 
discharge under this subsection. The Secretary may not 
establish a separate fee schedule for such additional payment 
for such services and technologies, by utilizing a methodology 
established under subsection (a) or (h) of section 1834 to 
determine the amount of such additional payment, or by other 
similar mechanisms or methodologies.
    ``(vi) For purposes of this subparagraph and subparagraph 
(L), a medical service or technology will be considered a `new 
medical service or technology' if the service or technology 
meets criteria established by the Secretary after notice and an 
opportunity for public comment.
    ``(L)(i) In establishing the mechanism under subparagraph 
(K), the Secretary may establish new-technology groups into 
which a new medical service or technology will be classified 
if, based on the estimated average costs incurred with respect 
to discharges involving such service or technology, the DRG 
prospective payment rate otherwise applicable to such 
discharges under this subsection is inadequate.
    ``(ii) Such groups--
            ``(I) shall not be based on the costs associated 
        with a specific new medical service or technology; but
            ``(II) shall, in combination with the applicable 
        standardized amounts and the weighting factors assigned 
        to such groups under paragraph (4)(B), reflect such 
        cost cohorts as the Secretary determines are 
        appropriate for all new medical services and 
        technologies that are likely to be provided as 
        inpatient hospital services in a fiscal year.
    ``(iii) The methodology for classifying specific hospital 
discharges within a diagnosis-related group under paragraph 
(4)(A) or a new-technology group shall provide that a specific 
hospital discharge may not be classified within both a 
diagnosis-related group and a new-technology group.''.
            (2) Prior consultation.--The Secretary of Health 
        and Human Services shall consult with groups 
        representing hospitals, physicians, and manufacturers 
        of new medical technologies before publishing the 
        notice of proposed rulemaking required by section 
        1886(d)(5)(K)(i) of the Social Security Act (as added 
        by paragraph (1)).
            (3) Conforming amendment.--Section 1886(d)(4)(C)(i) 
        (42 U.S.C. 1395ww(d)(4)(C)(i)) is amended by striking 
        ``technology,'' and inserting ``technology (including a 
        new medical service or technology under paragraph 
        (5)(K)),''.

                      Subtitle E--Other Provisions

SEC. 541. INCREASE IN REIMBURSEMENT FOR BAD DEBT.

    Section 1861(v)(1)(T) (42 U.S.C. 1395x(v)(1)(T)) is 
amended--
            (1) in clause (ii), by striking ``and'' at the end;
            (2) in clause (iii)--
                    (A) by striking ``during a subsequent 
                fiscal year'' and inserting ``during fiscal 
                year 2000''; and
                    (B) by striking the period at the end and 
                inserting ``, and''; and
            (3) by adding at the end the following new clause:
            ``(iv) for cost reporting periods beginning during 
        a subsequent fiscal year, by 30 percent of such amount 
        otherwise allowable.''.

SEC. 542. TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY SERVICES UNDER 
                    MEDICARE.

    (a) In General.--When an independent laboratory furnishes 
the technical component of a physician pathology service to a 
fee-for-service medicare beneficiary who is an inpatient or 
outpatient of a covered hospital, the Secretary of Health and 
Human Services shall treat such component as a service for 
which payment shall be made to the laboratory under section 
1848 of the Social Security Act (42 U.S.C. 1395w-4) and not as 
an inpatient hospital service for which payment is made to the 
hospital under section 1886(d) of such Act (42 U.S.C. 
1395ww(d)) or as an outpatient hospital service for which 
payment is made to the hospital under section 1833(t) of such 
Act (42 U.S.C. 1395l(t)).
    (b) Definitions.--For purposes of this section:
            (1) Covered hospital.--The term ``covered 
        hospital'' means, with respect to an inpatient or an 
        outpatient, a hospital that had an arrangement with an 
        independent laboratory that was in effect as of July 
        22, 1999, under which a laboratory furnished the 
        technical component of physician pathology services to 
        fee-for-service medicare beneficiaries who were 
        hospital inpatients or outpatients, respectively, and 
        submitted claims for payment for such component to a 
        medicare carrier (that has a contract with the 
        Secretary under section 1842 of the Social Security 
        Act, 42 U.S.C. 1395u) and not to such hospital.
            (2) Fee-for-service medicare beneficiary.--The term 
        ``fee-for-service medicare beneficiary'' means an 
        individual who--
                    (A) is entitled to benefits under part A, 
                or enrolled under part B, or both, of such 
                title; and
                    (B) is not enrolled in any of the 
                following:
                            (i) A Medicare+Choice plan under 
                        part C of such title.
                            (ii) A plan offered by an eligible 
                        organization under section 1876 of such 
                        Act (42 U.S.C. 1395mm).
                            (iii) A program of all-inclusive 
                        care for the elderly (PACE) under 
                        section 1894 of such Act (42 U.S.C. 
                        1395eee).
                            (iv) A social health maintenance 
                        organization (SHMO) demonstration 
                        project established under section 
                        4018(b) of the Omnibus Budget 
                        Reconciliation Act of 1987 (Public Law 
                        100-203).
    (c) Effective Date.--This section applies to services 
furnished during the 2-year period beginning on January 1, 
2001.
    (d) GAO Report.--
            (1) Study.--The Comptroller General of the United 
        States shall conduct a study of the effects of the 
        previous provisions of this section on hospitals and 
        laboratories and access of fee-for-service medicare 
        beneficiaries to the technical component of physician 
        pathology services.
            (2) Report.--Not later than April 1, 2002, the 
        Comptroller General shall submit to Congress a report 
        on such study. The report shall include recommendations 
        about whether such provisions should be extended after 
        the end of the period specified in subsection (c) for 
        either or both inpatient and outpatient hospital 
        services, and whether the provisions should be extended 
        to other hospitals.

SEC. 543. EXTENSION OF ADVISORY OPINION AUTHORITY.

    Section 1128D(b)(6) (42 U.S.C. 1320a-7d(b)(6)) is amended 
by striking ``and before the date which is 4 years after such 
date of enactment''.

SEC. 544. CHANGE IN ANNUAL MEDPAC REPORTING.

    (a) Revision of Deadlines for Submission of Reports.--
            (1) In general.--Section 1805(b)(1)(D) (42 U.S.C. 
        1395b-6(b)(1)(D)) is amended by striking ``June 1 of 
        each year (beginning with 1998),'' and inserting ``June 
        15 of each year,''.
            (2) Effective date.--The amendment made by 
        paragraph (1) applies beginning with 2001.
    (b) Requirement for on the Record Votes on 
Recommendations.--Section 1805(b) (42 U.S.C. 1395b-6(b)) is 
amended by adding at the end the following new paragraph:
            ``(7) Voting and reporting requirements.--With 
        respect to each recommendation contained in a report 
        submitted under paragraph (1), each member of the 
        Commission shall vote on the recommendation, and the 
        Commission shall include, by member, the results of 
        that vote in the report containing the 
        recommendation.''.

SEC. 545. DEVELOPMENT OF PATIENT ASSESSMENT INSTRUMENTS.

    (a) Development.--
            (1) In general.--Not later than January 1, 2005, 
        the Secretary of Health and Human Services shall submit 
        to the Committee on Ways and Means and the Committee on 
        Commerce of the House of Representatives and the 
        Committee on Finance of the Senate a report on the 
        development of standard instruments for the assessment 
        of the health and functional status of patients, for 
        whom items and services described in subsection (b) are 
        furnished, and include in the report a recommendation 
        on the use of such standard instruments for payment 
        purposes.
            (2) Design for comparison of common elements.--The 
        Secretary shall design such standard instruments in a 
        manner such that--
                    (A) elements that are common to the items 
                and services described in subsection (b) may be 
                readily comparable and are statistically 
                compatible;
                    (B) only elements necessary to meet program 
                objectives are collected; and
                    (C) the standard instruments supersede any 
                other assessment instrument used before that 
                date.
            (3) Consultation.--In developing an assessment 
        instrument under paragraph (1), the Secretary shall 
        consult with the Medicare Payment Advisory Commission, 
        the Agency for Healthcare Research and Quality, and 
        qualified organizations representing providers of 
        services and suppliers under title XVIII.
    (b) Description of Services.--For purposes of subsection 
(a), items and services described in this subsection are those 
items and services furnished to individuals entitled to 
benefits under part A, or enrolled under part B, or both of 
title XVIII of the Social Security Act for which payment is 
made under such title, and include the following:
            (1) Inpatient and outpatient hospital services.
            (2) Inpatient and outpatient rehabilitation 
        services.
            (3) Covered skilled nursing facility services.
            (4) Home health services.
            (5) Physical or occupational therapy or speech-
        language pathology services.
            (6) Items and services furnished to such 
        individuals determined to have end stage renal disease.
            (7) Partial hospitalization services and other 
        mental health services.
            (8) Any other service for which payment is made 
        under such title as the Secretary determines to be 
        appropriate.

SEC. 546. GAO REPORT ON IMPACT OF THE EMERGENCY MEDICAL TREATMENT AND 
                    ACTIVE LABOR ACT (EMTALA) ON HOSPITAL EMERGENCY 
                    DEPARTMENTS.

    (a) Report.--The Comptroller General of the United States 
shall submit a report to the Committee on Commerce and the 
Committee on Ways and Means of the House of Representatives and 
the Committee on Finance of the Senate by May 1, 2001, on the 
effect of the Emergency Medical Treatment and Active Labor Act 
on hospitals, emergency physicians, and physicians covering 
emergency department call throughout the United States.
    (b) Report Requirements.--The report should evaluate--
            (1) the extent to which hospitals, emergency 
        physicians, and physicians covering emergency 
        department call provide uncompensated services in 
        relation to the requirements of EMTALA;
            (2) the extent to which the regulatory requirements 
        and enforcement of EMTALA have expanded beyond the 
        legislation's original intent;
            (3) estimates for the total dollar amount of 
        EMTALA-related care uncompensated costs to emergency 
        physicians, physicians covering emergency department 
        call, hospital emergency departments, and other 
        hospital services;
            (4) the extent to which different portions of the 
        United States may be experiencing different levels of 
        uncompensated EMTALA-related care;
            (5) the extent to which EMTALA would be classified 
        as an unfunded mandate if it were enacted today;
            (6) the extent to which States have programs to 
        provide financial support for such uncompensated care;
            (7) possible sources of funds, including medicare 
        hospital bad debt accounts, that are available to 
        hospitals to assist with the cost of such uncompensated 
        care; and
            (8) the financial strain that illegal immigration 
        populations, the uninsured, and the underinsured place 
        on hospital emergency departments, other hospital 
        services, emergency physicians, and physicians covering 
        emergency department call.
    (c) Definition.--In this section, the terms ``Emergency 
Medical Treatment and Active Labor Act'' and ``EMTALA'' mean 
section 1867 of the Social Security Act (42 U.S.C. 1395dd).

 TITLE VI--PROVISIONS RELATING TO PART C (MEDICARE+CHOICE PROGRAM) AND 
                 OTHER MEDICARE MANAGED CARE PROVISIONS

              Subtitle A--Medicare+Choice Payment Reforms

SEC. 601. INCREASE IN MINIMUM PAYMENT AMOUNT.

    Section 1853(c)(1)(B)(ii) (42 U.S.C. 1395w-23(c)(1)(B)(ii)) 
is amended--
            (1) by striking ``(ii) For a succeeding year'' and 
        inserting ``(ii)(I) Subject to subclauses (II) and 
        (III), for a succeeding year''; and
            (2) by adding at the end the following new 
        subclauses:
                            ``(II) For 2001, for any area in a 
                        Metropolitan Statistical Area within 
                        any of the 50 States and the District 
                        of Columbia with a population of more 
                        than 250,000, $525 (and for any other 
                        area within any of the 50 States, 
                        $475).
                            ``(III) For 2001, for any area in a 
                        Metropolitan Statistical Area outside 
                        the 50 States and the District of 
                        Columbia with a population of more than 
                        250,000, $525 (and for any other area 
                        outside the 50 States and the District 
                        of Columbia, $475), but not to exceed 
                        120 percent of the amount determined 
                        under this subparagraph for such area 
                        for 2000.''.

SEC. 602. INCREASE IN MINIMUM PERCENTAGE INCREASE.

    Section 1853(c)(1)(C)(ii) (42 U.S.C. 1395w-23(c)(1)(C)(ii)) 
is amended by inserting ``(or 103 percent in the case of 
2001)'' after ``102 percent''.

SEC. 603. 10-YEAR PHASE-IN OF RISK ADJUSTMENT.

    Section 1853(a)(3)(C)(ii) (42 U.S.C. 1395w-23(a)(3)(C)(ii)) 
is amended--
            (1) in subclause (I), by striking ``and 2001'' and 
        inserting ``and each succeeding year through the first 
        year in which risk adjustment is based on data from 
        inpatient hospital and ambulatory settings''; and
            (2) by amending subclause (II) to read as follows:
                                    ``(II) beginning after such 
                                first year, insofar as such 
                                risk adjustment is based on 
                                data from inpatient hospital 
                                and ambulatory settings, the 
                                methodology shall be phased in 
                                equal increments over a 10-year 
                                period that begins with such 
                                first year.''.

SEC. 604. TRANSITION TO REVISED MEDICARE+CHOICE PAYMENT RATES.

    (a) Announcement of Revised Medicare+Choice Payment 
Rates.--Within 2 weeks after the date of the enactment of this 
Act, the Secretary of Health and Human Services shall 
determine, and shall announce (in a manner intended to provide 
notice to interested parties) Medicare+Choice capitation rates 
under section 1853 of the Social Security Act (42 U.S.C. 1395w-
23) for 2001, revised in accordance with the provisions of this 
Act.
    (b) Reentry Into Program Permitted for Medicare+Choice 
Programs in 2000.--A Medicare+Choice organization that provided 
notice to the Secretary of Health and Human Services before the 
date of the enactment of this Act that it was terminating its 
contract under part C of title XVIII of the Social Security Act 
or was reducing the service area of a Medicare+Choice plan 
offered under such part shall be permitted to continue 
participation under such part, or to maintain the service area 
of such plan, for 2001 if it provides the Secretary with the 
information described in section 1854(a)(1) of the Social 
Security Act (42 U.S.C. 1395w-24(a)(1)) within 2 weeks after 
the date revised rates are announced by the Secretary under 
subsection (a).
    (c) Revised Submission of Proposed Premiums and Related 
Information.--If--
            (1) a Medicare+Choice organization provided notice 
        to the Secretary of Health and Human Services as of 
        July 3, 2000, that it was renewing its contract under 
        part C of title XVIII of the Social Security Act for 
        all or part of the service area or areas served under 
        its current contract, and
            (2) any part of the service area or areas addressed 
        in such notice includes a payment area for which the 
        Medicare+Choice capitation rate under section 1853(c) 
        of such Act (42 U.S.C. 1395w-23(c)) for 2001, as 
        determined under subsection (a), is higher than the 
        rate previously determined for such year,
such organization shall revise its submission of the 
information described in section 1854(a)(1) of the Social 
Security Act (42 U.S.C. 1395w-24(a)(1)), and shall submit such 
revised information to the Secretary, within 2 weeks after the 
date revised rates are announced by the Secretary under 
subsection (a). In making such submission, the organization may 
only reduce premiums, cost-sharing, enhance benefits, or 
utilize the stabilization fund described in section 1854(f)(2) 
of such Act (42 U.S.C. 1395w-24(f)(2)).
    (d) Disregard of New Rate Announcement in Applying Pass-
Through for New National Coverage Determinations.--For purposes 
of applying section 1852(a)(5) of the Social Security Act (42 
U.S.C. 1395w-22(a)(5)), the announcement of revised rates under 
subsection (a) shall not be treated as an announcement under 
section 1853(b) of such Act (42 U.S.C. 1395w-23(b)).

SEC. 605. REVISION OF PAYMENT RATES FOR ESRD PATIENTS ENROLLED IN 
                    MEDICARE+CHOICE PLANS.

    (a) In General.--Section 1853(a)(1)(B) (42 U.S.C. 1395w-
23(a)(1)(B)) is amended by adding at the end the following: 
``In establishing such rates, the Secretary shall provide for 
appropriate adjustments to increase each rate to reflect the 
demonstration rate (including the risk adjustment methodology 
associated with such rate) of the social health maintenance 
organization end-stage renal disease capitation demonstrations 
(established by section 2355 of the Deficit Reduction Act of 
1984, as amended by section 13567(b) of the Omnibus Budget 
Reconciliation Act of 1993), and shall compute such rates by 
taking into account such factors as renal treatment modality, 
age, and the underlying cause of the end-stage renal 
disease.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to payments for months beginning with January 2002.
    (c) Publication.--Not later than 6 months after the date of 
the enactment of this Act, the Secretary of Health and Human 
Services shall publish for public comment a description of the 
appropriate adjustments described in the last sentence of 
section 1853(a)(1)(B) of the Social Security Act (42 U.S.C. 
1395w-23(a)(1)(B)), as added by subsection (a). The Secretary 
shall publish such adjustments in final form by not later than 
July 1, 2001, so that the amendment made by subsection (a) is 
implemented on a timely basis consistent with subsection (b).

SEC. 606. PERMITTING PREMIUM REDUCTIONS AS ADDITIONAL BENEFITS UNDER 
                    MEDICARE+CHOICE PLANS.

    (a) In General.--
            (1) Authorization of part b premium reductions.--
        Section 1854(f)(1) (42 U.S.C. 1395w-24(f)(1)) is 
        amended--
                    (A) by redesignating subparagraph (E) as 
                subparagraph (F); and
                    (B) by inserting after subparagraph (D) the 
                following new subparagraph:
                    ``(E) Premium reductions.--
                            ``(i) In general.--Subject to 
                        clause (ii), as part of providing any 
                        additional benefits required under 
                        subparagraph (A), a Medicare+Choice 
                        organization may elect a reduction in 
                        its payments under section 
                        1853(a)(1)(A) with respect to a 
                        Medicare+Choice plan and the Secretary 
                        shall apply such reduction to reduce 
                        the premium under section 1839 of each 
                        enrollee in such plan as provided in 
                        section 1840(i).
                            ``(ii) Amount of reduction.--The 
                        amount of the reduction under clause 
                        (i) with respect to any enrollee in a 
                        Medicare+Choice plan--
                                    ``(I) may not exceed 125 
                                percent of the premium 
                                described under section 
                                1839(a)(3); and
                                    ``(II) shall apply 
                                uniformly to each enrollee of 
                                the Medicare+Choice plan to 
                                which such reduction 
                                applies.''.
            (2) Conforming amendments.--
                    (A) Adjustment of payments to 
                medicare+choice organizations.--Section 
                1853(a)(1)(A) (42 U.S.C. 1395w-23(a)(1)(A)) is 
                amended by inserting ``reduced by the amount of 
                any reduction elected under section 
                1854(f)(1)(E) and'' after ``for that area,''.
                    (B) Adjustment and payment of part b 
                premiums.--
                            (i) Adjustment of premiums.--
                        Section 1839(a)(2) (42 U.S.C. 
                        1395r(a)(2)) is amended by striking 
                        ``shall'' and all that follows and 
                        inserting the following: ``shall be the 
                        amount determined under paragraph (3), 
                        adjusted as required in accordance with 
                        subsections (b), (c), and (f), and to 
                        reflect 80 percent of any reduction 
                        elected under section 1854(f)(1)(E).''.
                            (ii) Payment of premiums.--Section 
                        1840 (42 U.S.C. 1395s) is amended by 
                        adding at the end the following new 
                        subsection:
    ``(i) In the case of an individual enrolled in a 
Medicare+Choice plan, the Secretary shall provide for necessary 
adjustments of the monthly beneficiary premium to reflect 80 
percent of any reduction elected under section 1854(f)(1)(E). 
This premium adjustment may be provided directly or as an 
adjustment to any social security, railroad retirement, and 
civil service retirement benefits, to the extent which the 
Secretary determines that such an adjustment is appropriate 
with the concurrence of the agencies responsible for the 
administration of such benefits.''.
                    (C) Information comparing plan premiums 
                under part c.--Section 1851(d)(4)(B) (42 U.S.C. 
                1395w-21(d)(4)(B)) is amended--
                            (i) by striking ``Premiums.--The'' 
                        and inserting ``Premiums.--
                            ``(i) In general.--The''; and
                            (ii) by adding at the end the 
                        following new clause:
                            ``(ii) Reductions.--The reduction 
                        in part B premiums, if any.''.
                    (D) Treatment of reduction for purposes of 
                determining government contribution under part 
                b.--Section 1844 (42 U.S.C. 1395w) is amended 
                by adding at the end the following new 
                subsection:
    ``(c) The Secretary shall determine the Government 
contribution under subparagraphs (A) and (B) of subsection 
(a)(1) without regard to any premium reduction resulting from 
an election under section 1854(f)(1)(E).''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall apply to years beginning with 2002.

SEC. 607. FULL IMPLEMENTATION OF RISK ADJUSTMENT FOR CONGESTIVE HEART 
                    FAILURE ENROLLEES FOR 2001.

    (a) In General.--Section 1853(a)(3)(C) (42 U.S.C. 1395w-
23(a)(3)(C)) is amended--
            (1) in clause (ii), by striking ``Such risk 
        adjustment'' and inserting ``Except as provided in 
        clause (iii), such risk adjustment''; and
            (2) by adding at the end the following new clause:
                            ``(iii) Full implementation of risk 
                        adjustment for congestive heart failure 
                        enrollees for 2001.--
                                    ``(I) Exemption from phase-
                                in.--Subject to subclause (II), 
                                the Secretary shall fully 
                                implement the risk adjustment 
                                methodology described in clause 
                                (i) with respect to each 
                                individual who has had a 
                                qualifying congestive heart 
                                failure inpatient diagnosis (as 
                                determined by the Secretary 
                                under such risk adjustment 
                                methodology) during the period 
                                beginning on July 1, 1999, and 
                                ending on June 30, 2000, and 
                                who is enrolled in a 
                                coordinated care plan that is 
                                the only coordinated care plan 
                                offered on January 1, 2001, in 
                                the service area of the 
                                individual.
                                    ``(II) Period of 
                                application.--Subclause (I) 
                                shall only apply during the 1-
                                year period beginning on 
                                January 1, 2001.''.
    (b) Exclusion From Determination of the Budget Neutrality 
Factor.--Section 1853(c)(5) (42 U.S.C. 1395w-23(c)(5)) is 
amended by striking ``subsection (i)'' and inserting 
``subsections (a)(3)(C)(iii) and (i)''.

SEC. 608. EXPANSION OF APPLICATION OF MEDICARE+CHOICE NEW ENTRY BONUS.

    (a) In General.--Section 1853(i)(1) (42 U.S.C. 1395w-
23(i)(1)) is amended in the matter preceding subparagraph (A) 
by inserting ``, or filed notice with the Secretary as of 
October 3, 2000, that they will not be offering such a plan as 
of January 1, 2001'' after ``January 1, 2000''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply as if included in the enactment of BBRA.

SEC. 609. REPORT ON INCLUSION OF CERTAIN COSTS OF THE DEPARTMENT OF 
                    VETERANS AFFAIRS AND MILITARY FACILITY SERVICES IN 
                    CALCULATING MEDICARE+CHOICE PAYMENT RATES.

    The Secretary of Health and Human Services shall report to 
Congress by not later than January 1, 2003, on a method to 
phase-in the costs of military facility services furnished by 
the Department of Veterans Affairs, and the costs of military 
facility services furnished by the Department of Defense, to 
medicare-eligible beneficiaries in the calculation of an area's 
Medicare+Choice capitation payment. Such report shall include 
on a county-by-county basis--
            (1) the actual or estimated cost of such services 
        to medicare-eligible beneficiaries;
            (2) the change in Medicare+Choice capitation 
        payment rates if such costs are included in the 
        calculation of payment rates;
            (3) one or more proposals for the implementation of 
        payment adjustments to Medicare+Choice plans in 
        counties where the payment rate has been affected due 
        to the failure to calculate the cost of such services 
        to medicare-eligible beneficiaries; and
            (4) a system to ensure that when a Medicare+Choice 
        enrollee receives covered services through a facility 
        of the Department of Veterans Affairs or the Department 
        of Defense there is an appropriate payment recovery to 
        the medicare program under title XVIII of the Social 
        Security Act.

               Subtitle B--Other Medicare+Choice Reforms

SEC. 611. PAYMENT OF ADDITIONAL AMOUNTS FOR NEW BENEFITS COVERED DURING 
                    A CONTRACT TERM.

    (a) In General.--Section 1853(c)(7) (42 U.S.C. 1395w-
23(c)(7)) is amended to read as follows:
            ``(7) Adjustment for national coverage 
        determinations and legislative changes in benefits.--If 
        the Secretary makes a determination with respect to 
        coverage under this title or there is a change in 
        benefits required to be provided under this part that 
        the Secretary projects will result in a significant 
        increase in the costs to Medicare+Choice of providing 
        benefits under contracts under this part (for periods 
        after any period described in section 1852(a)(5)), the 
        Secretary shall adjust appropriately the payments to 
        such organizations under this part. Such projection and 
        adjustment shall be based on an analysis by the Chief 
        Actuary of the Health Care Financing Administration of 
        the actuarial costs associated with the new 
        benefits.''.
    (b) Conforming Amendment.--Section 1852(a)(5) (42 U.S.C. 
1395w-22(a)(5)) is amended--
            (1) in the heading, by inserting ``and legislative 
        changes in benefits'' after ``National coverage 
        determinations'';
            (2) by inserting ``or legislative change in 
        benefits required to be provided under this part'' 
        after ``national coverage determination'';
            (3) in subparagraph (A), by inserting ``or 
        legislative change in benefits'' after ``such 
        determination'';
            (4) in subparagraph (B), by inserting ``or 
        legislative change'' after ``if such coverage 
        determination''; and
            (5) by adding at the end the following:
        ``The projection under the previous sentence shall be 
        based on an analysis by the Chief Actuary of the Health 
        Care Financing Administration of the actuarial costs 
        associated with the coverage determination or 
        legislative change in benefits.''.
    (c) Effective Date.--The amendments made by this section 
are effective on the date of the enactment of this Act and 
apply to national coverage determinations and legislative 
changes in benefits occurring on or after such date.

SEC. 612. RESTRICTION ON IMPLEMENTATION OF SIGNIFICANT NEW REGULATORY 
                    REQUIREMENTS MIDYEAR.

    (a) In General.--Section 1856(b) (42 U.S.C. 1395w-26(b)) is 
amended by adding at the end the following new paragraph:
            ``(4) Prohibition of midyear implementation of 
        significant new regulatory requirements.--The Secretary 
        may not implement, other than at the beginning of a 
        calendar year, regulations under this section that 
        impose new, significant regulatory requirements on a 
        Medicare+Choice organization or plan.''.
    (b) Effective Date.--The amendment made by subsection (a) 
takes effect on the date of the enactment of this Act.

SEC. 613. TIMELY APPROVAL OF MARKETING MATERIAL THAT FOLLOWS MODEL 
                    MARKETING LANGUAGE.

    (a) In General.--Section 1851(h) (42 U.S.C. 1395w-21(h)) is 
amended--
            (1) in paragraph (1)(A), by inserting ``(or 10 days 
        in the case described in paragraph (5))'' after ``45 
        days''; and
            (2) by adding at the end the following new 
        paragraph:
            ``(5) Special treatment of marketing material 
        following model marketing language.--In the case of 
        marketing material of an organization that uses, 
        without modification, proposed model language specified 
        by the Secretary, the period specified in paragraph 
        (1)(A) shall be reduced from 45 days to 10 days.''.
    (b) Effective Date.--The amendments made by subsection (a) 
apply to marketing material submitted on or after January 1, 
2001.

SEC. 614. AVOIDING DUPLICATIVE REGULATION.

    (a) In General.--Section 1856(b)(3)(B) (42 U.S.C. 1395w-
26(b)(3)(B)) is amended--
            (1) in clause (i), by inserting ``(including cost-
        sharing requirements)'' after ``Benefit requirements''; 
        and
            (2) by adding at the end the following new clause:
                            ``(iv) Requirements relating to 
                        marketing materials and summaries and 
                        schedules of benefits regarding a 
                        Medicare+Choice plan.''.
    (b) Effective Date.--The amendments made by subsection (a) 
take effect on the date of the enactment of this Act.

SEC. 615. ELECTION OF UNIFORM LOCAL COVERAGE POLICY FOR MEDICARE+CHOICE 
                    PLAN COVERING MULTIPLE LOCALITIES.

    Section 1852(a)(2) (42 U.S.C. 1395w-22(a)(2)) is amended by 
adding at the end the following new subparagraph:
                    ``(C) Election of uniform coverage 
                policy.--In the case of a Medicare+Choice 
                organization that offers a Medicare+Choice plan 
                in an area in which more than one local 
                coverage policy is applied with respect to 
                different parts of the area, the organization 
                may elect to have the local coverage policy for 
                the part of the area that is most beneficial to 
                Medicare+Choice enrollees (as identified by the 
                Secretary) apply with respect to all 
                Medicare+Choice enrollees enrolled in the 
                plan.''.

SEC. 616. ELIMINATING HEALTH DISPARITIES IN MEDICARE+CHOICE PROGRAM.

    (a) Quality Assurance Program Focus on Racial and Ethnic 
Minorities.--Subparagraphs (A) and (B) of section 1852(e)(2) 
(42 U.S.C. 1395w-22(e)(2)) are each amended by adding at the 
end the following:
                ``Such program shall include a separate focus 
                (with respect to all the elements described in 
                this subparagraph) on racial and ethnic 
                minorities.''.
    (b) Report.--Section 1852(e) (42 U.S.C. 1395w-22(e)) is 
amended by adding at the end the following new paragraph:
            ``(5) Report to congress.--
                    ``(A) In general.--Not later than 2 years 
                after the date of the enactment of this 
                paragraph, and biennially thereafter, the 
                Secretary shall submit to Congress a report 
                regarding how quality assurance programs 
                conducted under this subsection focus on racial 
                and ethnic minorities.
                    ``(B) Contents of report.--Each such report 
                shall include the following:
                            ``(i) A description of the means by 
                        which such programs focus on such 
                        racial and ethnic minorities.
                            ``(ii) An evaluation of the impact 
                        of such programs on eliminating health 
                        disparities and on improving health 
                        outcomes, continuity and coordination 
                        of care, management of chronic 
                        conditions, and consumer satisfaction.
                            ``(iii) Recommendations on ways to 
                        reduce clinical outcome disparities 
                        among racial and ethnic minorities.''.

SEC. 617. MEDICARE+CHOICE PROGRAM COMPATIBILITY WITH EMPLOYER OR UNION 
                    GROUP HEALTH PLANS.

    (a) In General.--Section 1857 (42 U.S.C. 1395w-27) is 
amended by adding at the end the following new subsection:
    ``(i) Medicare+Choice Program Compatibility With Employer 
or Union Group Health Plans.--To facilitate the offering of 
Medicare+Choice plans under contracts between Medicare+Choice 
organizations and employers, labor organizations, or the 
trustees of a fund established by 1 or more employers or labor 
organizations (or combination thereof) to furnish benefits to 
the entity's employees, former employees (or combination 
thereof) or members or former members (or combination thereof) 
of the labor organizations, the Secretary may waive or modify 
requirements that hinder the design of, the offering of, or the 
enrollment in such Medicare+Choice plans.''.
    (b) Effective Date.--The amendment made by subsection (a) 
applies with respect to years beginning with 2001.

SEC. 618. SPECIAL MEDIGAP ENROLLMENT ANTIDISCRIMINATION PROVISION FOR 
                    CERTAIN BENEFICIARIES.

    (a) Disenrollment Window in Accordance With Beneficiary's 
Circumstance.--Section 1882(s)(3) (42 U.S.C. 1395ss(s)(3)) is 
amended--
            (1) in subparagraph (A), in the matter following 
        clause (iii), by striking ``, subject to subparagraph 
        (E), seeks to enroll under the policy not later than 63 
        days after the date of the termination of enrollment 
        described in such subparagraph'' and inserting ``seeks 
        to enroll under the policy during the period specified 
        in subparagraph (E)''; and
            (2) by striking subparagraph (E) and inserting the 
        following new subparagraph:
    ``(E) For purposes of subparagraph (A), the time period 
specified in this subparagraph is--
            ``(i) in the case of an individual described in 
        subparagraph (B)(i), the period beginning on the date 
        the individual receives a notice of termination or 
        cessation of all supplemental health benefits (or, if 
        no such notice is received, notice that a claim has 
        been denied because of such a termination or cessation) 
        and ending on the date that is 63 days after the 
        applicable notice;
            ``(ii) in the case of an individual described in 
        clause (ii), (iii), (v), or (vi) of subparagraph (B) 
        whose enrollment is terminated involuntarily, the 
        period beginning on the date that the individual 
        receives a notice of termination and ending on the date 
        that is 63 days after the date the applicable coverage 
        is terminated;
            ``(iii) in the case of an individual described in 
        subparagraph (B)(iv)(I), the period beginning on the 
        earlier of (I) the date that the individual receives a 
        notice of termination, a notice of the issuer's 
        bankruptcy or insolvency, or other such similar notice, 
        if any, and (II) the date that the applicable coverage 
        is terminated, and ending on the date that is 63 days 
        after the date the coverage is terminated;
            ``(iv) in the case of an individual described in 
        clause (ii), (iii), (iv)(II), (iv)(III), (v), or (vi) 
        of subparagraph (B) who disenrolls voluntarily, the 
        period beginning on the date that is 60 days before the 
        effective date of the disenrollment and ending on the 
        date that is 63 days after such effective date; and
            ``(v) in the case of an individual described in 
        subparagraph (B) but not described in the preceding 
        provisions of this subparagraph, the period beginning 
        on the effective date of the disenrollment and ending 
        on the date that is 63 days after such effective 
        date.''.
    (b) Extended Medigap Access for Interrupted Trial 
Periods.--Section 1882(s)(3) (42 U.S.C. 1395ss(s)(3)), as 
amended by subsection (a), is further amended by adding at the 
end the following new subparagraph:
    ``(F)(i) Subject to clause (ii), for purposes of this 
paragraph--
            ``(I) in the case of an individual described in 
        subparagraph (B)(v) (or deemed to be so described, 
        pursuant to this subparagraph) whose enrollment with an 
        organization or provider described in subclause (II) of 
        such subparagraph is involuntarily terminated within 
        the first 12 months of such enrollment, and who, 
        without an intervening enrollment, enrolls with another 
        such organization or provider, such subsequent 
        enrollment shall be deemed to be an initial enrollment 
        described in such subparagraph; and
            ``(II) in the case of an individual described in 
        clause (vi) of subparagraph (B) (or deemed to be so 
        described, pursuant to this subparagraph) whose 
        enrollment with a plan or in a program described in 
        such clause is involuntarily terminated within the 
        first 12 months of such enrollment, and who, without an 
        intervening enrollment, enrolls in another such plan or 
        program, such subsequent enrollment shall be deemed to 
        be an initial enrollment described in such clause.
    ``(ii) For purposes of clauses (v) and (vi) of subparagraph 
(B), no enrollment of an individual with an organization or 
provider described in clause (v)(II), or with a plan or in a 
program described in clause (vi), may be deemed to be an 
initial enrollment under this clause after the 2-year period 
beginning on the date on which the individual first enrolled 
with such an organization, provider, plan, or program.''.

SEC. 619. RESTORING EFFECTIVE DATE OF ELECTIONS AND CHANGES OF 
                    ELECTIONS OF MEDICARE+CHOICE PLANS.

    (a) Open Enrollment.--Section 1851(f)(2) (42 U.S.C. 1395w-
21(f)(2)) is amended by striking ``, except that if such 
election or change is made after the 10th day of any calendar 
month, then the election or change shall not take effect until 
the first day of the second calendar month following the date 
on which the election or change is made''.
    (b) Effective Date.--The amendment made by this section 
shall apply to elections and changes of coverage made on or 
after January 1, 2001.

SEC. 620. PERMITTING ESRD BENEFICIARIES TO ENROLL IN ANOTHER 
                    MEDICARE+CHOICE PLAN IF THE PLAN IN WHICH THEY ARE 
                    ENROLLED IS TERMINATED.

    (a) In General.--Section 1851(a)(3)(B) (42 U.S.C. 1395w-
21(a)(3)(B)) is amended by striking ``except that'' and all 
that follows and inserting the following: ``except that--
                            ``(i) an individual who develops 
                        end-stage renal disease while enrolled 
                        in a Medicare+Choice plan may continue 
                        to be enrolled in that plan; and
                            ``(ii) in the case of such an 
                        individual who is enrolled in a 
                        Medicare+Choice plan under clause (i) 
                        (or subsequently under this clause), if 
                        the enrollment is discontinued under 
                        circumstances described in section 
                        1851(e)(4)(A), then the individual will 
                        be treated as a `Medicare+Choice 
                        eligible individual' for purposes of 
                        electing to continue enrollment in 
                        another Medicare+Choice plan.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by subsection 
        (a) shall apply to terminations and discontinuations 
        occurring on or after the date of the enactment of this 
        Act.
            (2) Application to prior plan terminations.--Clause 
        (ii) of section 1851(a)(3)(B) of the Social Security 
        Act (as inserted by subsection (a)) also shall apply to 
        individuals whose enrollment in a Medicare+Choice plan 
        was terminated or discontinued after December 31, 1998, 
        and before the date of the enactment of this Act. In 
        applying this paragraph, such an individual shall be 
        treated, for purposes of part C of title XVIII of the 
        Social Security Act, as having discontinued enrollment 
        in such a plan as of the date of the enactment of this 
        Act.

SEC. 621. PROVIDING CHOICE FOR SKILLED NURSING FACILITY SERVICES UNDER 
                    THE MEDICARE+CHOICE PROGRAM.

    (a) In General.--Section 1852 (42 U.S.C. 1395w-22) is 
amended by adding at the end the following new subsection:
    ``(l) Return to Home Skilled Nursing Facilities for Covered 
Post-Hospital Extended Care Services.--
            ``(1) Ensuring return to home snf.--
                    ``(A) In general.--In providing coverage of 
                post-hospital extended care services, a 
                Medicare+Choice plan shall provide for such 
                coverage through a home skilled nursing 
                facility if the following conditions are met:
                            ``(i) Enrollee election.--The 
                        enrollee elects to receive such 
                        coverage through such facility.
                            ``(ii) SNF agreement.--The facility 
                        has a contract with the Medicare+Choice 
                        organization for the provision of such 
                        services, or the facility agrees to 
                        accept substantially similar payment 
                        under the same terms and conditions 
                        that apply to similarly situated 
                        skilled nursing facilities that are 
                        under contract with the Medicare+Choice 
                        organization for the provision of such 
                        services and through which the enrollee 
                        would otherwise receive such services.
                    ``(B) Manner of payment to home snf.--The 
                organization shall provide payment to the home 
                skilled nursing facility consistent with the 
                contract or the agreement described in 
                subparagraph (A)(ii), as the case may be.
            ``(2) No less favorable coverage.--The coverage 
        provided under paragraph (1) (including scope of 
        services, cost-sharing, and other criteria of coverage) 
        shall be no less favorable to the enrollee than the 
        coverage that would be provided to the enrollee with 
        respect to a skilled nursing facility the post-hospital 
        extended care services of which are otherwise covered 
        under the Medicare+Choice plan.
            ``(3) Rule of construction.--Nothing in this 
        subsection shall be construed to do the following:
                    ``(A) To require coverage through a skilled 
                nursing facility that is not otherwise 
                qualified to provide benefits under part A for 
                medicare beneficiaries not enrolled in a 
                Medicare+Choice plan.
                    ``(B) To prevent a skilled nursing facility 
                from refusing to accept, or imposing conditions 
                upon the acceptance of, an enrollee for the 
                receipt of post-hospital extended care 
                services.
            ``(4) Definitions.--In this subsection:
                    ``(A) Home skilled nursing facility.--The 
                term `home skilled nursing facility' means, 
                with respect to an enrollee who is entitled to 
                receive post-hospital extended care services 
                under a Medicare+Choice plan, any of the 
                following skilled nursing facilities:
                            ``(i) SNF residence at time of 
                        admission.--The skilled nursing 
                        facility in which the enrollee resided 
                        at the time of admission to the 
                        hospital preceding the receipt of such 
                        post-hospital extended care services.
                            ``(ii) SNF in continuing care 
                        retirement community.--A skilled 
                        nursing facility that is providing such 
                        services through a continuing care 
                        retirement community (as defined in 
                        subparagraph (B)) which provided 
                        residence to the enrollee at the time 
                        of such admission.
                            ``(iii) SNF residence of spouse at 
                        time of discharge.--The skilled nursing 
                        facility in which the spouse of the 
                        enrollee is residing at the time of 
                        discharge from such hospital.
                    ``(B) Continuing care retirement 
                community.--The term `continuing care 
                retirement community' means, with respect to an 
                enrollee in a Medicare+Choice plan, an 
                arrangement under which housing and health-
                related services are provided (or arranged) 
                through an organization for the enrollee under 
                an agreement that is effective for the life of 
                the enrollee or for a specified period.''.
    (b) Effective Date.--The amendment made by subsection (a) 
applies with respect to contracts entered into or renewed on or 
after the date of the enactment of this Act.
    (c) MedPAC Study.--
            (1) Study.--The Medicare Payment Advisory 
        Commission shall conduct a study analyzing the effects 
        of the amendment made by subsection (a) on 
        Medicare+Choice organizations. In conducting such 
        study, the Commission shall examine the effects (if 
        any) such amendment has had on--
                    (A) the scope of additional benefits 
                provided under the Medicare+Choice program;
                    (B) the administrative and other costs 
                incurred by Medicare+Choice organizations;
                    (C) the contractual relationships between 
                such organizations and skilled nursing 
                facilities.
            (2) Report.--Not later than 2 years after the date 
        of the enactment of this Act, the Commission shall 
        submit to Congress a report on the study conducted 
        under paragraph (1).

SEC. 622. PROVIDING FOR ACCOUNTABILITY OF MEDICARE+CHOICE PLANS.

    (a) Mandatory Review of ACR Submissions by the Chief 
Actuary of the Health Care Financing Administration.--Section 
1854(a)(5)(A) (42 U.S.C. 1395w-24(a)(5)(A)) is amended--
            (1) by striking ``value'' and inserting ``values''; 
        and
            (2) by adding at the end the following: ``The Chief 
        Actuary of the Health Care Financing Administration 
        shall review the actuarial assumptions and data used by 
        the Medicare+Choice organization with respect to such 
        rates, amounts, and values so submitted to determine 
        the appropriateness of such assumptions and data.''.
    (b) Effective Date.--The amendment made by subsection (a) 
applies to submissions made on or after January 1, 2001.

                 Subtitle C--Other Managed Care Reforms

SEC. 631. 1-YEAR EXTENSION OF SOCIAL HEALTH MAINTENANCE ORGANIZATION 
                    (SHMO) DEMONSTRATION PROJECT.

    Section 4018(b)(1) of the Omnibus Budget Reconciliation Act 
of 1987, as amended by section 531(a)(1) of BBRA (113 Stat. 
1501A-388), is amended by striking ``18 months'' and inserting 
``30 months''.

SEC. 632. REVISED TERMS AND CONDITIONS FOR EXTENSION OF MEDICARE 
                    COMMUNITY NURSING ORGANIZATION (CNO) DEMONSTRATION 
                    PROJECT.

    (a) In General.--Section 532 of BBRA (113 Stat. 1501A-388) 
is amended--
            (1) in subsection (a), by striking the second 
        sentence; and
            (2) by striking subsection (b) and inserting the 
        following new subsection:
    ``(b) Terms and Conditions.--
            ``(1) January through september 2000.--For the 9-
        month period beginning with January 2000, any such 
        demonstration project shall be conducted under the same 
        terms and conditions as applied to such demonstration 
        during 1999.
            ``(2) October 2000 through december 2001.--For the 
        15-month period beginning with October 2000, any such 
        demonstration project shall be conducted under the same 
        terms and conditions as applied to such demonstration 
        during 1999, except that the following modifications 
        shall apply:
                    ``(A) Basic capitation rate.--The basic 
                capitation rate paid for services covered under 
                the project (other than case management 
                services) per enrollee per month and furnished 
                during--
                            ``(i) the period beginning with 
                        October 1, 2000, and ending with 
                        December 31, 2000, shall be determined 
                        by actuarially adjusting the actual 
                        capitation rate paid for such services 
                        in 1999 for inflation, utilization, and 
                        other changes to the CNO service 
                        package, and by reducing such adjusted 
                        capitation rate by 10 percent in the 
                        case of the demonstration sites located 
                        in Arizona, Minnesota, and Illinois, 
                        and 15 percent for the demonstration 
                        site located in New York; and
                            ``(ii) 2001 shall be determined by 
                        actuarially adjusting the capitation 
                        rate determined under clause (i) for 
                        inflation, utilization, and other 
                        changes to the CNO service package.
                    ``(B) Targeted case management fee.--
                Effective October 1, 2000--
                            ``(i) the case management fee per 
                        enrollee per month for--
                                    ``(I) the period described 
                                in subparagraph (A)(i) shall be 
                                determined by actuarially 
                                adjusting the case management 
                                fee for 1999 for inflation; and
                                    ``(II) 2001 shall be 
                                determined by actuarially 
                                adjusting the amount determined 
                                under subclause (I) for 
                                inflation; and
                            ``(ii) such case management fee 
                        shall be paid only for enrollees who 
                        are classified as moderately frail or 
                        frail pursuant to criteria established 
                        by the Secretary.
                    ``(C) Greater uniformity in clinical 
                features among sites.--Each project shall 
                implement for each site--
                            ``(i) protocols for periodic 
                        telephonic contact with enrollees based 
                        on--
                                    ``(I) the results of such 
                                standardized written health 
                                assessment; and
                                    ``(II) the application of 
                                appropriate care planning 
                                approaches;
                            ``(ii) disease management programs 
                        for targeted diseases (such as 
                        congestive heart failure, arthritis, 
                        diabetes, and hypertension) that are 
                        highly prevalent in the enrolled 
                        populations;
                            ``(iii) systems and protocols to 
                        track enrollees through 
                        hospitalizations, including pre-
                        admission planning, concurrent 
                        management during inpatient hospital 
                        stays, and post-discharge assessment, 
                        planning, and follow-up; and
                            ``(iv) standardized patient 
                        educational materials for specified 
                        diseases and health conditions.
                    ``(D) Quality improvement.--Each project 
                shall implement at each site once during the 
                15-month period--
                            ``(i) enrollee satisfaction 
                        surveys; and
                            ``(ii) reporting on specified 
                        quality indicators for the enrolled 
                        population.
    ``(c) Evaluation.--
            ``(1) Preliminary report.--Not later than July 1, 
        2001, the Secretary of Health and Human Services shall 
        submit to the Committees on Ways and Means and Commerce 
        of the House of Representatives and the Committee on 
        Finance of the Senate a preliminary report that--
                    ``(A) evaluates such demonstration projects 
                for the period beginning July 1, 1997, and 
                ending December 31, 1999, on a site-specific 
                basis with respect to the impact on per 
                beneficiary spending, specific health 
                utilization measures, and enrollee 
                satisfaction; and
                    ``(B) includes a similar evaluation of such 
                projects for the portion of the extension 
                period that occurs after September 30, 2000.
            ``(2) Final report.--The Secretary shall submit a 
        final report to such Committees on such demonstration 
        projects not later than July 1, 2002. Such report shall 
        include the same elements as the preliminary report 
        required by paragraph (1), but for the period after 
        December 31, 1999.
            ``(3) Methodology for spending comparisons.--Any 
        evaluation of the impact of the demonstration projects 
        on per beneficiary spending included in such reports 
        shall include a comparison of--
                    ``(A) data for all individuals who--
                            ``(i) were enrolled in such 
                        demonstration projects as of the first 
                        day of the period under evaluation; and
                            ``(ii) were enrolled for a minimum 
                        of 6 months thereafter; with
                    ``(B) data for a matched sample of 
                individuals who are enrolled under part B of 
                title XVIII of the Social Security Act and are 
                not enrolled in such a project, or in a 
                Medicare+Choice plan under part C of such 
                title, a plan offered by an eligible 
                organization under section 1876 of such Act, or 
                a health care prepayment plan under section 
                1833(a)(1)(A) of such Act.''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall be effective as if included in the enactment of section 
532 of BBRA (113 Stat. 1501A-388).

SEC. 633. EXTENSION OF MEDICARE MUNICIPAL HEALTH SERVICES DEMONSTRATION 
                    PROJECTS.

    Section 9215(a) of the Consolidated Omnibus Budget 
Reconciliation Act of 1985 (42 U.S.C. 1395b-1 note), as amended 
by section 6135 of the Omnibus Budget Reconciliation Act of 
1989, section 13557 of the Omnibus Budget Reconciliation Act of 
1993, section 4017 of BBA, and section 534 of BBRA (113 Stat. 
1501A-390), is amended by striking ``December 31, 2002'' and 
inserting ``December 31, 2004''.

SEC. 634. SERVICE AREA EXPANSION FOR MEDICARE COST CONTRACTS DURING 
                    TRANSITION PERIOD.

    Section 1876(h)(5) (42 U.S.C. 1395mm(h)(5)) is amended--
            (1) by redesignating subparagraph (B) as 
        subparagraph (C); and
            (2) by inserting after subparagraph (A), the 
        following new subparagraph:
    ``(B) Subject to subparagraph (C), the Secretary shall 
approve an application for a modification to a reasonable cost 
contract under this section in order to expand the service area 
of such contract if--
            ``(i) such application is submitted to the 
        Secretary on or before September 1, 2003; and
            ``(ii) the Secretary determines that the 
        organization with the contract continues to meet the 
        requirements applicable to such organizations and 
        contracts under this section.''.

                          TITLE VII--MEDICAID

SEC. 701. DSH PAYMENTS.

    (a) Modifications to DSH Allotments.--
            (1) Increased allotments for fiscal years 2001 and 
        2002.--
                    (A) In general.--Section 1923(f) (42 U.S.C. 
                1396r-4(f)) is amended--
                            (i) in paragraph (2), by striking 
                        ``The DSH allotment'' and inserting 
                        ``Subject to paragraph (4), the DSH 
                        allotment'';
                            (ii) by redesignating paragraph (4) 
                        as paragraph (6); and
                            (iii) by inserting after paragraph 
                        (3) the following new paragraph:
            ``(4) Special rule for fiscal years 2001 and 
        2002.--
                    ``(A) In general.--Notwithstanding 
                paragraph (2), the DSH allotment for any State 
                for--
                            ``(i) fiscal year 2001, shall be 
                        the DSH allotment determined under 
                        paragraph (2) for fiscal year 2000 
                        increased, subject to subparagraph (B) 
                        and paragraph (5), by the percentage 
                        change in the consumer price index for 
                        all urban consumers (all items; U.S. 
                        city average) for fiscal year 2000; and
                            ``(ii) fiscal year 2002, shall be 
                        the DSH allotment determined under 
                        clause (i) increased, subject to 
                        subparagraph (B) and paragraph (5), by 
                        the percentage change in the consumer 
                        price index for all urban consumers 
                        (all items; U.S. city average) for 
                        fiscal year 2001.
                    ``(B) Limitation.--Subparagraph (B) of 
                paragraph (3) shall apply to subparagraph (A) 
                of this paragraph in the same manner as that 
                subparagraph (B) applies to paragraph (3)(A).
                    ``(C) No application to allotments after 
                fiscal year 2002.--The DSH allotment for any 
                State for fiscal year 2003 or any succeeding 
                fiscal year shall be determined under paragraph 
                (3) without regard to the DSH allotments 
                determined under subparagraph (A) of this 
                paragraph.''.
            (2) Special rule for medicaid dsh allotment for 
        extremely low dsh states.--
                    (A) In general.--Section 1923(f) (42 U.S.C. 
                1396r-4(f)), as amended by paragraph (1), is 
                amended by inserting after paragraph (4) the 
                following new paragraph:
            ``(5) Special rule for extremely low dsh states.--
        In the case of a State in which the total expenditures 
        under the State plan (including Federal and State 
        shares) for disproportionate share hospital adjustments 
        under this section for fiscal year 1999, as reported to 
        the Administrator of the Health Care Financing 
        Administration as of August 31, 2000, is greater than 0 
        but less than 1 percent of the State's total amount of 
        expenditures under the State plan for medical 
        assistance during the fiscal year, the DSH allotment 
        for fiscal year 2001 shall be increased to 1 percent of 
        the State's total amount of expenditures under such 
        plan for such assistance during such fiscal year. In 
        subsequent fiscal years, such increased allotment is 
        subject to an increase for inflation as provided in 
        paragraph (3)(A).''.
                    (B) Conforming amendment.--Section 
                1923(f)(3)(A) (42 U.S.C. 1396r-4(f)(3)(A)) is 
                amended by inserting ``and paragraph (5)'' 
                after ``subparagraph (B)''.
            (3) Effective date.--The amendments made by 
        paragraphs (1) and (2) take effect on the date the 
        final regulation required under section 705(a) 
        (relating to the application of an aggregate upper 
        payment limit test for State medicaid spending for 
        inpatient hospital services, outpatient hospital 
        services, nursing facility services, intermediate care 
        facility services for the mentally retarded, and clinic 
        services provided by government facilities that are not 
        State-owned or operated facilities) is published in the 
        Federal Register.
    (b) Assuring Identification of Medicaid Managed Care 
Patients.--
            (1) In general.--Section 1932 (42 U.S.C. 1396u-2) 
        is amended by adding at the end the following new 
        subsection:
    ``(g) Identification of Patients for Purposes of Making DSH 
Payments.--Each contract with a managed care entity under 
section 1903(m) or under section 1905(t)(3) shall require the 
entity either--
            ``(1) to report to the State information necessary 
        to determine the hospital services provided under the 
        contract (and the identity of hospitals providing such 
        services) for purposes of applying sections 
        1886(d)(5)(F) and 1923; or
            ``(2) to include a sponsorship code in the 
        identification card issued to individuals covered under 
        this title in order that a hospital may identify a 
        patient as being entitled to benefits under this 
        title.''.
            (2) Clarification of counting managed care medicaid 
        patients.--Section 1923 (42 U.S.C. 1396r-4) is 
        amended--
                    (A) in subsection (a)(2)(D), by inserting 
                after ``the proportion of low-income and 
                medicaid patients'' the following: ``(including 
                such patients who receive benefits through a 
                managed care entity)'';
                    (B) in subsection (b)(2), by inserting 
                after ``a State plan approved under this title 
                in a period'' the following: ``(regardless of 
                whether such patients receive medical 
                assistance on a fee-for-service basis or 
                through a managed care entity)''; and
                    (C) in subsection (b)(3)(A)(i), by 
                inserting after ``under a State plan under this 
                title'' the following: ``(regardless of whether 
                the services were furnished on a fee-for-
                service basis or through a managed care 
                entity)''.
            (3) Effective dates.--
                    (A) The amendment made by paragraph (1) 
                applies to contracts as of January 1, 2001.
                    (B) The amendments made by paragraph (2) 
                apply to payments made on or after January 1, 
                2001.
    (c) Application of Medicaid DSH Transition Rule to Public 
Hospitals in All States.--
            (1) In general.--During the period described in 
        paragraph (3), with respect to a State, section 4721(e) 
        of the Balanced Budget Act of 1997 (Public Law 105-33; 
        111 Stat. 514), as amended by section 607 of BBRA (113 
        Stat. 1501A-321) shall be applied as though--
                    (A) ``September 30, 2002'' were substituted 
                for ``July 1, 1997'' each place it appears;
                    (B) ``hospitals owned or operated by a 
                State (as defined for purposes of title XIX of 
                such Act), or by an instrumentality or a unit 
                of government within a State (as so defined)'' 
                were substituted for ``the State of 
                California'';
                    (C) paragraph (3) were redesignated as 
                paragraph (4);
                    (D) ``and'' were omitted from the end of 
                paragraph (2); and
                    (E) the following new paragraph were 
                inserted after paragraph (2):
            ``(3) `(as defined in subparagraph (B) but without 
        regard to clause (ii) of that subparagraph and subject 
        to subsection (d))' were substituted for `(as defined 
        in subparagraph (B))' in subparagraph (A) of such 
        section; and''.
            (2) Special rule.--With respect to California, 
        section 4721(e) of the Balanced Budget Act of 1997 
        (Public Law 105-33; 111 Stat. 514) shall be applied 
        without regard to paragraph (1).
            (3) Period described.--The period described in this 
        paragraph is the period that begins, with respect to a 
        State, on the first day of the first State fiscal year 
        that begins after September 30, 2002, and ends on the 
        last day of the succeeding State fiscal year.
            (4) Application to waivers.--With respect to a 
        State operating under a waiver of the requirements of 
        title XIX of the Social Security Act (42 U.S.C. 1396 et 
        seq.) under section 1115 of such Act (42 U.S.C. 1315), 
        the amount by which any payment adjustment made by the 
        State under title XIX of such Act (42 U.S.C. 1396 et 
        seq.), after the application of section 4721(e) of the 
        Balanced Budget Act of 1997 under paragraph (1) to such 
        State, exceeds the costs of furnishing hospital 
        services provided by hospitals described in such 
        section shall be fully reflected as an increase in the 
        baseline expenditure limit for such waiver.
    (d) Assistance for Certain Public Hospitals.--
            (1) In general.--Beginning with fiscal year 2002, 
        notwithstanding section 1923(f) of the Social Security 
        Act (42 U.S.C. 1396r-4(f)) and subject to paragraph 
        (3), with respect to a State, payment adjustments made 
        under title XIX of the Social Security Act (42 U.S.C. 
        1396 et seq.) to a hospital described in paragraph (2) 
        shall be made without regard to the DSH allotment 
        limitation for the State determined under section 
        1923(f) of that Act (42 U.S.C. 1396r-4(f)).
            (2) Hospital described.--A hospital is described in 
        this paragraph if the hospital--
                    (A) is owned or operated by a State (as 
                defined for purposes of title XIX of the Social 
                Security Act), or by an instrumentality or a 
                unit of government within a State (as so 
                defined);
                    (B) as of October 1, 2000--
                            (i) is in existence and operating 
                        as a hospital described in subparagraph 
                        (A); and
                            (ii) is not receiving 
                        disproportionate share hospital 
                        payments from the State in which it is 
                        located under title XIX of such Act; 
                        and
                    (C) has a low-income utilization rate (as 
                defined in section 1923(b)(3) of the Social 
                Security Act (42 U.S.C. 1396r-4(b)(3))) in 
                excess of 65 percent.
            (3) Limitation on expenditures.--
                    (A) In general.--With respect to any fiscal 
                year, the aggregate amount of Federal financial 
                participation that may be provided for payment 
                adjustments described in paragraph (1) for that 
                fiscal year for all States may not exceed the 
                amount described in subparagraph (B) for the 
                fiscal year.
                    (B) Amount described.--The amount described 
                in this subparagraph for a fiscal year is as 
                follows:
                            (i) For fiscal year 2002, 
                        $15,000,000.
                            (ii) For fiscal year 2003, 
                        $176,000,000.
                            (iii) For fiscal year 2004, 
                        $269,000,000.
                            (iv) For fiscal year 2005, 
                        $330,000,000.
                            (v) For fiscal year 2006 and each 
                        fiscal year thereafter, $375,000,000.
    (e) DSH Payment Accountability Standards.--Not later than 
September 30, 2002, the Secretary of Health and Human Services 
shall implement accountability standards to ensure that Federal 
funds provided with respect to disproportionate share hospital 
adjustments made under section 1923 of the Social Security Act 
(42 U.S.C. 1396r-4) are used to reimburse States and hospitals 
eligible for such payment adjustments for providing 
uncompensated health care to low-income patients and are 
otherwise made in accordance with the requirements of section 
1923 of that Act.

SEC. 702. NEW PROSPECTIVE PAYMENT SYSTEM FOR FEDERALLY-QUALIFIED HEALTH 
                    CENTERS AND RURAL HEALTH CLINICS.

    (a) In General.--Section 1902(a) (42 U.S.C. 1396a(a)) is 
amended--
            (1) in paragraph (13)--
                    (A) in subparagraph (A), by adding ``and'' 
                at the end;
                    (B) in subparagraph (B), by striking 
                ``and'' at the end; and
                    (C) by striking subparagraph (C); and
            (2) by inserting after paragraph (14) the following 
        new paragraph:
            ``(15) provide for payment for services described 
        in clause (B) or (C) of section 1905(a)(2) under the 
        plan in accordance with subsection (aa);''.
    (b) New Prospective Payment System.--Section 1902 (42 
U.S.C. 1396a) is amended by adding at the end the following:
    ``(aa) Payment for Services Provided by Federally-Qualified 
Health Centers and Rural Health Clinics.--
            ``(1) In general.--Beginning with fiscal year 2001 
        and each succeeding fiscal year, the State plan shall 
        provide for payment for services described in section 
        1905(a)(2)(C) furnished by a Federally-qualified health 
        center and services described in section 1905(a)(2)(B) 
        furnished by a rural health clinic in accordance with 
        the provisions of this subsection.
            ``(2) Fiscal year 2001.--Subject to paragraph (4), 
        for services furnished during fiscal year 2001, the 
        State plan shall provide for payment for such services 
        in an amount (calculated on a per visit basis) that is 
        equal to 100 percent of the average of the costs of the 
        center or clinic of furnishing such services during 
        fiscal years 1999 and 2000 which are reasonable and 
        related to the cost of furnishing such services, or 
        based on such other tests of reasonableness as the 
        Secretary prescribes in regulations under section 
        1833(a)(3), or, in the case of services to which such 
        regulations do not apply, the same methodology used 
        under section 1833(a)(3), adjusted to take into account 
        any increase or decrease in the scope of such services 
        furnished by the center or clinic during fiscal year 
        2001.
            ``(3) Fiscal year 2002 and succeeding fiscal 
        years.--Subject to paragraph (4), for services 
        furnished during fiscal year 2002 or a succeeding 
        fiscal year, the State plan shall provide for payment 
        for such services in an amount (calculated on a per 
        visit basis) that is equal to the amount calculated for 
        such services under this subsection for the preceding 
        fiscal year--
                    ``(A) increased by the percentage increase 
                in the MEI (as defined in section 1842(i)(3)) 
                applicable to primary care services (as defined 
                in section 1842(i)(4)) for that fiscal year; 
                and
                    ``(B) adjusted to take into account any 
                increase or decrease in the scope of such 
                services furnished by the center or clinic 
                during that fiscal year.
            ``(4) Establishment of initial year payment amount 
        for new centers or clinics.--In any case in which an 
        entity first qualifies as a Federally-qualified health 
        center or rural health clinic after fiscal year 2000, 
        the State plan shall provide for payment for services 
        described in section 1905(a)(2)(C) furnished by the 
        center or services described in section 1905(a)(2)(B) 
        furnished by the clinic in the first fiscal year in 
        which the center or clinic so qualifies in an amount 
        (calculated on a per visit basis) that is equal to 100 
        percent of the costs of furnishing such services during 
        such fiscal year based on the rates established under 
        this subsection for the fiscal year for other such 
        centers or clinics located in the same or adjacent area 
        with a similar case load or, in the absence of such a 
        center or clinic, in accordance with the regulations 
        and methodology referred to in paragraph (2) or based 
        on such other tests of reasonableness as the Secretary 
        may specify. For each fiscal year following the fiscal 
        year in which the entity first qualifies as a 
        Federally-qualified health center or rural health 
        clinic, the State plan shall provide for the payment 
        amount to be calculated in accordance with paragraph 
        (3).
            ``(5) Administration in the case of managed care.--
                    ``(A) In general.--In the case of services 
                furnished by a Federally-qualified health 
                center or rural health clinic pursuant to a 
                contract between the center or clinic and a 
                managed care entity (as defined in section 
                1932(a)(1)(B)), the State plan shall provide 
                for payment to the center or clinic by the 
                State of a supplemental payment equal to the 
                amount (if any) by which the amount determined 
                under paragraphs (2), (3), and (4) of this 
                subsection exceeds the amount of the payments 
                provided under the contract.
                    ``(B) Payment schedule.--The supplemental 
                payment required under subparagraph (A) shall 
                be made pursuant to a payment schedule agreed 
                to by the State and the Federally-qualified 
                health center or rural health clinic, but in no 
                case less frequently than every 4 months.
            ``(6) Alternative payment methodologies.--
        Notwithstanding any other provision of this section, 
        the State plan may provide for payment in any fiscal 
        year to a Federally-qualified health center for 
        services described in section 1905(a)(2)(C) or to a 
        rural health clinic for services described in section 
        1905(a)(2)(B) in an amount which is determined under an 
        alternative payment methodology that--
                    ``(A) is agreed to by the State and the 
                center or clinic; and
                    ``(B) results in payment to the center or 
                clinic of an amount which is at least equal to 
                the amount otherwise required to be paid to the 
                center or clinic under this section.''.
    (c) Conforming Amendments.--
            (1) Section 4712 of the BBA (Public Law 105-33; 111 
        Stat. 508) is amended by striking subsection (c).
            (2) Section 1915(b) (42 U.S.C. 1396n(b)) is amended 
        by striking ``1902(a)(13)(C)'' and inserting 
        ``1902(a)(15), 1902(aa),''.
    (d) GAO Study of Future Rebasing.--The Comptroller General 
of the United States shall provide for a study on the need for, 
and how to, rebase or refine costs for making payment under the 
medicaid program for services provided by Federally-qualified 
health centers and rural health clinics (as provided under the 
amendments made by this section). The Comptroller General shall 
provide for submittal of a report on such study to Congress by 
not later than 4 years after the date of the enactment of this 
Act.
    (e) Effective Date.--The amendments made by this section 
take effect on October 1, 2000, and apply to services furnished 
on or after such date.

SEC. 703. STREAMLINED APPROVAL OF CONTINUED STATE-WIDE SECTION 1115 
                    MEDICAID WAIVERS.

    (a) In General.--Section 1115 (42 U.S.C. 1315) is amended 
by adding at the end the following new subsection:
    ``(f) An application by the chief executive officer of a 
State for an extension of a waiver project the State is 
operating under an extension under subsection (e) (in this 
subsection referred to as the `waiver project') shall be 
submitted and approved or disapproved in accordance with the 
following:
            ``(1) The application for an extension of the 
        waiver project shall be submitted to the Secretary at 
        least 120 days prior to the expiration of the current 
        period of the waiver project.
            ``(2) Not later than 45 days after the date such 
        application is received by the Secretary, the Secretary 
        shall notify the State if the Secretary intends to 
        review the terms and conditions of the waiver project. 
        A failure to provide such notification shall be deemed 
        to be an approval of the application.
            ``(3) Not later than 45 days after the date a 
        notification is made in accordance with paragraph (2), 
        the Secretary shall inform the State of proposed 
        changes in the terms and conditions of the waiver 
        project. A failure to provide such information shall be 
        deemed to be an approval of the application.
            ``(4) During the 30-day period that begins on the 
        date information described in paragraph (3) is provided 
        to a State, the Secretary shall negotiate revised terms 
        and conditions of the waiver project with the State.
            ``(5)(A) Not later than 120 days after the date an 
        application for an extension of the waiver project is 
        submitted to the Secretary (or such later date agreed 
        to by the chief executive officer of the State), the 
        Secretary shall--
                    ``(i) approve the application subject to 
                such modifications in the terms and 
                conditions--
                            ``(I) as have been agreed to by the 
                        Secretary and the State; or
                            ``(II) in the absence of such 
                        agreement, as are determined by the 
                        Secretary to be reasonable, consistent 
                        with the overall objectives of the 
                        waiver project, and not in violation of 
                        applicable law; or
                    ``(ii) disapprove the application.
            ``(B) A failure by the Secretary to approve or 
        disapprove an application submitted under this 
        subsection in accordance with the requirements of 
        subparagraph (A) shall be deemed to be an approval of 
        the application subject to such modifications in the 
        terms and conditions as have been agreed to (if any) by 
        the Secretary and the State.
            ``(6) An approval of an application for an 
        extension of a waiver project under this subsection 
        shall be for a period not to exceed 3 years.
            ``(7) An extension of a waiver project under this 
        subsection shall be subject to the final reporting and 
        evaluation requirements of paragraphs (4) and (5) of 
        subsection (e) (taking into account the extension under 
        this subsection with respect to any timing requirements 
        imposed under those paragraphs).''.
    (b) Effective Date.--The amendment made by subsection (a) 
applies to requests for extensions of demonstration projects 
pending or submitted on or after the date of the enactment of 
this Act.

SEC. 704. MEDICAID COUNTY-ORGANIZED HEALTH SYSTEMS.

    (a) In General.--Section 9517(c)(3)(C) of the Comprehensive 
Omnibus Budget Reconciliation Act of 1985 is amended by 
striking ``10 percent'' and inserting ``14 percent''.
    (b) Effective Date.--The amendment made by subsection (a) 
takes effect on the date of the enactment of this Act.

SEC. 705. DEADLINE FOR ISSUANCE OF FINAL REGULATION RELATING TO 
                    MEDICAID UPPER PAYMENT LIMITS.

    (a) In General.--Not later than December 31, 2000, the 
Secretary of Health and Human Services (in this section 
referred to as the ``Secretary''), notwithstanding any 
requirement of the Administrative Procedures Act under chapter 
5 of title 5, United States Code, or any other provision of 
law, shall issue under sections 447.272, 447.304, and 447.321 
of title 42, Code of Federal Regulations (and any other section 
of part 447 of title 42, Code of Federal Regulations that the 
Secretary determines is appropriate), a final regulation based 
on the proposed rule announced on October 5, 2000, that--
            (1) modifies the upper payment limit test applied 
        to State medicaid spending for inpatient hospital 
        services, outpatient hospital services, nursing 
        facility services, intermediate care facility services 
        for the mentally retarded, and clinic services by 
        applying an aggregate upper payment limit to payments 
        made to government facilities that are not State-owned 
        or operated facilities; and
            (2) provides for a transition period in accordance 
        with subsection (b).
    (b) Transition Period.--
            (1) In general.--The final regulation required 
        under subsection (a) shall provide that, with respect 
        to a State described in paragraph (3), the State shall 
        be considered to be in compliance with the final 
        regulation required under subsection (a) so long as, 
        for each State fiscal year during the period described 
        in paragraph (4), the State reduces payments under a 
        State medicaid plan payment provision or methodology 
        described in paragraph (3), or reduces the actual 
        dollar payment levels described in paragraph (3)(B), so 
        that the amount of the payments that would otherwise 
        have been made under such provision, methodology, or 
        payment levels by the State for any State fiscal year 
        during such period is reduced by 15 percent in the 
        first such State fiscal year, and by an additional 15 
        percent in each of next 5 State fiscal years.
            (2) Requirement.--Notwithstanding paragraph (1), 
        the final regulation required under subsection (a) 
        shall provide that, for any period (or portion of a 
        period) that occurs on or after October 1, 2008, 
        medicaid payments made by a State described in 
        paragraph (3) shall comply with such final regulation.
            (3) State described.--A State described in this 
        paragraph is a State with a State medicaid plan payment 
        provision or methodology which--
                    (A) was approved, deemed to have been 
                approved, or was in effect on or before October 
                1, 1992 (including any subsequent amendments or 
                successor provisions or methodologies and 
                whether or not a State plan amendment was made 
                to carry out such provision or methodology 
                after such date) or under which claims for 
                Federal financial participation were filed and 
                paid on or before such date; and
                    (B) provides for payments that are in 
                excess of the upper payment limit test 
                established under the final regulation required 
                under subsection (a) (or which would be 
                noncompliant with such final regulation if the 
                actual dollar payment levels made under the 
                payment provision or methodology in the State 
                fiscal year which begins during 1999 were 
                continued).
            (4) Period described.--The period described in this 
        paragraph is the period that begins on the first State 
        fiscal year that begins after September 30, 2002, and 
        ends on September 30, 2008.

SEC. 706. ALASKA FMAP.

    Notwithstanding the first sentence of section 1905(b) of 
the Social Security Act (42 U.S.C. 1396d(b)), only with respect 
to each of fiscal years 2001 through 2005, for purposes of 
titles XIX and XXI of the Social Security Act, the State 
percentage used to determine the Federal medical assistance 
percentage for Alaska shall be that percentage which bears the 
same ratio to 45 percent as the square of the adjusted per 
capita income of Alaska (determined by dividing the State's 3-
year average per capita income by 1.05) bears to the square of 
the per capita income of the 50 States.

         TITLE VIII--STATE CHILDREN'S HEALTH INSURANCE PROGRAM

SEC. 801. SPECIAL RULE FOR REDISTRIBUTION AND AVAILABILITY OF UNUSED 
                    FISCAL YEAR 1998 AND 1999 SCHIP ALLOTMENTS.

    (a) Change in Rules for Redistribution and Retention of 
Unused SCHIP Allotments for Fiscal Years 1998 and 1999.--
Section 2104 (42 U.S.C. 1397dd) is amended by adding at the end 
the following new subsection:
    ``(g) Rule for Redistribution and Extended Availability of 
Fiscal Years 1998 and 1999  Allotments.--
            ``(1) Amount redistributed.--
                    ``(A) In general.--In the case of a State 
                that expends all of its allotment under 
                subsection (b) or (c) for fiscal year 1998 by 
                the end of fiscal year 2000, or for fiscal year 
                1999 by the end of fiscal year 2001, the 
                Secretary shall redistribute to the State under 
                subsection (f) (from the fiscal year 1998 or 
                1999 allotments of other States, respectively, 
                as determined by the application of paragraphs 
                (2) and (3) with respect to the respective 
                fiscal year)) the following amount:
                            ``(i) State.--In the case of 1 of 
                        the 50 States or the District of 
                        Columbia, with respect to--
                                    ``(I) the fiscal year 1998 
                                allotment, the amount by which 
                                the State's expenditures under 
                                this title in fiscal years 
                                1998, 1999, and 2000 exceed the 
                                State's allotment for fiscal 
                                year 1998 under subsection (b); 
                                or
                                    ``(II) the fiscal year 1999 
                                allotment, the amount by which 
                                the State's expenditures under 
                                this title in fiscal years 
                                1999, 2000, and 2001 exceed the 
                                State's allotment for fiscal 
                                year 1999 under subsection (b).
                            ``(ii) Territory.--In the case of a 
                        commonwealth or territory described in 
                        subsection (c)(3), an amount that bears 
                        the same ratio to 1.05 percent of the 
                        total amount described in paragraph 
                        (2)(B)(i)(I) as the ratio of the 
                        commonwealth's or territory's fiscal 
                        year 1998 or 1999 allotment under 
                        subsection (c) (as the case may be) 
                        bears to the total of all such 
                        allotments for such fiscal year under 
                        such subsection.
                    ``(B) Expenditure rules.--An amount 
                redistributed to a State under this paragraph 
                with respect to fiscal year 1998 or 1999--
                            ``(i) shall not be included in the 
                        determination of the State's allotment 
                        for any fiscal year under this section;
                            ``(ii) notwithstanding subsection 
                        (e), shall remain available for 
                        expenditure by the State through the 
                        end of fiscal year 2002; and
                            ``(iii) shall be counted as being 
                        expended with respect to a fiscal year 
                        allotment in accordance with applicable 
                        regulations of the Secretary.
            ``(2) Extension of availability of portion of 
        unexpended fiscal years 1998 and 1999 allotments.--
                    ``(A) In general.--Notwithstanding 
                subsection (e):
                            ``(i) Fiscal year 1998 allotment.--
                        Of the amounts allotted to a State 
                        pursuant to this section for fiscal 
                        year 1998 that were not expended by the 
                        State by the end of fiscal year 2000, 
                        the amount specified in subparagraph 
                        (B) for fiscal year 1998 for such State 
                        shall remain available for expenditure 
                        by the State through the end of fiscal 
                        year 2002.
                            ``(ii) Fiscal year 1999 
                        allotment.--Of the amounts allotted to 
                        a State pursuant to this subsection for 
                        fiscal year 1999 that were not expended 
                        by the State by the end of fiscal year 
                        2001, the amount specified in 
                        subparagraph (B) for fiscal year 1999 
                        for such State shall remain available 
                        for expenditure by the State through 
                        the end of fiscal year 2002.
                    ``(B) Amount remaining available for 
                expenditure.--The amount specified in this 
                subparagraph for a State for a fiscal year is 
                equal to--
                            ``(i) the amount by which (I) the 
                        total amount available for 
                        redistribution under subsection (f) 
                        from the allotments for that fiscal 
                        year, exceeds (II) the total amounts 
                        redistributed under paragraph (1) for 
                        that fiscal year; multiplied by
                            ``(ii) the ratio of the amount of 
                        such State's unexpended allotment for 
                        that fiscal year to the total amount 
                        described in clause (i)(I) for that 
                        fiscal year.
                    ``(C) Use of up to 10 percent of retained 
                1998 allotments for outreach activities.--
                Notwithstanding section 2105(c)(2)(A), with 
                respect to any State described in subparagraph 
                (A)(i), the State may use up to 10 percent of 
                the amount specified in subparagraph (B) for 
                fiscal year 1998 for expenditures for outreach 
                activities approved by the Secretary.
            ``(3) Determination of amounts.--For purposes of 
        calculating the amounts described in paragraphs (1) and 
        (2) relating to the allotment for fiscal year 1998 or 
        fiscal year 1999, the Secretary shall use the amounts 
        reported by the States not later than November 30, 
        2000, or November 30, 2001, respectively, on HCFA Form 
        64 or HCFA Form 21, as approved by the Secretary.''.
    (b) Effective Date.--The amendments made by this section 
shall take effect as if included in the enactment of section 
4901 of BBA (111 Stat. 552).

SEC. 802. AUTHORITY TO PAY MEDICAID EXPANSION SCHIP COSTS FROM TITLE 
                    XXI APPROPRIATION.

    (a) Authority To Pay Medicaid Expansion SCHIP Costs From 
Title XXI Appropriation.--Section 2105(a) (42 U.S.C. 1397ee(a)) 
is amended--
            (1) by redesignating subparagraphs (A) through (D) 
        of paragraph (2) as clauses (i) through (iv), 
        respectively, and indenting appropriately;
            (2) by redesignating paragraph (1) as subparagraph 
        (C), and indenting appropriately;
            (3) by redesignating paragraph (2) as subparagraph 
        (D), and indenting appropriately;
            (4) by striking ``(a) In General.--'' and the 
        remainder of the text that precedes subparagraph (C), 
        as so redesignated, and inserting the following:
    ``(a) Payments.--
            ``(1) In general.--Subject to the succeeding 
        provisions of this section, the Secretary shall pay to 
        each State with a plan approved under this title, from 
        its allotment under section 2104, an amount for each 
        quarter equal to the enhanced FMAP (or, in the case of 
        expenditures described in subparagraph (B), the Federal 
        medical assistance percentage (as defined in the first 
        sentence of section 1905(b))) of expenditures in the 
        quarter--
                    ``(A) for child health assistance under the 
                plan for targeted low-income children in the 
                form of providing medical assistance for which 
                payment is made on the basis of an enhanced 
                FMAP under the fourth sentence of section 
                1905(b);
                    ``(B) for the provision of medical 
                assistance on behalf of a child during a 
                presumptive eligibility period under section 
                1920A;''; and
            (5) by adding after subparagraph (D), as so 
        redesignated, the following new paragraph:
            ``(2) Order of payments.--Payments under paragraph 
        (1) from a State's allotment shall be made in the 
        following order:
                    ``(A) First, for expenditures for items 
                described in paragraph (1)(A).
                    ``(B) Second, for expenditures for items 
                described in paragraph (1)(B).
                    ``(C) Third, for expenditures for items 
                described in paragraph (1)(C).
                    ``(D) Fourth, for expenditures for items 
                described in paragraph (1)(D).''.
    (b) Elimination of Requirement To Reduce Title XXI 
Allotment by Medicaid Expansion SCHIP Costs.--Section 2104 (42 
U.S.C. 1397dd) is amended by striking subsection (d).
    (c) Authority To Transfer Title XXI Appropriations to Title 
XIX Appropriation Account as Reimbursement for Medicaid 
Expenditures for Medicaid Expansion SCHIP Services.--
Notwithstanding any other provision of law, all amounts 
appropriated under title XXI and allotted to a State pursuant 
to subsection (b) or (c) of section 2104 of the Social Security 
Act (42 U.S.C. 1397dd) for fiscal years 1998 through 2000 
(including any amounts that, but for this provision, would be 
considered to have expired) and not expended in providing child 
health assistance or related services for which payment may be 
made pursuant to subparagraph (C) or (D) of section 2105(a)(1) 
of such Act (42 U.S.C. 1397ee(a)(1)) (as amended by subsection 
(a)), shall be available to reimburse the Grants to States for 
Medicaid account in an amount equal to the total payments made 
to such State under section 1903(a) of such Act (42 U.S.C. 
1396b(a)) for expenditures in such years for medical assistance 
described in subparagraphs (A) and (B) of section 2105(a)(1) of 
such Act (42 U.S.C. 1397ee(a)(1) (as so amended).
    (d) Conforming Amendments.--
            (1) Section 1905(b) (42 U.S.C. 1396d(b)) is amended 
        in the fourth sentence by striking ``the State's 
        allotment under section 2104 (not taking into account 
        reductions under section 2104(d)(2)) for the fiscal 
        year reduced by the amount of any payments made under 
        section 2105 to the State from such allotment for such 
        fiscal year'' and inserting ``the State's available 
        allotment under section 2104''.
            (2) Section 1905(u)(1)(B) (42 U.S.C. 
        1396d(u)(1)(B)) is amended by striking ``and section 
        2104(d)''.
            (3) Section 2104 (42 U.S.C. 1397dd), as amended by 
        subsection (b), is further amended--
                    (A) in subsection (b)(1), by striking ``and 
                subsection (d)''; and
                    (B) in subsection (c)(1), by striking 
                ``subject to subsection (d),''.
            (4) Section 2105(c) (42 U.S.C. 1397ee(c)) is 
        amended--
                    (A) in paragraph (2)(A), by striking all 
                that follows ``Except as provided in this 
                paragraph,'' and inserting ``the amount of 
                payment that may be made under subsection (a) 
                for a fiscal year for expenditures for items 
                described in paragraph (1)(D) of such 
                subsection shall not exceed 10 percent of the 
                total amount of expenditures for which payment 
                is made under subparagraphs (A), (C), and (D) 
                of paragraph (1) of such subsection.'';
                    (B) in paragraph (2)(B), by striking 
                ``described in subsection (a)(2)'' and 
                inserting ``described in subsection 
                (a)(1)(D)''; and
                    (C) in paragraph (6)(B), by striking 
                ``Except as otherwise provided by law,'' and 
                inserting ``Except as provided in subparagraph 
                (A) or (B) of subsection (a)(1) or any other 
                provision of law,''.
            (5) Section 2110(a) (42 U.S.C. 1397jj(a)) is 
        amended by striking ``section 2105(a)(2)(A)'' and 
        inserting ``section 2105(a)(1)(D)(i)''.
    (e) Technical Amendment.--Section 2105(d)(2)(B)(ii) (42 
U.S.C. 1397ee(d)(2)(B)(ii)) is amended by striking ``enhanced 
FMAP under section 1905(u)'' and inserting ``enhanced FMAP 
under the fourth sentence of section 1905(b)''.
    (f) Effective Date.--The amendments made by this section 
shall be effective as if included in the enactment of section 
4901 of the BBA (111 Stat. 552).

                       TITLE IX--OTHER PROVISIONS

                        Subtitle A--PACE Program

SEC. 901. EXTENSION OF TRANSITION FOR CURRENT WAIVERS.

    Section 4803(d)(2) of BBA is amended--
            (1) in subparagraph (A), by striking ``24 months'' 
        and inserting ``36 months'';
            (2) in subparagraph (A), by striking ``the initial 
        effective date of regulations described in subsection 
        (a)'' and inserting ``July 1, 2000''; and
            (3) in subparagraph (B), by striking ``3 years'' 
        and inserting ``4 years''.

SEC. 902. CONTINUING OF CERTAIN OPERATING ARRANGEMENTS PERMITTED.

    (a) In General.--Section 1894(f)(2) (42 U.S.C. 
1395eee(f)(2)) is amended by adding at the end the following 
new subparagraph:
                    ``(C) Continuation of modifications or 
                waivers of operational requirements under 
                demonstration status.--If a PACE program 
                operating under demonstration authority has 
                contractual or other operating arrangements 
                which are not otherwise recognized in 
                regulation and which were in effect on July 1, 
                2000, the Secretary (in close consultation 
                with, and with the concurrence of, the State 
                administering agency) shall permit any such 
                program to continue such arrangements so long 
                as such arrangements are found by the Secretary 
                and the State to be reasonably consistent with 
                the objectives of the PACE program.''.
    (b) Conforming Amendment.--Section 1934(f)(2) (42 U.S.C. 
1396u-4(f)(2)) is amended by adding at the end the following 
new subparagraph:
                    ``(C) Continuation of modifications or 
                waivers of operational requirements under 
                demonstration status.--If a PACE program 
                operating under demonstration authority has 
                contractual or other operating arrangements 
                which are not otherwise recognized in 
                regulation and which were in effect on July 1 
                2000, the Secretary (in close consultation 
                with, and with the concurrence of, the State 
                administering agency) shall permit any such 
                program to continue such arrangements so long 
                as such arrangements are found by the Secretary 
                and the State to be reasonably consistent with 
                the objectives of the PACE program.''.
    (c) Effective Date.--The amendments made by this section 
shall be effective as included in the enactment of BBA.

SEC. 903. FLEXIBILITY IN EXERCISING WAIVER AUTHORITY.

    In applying sections 1894(f)(2)(B) and 1934(f)(2)(B) of the 
Social Security Act (42 U.S.C. 1395eee(f)(2)(B), 1396u-
4(f)(2)(B)), the Secretary of Health and Human Services--
            (1) shall approve or deny a request for a 
        modification or a waiver of provisions of the PACE 
        protocol not later than 90 days after the date the 
        Secretary receives the request; and
            (2) may exercise authority to modify or waive such 
        provisions in a manner that responds promptly to the 
        needs of PACE programs relating to areas of employment 
        and the use of community-based primary care physicians.

   Subtitle B--Outreach to Eligible Low-Income Medicare Beneficiaries

SEC. 911. OUTREACH ON AVAILABILITY OF MEDICARE COST-SHARING ASSISTANCE 
                    TO ELIGIBLE LOW-INCOME MEDICARE BENEFICIARIES.

    (a) Outreach.--
            (1) In general.--Title XI (42 U.S.C. 1301 et seq.) 
        is amended by inserting after section 1143 the 
        following new section:


    ``outreach efforts to increase awareness of the availability of 
                         medicare cost-sharing


    ``Sec. 1144. (a) Outreach.--
            ``(1) In general.--The Commissioner of Social 
        Security (in this section referred to as the 
        `Commissioner') shall conduct outreach efforts to--
                    ``(A) identify individuals entitled to 
                benefits under the medicare program under title 
                XVIII who may be eligible for medical 
                assistance for payment of the cost of medicare 
                cost-sharing under the medicaid program 
                pursuant to sections 1902(a)(10)(E) and 1933; 
                and
                    ``(B) notify such individuals of the 
                availability of such medical assistance under 
                such sections.
            ``(2) Content of notice.--Any notice furnished 
        under paragraph (1) shall state that eligibility for 
        medicare cost-sharing assistance under such sections is 
        conditioned upon--
                    ``(A) the individual providing to the State 
                information about income and resources (in the 
                case of an individual residing in a State that 
                imposes an assets test for such eligibility); 
                and
                    ``(B) meeting the applicable eligibility 
                criteria.
    ``(b) Coordination With States.--
            ``(1) In general.--In conducting the outreach 
        efforts under this section, the Commissioner shall--
                    ``(A) furnish the agency of each State 
                responsible for the administration of the 
                medicaid program and any other appropriate 
                State agency with information consisting of the 
                name and address of individuals residing in the 
                State that the Commissioner determines may be 
                eligible for medical assistance for payment of 
                the cost of medicare cost-sharing under the 
                medicaid program pursuant to sections 
                1902(a)(10)(E) and 1933; and
                    ``(B) update any such information not less 
                frequently than once per year.
            ``(2) Information in periodic updates.--The 
        periodic updates described in paragraph (1)(B) shall 
        include information on individuals who are or may be 
        eligible for the medical assistance described in 
        paragraph (1)(A) because such individuals have 
        experienced reductions in benefits under title II.''.
            (2) Amendment to title xix.--Section 1905(p) (42 
        U.S.C. 1396d(p)) is amended by adding at the end the 
        following new paragraph:
    ``(5) For provisions relating to outreach efforts to 
increase awareness of the availability of medicare cost-
sharing, see section 1144.''.
    (b) GAO Report.--The Comptroller General of the United 
States shall conduct a study of the impact of section 1144 of 
the Social Security Act (as added by subsection (a)(1)) on the 
enrollment of individuals for medicare cost-sharing under the 
medicaid program. Not later than 18 months after the date that 
the Commissioner of Social Security first conducts outreach 
under section 1144 of such Act, the Comptroller General shall 
submit to Congress a report on such study. The report shall 
include such recommendations for legislative changes as the 
Comptroller General deems appropriate.
    (c) Effective Date.--The amendments made by subsections (a) 
shall take effect one year after the date of the enactment of 
this Act.

           Subtitle C--Maternal and Child Health Block Grant

 SEC. 921. INCREASE IN AUTHORIZATION OF APPROPRIATIONS FOR THE MATERNAL 
                    AND CHILD HEALTH SERVICES BLOCK GRANT.

    (a) In General.--Section 501(a) (42 U.S.C. 701(a)) is 
amended in the matter preceding paragraph (1) by striking 
``$705,000,000 for fiscal year 1994'' and inserting 
``$850,000,000 for fiscal year 2001''.
    (b) Effective Date.--The amendment made by subsection (a) 
takes effect on October 1, 2000.

                          Subtitle D--Diabetes

SEC. 931. INCREASE IN APPROPRIATIONS FOR SPECIAL DIABETES PROGRAMS FOR 
                    TYPE I DIABETES AND INDIANS.

    (a) Special Diabetes Programs for Type I Diabetes.--Section 
330B(b) of the Public Health Service Act (42 U.S.C. 254c-2(b)) 
is amended--
            (1) by striking ``Notwithstanding'' and inserting 
        the following:
            ``(1) Transferred funds.--Notwithstanding''; and
            (2) by adding at the end the following:
            ``(2) Appropriations.--For the purpose of making 
        grants under this section, there is appropriated, out 
        of any funds in the Treasury not otherwise 
        appropriated--
                    ``(A) $70,000,000 for each of fiscal years 
                2001 and 2002 (which shall be combined with 
                amounts transferred under paragraph (1) for 
                each such fiscal years); and
                    ``(B) $100,000,000 for fiscal year 2003.''.
    (b) Special Diabetes Programs for Indians.--Section 330C(c) 
of such Act (42 U.S.C. 254c-3(c)) is amended--
            (1) by striking ``Notwithstanding'' and inserting 
        the following:
            ``(1) Transferred funds.--Notwithstanding''; and
            (2) by adding at the end the following:
            ``(2) Appropriations.--For the purpose of making 
        grants under this section, there is appropriated, out 
        of any money in the Treasury not otherwise 
        appropriated--
                    ``(A) $70,000,000 for each of fiscal years 
                2001 and 2002 (which shall be combined with 
                amounts transferred under paragraph (1) for 
                each such fiscal years); and
                    ``(B) $100,000,000 for fiscal year 2003.''.
    (c) Extension of Final Report on Grant Programs.--Section 
4923(b)(2) of BBA is amended by striking ``2002'' and inserting 
``2003''.

SEC. 932. APPROPRIATIONS FOR RICKY RAY HEMOPHILIA RELIEF FUND.

    Section 101(e) of the Ricky Ray Hemophilia Relief Fund Act 
of 1998 (42 U.S.C. 300c-22 note) is amended by adding at the 
end the following: ``There is appropriated to the Fund 
$475,000,000 for fiscal year 2001, to remain available until 
expended.''.
      Following is explanatory language for H.R. 5543 as 
introduced on October 25, 2000.
 STATEMENT OF MANAGERS FOR THE MEDICARE, MEDICAID, AND SCHIP BENEFITS 
                 IMPROVEMENT AND PROTECTION ACT OF 2000

               Title I--Medicare Beneficiary Improvements

                Subtilte A--Improved Preventive Benefits

Section 101. Coverage of biennial screening pap smear and pelvic exams
      The provision modifies current law to provide Medicare 
coverage for biennial screening pap smears and pelvic exams, 
effective July 1, 2001.
Section 102. Coverage of screening for glaucoma
      The provision would add Medicare coverage for annual 
glaucoma screenings, beginning January 1, 2002, for persons 
determined to be at high risk for glaucoma, individuals with a 
family history of glaucoma, and individuals with diabetes. The 
service would have to be furnished by or under the supervision 
of an optometrist or ophthalmologist who is legally authorized 
to perform such services in the state where the services are 
furnished.
Section 103. Coverage of screening colonoscopy for average risk 
        individuals
      The provision would authorize coverage for screening 
colonoscopies, beginning July 1, 2001, for all individuals, not 
just those at high risk. For persons not at high risk, payments 
could not be made for such procedures if performed within 10 
years of a previous screening colonoscopy or within 4 years of 
a screening flexible sigmoidoscopy.
Section 104. Modernization of screening mammography benefit
      Beginning in 2002, the provision would eliminate the 
statutorily prescribed payment rate for mammography payments 
and specify that the services are to be paid under the 
physician fee schedule. The provision would specify two new 
payment rates for mammographies that utilize advanced new 
technology for the period April 1, 2001 to December 21, 2001. 
Payment for technologies that directly take digital images 
would equal 150% of what would otherwise be paid for a 
bilateral diagnostic mammography. For technologies that convert 
standard film images to digital form, an additional payment of 
fifteen dollars would be authorized. The Secretary would be 
required to determine whether a new code is required for tests 
furnished after 2001.
Section 105. Coverage of medical nutrition therapy services for 
        beneficiaries with diabetes or a renal disease
      The provision would establish, effective January 1, 2002, 
Medicare coverage for medical nutrition therapy services for 
beneficiaries who have diabetes or a renal disease. Medical 
nutrition therapy services would be defined as nutritional 
diagnostic, therapy and counseling services for the purpose of 
disease management which are furnished by a registered 
dietician or nutrition professional, pursuant to a referral by 
a physician. The provision would specify that the amount paid 
for medical nutrition therapy services would equal the lesser 
of the actual charge for the service or 85% of the amount that 
would be paid under the physician fee schedule if such services 
were provided by a physician. Assignment would be required for 
all claims. The Secretary would be required to submit a report 
to Congress that contains an evaluation of the effectiveness of 
services furnished under this provision.

               Subtitle B--Other Beneficiary Improvements

Section 111. Acceleration of reduction of beneficiary copayment for 
        hospital outpatient hospital outpatient department services
      Effective January 1, 2001, the provision would modify 
current law by limiting the amount of a beneficiary's copayment 
for a procedure in a hospital outpatient department to the 
hospital inpatient deductible applicable in that year.
      In addition, starting in January, 2001, the provision 
would require the Secretary of HHS to reduce the effective 
copayment rate for outpatient services to a maximum rate of 60% 
and then gradually reduce the effective coinsurance rate in 5 
percentage point intervals from 2002 through 2006 until the 
maximum rate is 40% in 2006. As stated in BBA 97, hospitals may 
waive any increase in coinsurance that may have arisen from the 
implementation of the outpatient prospective payment system 
(PPS).
      The Comptroller General would be required to work with 
the National Association of Insurance Commissioners (NAIC) to 
evaluate the extent to which premiums for supplemental policies 
reflect the acceleration of the reduction in beneficiary 
coinsurance for hospital outpatient services and result in 
savings to beneficiaries and to report to the Congress by April 
1, 2004.
Section 112. Preservation of coverage of drugs and biologicals under 
        part B of the medicare program
      The provision would clarify policy with regard to 
coverage of drugs, provided incident to physicians services, 
that cannot be self-administered. The provision would specify 
that such drugs are covered when they are not usually self-
administered by the patient.
Section 113. Elimination of time limitation on Medicare benefits for 
        immunosuppressive drugs
      The provision would eliminate the current time 
limitations on the coverage of immunosuppressive drugs for 
beneficiaries who have received a covered organ transplant. The 
provision would apply to drugs furnished, on or after the date 
enactment.
Section 114. Imposition of balanced billing limits on prescription 
        drugs
      The provision would specify that payment for drugs under 
Part B must be made on the basis of assignment.

             Subtitle C--Demonstration Projects and Studies

Section 121. Demonstration project for disease management for severely 
        chronically ill Medicare beneficiaries
      The Secretary would be required to conduct a 
demonstration project to illustrate the impact on costs and 
health outcomes of applying disease management to Medicare 
beneficiaries with diagnosed, advanced-stage congestive heart 
failure, diabetes, or coronary heart disease. Up to 30,000 
beneficiaries would be able to enroll, on a voluntary basis, 
for disease management services related to their chronic health 
condition. In addition, contractors providing disease 
management services would be responsible for providing 
beneficiaries enrolled in the project with prescription drugs.
Section 122. Cancer prevention and treatment demonstration for ethnic 
        and racial minorities
      The provision would require the Secretary to conduct 
demonstration projects for the purpose of developing models and 
evaluating methods that improve the quality of cancer 
prevention services, improve clinical outcomes, eliminate 
disparities in the rate of preventive screening measures, and 
promote collaboration with community-based organizations for 
ethnic and racial minorities.
Section 123. Study on Medicare coverage of routine thyroid screening
      The provision would require the Secretary to request the 
National Academy of Sciences, and as appropriate in conjunction 
with the United States Preventive Services Task Force, to 
analyze the addition of routine thyroid screening under 
Medicare. The analysis would consider the short term and long 
term benefits, and cost to Medicare, of adding such coverage 
for some or all beneficiaries.
Section 124. MedPAC study on consumer coalitions
      The provision would require MedPAC to conduct a study 
that examines the use of consumer coalitions in the marketing 
of Medicare+Choice plans. A consumer coalition would be defined 
as a non-profit community-based organization that provides 
information to beneficiaries about their health options under 
Medicare and negotiates with Medicare+Choice plans on benefits 
and premiums for beneficiaries who are members of the coalition 
or otherwise affiliated with it.
Section 125. Study on limitation on state payment for medicare cost-
        sharing affecting access to services for qualified medicare 
        beneficiaries
      The provision would require the Secretary of HHS to 
conduct a study to determine if access to certain services 
(including mental health services) has been affected by a 
specific provision in law. That provision specifies that states 
are not required to pay Medicare cost-sharing charges for QMBs 
to the extent these payments would result in a total payment in 
excess of the Medicaid level.
Section 126. Institute of Medicine study on waiver of 24-month waiting 
        period for Medicare disability eligibility for amyotrophic 
        lateral sclerosis (ALS) and other devastating diseases
      The provision would provide for an Institute of Medicine 
study that examines the appropriateness of waiving the 24-month 
waiting period for Medicare disability eligibility for an 
individual medically determined to have amyotrophic lateral 
sclerosis (ALS) or an other disease that is as rapidly 
debilitating.
Section 127. Studies on preventive interventions in primary care for 
        older Americans
      The provision would require the Secretary, acting through 
the United States Preventive Services Task Force, to conduct a 
series of studies designed to identify preventive interventions 
in primary care for older Americans.
Section 128. MedPAC study and report on Medicare coverage of cardiac 
        and pulmonary rehabilitation and therapy services
      The provision would require MedPAC to conduct a study on 
coverage of cardiac and pulmonary rehabilitation therapy 
services under Medicare.

                Title II--Rural Health Care Improvements

            Subtitle A--Critical Access Hospital Provisions

Section 201. Clarification of no beneficiary cost-sharing for clinical 
        diagnostic laboratory tests furnished by critical access 
        hospitals
      Effective for services furnished on or after the 
enactment of BBRA99, Medicare beneficiaries would not be liable 
for any coinsurance, deductible, copayment, or other cost 
sharing amount with respect to clinical diagnostic laboratory 
services furnished as an outpatient critical access hospital 
(CAH) service. Conforming changes that clarify that CAHs are 
reimbursed on a reasonable cost basis for outpatient clinical 
diagnostic laboratory services are also included.
Section 202. Assistance with fee schedule payment for professional 
        services under all-inclusive rate
      Effective for items and services furnished on or after 
April 1, 2001, Medicare would pay a CAH for outpatient services 
based on reasonable costs or, at the election of an entity, 
would pay the CAH a facility fee based on reasonable costs plus 
an amount based on 115% of Medicare's fee schedule for 
professional services.
Section 203. Exemption of critical access hospital swing beds from SNF 
        PPS
      Swing beds in critical access hospitals (CAHs) would be 
exempt from the SNF prospective payment system. CAHs would be 
paid for covered SNF services on a reasonable cost basis.
Section 204. Payment in critical access hospitals for emergency room 
        on-call physicians
      When determining the allowable, reasonable cost of 
outpatient CAH services, the Secretary would recognize amounts 
for the compensation and related costs for on-call emergency 
room physicians who are not present on the premises, are not 
otherwise furnishing services, and are not on-call at any other 
provider or facility. The Secretary would define the reasonable 
payment amounts and the meaning of the term ``on-call.'' The 
provision would be effective for cost reporting periods 
beginning on or after October 1, 2001.
Section 205. Treatment of ambulance services furnished by certain 
        critical access hospitals
      Ambulance services provided by a critical access hospital 
(CAH) or provided by an entity that is owned or operated by a 
CAH would be paid on a reasonable cost basis if the CAH or 
entity is the only provider or supplier of ambulance services 
that is located within a 35-mile drive of the CAH. The 
provision would be effective for cost reporting periods 
beginning on or after implementation of the fee schedule.
Section 206. GAO study on certain eligibility requirements for critical 
        access hospitals
      Within one year of enactment, GAO would be required to 
conduct a study on the eligibility requirements for critical 
access hospitals (CAHs) with respect to limitations on average 
length of stay and number of beds, including an analysis of the 
feasibility of having a distinct part unit as part of a CAH and 
the effect of seasonal variations in CAH eligibility 
requirements. GAO also would be required to analyze the effect 
of seasonal variations in patient admissions on critical access 
hospital eligibility requirements with respect to limits on 
average annual length of stay and number of beds.

              Subtitle B--Other Rural Hospitals Provisions

Section 211. Equitable treatment for rural disproportionate share 
        hospitals
      For discharges occurring on or after April 1, 2001, all 
hospitals would be eligible to receive DSH payments when their 
DSH percentage (threshold amount) exceeds 15%. The DSH payment 
formulas for sole community hospitals (SCHs), rural referral 
centers (RRCs), rural hospitals that are both SCHs and RRCs, 
small rural hospitals and urban hospitals with less than 100 
beds would be modified.
Section 212. Option to base eligibility for Medicare dependent, small 
        rural hospital program on discharges during 2 of the 3 most 
        recent audited cost reporting periods
      An otherwise qualifying small rural hospital would be 
able to be classified as an MDH if at least 60% of its days or 
discharges were attributable to Medicare Part A beneficiaries 
in at least two of the three most recent audited cost reporting 
periods for which the Secretary has a settled cost report.
Section 213. Extension of option to use rebased target amounts to all 
        sole community hospitals
      Any SCH would be able to elect payment based on hospital 
specific, updated FY1996 costs if this target amount resulted 
in higher Medicare payments. There would be a transition period 
with Medicare payment based completely on updated FY1996 
hospital specific costs for discharges occurring after FY2003.
Section 214. MedPAC analysis of impact of volume on per unit cost of 
        rural hospitals with psychiatric units
      MedPAC would be required to report on the impact of 
volume on the per unit cost of rural hospitals with psychiatric 
units and include in its report a recommendation on whether 
special treatment is warranted.

                   Subtitle C--Other Rural Provisions

Section 221. Assistance for providers of ambulance services in rural 
        areas
      The provision would make additional payments to providers 
of ground ambulance services for trips, originating in rural 
areas, that are greater than 17 miles and up to 50 miles. The 
payments would be made for services furnished on or after 
implementation of the fee schedule and before January 1, 2004. 
The provision would require the Comptroller General to conduct 
a study to examine both the costs of efficiently providing 
ambulance services for trips originating in rural areas and the 
means by which rural areas with low population densities can be 
identified for the purpose of designating areas in which the 
costs of ambulance services would be expected to be higher. The 
Comptroller General would submit a report to Congress by June 
30, 2002 on the results of the study, together with 
recommendations on steps that should be taken to assure access 
to ambulance services for trips originating in rural areas. The 
Secretary would be required to take these findings into account 
when establishing the fee schedule, beginning with 2004.
Section 222. Payment for certain physician assistant services
      This provision would give permanent authority to 
physician assistants who owned rural health clinics that lost 
their designation as such to bill Medicare directly.
Section 223. Expansion of Medicare payment for telehealth services
      The provision would establish revised payment provisions, 
effective no later than July 1, 2001, for services that are 
provided via a telecommunications system by a physician or 
practitioner to an eligible beneficiary in a rural area. The 
Secretary would be required to make payments for telehealth 
services to the physician or practitioner at the distant site 
in an amount equal to the amount that would have been paid to 
such physician or practitioner if the service had been 
furnished to the beneficiary without the use of a 
telecommunications system. A facility fee would be paid to the 
originating site. Originating sites would include a physician 
or practitioner office, a critical access hospital, a rural 
health clinic, a Federally qualified health center or a 
hospital. The Secretary would be required to conduct a study, 
and submit recommendations to Congress, that identify 
additional settings, sites, practitioners and geographic areas 
that would be appropriate for telehealth services. Entities 
participating in Federal demonstration projects approved by, or 
receiving funding from, the Secretary as of December 31, 2000 
would be qualified sites.
Section 224. Expanding Access to rural health clinics
      All hospitals of less than 50 beds that own rural health 
clinics would be exempt from the per visit limit.
Section 225. MedPAC study on low-volume, isolated rural health 
        providers
      MedPAC would be required to study the effect of low 
patient and procedure volume on the financial status and 
Medicare payment methods for hospital outpatient services, 
ambulance services, hospital inpatient services, skilled 
nursing facility services, and home health services in isolated 
rural health care providers.

                Title III--Provisions Relating to Part A

                Subtitle A--Inpatient Hospital Services

Section 301. Revision of acute care hospital payment update for 2001
      All hospitals would receive the full market basket index 
(MBI) as an update for FY2001. In order to implement this 
increase for hospitals other than sole community hospitals 
(SCH), those hospitals would receive the MBI minus 1.1 
percentage points (the current statutory provision) for 
discharges occurring on or after October 1, 2000 and before 
April 1, 2001; these non-SCH hospitals would receive the MBI 
plus 1.1 percentage points for discharges occurring on or after 
April 1, 2001 and before October 1, 2001. For FY2002 and 
FY2003, hospitals would receive the MBI minus .55 percentage 
points. For FY2004 and subsequently, hospitals would receive 
the MBI.
      The Secretary is directed to consider the prices of blood 
and blood products purchased by hospitals in the next rebasing 
and revision of the hospital market basket to determine whether 
those prices are adequately reflected in the market basket 
index. MedPAC is directed to conduct a study on increased 
hospital costs attributable to complying with new blood safety 
measures and providing such services using new technologies 
among other issues.
      For discharges occurring on or after October 1, 2001, the 
Secretary would be able to adjust the standardized amount in 
future fiscal years to correct for changes in the aggregate 
Medicare payments caused by adjustments to the DRG weighting 
factors in a previous fiscal year (or estimates that such 
adjustments for a future fiscal year) that did not take into 
account coding improvements or changes in discharge 
classifications and did not accurately represent increases in 
the resource intensity of patients treated by PPS hospitals.
Section 302. Additional modification in transition for indirect medical 
        education (IME) percentage adjustment
      Teaching hospitals would receive 6.25% IME payment 
adjustment (for each 10% increase in teaching intensity) for 
discharges occurring on or after October 1, 2000 and before 
April 1, 2001. The IME adjustment would increase to 6.75% for 
discharges on or after April 1, 2001 and before October 1, 
2001, for an average of 6.5% for FY2001. The IME adjustment 
would be 6.375% in FY2002 and 5.5% in FY2003 and in subsequent 
years.
Section 303. Decrease in reductions for disproportionate share hospital 
        (DSH) payments
      Reductions in the DSH payment formula amounts would be 2% 
in FY2001, 3% in FY2002, and 0% in FY2003 and subsequently. To 
implement the FY2001 provision, DSH amounts for discharges 
occurring on or after October 1, 2000 and before April 1, 2001, 
would be reduced by 3% which was the reduction in effect prior 
to enactment of this provision. DSH amounts for discharges 
occurring on or after April 1, 2001 and before October 1, 2001 
would be reduced by only 1 percentage point.
Section 304. Wage index improvements
      For FY2001 or any fiscal year thereafter, a Medicare 
Geographic Classification Review Board (MGCRB) decision to 
reclassify a prospective payment system hospital for use of a 
different area's wage index would be effective for 3 fiscal 
years. The Secretary would establish procedures whereby a 
hospital could elect to terminate this reclassification 
decision before the end of such period. For FY2003 and 
subsequently, MGCRB would base any comparison of the average 
hourly wage of the hospital with the average hourly wage for 
hospitals in the area using data from each of the two 
immediately preceding surveys as well as data from the most 
recently published hospital wage survey.
      The Secretary would establish a process which would first 
be available for discharges occurring on or after October 1, 
2001 where a single wage index would be computed for all 
geographic areas in the state. If the Secretary applies a 
statewide geographic index, an application by an individual 
hospital would not be considered. The Secretary would also 
collect occupational data every three years in order to 
construct an occupational mix adjustment for the hospital area 
wage index. The first complete data collection effort would 
occur no later than September 30, 2003 for application 
beginning October 1, 2004.
Section 305. Payment for inpatient services in rehabilitation hospitals
      Total payments for rehabilitation hospitals in FY2002 
would equal the amounts of payments that would have been made 
if the rehabilitation prospective payment system (PPS) had not 
been enacted. A rehabilitation facility would be able to make a 
one-time election before the start of the PPS to be paid based 
on a fully phased-in PPS rate.
Section 306. Payment for inpatient services of psychiatric hospitals
      The provision would increase the incentive payments for 
psychiatric hospitals and distinct part units to 3% for cost 
reporting periods beginning on or after October 1, 2000.
Section 307. Payment for inpatient services of long-term care hospitals
      For cost reporting periods beginning during FY 2001, long 
term hospitals would have the national cap increased by 2% and 
the target amount increased by 25%. Neither these payments nor 
the increased bonus payments provided by BBRA 99 would be 
factored into the development of the prospective payment system 
(PPS) for long term hospitals. When developing the PPS for 
inpatient long term hospitals, the Secretary would be required 
to examine the feasibility and impact of basing payment on the 
existing (or refined) acute hospital DRGs and using the most 
recently available hospital discharge data. If the Secretary is 
unable to implement a long term hospital PPS by October 1, 
2002, the Secretary would be required to implement a PPS for 
these hospitals using the existing acute hospital DRGs that 
have been modified where feasible.

 Subtitle B--Adjustments to PPS Payments for Skilled Nursing Facilities

Section 311. Elimination of reduction in skilled nursing facility (SNF) 
        market basket update in 2001
      The provision would modify the schedule and rates 
according to which federal per diem payments are updated. In FY 
2002 and FY 2003 the updates would be the market basket index 
increase minus 0.5 percentage point. The update rate for the 
period October 1, 2000, through March 31, 2001, would be the 
market basket index increase minus 1 percentage point; the 
update rate for the period April 1, 2001, through September 30, 
2001, would be the market basket index increase plus one 
percentage point. Temporary increases in the federal per diem 
rates provided by BBRA 99 would be in addition to the increases 
in this provision. By July 1, 2002, the Comptroller General 
would be required to submit a report to Congress on the 
adequacy of Medicare payments to SNFs, taking into account the 
role of private payers, medicaid, and case mix on the financial 
performance of SNFs and including an analysis, by RUG 
classification, of the number and characteristics of such 
facilities. By January 1, 2005, the Secretary would be required 
to submit a report to Congress on alternatives for 
classification of SNF patients.
Section 312. Increase in nursing component of PPS federal rate
      The provision would increase the nursing component of 
each RUG by 16.66 percent over current law for SNF care 
furnished after April 1, 2001, and before October 1, 2002.
      The Comptroller General would be required to conduct an 
audit of nurse staffing ratios in a sample of SNFs and to 
report to Congress by August 1, 2002, on the results of the 
audit of nurse staffing ratios and recommend whether the 
additional 16.66 percent payment should be continued.
Section 313. Application of SNF consolidated billing requirement 
        limited to part A covered stays
      Effective January 1, 2001, the provision would limit the 
current law consolidated billing requirement to services and 
items furnished to SNF residents in a Medicare part A covered 
stay and to therapy services furnished in part A and part B 
covered stays.
      The Inspector General of HHS would be required to monitor 
part B payments to SNFs on behalf of residents who are not in a 
part A covered stay.
Section 314. Adjustment of rehabilitation RUGS to correct anomaly in 
        payment rates
      Effective for skilled nursing facility (SNF) services 
furnished on or after April 1, 2002, the provision would 
increase by 6.7 percent certain federal per diem payments to 
ensure that Medicare payments for SNF residents with ``ultra 
high'' and ``high'' rehabilitation therapy needs are 
appropriate in relation to payments for residents needing 
``medium'' or ``low'' levels of therapy. The 20 percent 
additional payment that was provided in BBRA 99 for certain 
RUGS is removed to make this provision budget neutral.
      The Inspector General of HHS would be required to review 
and report to Congress by October 1, 2001, regarding whether 
the RUG payment structure as in effect under the BBRA 99 
includes incentives for the delivery of inadequate care.
Section 315. Establishment of process for geographic reclassification
      The provision would permit the Secretary to establish a 
process for geographic reclassification of skilled nursing 
facilities based upon the method used for inpatient hospitals. 
The Secretary may implement the process upon completion of the 
data collection necessary to calculate an area wage index for 
workers in skilled nursing facilities.

                        Subtitle C--Hospice Care

Section 321. Full market basket increase for 2001
      The provision would modify update procedures for Medicare 
daily payment rates for hospice care. It would provide an 
increase in FY 2001 equal to the full increase in the market 
basket index. (The rates would be lower in the period October 
1, 2000, through March 21, 2001, and higher in the period April 
1, 2001, through September 30, 2001.) For FY 2002, payments 
would be updated by the market basket index increase minus .25 
percentage point. The temporary increase in payment rates 
provided in BBRA 99 for FY 2001 and FY 2002 (.5 percent and .75 
percent, respectively) would be included in the base on which 
updates are computed.
Section 322. Clarification of physician certification
      Effective for certifications of terminal illness made on 
or after the date of enactment, the provision would modify 
current law to specify that the physician's or hospice medical 
director's certification of terminal illness would be based on 
his/her clinical judgment regarding the normal course of the 
individual's illness. The Secretary would be required to study 
and report to Congress within 2 years of enactment on the 
appropriateness of certification of terminally ill individuals 
and the effect of this provision on such certification.
Section 323. MedPAC report on access to, and use of, hospice benefit
      The provision would require MedPAC to examine the factors 
affecting the use of Medicare hospice benefits, including delay 
of entry into the hospice program and urban and rural 
differences in utilization rates. The provision would require a 
report on the study to be submitted to Congress 18 months after 
enactment.
Section 331. Relief From Medicare Part A late enrollment penalty for 
        group buy-in for state and local retirees
      The provision would exempt certain state and local 
retirees, retiring prior to January 1, 2002, from the Part A 
delayed enrollment penalties. These would be groups of persons 
for whom the state or local government elected to pay the 
delayed Part A enrollment penalty for life. The amount of the 
delayed enrollment penalty which would otherwise be assessed 
would be reduced by an amount equal to the total amount of 
Medicare payroll taxes paid by the employee and the employer on 
behalf of the employee.
  Section 332. Posting of information on nursing facility staffing
      The provision would require skilled nursing facilities to 
post nurse staffing information daily for each shift in the 
facility.

                Title IV--Provisions Relating to Part B

                Subtitle A--Hospital Outpatient Services

Section 401. Revision of hospital outpatient PPS payment update
      Effective as if enacted with the BBRA 99, the provision 
would modify the current law update rates applicable to the 
hospital outpatient PPS by providing in FY 2001 an update equal 
to the full rate of increase in the market basket index. As 
under current law, the increase in FY 2002 would be the market 
basket index increase minus one percentage point.
      If the Secretary determines that updates to the 
adjustment factor used to convert the relative utilization 
weights under the PPS into payment amounts have, or are likely 
to, result in hospitals' changing their coding or 
classification of covered services, thereby changing aggregate 
payments, the Secretary would be authorized to adjust the 
conversion factor in later years to eliminate the effect of 
coding or classification changes.
Section 402. Clarifying process and standards for determining 
        eligibility of devices for pass-through payments under hospital 
        outpatient PPS
      The provision would modify the procedures and standards 
by which certain medical devices are categorized and determined 
eligible for pass-through payments under the PPS. Through 
public rule-making procedures, the Secretary would be required 
to establish criteria for defining special payment categories 
under the PPS for new medical devices. The Secretary would be 
required to promulgate, through the use of a program 
memorandum, initial categories that would encompass each of the 
individual devices that the Secretary had designated as 
qualifying for the pass-through payments to date. In addition, 
similar devices not so designated because they were payable 
under Medicare prior to December 31, 1996, would also be 
included in initial categories. The Secretary would be required 
to create additional new categories in the future to 
accommodate new technologies meeting the ``not insignificant 
cost'' test established in BBRA 99.
      Once the categories were established, pass-through 
payments currently authorized under section 1833(t)(b) of the 
Social Security Act would proceed on a category-specific, 
rather than device-specific basis. These payments would be 
designated as ``category-based pass-through payments.'' These 
payments would be continued to be made for the 2 to 3 years 
payment period originally specified in BBRA 99, and, for each 
given category, would begin when the first such payment is made 
for any device included in a specified category. At the 
conclusion of this transitional payment period, categories 
would sunset and payment for the device would be included in 
the underlying PPS payment for the related service.
Section 403. Application of OPD PPS transitional corridor payments to 
        certain hospitals that did not submit a 1996 cost report
      Effective as if enacted with BBRA 99, the provision would 
modify current law as enacted in BBA 99 to enable all 
hospitals, not just those hospitals filing 1996 cost reports, 
to be eligible for transitional payments under the PPS.
Section 404. Application of rules for determining provider-based status 
        for certain entities
      The provision would grandfather existing arrangements 
whereby certain entities (such as outpatient clinics, skilled 
nursing facilities, etc.) are considered ``provider-based'' 
entities, meaning they are affiliated financially and 
clinically with a main hospital. Existing provider-based status 
designations would continue for two years beginning October 1, 
2000. If a facility or organization requests approval for 
provider-based status during the period October 1, 2000, 
through September 31, 2002, it could not be treated as if it 
did not have such status during the period of time the 
determination is pending. In making such a status determination 
on or after October 1, 2000, HCFA would treat the applicant as 
satisfying any requirements or standards for geographic 
location if it satisfied geographic location requirements in 
regulations or is located not more than 35 miles from the main 
campus of the hospital.
      An applicant facility or organization would be treated as 
satisfying all requirements for provider-based status if it is 
owned or operated by a unit of State or local government or is 
a public or private nonprofit corporation that is formally 
granted governmental powers by a unit of State or local 
government, or is a private hospital that, under contract, 
serves certain low income households or has a certain 
disproportionate share adjustment.
      These provisions are in effect during a two-year period 
beginning on October 1, 2000.
Section 405. Treatment of children's hospitals under prospective 
        payment system
      The BBRA 99 provides special ``hold harmless'' payments 
to ensure that cancer hospitals would receive no less under the 
hospital outpatient PPS than they would have received, in 
aggregate, under the ``pre-BBA'' system, that is, the pre-PPS 
payment system. Effective as if included in the BBRA 99, the 
provision would extend this hold harmless protection to 
children's hospitals.
Sec 406. Inclusion of temperature monitored cryoablation
      The provision would include temperature monitored 
cryoablation as part of the transitional pass-through for 
certain medical devices, drugs, and biologicals under the 
hospital outpatient prospective payment system, effective April 
1, 2001.

         Subtitle B--Provisions Relating to Physicians Services

Section 411. GAO studies relating to physicians' services
      The provision would require the GAO to conduct a study on 
the appropriateness of furnishing in physicians offices 
specialist services (such as gastrointestinal endoscopic 
physicians services) which are ordinarily furnished in hospital 
outpatient departments. The GAO would also be required to study 
the refinements to the practice expense relative value units 
made during the transition to the resource-based system.
Section 412. Physician group practice demonstration
      The provision would require the Secretary to conduct 
demonstration projects to test, and if proven effective, expand 
the use of incentives to health care groups participating under 
Medicare. Such incentives would be designed to encourage 
coordination of care furnished under Medicare Parts A and B by 
institutional and other providers and practitioners; to 
encourage investment in administrative structures and processes 
to encourage efficient service delivery; and to reward 
physicians for improving health outcomes. The Secretary would 
establish for each group participating in a demonstration, a 
base expenditure amount and an expenditure target (reflecting 
base expenditures adjusted for risk and expected growth rates). 
The Secretary would pay each group a bonus for each year equal 
to a portion of the savings for the year relative to the 
target. In addition, at such time as the Secretary had 
developed appropriate criteria, the Secretary would pay an 
additional bonus related to process and outcome improvements. 
Total payments under demonstrations could not exceed what the 
Secretary estimates would be paid in the absence of the 
demonstration program.
Section 413. Study on enrollment procedures for groups that retain 
        independent contractor physicians
      The provision would require the Comptroller General to 
conduct a study of the current Medicare enrollment process for 
groups that retain independent contractor physicians; 
particular emphasis would be placed on hospital-based 
physicians, such as emergency department staffing groups.

                       Subtitle C--Other Services

Section 421. One-year extension of moratorium on therapy caps; report 
        on standards for supervision of physical therapy assistants
      The provision would extend the moratorium on the physical 
therapy and occupational therapy caps for 1 year through 2002; 
it would also extend the requirement for focused reviews of 
therapy claims for the same period. The Secretary would be 
required to conduct a study on the implications of eliminating 
the ``in the room'' supervision requirement for Medicare 
payment for physical therapy assistants who are supervised by 
physical therapists and the implications of this requirement on 
the physical therapy cap.
Section 422. Update in renal dialysis composite rate
      The provision would specify that the composite rate 
payment for renal dialysis services would be increased by 2.4% 
for 2001. The provision would require the Secretary to collect 
data and develop an end-stage renal disease (ESRD) market 
basket whereby the Secretary could estimate before the 
beginning of a year the percentage increase in costs for the 
mix of labor and non-labor goods and services included in the 
composite rate. The Secretary would report to Congress on the 
index together with recommendations on the appropriateness of 
an annual or periodic update mechanism for dialysis services. 
The Comptroller General would be required to study the access 
of beneficiaries to dialysis services. There is a hold harmless 
provision for facilities who received exemptions for their 2000 
rates, and for facilities that had their applications denied in 
2000 but resubmit them by July 1, 2001 and are approved.
Section 423. Payment for ambulance services
      The provision would provide for the full inflation update 
in ambulance payments for 2001. It would also specify that any 
phase-in of the ambulance fee schedule would provide for full 
payment of national mileage rates in states where separate 
mileage payments were not made prior to implementation of the 
fee schedule.
Section 424. Ambulatory surgical centers
      The provision would delay implementation of proposed 
regulatory changes to the ambulatory payment classification 
system, which are based on 1994 cost data, until January 1, 
2002. At that time, such changes would be phased in over 4 
years: in the first year the payment amounts would be 25 
percent of the revised rates and 75 percent of the prior system 
rates; in the second year payments would be 50 percent of the 
revised rates and 50 percent of the prior system rates, etc. 
The provision also requires that the revised system, based on 
1999 (or later) cost data, be implemented January 1, 2003. (The 
phase-in of the revised system and 1994 data would end when the 
system with 1999 or later data was implemented.)
Section 425. Full update for durable medical equipment
      The provision would modify updates to payments for 
durable medical equipment. For 2001, the payments for covered 
DME would be increased by the full increase in the consumer 
price index for urban consumers during the 12-month period 
ending June 2000. No increase would be authorized for 2002.
Section 426. Full update for orthotics and prosthetics
      The provision would modify updates to payments for 
orthotics and prosthetics: in 2000 the rates would be increased 
by one percent; in 2001, the increase would be equal to the 
percentage increase in the consumer price index for urban 
consumers during the 12-month period ending with June, 2000; 
for 2002, payments would be increased by one percent over the 
prior year's amounts.
Section 427. Establishment of special payment provisions and 
        requirements for prosthetics and certain custom fabricated 
        orthotic items
      Under the provision, certain prosthetics or custom 
fabricated orthotics would be covered by Medicare if furnished 
by a qualified practitioner and fabricated by a qualified 
practitioner or qualified supplier. The Secretary would be 
required to establish a list of such items in consultation with 
experts. Within one year of enactment, the Secretary would be 
required to promulgate regulations to provide these items, 
using negotiated rulemaking procedures.
      Not later than 6 months from enactment, the Comptroller 
General would be required to submit to Congress a report on the 
Secretary's compliance with the Administrative Procedures Act 
with regard to HCFA Ruling 96-1; certain impacts of that 
ruling; the potential for fraud and abuse in provision of 
prosthetics and orthotics under special payment rules and for 
custom fabricated items; and the effect on Medicare and 
Medicaid payments if that ruling were overturned.
Section 428. Replacement of prosthetic devices and parts
      The provision would authorize Medicare coverage for 
replacement of artificial limbs, or replacement parts for such 
devices, if ordered by a physician for specified reasons. 
Effective for items furnished on or after enactment, coverage 
would apply to prosthetic items 3 or more years old, and would 
supersede any 5-year age rules for such items under current 
law.
Section 429. Revised part B payment for drugs and biologicals and 
        related services
      The provision would require the Comptroller General to 
study and submit a report to Congress and the Secretary on the 
reimbursement for drugs and biologicals and for related 
services under Medicare; the report would include specific 
recommendations for revised payment methodologies. The 
Secretary would revise the current payment methodologies for 
covered drugs and biologicals and related services based on 
these recommendations; however, total payments under the 
revised methodologies could not exceed the aggregate payments 
the Secretary estimates would have been made under the current 
law. The provision would establish a temporary injunction on 
changes in payment rates until the Secretary reviewed the GAO 
report.
Section 430. Contrast enhanced diagnostic procedures under hospital 
        prospective payment system
      The provision would require the Secretary to create under 
that hospital outpatient PPS additional and separate groups of 
covered services which include procedures that utilize contrast 
media. The provision would take effect January 1, 2001. and 
separate groups of covered services which include procedures 
that utilize contrast media.
Section 431. Qualifications for community mental health centers
      The provision would clarify the qualifications for 
community mental health centers providing partial 
hospitalization services under Medicare.
Section 432. Modification of medicare billing requirements for certain 
        indian providers
      The provision would authorize hospitals and free-standing 
ambulatory care clinics of the Indian Health Service to bill 
Medicare for services which are paid for under the physician 
fee schedule.
Section 433. GAO study on coverage of surgical first assisting services 
        of certified registered nurse first assistants
      The provision would require the Comptroller General to 
conduct a study on the effect on both the program and 
beneficiaries of covering surgical first assisting services of 
certified registered nurse first assistants.
Section 434. MedPAC study and report on medicare reimbursement for 
        services provided by certain providers
      The provision would require MedPAC to conduct a study on 
the appropriateness of current payment rates for services 
provided by a certified nurse midwife, physician assistant, 
nurse practitioner, and clinical nurse specialist.
Section 435. MedPAC study and report on medicare coverage of services 
        provided by certain non-physician providers
      The provision would require MedPAC to conduct a study to 
determine the appropriateness of Medicare coverage of the 
services provided by a surgical technologist, marriage 
counselor, pastoral care counselor, and licensed professional 
counselor of mental health.
Section 436. GAO study and report on the costs of emergency and medical 
        transportation services
      The provision would require the Comptroller General to 
conduct a study on the costs of providing emergency and medical 
transportation services across the range of acuity levels of 
conditions for which such transportation services are provided.
Section 437. GAO studies and reports on medicare payments
      The provision would require the Comptroller General to 
conduct a study on the post-payment audit process for 
physicians services. The study would include the proper level 
of resources HCFA should devote to educating physicians 
regarding coding and billing, documentation requirements, and 
calculation of overpayments. The Comptroller General would also 
be required to conduct a study of the aggregate effects of 
regulatory, audit, oversight and paperwork burdens on 
physicians and other health care providers participating in 
Medicare.
Section 439. MedPAC study on access to outpatient pain management 
        services
      The provision would require MedPAC to conduct a study on 
the barriers to coverage and payment for outpatient 
interventional pain medicine procedures under Medicare.

              Title V--Provision Relating To Parts A and B

                    Subtitle A--Home Health Services

Section 501. 1-Year additional delay in application of 15 percent 
        reduction on payment limits fo home health services
      The provision would require that the aggregate amount of 
Medicare payments to home health agencies in the second year of 
the PPS (FY 2002) shall equal the aggregate payments in the 
first year of the PPS, updated by the market basket index (MBI) 
increase minus 1.1 percentage points. The 15 percent reduction 
to aggregate PPS amounts, which, under current law, would go 
into effect October 1, 2001, would be delayed until October 1, 
2002.
      The Comptroller General (rather than the Secretary) would 
be required to submit, by April 1, 2002, a report analyzing the 
need for the 15 percent or other reduction.
      If the Secretary determines that updates to the PPS 
system for a previous fiscal year (or estimates of such 
adjustments for a future fiscal year) did (or are likely to) 
result in a change in aggregate payments due to changes in 
coding or classification of beneficiaries' service needs that 
do not reflect real changes in case mix, effective for home 
health episodes concluding on or after October 1, 2001, the 
Secretary may adjust PPS amounts to eliminate the effect of 
such coding or classification changes.
Section 502. Restoration of full home health market basket update for 
        home health services for fiscal year 2001
      The provision would modify the home health PPS updates. 
During the period October 1, 2000, through March 31, 2001, the 
rates promulgated in the home health PPS regulations on July 3, 
2000, would apply for 60-day episodes of care (or visits) 
ending in that period. For the period April 1, 2001, through 
September 31, 2001, those rates would be increased by 2.2 
percent for 60-day episodes (or visits) ending in that time 
period.
Section 503. Temporary two-month extension of periodic interim payments
      The provision would extend applicability of periodic 
interim payments provided under current law. Home health 
agencies that were receiving such payments as of September 30, 
2000, would continue to receive them until December 1, 2000. 
The payments in each of November and December 2000 would equal 
the amount those agencies received in October 2000. The amounts 
would be included in the agency's last settled cost report 
before implementation of the PPS.
Section 504. Use of telehealth in delivery of home health services
      The provision would clarify that the telecommunications 
provisions should not be construed as preventing a home health 
agency from providing a service, for which payment is made 
under the prospective payment system, via a telecommunications 
system, provided that the services do not substitute for ``in-
person'' home health services ordered by a physician as part of 
a plan of care or are not considered a home health visit for 
purposes of eligibility or payment.
Section 505. Study on costs to home health agencies of purchasing 
        nonroutine medical supplies
      The provision would require that, not later than October 
1, 2001, the Comptroller General shall submit to Congress a 
report regarding the variation in prices home health agencies 
pay for nonroutine supplies, the volume of supplies used, and 
what effect the variations have on the provision of services. 
The Secretary would be required to make recommendations on 
whether Medicare payment for those supplies should be made 
separately from the home health PPS.
Section 506. Treatment of branch offices; GAO study on supervision of 
        home health care provided in isolated rural areas
      The provision would clarify that neither time nor 
distance between a home health agency parent office and a 
branch office shall be the sole determinant of a home health 
agency's branch office status. The Secretary would be 
authorized to include forms of technology in determining 
``supervision'' for purposes of determining a home health 
agency's branch office status.
      Not later than January 1, 2002, the Comptroller General 
would be required to submit to Congress a report regarding the 
adequacy of supervision and quality of home health services 
provided by home health agency branch offices and subunits in 
isolated rural areas and to make recommendations on whether 
national standards for supervision would be appropriate in 
assuring quality.
Section 507. Clarification of the homebound benefit
      The provision clarifies that the need for adult day care 
for patient's plan of treatment does not preclude appropriate 
coverage for home health care for other medical conditions. The 
provision also clarifies the ability of homebound beneficiaries 
to attend religious services without being disqualified from 
receiving home health benefits.

             Subtitle B--Direct Graduate Medical Education

Section 511. Increase in floor for direct graduate medical education 
        payments
      A hospital's approved per resident amount for cost 
reporting periods beginning during FY2002 would not be less 
than 85% of the locality adjusted national average per resident 
amount.
Section 512. Change in distribution formula for Medicare+Choice-related 
        nursing and allied health education costs
      A hospital would receive nursing and allied health 
payments for Medicare managed care enrollees based on its per 
day cost of allied and nursing health programs and number of 
days attributed to Medicare enrollees in comparison to that in 
all other hospitals. The provision would be effective for 
portions of cost reporting periods occurring on or after 
January 1, 2001.

      Subtitle C--Changes in Medicare Coverage and Appeals Process

Section 521. Revisions to medicare appeals process
      The provision would modify the Medicare appeals process. 
Generally, initial determinations by the Secretary would be 
concluded no later than 45-days from the date the Secretary 
received a claim for benefits. Any individual dissatisfied with 
the initial determination would be entitled to a 
redetermination by the carrier or fiscal intermediary who made 
the initial determination. Such redetermination would be 
required to be completed within 30 days of a beneficiary's 
request. Beneficiaries could appeal the outcome of a 
redetermination by seeking a reconsideration. Generally, a 
request for a reconsideration must be initiated no later than 
180 days after the date the individual receives the notice of 
an adverse redetermination. In addition, if contested amounts 
are greater than $100, an individual would be able to appeal an 
adverse reconsideration decision by requesting a hearing by the 
Secretary (first for a hearing by an administrative law judge, 
then in certain circumstances, for a hearing before the 
Department Appeals Board). If the dispute is not satisfactorily 
resolved through this administrative process, and if contested 
amounts are greater than $1,000, the individual would be able 
to request judicial review of the Secretary's final decision. 
Aggregation of claims to meet these thresholds would be 
permitted.
      An expedited determination would be available for a 
beneficiary who received notice: 1) that a provider plans to 
terminate services and a physician certifies that failure to 
continue the provisions of the services is likely to place the 
beneficiary's health at risk; or 2) that the provider plans to 
discharge the beneficiary.
      The Secretary would enter into 3-year contracts with at 
least 12 qualified independent contractors (QICs) to conduct 
reconsiderations. A QIC would promptly notify beneficiaries and 
Medicare claims processing contractors of its determinations. A 
beneficiary could appeal the decision of a QIC to an ALJ. In 
cases where the ALJ decision is not rendered within the 90-day 
deadline, the appealing party would be able to request a DAB 
hearing.
      The Secretary would perform outreach activities to inform 
beneficiaries, providers, and suppliers of their appeal rights 
and procedures. The Secretary would submit to Congress an 
annual report including information on the number of appeals 
for the previous year, identifying issues that require 
administrative or legislative actions, and including 
recommendations for change as necessary. The report would also 
contain an analysis of the consistency of the QIC 
determinations as well as the cause for any identified 
inconsistencies.
Section 522. Revisions to medicare coverage process
      The provision would clarify when and under what 
circumstances Medicare coverage policy could be challenged. An 
aggrieved party could file a complaint concerning a national 
coverage decision. Such complaint would be reviewed by the 
Department Appeals Board (DAB) of HHS. The provision would also 
permit an aggrieved party to file a complaint concerning a 
local coverage determination. In this case, the determination 
would be reviewed by an administrative law judge. If 
unsatisfied, complainants could subsequently seek review of 
such a local policy by the DAB. In both cases, a DAB decision 
would constitute final HHS action, and would be subject to 
judicial review. The provision would also permit an affected 
party to submit a request to the Secretary to issue a national 
coverage or noncoverage determination if one has not been 
issued. The Secretary would have 90 days to respond. HHS would 
be required to prepare an annual report on national coverage 
determinations.

            Subtitle D--Improving Access to New Technologies

Section 531. Reimbursement improvements for new clinical laboratory 
        tests and durable medical equipment
      The provision would specify that the national limitation 
amount for a new clinical laboratory test would equal 100% of 
the national median for such test. The Secretary would be 
required to establish procedures that permit public 
consultation for coding and payment determinations for new 
clinical diagnostic laboratory tests and new durable medical 
equipment. The Secretary would be required to report to 
Congress on specific procedures used to adjust payments for 
advanced technologies; the report would include recommendations 
for legislative changes needed to assure fair and appropriate 
payments.
Section 532. Retention of HCPCS level III codes
      The provision would extend the time for the use of local 
codes (known as HCPCS level III codes) through December 31, 
2003; the Secretary would be required to make the codes 
available to the public.
Section 533. Recognition of new medical technologies under medicare 
        inpatient hospital PPS
      The Secretary would be required to submit a report to 
Congress no later than April 1, 2001, on potential methods for 
more rapidly incorporating new medical services and 
technologies used in the inpatient setting in the clinical 
coding system used with respect to payment for inpatient 
services. The Secretary would be required to identify the 
preferred methods for expediting these coding modifications in 
her report, and to implement such method by October 1, 2001. 
Additional hospital payments could be made by means of a new 
technology group (DRG), an add-on payment, payment adjustment 
or other mechanism. However, separate fee schedules for 
additional new technology payments would not be permitted. The 
Secretary would implement the new mechanism on a budget neutral 
basis. The total amount of projected additional payments under 
the mechanism would be limited to an amount not greater than 
the Secretary's annual estimation of the costs attributable to 
the introduction of new technology in the hospital sector as a 
whole (as estimated for purposes of the annual hospital update 
calculation).

                      Subtitle E--Other Provisions

Section 541. Increase in reimbursement for bad debt
      Effective beginning with cost reports starting in FY2001, 
the provision would increase the percentage of the reasonable 
costs associated with beneficiaries' bad debt in hospitals that 
Medicare would reimburse to 70%.
Section 542. Treatment of certain physician pathology services under 
        medicare
      The provision would permit independent laboratories, 
under a grandfather arrangement to continue, for a 2-year 
period (2001-2002), direct billing for the technical component 
of pathology services provided to hospital inpatients and 
hospital outpatients. The Comptroller General would be required 
to conduct a study of the effect of these provisions on 
hospitals and laboratories and access of fee-for-service 
beneficiaries to the technical component of physician pathology 
services. The report would include recommendations on whether 
the provisions should continue after the 2-year period for 
either (or both) inpatient and outpatient hospital services and 
whether the provision should be extended to other hospitals.
Section 543. Extension of advisory opinion authority
      The Office of the Inspector General's authority to issue 
advisory opinions to outside parties who request guidance on 
the applicability of the anti-kickback statute, safe harbor 
provisions and other OIG health care fraud and abuse sanctions 
would be made permanent.
Section 544. Change in annual MedPAC reporting
      The provision would delay the reporting date for the 
MedPAC report on issues affecting the Medicare program by 15 
days to June 15. The provision would also require record votes 
on recommendations contained both in this report and the March 
report on payment policies.
Section 545. Development of patient assessment instruments
      The provision would require the Secretary to report to 
the Congress on the development of standard instruments for the 
assessment of the health and functional status of patients and 
make recommendations on the use of such standard instruments 
for payment purposes.
Section 546. GAO report on impact of the emergency medical treatment 
        and Active Labor Act (EMTALA) on hospital emergency departments
      GAO would be required to evaluate the impact of the 
Emergency Medical Treatment and Active Labor Act on hospitals, 
emergency physicians, and on-call physicians covering emergency 
departments and to submit a report to Congress by May 1, 2001.

 Title VI--Provisions Relating To Part C (Medicare+Choice Program) and 
                 Other Medicare Managed Care Provisions

              Subtitle A--Medicare+Choice Payment Reforms

Section 601. Increase in minimum payment amount
      The provision would set the minimum payment amount for 
aged enrollees within the 50 states and the District of 
Columbia in a Metropolitan Statistical Area with a population 
of more than 250,000 at $525 in 2001. For all other areas 
within the 50 States and the District of Columbia, the minimum 
would be $475. For any area outside the 50 States and the 
District of Columbia, the $525 and $475 minimum amounts would 
also be applied, except that the 2001 minimum payment amount 
could not exceed 120% of the 2000 minimum payment amount.
Section 602. Increase in minimum percentage increase
      This provision would apply a 3% minimum update in 2001 
and return to the current law minimum update of 2% thereafter.
Section 603. 10-Year phase in of risk adjustment
      Until such time that risk adjustment is based on data 
from inpatient hospital and ambulatory settings, 10% of 
payments would be based on risk-adjusted inpatient data built 
on the 15 principal inpatient diagnostic cost groups (PIP-DCGs) 
and 90% would be adjusted solely using the older demographic 
method. Beginning with the first year that risk adjustment is 
based on data from inpatient hospitals and ambulatory settings, 
it would be phased in over 10 years, in equal increments. (The 
Secretary currently plans to implement this new system in 
2004.)
Section 604. Transition to revised Medicare+Choice payment rates
      Within 2 weeks after the date of enactment of the Act, 
the Secretary must announce revised M+C capitation rates for 
2001, due to changes from this Act. Plans that previously 
provided notice of their intention to terminate contracts or 
reduce their service area for 2001 would have 2 weeks after 
announcement of the revised rates to rescind their notice and 
submit ACR information. Further, any M+C organization that 
would receive higher capitation payments as a result of this 
Act must submit revised ACR information within 2 weeks after 
announcement of the revised rates. Plans may only reduce 
premiums, reduce cost sharing, enhance benefits, or utilize 
stabilization funds. Notwithstanding the issuance of revised 
rates, M+C organizations would continue to be paid on a fee-
for-service basis for costs associated with new national 
coverage determinations that are made mid-year.
Section 605. Revision of payment rates for ESRD patients enrolled in 
        Medicare+Choice plans
      This provision would require that the Secretary increase 
the M+C payment rates for enrollees with ESRD. The revised 
rates would reflect the demonstration rate (including the risk-
adjustment methodology) of social health maintenance 
organizations' ESRD capitation demonstrations. The revised 
rates would include adjustments for factors such as renal 
treatment modality, age, and underlying cause of the disease.
Section 606. Permitting premium reductions as additional benefits under 
        Medicare+Choice plans
      This provision would permit M+C plans to offer reduced 
Medicare Part B premiums to their enrollees as part of 
providing any required additional benefits or reduced cost-
sharing. An M+C organization could elect a reduction in its M+C 
payment up to 125% of the annual Part B premium. However, only 
80% of this amount could be used to reduce an enrollee's actual 
Part B premium. This would have the effect of returning up to 
100% of the beneficiary's Part B premium. The reduction would 
apply uniformly to each enrollee of the M+C plan. Plans would 
include information about Part B premium reductions as part of 
the required information that is provided to enrollees for 
comparing plan options.
Section 607. Full implementation of risk adjustment for congestive 
        heart failure enrollees for 2001
      This provision would fully implement risk adjustment 
based on inpatient hospital diagnoses for an individual who had 
a qualifying congestive heart failure inpatient diagnosis 
between July 1, 1999 and June 30, 2000, if that individual was 
enrolled in a coordinated care plan offered on January 1, 2001. 
This would apply for only 1 year, beginning on January 1, 2001. 
This payment amount would be excluded from the determination of 
the budget neutrality factor.
Section 608. Expansion of application of Medicare+Choice new entry 
        bonus
      This provision would expand the application of the new 
entry bonus for M+C plans to include areas for which 
notification had been provided, as of October 3, 2000, that no 
plans would be available January 1, 2001.
Section 609. Report on inclusion of certain costs of the Department of 
        Veterans Affairs and Military Facility Services in calculating 
        Medicare+Choice payment rates
      The Secratary shall report to Congress by January 1, 
2003, on a method to phase-in the costs of military facility 
services furnished by the Department of Veterans Affairs or the 
Department of Defense to Medicare-eligible beneficiaries in the 
calculation of an area's M+C capitation payment. This report 
would include, on a county-by-county basis: the actual or 
estimated costs of such services to Medicare-eligible 
beneficiaries; the change in M+C capitation payment rates if 
such costs were included in the calculation of payment rates; 
one or more proposals for the implementation of payment 
adjustments to M+C plans in counties where the payment rate has 
been affected due to failure to account for the cost of such 
services; and a system to ensure that when a M+C enrollee 
receives covered services through a facility of these 
Departments, there is an appropriate payment recovery to the 
Medicare program.

               Subtitle B--Other Medicare+Choice Reforms

Section 611. Payments of additional amounts for new benefits covered 
        during a contract term
      The provision would require payment adjustments to M+C 
plans if a legislative change resulted in significant increased 
costs, similar to the current law requirements for adjusting 
payments due to significant increased costs resulting from 
National Coverage Determination (NCDs). In addition, this 
provision would require that cost projections and payment 
adjustments be based on actuarial estimates provided by the 
Chief Actuary of the Health Care Financing Administration.
Section 612. Restriction on implementation of significant new 
        regulatory requirements mid-year
      The provision would preclude the Secretary from 
implementing, other than at the beginning of a calendar year, 
regulations that impose new, significant regulatory 
requirements on M+C organizations and plans.
Section 613. Timely approval of marketing material that follows model 
        marketing language
      The provision would require the Secretary to make 
decisions, within 10 days, approving or modifying marketing 
material used by M+C organizations, provided that the 
organization uses model language specified by the Secretary. 
This provision would apply to marketing material submitted on 
or after January 1, 2001.
Section 614. Avoiding duplicative regulation
      This provision would further stipulate when Medicare law 
preempts State law or regulation from applying to M+C plans, by 
specifying that the term benefit requirements includes cost-
sharing requirements. Second, the provision would stipulate 
that State laws and regulations affecting marketing materials, 
and summaries and schedules of benefits regarding an M+C plan, 
would also be preempted by Medicare law.
Section 615. election of uniform local coverage policy for 
        Medicare+Choice plan covering multiple localities
      An M+C organization offering a plan in an area with more 
than one local coverage policy would be able to elect to have 
the local coverage policy for the part of the area that is most 
beneficial to M+C enrollees (as identified by the Secretary) 
apply to all M+C enrollees enrolled in the plan.
Section 616. Eliminating health disparities in Medicare+Choice Program
      This provision would expand the M+C quality assurance 
programs for M+C plans to include a separate focus on racial 
and ethnic minorities. The Secretary would also be required to 
report to Congress how the quality assurance programs focus on 
racial and ethnic minorities, within 2 years after enactment 
and biannually thereafter.
Section 617. Medicare+Choice Program compatibility with employer or 
        union group health plans
      In order to make the M+C program compatible with employer 
or union group health plans, this provision would allow the 
Secretary to waive or modify requirements that hinder the 
design of, offering of, or enrollment in certain M+C plans. 
Plans included in the category are M+C plans under contract 
between M+C organizations and employers, labor organizations, 
or trustees of a fund established by employers and/or labor 
organizations.
Section 618. Special Medigap enrollment anti-discrimination provision 
        for certain beneficiaries
      This provision would extend the period for Medigap 
enrollment for certain M+C enrollees affected by termination of 
coverage. For individuals enrolled in an M+C plan during a 12-
month trial period, their trial period would begin again if 
they re-enrolled in another M+C plan because of an involuntary 
termination. During this new trial period, they would retain 
their rights to enroll in a Medigap policy; however, the total 
time for a trial period could not exceed 2 years from the time 
they first enrolled in an M+C plan.
Section 619. Restoring effective date of elections and changes of 
        elections of Medicare+Choice plans
      This provision would allow individuals who enroll in an 
M+C plan after the 10th day of the month to receive coverage 
beginning on the first day of the next calendar month, 
effective January 1, 2001.
Section 620. Permitting ESRD beneficiaries to enroll in another 
        Medicare+Choice plan if the plan in which they are enrolled is 
        terminated
      This provision would permit ESRD beneficiaries to enroll 
in another M+C plan if they lost coverage when their plan 
terminated its contract or reduced its service area. This 
provision would also be retroactive, to include individuals 
whose enrollment in an M+C plan was terminated between December 
31, 1998 and enactment of this legislation.
Section 621. Providing choice for skilled nursing facility services 
        under the Medicare+Choice program
      Effective for M+C contracts entered into or renewed on or 
after the date of enactment, the provision would require an M+C 
plan to cover post-hospitalization skilled nursing care through 
an enrollee's ``home skilled nursing facility'' if the plan has 
a contract with the facility or if the home facility agrees to 
accept substantially similar payment under the same terms and 
conditions that apply to similarly situated SNFs that are under 
contract with the plan. A ``home skilled nursing facility'' is 
defined as (a) one in which the enrollee resided at the time of 
the hospital admission that triggered eligibility for SNF care 
upon discharge, or (b) is the facility that is providing such 
services through the continuing care retirement community in 
which the enrollee resided at the time of hospital admission, 
or (c) is the facility in which the spouse of the enrollee is 
residing at the time of the enrollee's hospital discharge. The 
beneficiary would be required to receive coverage for SNF care 
at the home facility that is no less favorable than he or she 
would receive otherwise in another SNF that has a contract with 
the plan.
      Home skilled nursing facilities are permitted to refuse 
to accept Medicare+Choice enrollees or to impose conditions on 
their acceptance of such an enrollee.
      The provision would require the Medicare Payment Advisory 
Commission (MedPAC) to analyze and, within 2 years of 
enactment, report to Congress on the effects of this provision 
on the scope of benefits, administrative and other costs 
incurred by M+C organizations, and the contractual 
relationships between those plans and SNFs.
Section 622. Providing for accountability of Medicare+Choice plans
      The provision would mandate review of ACR submissions by 
the HCFA Chief Actuary with respect to submissions for ACRs 
filed for 2001 and thereafter.

                 Subtitle C--Other Managed Care Reforms

Section 631. 1-Year extension of Social Health Maintenance Organization 
        (SHMO) demonstration project
      The provision would extend SHMO waivers until 30 months 
after the Secretary submits a report with a plan for 
integration and transition of SHMOs into an option under the 
M+C program. This 30-month extension would supersede the 18-
month extension in BBRA 99.
Section 632. Revised terms and conditions for extension of Medicare 
        Community Nursing Organization (CNO) demonstration project
      Effective as if enacted with BBRA99, the provision would 
eliminate the requirement that CNO capitated payments be 
reduced to ensure budget neutrality. Through December 2001, the 
projects would operate under the same terms and conditions 
applicable during 1999, but with modification to the capitation 
rates. From October 1, 2000, through December 31, 2000, the 
capitation rates would be adjusted for inflation since 1999 and 
for changes in service packages, but reduced by 10 percent for 
in projects in Arizona, Minnesota, and Illinois and by 15 
percent in New York. In 2001, the rates would be determined by 
actuarially adjusting the rates in the prior period for 
inflation, utilization, and changes to the service package. 
Adjustments would be made to case management fees for certain 
frail enrollees, and requirements would be imposed to create 
greater uniformity in clinical features among participating 
sites and to improve quality and enrollee satisfaction.
      By July 1, 2001, the Secretary would be required to 
submit to the House Committees on Ways and Means and Commerce 
and the Senate Committee on Finance a report evaluating the 
projects for the period July 1997 through December 1999 and for 
the extension period after September 30, 2000. A final report 
would be required by July 1, 2002. The provision would require 
certain methods to be used to compare spending per beneficiary 
under the projects.
Section 633. Extension of Medicare municipal health services 
        demonstration projects
      The provision would extend the Medicare municipal health 
services demonstration projects for 2 additional years, through 
December 31, 2004.
Section 634. Service area expansion for Medicare cost contracts during 
        transition period
      This provision would allow service area expansion for 
Medicare cost contracts, if the request was submitted to the 
Secretary before September 1, 2003.

                          Title VII--Medicaid

Section 701. DSH payments
            (a) Modifications to DSH allotments
      For FY2001, the provision would set each state's DSH 
allotment equal to its allotment for FY2000 increased by the 
percentage change in the consumer price index for that year, 
subject to a ceiling that would be equal to 12% of that state's 
total medical assistance payments in that year.
      For FY2002, the provision would set each state's DSH 
allotment equal to its allotment for 2001 as determined above, 
increased by the percentage change in the consumer price index 
for FY2001, subject to a ceiling equal to 12% of that state's 
total medical assistance payments in that year.
      For extremely low DSH states, states whose FY1999 federal 
and state DSH expenditures (as reported to HCFA on August 31, 
2000) are greater than zero but less than one percent of the 
state's total medical assistance expenditures during that 
fiscal year, the DSH allotments for FY2001 would be equal to 1 
percent of the state's total amount of expenditures under their 
plan for such assistance during that fiscal year. For 
subsequent fiscal years, the allotments for extremely low DSH 
states would be equal to their allotment for the previous year, 
increased by the percentage change in the consumer price index 
for the previous year, subject to a ceiling of 12% of that 
state's total medical assistance payments in that year.
      Effective on the date that the final regulation for 
Medicaid upper payment limits is published in the Federal 
Register.
            (b) Assuring identification of Medicaid managed care 
                    patients
      Effective for Medicaid managed care contracts in effect 
on January 1, 2001, the provision would clarify that Medicaid 
enrollees of managed care organizations and primary care case 
management organizations are to be included for the purposes of 
calculating the Medicaid inpatient utilization rate and the 
low-income utilization rate. Also effective January 1, 2001, 
states must include in their MCO contracts information that 
allows the state to determine which hospital services are 
provided to Medicaid beneficiaries through managed care, and 
would also require states to include a sponsorship code for the 
managed care entity on the Medicaid beneficiary's 
identification card.
            (c) Application of Medicaid DSH transition rule to public 
                    hospitals in all states
      The provision would revise BBA97, as modified by BBRA 99, 
so that the 175% hospital-specific limit, formerly applied only 
to certain public hospitals in California, applies to 
qualifying public hospitals in all states. The higher limit 
would apply for two state fiscal years beginning on the first 
day of the state fiscal year that begins after September 30, 
2002 and ends on the last day of the succeeding state fiscal 
year. Hospitals that would qualify for the higher hospital-
specific limit would be those owned or operated by a state and 
meet the minimum federal requirements for disproportionate 
share hospitals. The permanent ceiling for California would not 
be affected.
      For states operating under waivers approved under section 
1115 of the Social Security Act, increased payments for public 
hospitals under this provision would be included in the 
baseline expenditure limit for the purposes of determining 
budget neutrality.
            (d) Assistance for certain public hospitals
      The provision would provide additional funds for certain 
public hospitals that are: owned or operated by a state (or by 
an instrumentality or unit of government within a state); are 
not receiving DSH payments as of October 1, 2000; and have a 
low-income utilization rate in excess of 65% as of the same 
date. Funds are provided in addition to the DSH allotment for 
any state with eligible hospitals and the total for all states 
cannot exceed the following amounts: $15 million for FY 2002; 
$176 million for 2003; $269 million for 2004; $330 million for 
2005; and for FY 2006 and each fiscal year thereafter; $375 
million.
            (e) DSH payment accountability standards
      The provision would require the Secretary to implement 
accountability standards to ensure that DSH payments are used 
to reimburse States and hospitals that are eligible for such 
payments and are otherwise in accordance with Medicaid 
statutory requirements.
Section 702. New prospective payment system for federally-qualified 
        health centers and rural health clinics
      The provision would create a new Medicaid prospective 
payment system for federally qualified health centers (FQHCs) 
and rural health centers (RHCs) beginning in FY2001. In FY2001 
existing FQHCs and RHCs would be paid per visit payments equal 
to 100% of the average costs incurred during 1999 and 2000 
adjusted to take into account any increase or decrease in the 
scope of services furnished. For entities first qualifying as 
FQHCs or RHCs after 2000, the per visit payments would begin in 
the first year that the center or clinic attains qualification 
and would be based on 100% of the costs incurred during that 
year based on the rates established for similar centers or 
clinics with similar caseloads in the same adjacent geographic 
area. In the absence of such similar centers or clinics, the 
methodology would be based on that used for developing rates 
for established FQHCs or RHCs or a methodology or reasonable 
specifications as established by the Secretary. For each fiscal 
year thereafter, per visit payments for all FQHCs and RHCs 
would be equal to amounts for the preceding fiscal year 
increased by the percentage increase in the Medicare Economic 
Index applicable to primary care services for that fiscal year, 
and adjusted for any increase or decrease in the scope of 
services furnished during that fiscal year. In managed care 
contracts, States must make supplemental payments to the center 
or clinic that would be equal to the difference between 
contracted amounts and the cost-based amounts. Those payments 
would be paid on a schedule mutually agreed to by the State and 
the FQHC or RHC. Alternative payment methods would be permitted 
only when payments are at least equal to amounts otherwise 
provided.
      The provision would also direct the Comptroller General 
to provide for a study on how to rebase or refine cost payment 
methods for the services of FQHCs and RHCs. The report would be 
due to Congress no later than 4 years after the date of 
enactment.
Section 703. Streamlined approval of continued state-wide 1115 Medicaid 
        waivers
      The provision would define the process for submitting 
requests for and receiving extensions of Medicaid demonstration 
waivers authorized under Section 1115 of the Social Security 
Act which have already received initial 3-year extensions. It 
would require each state requesting such an extension to submit 
an application at least 120 days prior to the expiration date 
of the existing waiver. No later than 45 days after the 
Secretary receives such application, the Secretary would be 
required to notify the State if she intends to review the 
existing terms and conditions of the project and would inform 
the State of proposed changes in the terms and conditions of 
the waiver. If the Secretary fails to provide such 
notification, the request would be deemed approved. During the 
30-day period beginning after the Secretary provides the 
proposed terms and conditions to the state, those terms and 
conditions would be negotiated. No later than 120 days after 
the date that the request for extension was submitted (or such 
later date as agreed to by the chief executive officer of the 
State) the Secretary would be required to approve the 
application subject to the agreed upon terms and conditions or, 
in the absence of an agreement, such terms and conditions that 
are determined by the Secretary to be reasonably consistent 
with the overall objective of the waiver, or disapprove the 
application. If the waiver is not approved or disapproved 
during this period, the request would be deemed approved in the 
terms and conditions as have been agreed to (if any) by the 
Secretary and the State. Approvals would be for periods not to 
exceed 3 years and would be subject to the final reporting and 
evaluation requirements in current law.
Section 704. Medicaid county-organized health systems
      The provision would allow the current exemption for 
certain Health Insuring Organizations (HIOs) from certain 
Medicaid HMO contracting requirements to apply as long as no 
more than 14% of all Medicaid beneficiaries in the state are 
enrolled in those HIOs. This provision would be effective as if 
included in the enactment of the Consolidated Omnibus Budget 
Reconciliation Act of 1985.
Sec. 705. Deadline for issuance of final regulation relating to 
        Medicaid upper payment limits
      The provision would require the Secretary to issue final 
regulations governing upper payment limits no later than 
December 31, 2000. It also requires that the final regulation 
establish a separate UPL for non-state-owned or operated 
government facilities based on the proposed rule described 
above.
      The provision also requires the final regulation to 
stipulate a third set of rules governing the transition period 
for certain states. This additional set of rules would apply to 
states with payment arrangements approved or in effect on or 
before October 1, 1992, or under which claims for federal 
matching were paid on or before that date, and for which such 
payments exceed the UPLs established under the final 
regulation. For these states, a 6-year transition period would 
apply, beginning with the period that begins on the first state 
fiscal year that starts after September 30, 2002 and ends on 
September 30, 2008. For each year during the transition period, 
applicable states must reduce excess payments by 15%. Full 
compliance with final regulations is required by October 1, 
2008.
Section 706. Alaska FMAP
      The provision would change the formula for calculating 
the state percentage and thus the federal matching percentage 
for Alaska for fiscal years 2001 through 2005. The state 
percentage for Alaska would be calculated by using an adjusted 
per capita income instead of the per capita income generally 
used. The adjusted per capita income for Alaska would be 
calculated as the three year average per capita income for the 
state divided by 1.05.

         Title VIII--State Children's Health Insurance Program

Section 801. Special rule for redistribution and availability of unused 
        fiscal year 1998 and 1999 SCHIP allotments
      The provision would establish a new method for 
distributing unspent FY1998 and FY1999 allotments. States that 
use all their SCHIP allotments (for each of those years) would 
receive an amount equal to estimated spending in excess of 
their original exhausted allotment. Each territory that spends 
its original allotment would receive an amount that bears the 
same ratio to 1.05% of the total amount available for 
redistribution as the ratio of its original allotment to the 
total allotment for all territories.
      States that do not use all their SCHIP allotment would 
receive an amount equal to the total amount of unspent funds, 
less amounts distributed to states that fully exhausted their 
original allotments, multiplied by the ratio of a state's 
unspent original allotment to the total amount of unspent 
funds. States may use up to 10% of the retained FY1998 funds 
for outreach activities.
      To calculate the amounts available for redistribution in 
each formula described above, the Secretary would use amounts 
reported by states not later than November 30 of the relevant 
fiscal year on HCFA Form 64 or HCFA Form 21, as approved by the 
Secretary. Redistributed funds would be available through the 
end of FY2002.
Section 802. Authority to pay Medicaid expansion SCHIP costs from title 
        XXI appropriation
      This provision provides a technical accounting 
clarification requested by the Health Care Financing 
Administration. It would authorize the payment of the costs of 
SCHIP Medicaid expansions and costs of benefits provided during 
periods of presumptive eligibility from the SCHIP appropriation 
rather than from the Medicaid appropriation, with a subsequent 
offset. In addition, the provision would codify proposed rules 
regarding the order of payments for benefits and administrative 
costs from state-specific SCHIP allotments.

                       Title IX--Other Provisions

                        Subtitle A--PACE Program

Section 901. Extension of transition for current waivers
      The provision would permit the Secretary to continue to 
operate the Program of All-Inclusive Care for the Elderly 
(PACE) under waivers for a period of 36 months (rather than 24 
months), and States may do so for 4 years (rather than 3 
years). OBRA 86 required the Secretary to grant waivers of 
certain Medicare and Medicaid requirements to not more than 10 
public or non-profit private community-based organizations to 
provide health and long-term care services on a capitated basis 
to frail elderly persons at risk of institutionalization. BBA 
97 established PACE as a permanent provider under Medicare and 
as a special benefit under Medicaid.
Section 902. Continuing of certain operating arrangements permitted
      If prior to becoming a permanent component of Medicare, a 
PACE demonstration project had contractual or other operating 
arrangements that are not recognized under permanent program 
regulations, the provision would require the Secretary, in 
consultation with the state agency, to permit it to continue 
under such arrangements as long as it is consistent with the 
objectives of the PACE program.
Section 903. Flexibility in exercising waiver authority
      The provision would enable the Secretary to exercise 
authority to modify or waive Medicare or Medicaid requirements 
to respond to the needs of PACE programs related to employment 
and the use of community care physicians. The Secretary must 
approve requests for such waivers within 90 days of the date 
the request for waiver is received.

   Subtitle B--Outreach to Eligible Low-Income Medicare Beneficiaries

Section 911. Outreach on availability of medicare cost-sharing 
        assistance to eligible low-income Medicare beneficiaries
      The provision would require the Commissioner of the 
Social Security Administration to conduct outreach efforts to 
identify individuals who may be eligible for Medicaid payment 
of Medicare cost sharing and to notify these persons of the 
availability of such assistance. The Commissioner would also be 
required to furnish, at least annually, a list of such 
individuals who reside in each state to that state's agency 
responsible for administering the Medicaid program as well as 
to any other appropriate state agency. The list should include 
the name and address, and whether such individuals have 
experienced reductions in Social Security benefits. The 
provision would also require the General Accounting Office to 
conduct a study of the impact of the outreach activities of the 
Commissioner to submit to Congress no later than 18 months 
after such outreach begins. The provision would be effective 
one year after date of enactment.

           Subtitle C--Maternal and Child Health Block Grant

Section 921. Increase in authorization of appropriations for the 
        maternal and child health services block grant
      The provision would increase the authorization of 
appropriations for the Maternal and Child Health Services Block 
Grant under Title V from $705,000,000 to $850,000,000 for 
fiscal year 2001 and each fiscal year thereafter.

                          Subtitle D--Diabetes

Section 931. Increase in appropriations for special diabetes programs 
        for type I diabetes and Indians
      The provision would extend for 1 year, to FY2003, the 
authority for grants to be made for both the Special Diabetes 
Program for Type I Diabetes and for the Special Diabetes 
Programs for Indians under the Public Health Service Act. The 
provision would also expand funding available for these 
programs. For each grant program, the provision would increase 
total funding to $100 million each for FY2001, FY2002 and 
FY2003. For FY2001 and FY2002, $30 million of the $100 million 
for each program would be transferred from SCHIP as set forth 
in the Balanced Budget Act of 1997; the remaining $70 million 
would be drawn from the Treasury out of funds not otherwise 
appropriated. In FY2003, the entire $100 million would be drawn 
from the Treasury out of funds not otherwise appropriated. In 
addition, the provision would extend the due date on final 
evaluation reports for these two grant programs from January 1, 
2002 to January 1, 2003.
Section 932. Appropriations for Ricky Ray Hemophilia Relief Fund
      This provision provides for a direct appropriation of 
$475 million for FY 2001. Funds would be available until 
expended.

                   pain relief promotion act of 2000

      The conference agreement would enact the provisions of 
H.R. 5544, as introduced on October 25, 2000. The text of that 
bill follows:

SECTION 1. SHORT TITLE.

      This Act may be cited as the ``Pain Relief Promotion Act 
of 2000.''

SECTION 2. FINDINGS.

      Congress finds that--
            (1) in the first decade of the new millennium there 
        should be a new emphasis on pain management and 
        palliative care;
            (2) the use of certain narcotics and other drugs or 
        substances with a potential for abuse is strictly 
        regulated under the Controlled Substances Act;
            (3) the dispensing and distribution of certain 
        controlled substances by properly registered 
        practitioners for legitimate medical purposes are 
        permitted under the Controlled Substances Act and 
        implementing regulations;
            (4) the dispensing or distribution of certain 
        controlled substances for the purpose of relieving pain 
        and discomfort even if it increases the risk of death 
        is a legitimate medical purpose and is permissible 
        under the Controlled Substances Act;
            (5) inadequate treatment of pain, especially for 
        chronic diseases and conditions, irreversible diseases 
        such as cancer, and end-of-life care, is a serious 
        public health problem affecting hundreds of thousands 
        of patients every year; physicians should not hesitate 
        to dispense or distribute controlled substances when 
        medically indicated for these conditions; and
            (6) for the reasons set forth in section 101 of the 
        Controlled Substances Act (21 U.S.C. 801), the 
        dispensing and distribution of controlled substances 
        for any purpose affect interstate commerce.

         TITLE I--PROMOTING PAIN MANAGEMENT AND PALLIATIVE CARE

SEC. 101. ACTIVITIES OF AGENCY FOR HEALTHCARE RESEARCH AND QUALITY.

      Part A of title IX of the Public Health Service Act (42 
U.S.C. 299 et seq.) is amended by adding at the end the 
following:

SEC. 903. PROGRAM FOR PAIN MANAGEMENT AND PALLIATIVE CARE RESEARCH AND 
                    QUALITY.

      (a) In General.--Subject to subsections (e) and (f) of 
section 902, the Director shall carry out a program to 
accomplish the following:
            (1) Promote and advance scientific understanding of 
        pain management and palliative care.
            (2) Collect and disseminate protocols and evidence-
        based practices regarding, pain management and 
        palliative care, with priority given to pain management 
        for terminally ill patients, and make such information 
        available to public and private health care programs 
        and providers, health professions schools, and 
        hospices, and to the general public.
      (b) Definition.--In this section, the term ``pain 
management and palliative care'' means--
            (1) the active, total care of patients whose 
        disease or medical condition is not responsive to 
        curative treatment or whose prognosis is limited due to 
        progressive, far-advanced disease; and
            (2) the evaluation, diagnosis, treatment, and 
        management of primary and secondary pain, whether 
        acute, chronic, persistent, intractable, or associated 
        with the end of life;
the purpose of which is to diagnose and alleviate pain and 
other distressing signs and symptoms and to enhance the quality 
of life, not to hasten or postpone death.

SEC. 102. ACTIVITIES OF HEALTH RESOURCES AND SERVICES ADMINISTRATION.

      (a) In General.--Part D of title VII of the Public Health 
Service Act (42 U.S.C. 294 et seq.) is amended--
            (1) by redesignating sections 754 through 757 as 
        sections 755 through 758, respectively; and
            (2) by inserting after section 753 the following:

SEC. 754. PROGRAM FOR EDUCATION AND TRAINING IN PAIN MANAGEMENT AND 
                    PALLIATIVE CARE.

      (a) In General.--The Secretary, in consultation with the 
Director of the Agency for Healthcare Research and Quality, may 
award grants, cooperative agreements, and contracts to health 
professions schools, hospices, and other public and private 
entities for the development and implementation of programs to 
provide education and training to health care professionals in 
pain management and palliative care.
      (b) Priority.--In making awards under subsection (a), the 
Secretary shall give priority to awards for the implementation 
of programs under such subsection.
      (c) Certain Topics.--An award may be made under 
subsection (a) only if the applicant for the award agrees that 
the program to be carried out with the award will include 
information and education on--
            (1) means for diagnosing and alleviating pain and 
        other distressing signs and symptoms of patients, 
        especially terminally ill patients, including the 
        medically appropriate use of controlled substances;
            (2) applicable laws on controlled substances, 
        including laws permitting health care professionals to 
        dispense or administer controlled substances as needed 
        to relieve pain even in cases where such efforts may 
        unintentionally increase the risk of death; and
            (3) recent findings, developments, and improvements 
        in the provision of pain management and palliative 
        care.
      (d) Program Sites.--Education and training under 
subsection (a) may be provided at or through health professions 
schools, residency training programs and other graduate 
programs in the health professions, entities that provide 
continuing medical education, hospices, and such other programs 
or sites as the Secretary determines to be appropriate.
      (e) Evaluation of Programs.--The Secretary shall 
(directly or through grants or contracts) provide for the 
evaluation of programs implemented under subsection (a) in 
order to determine the effect of such programs on knowledge and 
practice regarding pain management and palliative care.
      (f) Peer Review Groups.--In carrying out section 799(f) 
with respect to this section, the Secretary shall ensure that 
the membership of each peer review group involved includes 
individuals with expertise and experience in pain management 
and palliative care for the population of patients whose needs 
are to be served by the program.
      (g) Definition.--In this section, the term ``pain 
management and palliative care'' means--
            (1) the active, total care of patients whose 
        disease or medical condition is not responsive to 
        curative treatment or whose prognosis is limited due to 
        progressive, far-advanced disease; and
            (2) the evaluation, diagnosis, treatment, and 
        management of primary and secondary pain, whether 
        acute, chronic, persistent, intractable, or associated 
        with the end of life:
the purpose of which is to diagnose and alleviate pain and 
other distressing signs and symptoms and to enhance the quality 
of life, not to hasten or postpone death.
      (b) Authorization of Appropriations; Allocation.--
            (1) In general.--Section 758 of the Public Health 
        Services Act (as redesignated by subsection (a)(1) of 
        this section) is amended, in subsection (b)(1)(C), by 
        striking ``sections 753, 754, and 755'' and inserting 
        ``sections 753, 754, 755, and 756''.
            (2) Amount.--With respect to section 758 of the 
        Public Health Service Act (as redesignated by 
        subsection (a)(1) of this section), the dollar amount 
        specified in subsection (b)(1)(C) of such section is 
        deemed to be increased by $5,000,000.

SEC. 103. EFFECTIVE DATE.

      The amendments made by this title shall take effect on 
the date of enactment of this Act.

 TITLE II--USE OF CONTROLLED SUBSTANCES CONSISTENT WITH THE CONTROLLED 
                             SUBSTANCES ACT

SEC. 201. REINFORCING EXISTING STANDARD FOR LEGITIMATE USE OF 
                    CONTROLLED SUBSTANCES.

      (a) In General.--Section 303 of the Controlled Substances 
Act (21 U.S.C. 823) is amended by adding at the end the 
following:
            (i)(1) For purposes of this Act and any regulations 
        to implement this Act, alleviating pain or discomfort 
        in the usual course of professional practice is a 
        legitimate medical purpose for the dispensing, 
        distributing, or administering of a controlled 
        substance that is consistent with public health and 
        safety, even if the use of such a substance may 
        increase the risk of death. Nothing in this section 
        authorizes intentionally dispensing, distributing, or 
        administering a controlled substance for the purpose of 
        causing death or assisting another person in causing 
        death.
            (2)(A) Notwithstanding any other provision of this 
        Act, in determining whether a registration is 
        consistent with the public interest under this Act, the 
        Attorney General shall give no force and effect to 
        State law authorizing or permitting assisted suicide or 
        euthanasia.
            (B) Paragraph (2) applies only to conduct occurring 
        after the date of enactment of this subsection.
            (3) Nothing in this subsection shall be construed 
        to alter the roles of the Federal and State governments 
        in regulating the practice of medicine. Regardless of 
        whether the Attorney General determines pursuant to 
        this section that the registration of a practitioner is 
        inconsistent with the public interest, it remains 
        solely within the discretion of State authorities to 
        determine whether action should be taken with respect 
        to the State professional license of the practitioner 
        or State prescribing privileges.
            (4) Nothing in the Pain Relief Promotion Act of 
        2000 (including the amendments made by such Act) shall 
        be construed--
                    (A) to modify the Federal requirements that 
                a controlled substance be dispensed only for a 
                legitimate medical purpose pursuant to 
                paragraph (1); or
                    (B) to provide the Attorney General with 
                the authority to issue national standards for 
                pain management and palliative care clinical 
                practice, research, or quality;
        except that the Attorney General may take such other 
        actions as may be necessary to enforce this Act.
      (b) Pain Relief.--Section 304(c) of the Controlled 
Substances Act (21 U.S.C. 824(c)) is amended--
            (1) by striking ``(c) Before'' and inserting the 
        following:
      (c) Procedures.--
            (1) Order to show cause.--Before; and
            (2) by adding at the end the following:
            (2) Burden of proof.--At any proceeding under 
        paragraph (1), where the order to show cause is based 
        on the alleged intentions of the applicant or 
        registrant to cause or assist in causing death, and the 
        practitioner claims a defense under paragraph (1) of 
        section 303(i), the Attorney General shall have the 
        burden of proving, by clear and convincing evidence, 
        that the practitioner's intent was to dispense, 
        distribute, or administer a controlled substance for 
        the purpose of causing death or assisting another 
        person in causing death. In meeting such burden, it 
        shall not be sufficient to prove that the applicant or 
        registrant knew that the use of controlled substance 
        may increase the risk of death.

SEC. 202. EDUCATION AND TRAINING PROGRAMS.

      Section 502(a) of the Controlled Substances Act (21 
U.S.C. 872(a) is amended--
            (1) by striking ``and'' at the end of paragraph 
        (5);
            (2) by striking the period at the end of paragraph 
        (6) and inserting ``; and'' and
            (3) by adding at the end the following:
            (7) educational and training programs for Federal, 
        State, and local personnel, incorporating 
        recommendations, subject to the provisions of 
        subsection (e) and (f) of section 902 of the Public 
        Health Service Act, by the Secretary of Health and 
        Human Services, on the means by which investigation and 
        enforcement actions by law enforcement personnel may 
        better accommodate the necessary and legitimate use of 
        controlled substances in pain management and palliative 
        care.
Nothing in this subsection shall be construed to alter the 
roles of the Federal and State governments in regulating the 
practice of medicine.

SEC. 203. FUNDING AUTHORITY.

      Notwithstanding any other provision of law, the operation 
of the diversion control fee account program of the Drug 
Enforcement Administration shall be construed to include 
carrying out section 303(i) of the Controlled Substances Act 
(21 U.S.C. 823(i)), as added by this Act, and subsections 
(a)(4) and (c)(2) of section 304 of the Controlled Substances 
Act (21 U.S.C. 824), as amended by this Act.

SEC. 204. EFFECTIVE DATE.

      The amendments made by this title shall take effect on 
the date of enactment of this Act.

               small business reauthorization act of 2000

      The conference agreement would enact the provisions of 
H.R. 5545, as introduced on October 25, 2000. The text of that 
bill follows:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Small 
Business Reauthorization Act of 2000''.
    (b) Table of Contents.--The table of contents for this Act 
is as follows:

Sec. 1. Short title; table of contents.

           TITLE I--SMALL BUSINESS INNOVATION RESEARCH PROGRAM

Sec. 101. Short title.
Sec. 102. Findings.
Sec. 103. Extension of SBIR program.
Sec. 104. Annual report.
Sec. 105. Third phase assistance.
Sec. 106. Report on programs for annual performance plan.
Sec. 107. Output and outcome data.
Sec. 108. National Research Council reports.
Sec. 109. Federal agency expenditures for the SBIR program.
Sec. 110. Policy directive modifications.
Sec. 111. Federal and State technology partnership program.
Sec. 112. Mentoring networks.
Sec. 113. Simplified reporting requirements.
Sec. 114. Rural outreach program extension.

                    TITLE II--BUSINESS LOAN PROGRAMS

Sec. 201. Short title.
Sec. 202. Levels of participation.
Sec. 203. Loan amounts.
Sec. 204. Interest on defaulted loans.
Sec. 205. Prepayment of loans.
Sec. 206. Guarantee fees.
Sec. 207. Lease terms.
Sec. 208. Appraisals for loans secured by real property.
Sec. 209. Sale of guaranteed loans made for export purposes.
Sec. 210. Microloan program.

            TITLE III--CERTIFIED DEVELOPMENT COMPANY PROGRAM

Sec. 301. Short title.
Sec. 302. Women-owned businesses.
Sec. 303. Maximum debenture size.
Sec. 304. Fees.
Sec. 305. Premier certified lenders program.
Sec. 306. Sale of certain defaulted loans.
Sec. 307. Loan liquidation.

   TITLE IV--CORRECTIONS TO THE SMALL BUSINESS INVESTMENT ACT OF 1958

Sec. 401. Short title.
Sec. 402. Definitions.
Sec. 403. Investment in small business investment companies.
Sec. 404. Subsidy fees.
Sec. 405. Distributions.
Sec. 406. Conforming amendment.

           TITLE V--REAUTHORIZATION OF SMALL BUSINESS PROGRAMS

Sec. 501. Short title.
Sec. 502. Reauthorization of small business programs.
Sec. 503. Additional reauthorizations.
Sec. 504. Cosponsorship.

                        TITLE VI--HUBZONE PROGRAM

                 Subtitle A--HUBZones in Native America

Sec. 601. Short title.
Sec. 602. HUBZone small business concern.
Sec. 603. Qualified HUBZone small business concern.
Sec. 604. Other definitions.

                  Subtitle B--Other HUBZone Provisions

Sec. 611. Definitions.
Sec. 612. Eligible contracts.
Sec. 613. HUBZone redesignated areas.
Sec. 614. Community development.
Sec. 615. Reference corrections.

      TITLE VII--NATIONAL WOMEN'S BUSINESS COUNCIL REAUTHORIZATION

Sec. 701. Short title.
Sec. 702. Membership of the Council.
Sec. 703. Repeal of procurement project.
Sec. 704. Studies and other research.
Sec. 705. Authorization of appropriations.

                  TITLE VIII--MISCELLANEOUS PROVISIONS

Sec. 801. Loan application processing.
Sec. 802. Application of ownership requirements.
Sec. 803. Subcontracting preference for veterans.
Sec. 804. Small Business Development Center Program funding.
Sec. 805. Surety bonds.
Sec. 806. Size standards.
Sec. 807. Native Hawaiian organizations under section 8(a).
Sec. 808. National Veterans Business Development Corporation correction.
Sec. 809. Private sector resources for SCORE.
Sec. 810. Contract data collection.
Sec. 811. Procurement program for women-owned small business concerns.

         TITLE IX--COMMUNITY RENEWAL AND NEW MARKETS INITIATIVES

Sec. 901. New markets venture capital program.
Sec. 902. BusinessLINC grants and cooperative agreements.

          TITLE I--SMALL BUSINESS INNOVATION RESEARCH PROGRAM

SECTION 101. SHORT TITLE.

    (a) Short Title.--This title may be cited as the ``Small 
Business Innovation Research Program Reauthorization Act of 
2000''.

SEC. 102. FINDINGS.

    Congress finds that--
            (1) the small business innovation research program 
        established under the Small Business Innovation 
        Development Act of 1982, and reauthorized by the Small 
        Business Research and Development Enhancement Act of 
        1992 (in this title referred to as the ``SBIR 
        program'') is highly successful in involving small 
        businesses in federally funded research and 
        development;
            (2) the SBIR program made the cost-effective and 
        unique research and development capabilities possessed 
        by the small businesses of the Nation available to 
        Federal agencies and departments;
            (3) the innovative goods and services developed by 
        small businesses that participated in the SBIR program 
        have produced innovations of critical importance in a 
        wide variety of high-technology fields, including 
        biology, medicine, education, and defense;
            (4) the SBIR program is a catalyst in the promotion 
        of research and development, the commercialization of 
        innovative technology, the development of new products 
        and services, and the continued excellence of this 
        Nation's high-technology industries; and
            (5) the continuation of the SBIR program will 
        provide expanded opportunities for one of the Nation's 
        vital resources, its small businesses, will foster 
        invention, research, and technology, will create jobs, 
        and will increase this Nation's competitiveness in 
        international markets.

SEC. 103. EXTENSION OF SBIR PROGRAM.

    Section 9(m) of the Small Business Act (15 U.S.C. 638(m)) 
is amended to read as follows:
    ``(m) Termination.--The authorization to carry out the 
Small Business Innovation Research Program established under 
this section shall terminate on September 30, 2008.''.

SEC. 104. ANNUAL REPORT.

    Section 9(b)(7) of the Small Business Act (15 U.S.C. 
638(b)(7)) is amended by striking ``and the Committee on Small 
Business of the House of Representatives'' and inserting ``, 
and to the Committee on Science and the Committee on Small 
Business of the House of Representatives,''.

SEC. 105. THIRD PHASE ASSISTANCE.

    Section 9(e)(4)(C)(i) of the Small Business Act (15 U.S.C. 
638(e)(4)(C)(i)) is amended by striking ``; and'' and inserting 
``; or''.

SEC. 106. REPORT ON PROGRAMS FOR ANNUAL PERFORMANCE PLAN.

    Section 9(g) of the Small Business Act (15 U.S.C. 638(g)) 
is amended--
            (1) in paragraph (7), by striking ``and'' at the 
        end;
            (2) in paragraph (8), by striking the period at the 
        end and inserting a semicolon; and
            (3) by adding at the end the following:
            ``(9) include, as part of its annual performance 
        plan as required by subsections (a) and (b) of section 
        1115 of title 31, United States Code, a section on its 
        SBIR program, and shall submit such section to the 
        Committee on Small Business of the Senate, and the 
        Committee on Science and the Committee on Small 
        Business of the House of Representatives; and''.

SEC. 107. OUTPUT AND OUTCOME DATA.

    (a) Collection.--Section 9(g) of the Small Business Act (15 
U.S.C. 638(g)), as amended by section 106 of this Act, is 
further amended by adding at the end the following:
            ``(10) collect, and maintain in a common format in 
        accordance with subsection (v), such information from 
        awardees as is necessary to assess the SBIR program, 
        including information necessary to maintain the 
        database described in subsection (k).''.
    (b) Report to Congress.--Section 9(b)(7) of the Small 
Business Act (15 U.S.C. 638(b)(7)), as amended by section 104 
of this Act, is further amended by inserting before the period 
at the end ``, including the data on output and outcomes 
collected pursuant to subsections (g)(10) and (o)(9), and a 
description of the extent to which Federal agencies are 
providing in a timely manner information needed to maintain the 
database described in subsection (k)''.
    (c) Database.--Section 9(k) of the Small Business Act (15 
U.S.C. 638(k)) is amended to read as follows:
    ``(k) Database.--
            ``(1) Public database.--Not later than 180 days 
        after the date of enactment of the Small Business 
        Innovation Research Program Reauthorization Act of 
        2000, the Administrator shall develop, maintain, and 
        make available to the public a searchable, up-to-date, 
        electronic database that includes--
                    ``(A) the name, size, location, and an 
                identifying number assigned by the 
                Administrator, of each small business concern 
                that has received a first phase or second phase 
                SBIR award from a Federal agency;
                    ``(B) a description of each first phase or 
                second phase SBIR award received by that small 
                business concern, including--
                            ``(i) an abstract of the project 
                        funded by the award, excluding any 
                        proprietary information so identified 
                        by the small business concern;
                            ``(ii) the Federal agency making 
                        the award; and
                            ``(iii) the date and amount of the 
                        award;
                    ``(C) an identification of any business 
                concern or subsidiary established for the 
                commercial application of a product or service 
                for which an SBIR award is made; and
                    ``(D) information regarding mentors and 
                Mentoring Networks, as required by section 
                35(d).
            ``(2) Government database.--Not later than 180 days 
        after the date of enactment of the Small Business 
        Innovation Research Program Reauthorization Act of 
        2000, the Administrator, in consultation with Federal 
        agencies required to have an SBIR program pursuant to 
        subsection (f)(1), shall develop and maintain a 
        database to be used solely for SBIR program evaluation 
        that--
                    ``(A) contains for each second phase award 
                made by a Federal agency--
                            ``(i) information collected in 
                        accordance with paragraph (3) on 
                        revenue from the sale of new products 
                        or services resulting from the research 
                        conducted under the award;
                            ``(ii) information collected in 
                        accordance with paragraph (3) on 
                        additional investment from any source, 
                        other than first phase or second phase 
                        SBIR or STTR awards, to further the 
                        research and development conducted 
                        under the award; and
                            ``(iii) any other information 
                        received in connection with the award 
                        that the Administrator, in conjunction 
                        with the SBIR program managers of 
                        Federal agencies, considers relevant 
                        and appropriate;
                    ``(B) includes any narrative information 
                that a small business concern receiving a 
                second phase award voluntarily submits to 
                further describe the outputs and outcomes of 
                its awards;
                    ``(C) includes for each applicant for a 
                first phase or second phase award that does not 
                receive such an award--
                            ``(i) the name, size, and location, 
                        and an identifying number assigned by 
                        the Administration;
                            ``(ii) an abstract of the project; 
                        and
                            ``(iii) the Federal agency to which 
                        the application was made;
                    ``(D) includes any other data collected by 
                or available to any Federal agency that such 
                agency considers may be useful for SBIR program 
                evaluation; and
                    ``(E) is available for use solely for 
                program evaluation purposes by the Federal 
                Government or, in accordance with policy 
                directives issued by the Administration, by 
                other authorized persons who are subject to a 
                use and nondisclosure agreement with the 
                Federal Government covering the use of the 
                database.
            ``(3) Updating information for database.--
                    ``(A) In general.--A small business concern 
                applying for a second phase award under this 
                section shall be required to update information 
                in the database established under this 
                subsection for any prior second phase award 
                received by that small business concern. In 
                complying with this paragraph, a small business 
                concern may apportion sales or additional 
                investment information relating to more than 
                one second phase award among those awards, if 
                it notes the apportionment for each award.
                    ``(B) Annual updates upon termination.--A 
                small business concern receiving a second phase 
                award under this section shall--
                            ``(i) update information in the 
                        database concerning that award at the 
                        termination of the award period; and
                            ``(ii) be requested to voluntarily 
                        update such information annually 
                        thereafter for a period of 5 years.
            ``(4) Protection of information.--Information 
        provided under paragraph (2) shall be considered 
        privileged and confidential and not subject to 
        disclosure pursuant to section 552 of title 5, United 
        States Code.
            ``(5) Rule of construction.--Inclusion of 
        information in the database under this subsection shall 
        not be considered to be publication for purposes of 
        subsection (a) or (b) of section 102 of title 35, 
        United States Code.''.

SEC. 108. NATIONAL RESEARCH COUNCIL REPORTS.

    (a) Study and Recommendations.--The head of each agency 
with a budget of more than $50,000,000 for its SBIR program for 
fiscal year 1999, in consultation with the Small Business 
Administration, shall, not later than 6 months after the date 
of enactment of this Act, cooperatively enter into an agreement 
with the National Academy of Sciences for the National Research 
Council to--
            (1) conduct a comprehensive study of how the SBIR 
        program has stimulated technological innovation and 
        used small businesses to meet Federal research and 
        development needs, including--
                    (A) a review of the value to the Federal 
                research agencies of the research projects 
                being conducted under the SBIR program, and of 
                the quality of research being conducted by 
                small businesses participating under the 
                program, including a comparison of the value of 
                projects conducted under the SBIR program to 
                those funded by other Federal research and 
                development expenditures;
                    (B) to the extent practicable, an 
                evaluation of the economic benefits achieved by 
                the SBIR program, including the economic rate 
                of return, and a comparison of the economic 
                benefits, including the economic rate of 
                return, achieved by the SBIR program with the 
                economic benefits, including the economic rate 
                of return, of other Federal research and 
                development expenditures;
                    (C) an evaluation of the noneconomic 
                benefits achieved by the SBIR program over the 
                life of the program;
                    (D) a comparison of the allocation for 
                fiscal year 2000 of Federal research and 
                development funds to small businesses with such 
                allocation for fiscal year 1983, and an 
                analysis of the factors that have contributed 
                to such allocation; and
                    (E) an analysis of whether Federal 
                agencies, in fulfilling their procurement 
                needs, are making sufficient effort to use 
                small businesses that have completed a second 
                phase award under the SBIR program; and
      (2) make recommendations with respect to--
                    (A) measures of outcomes for strategic 
                plans submitted under section 306 of title 5, 
                United States Code, and performance plans 
                submitted under section 1115 of title 31, 
                United States Code, of each Federal agency 
                participating in the SBIR program;
                    (B) whether companies who can demonstrate 
                project feasibility, but who have not received 
                a first phase award, should be eligible for 
                second phase awards, and the potential impact 
                of such awards on the competitive selection 
                process of the program;
                    (C) whether the Federal Government should 
                be permitted to recoup some or all of its 
                expenses if a controlling interest in a company 
                receiving an SBIR award is sold to a foreign 
                company or to a company that is not a small 
                business concern;
                    (D) how to increase the use by the Federal 
                Government in its programs and procurements of 
                technology-oriented small businesses; and
                    (E) improvements to the SBIR program, if 
                any are considered appropriate.
    (b) Participation by Small Business.--
            (1) In general.--In a manner consistent with law 
        and with National Research Council study guidelines and 
        procedures, knowledgeable individuals from the small 
        business community with experience in the SBIR program 
        shall be included--
                    (A) in any panel established by the 
                National Research Council for the purpose of 
                performing the study conducted under this 
                section; and
                    (B) among those who are asked by the 
                National Research Council to peer review the 
                study.
            (2) Consultation.--To ensure that the concerns of 
        small business are appropriately considered under this 
        subsection, the National Research Council shall consult 
        with and consider the views of the Office of Technology 
        and the Office of Advocacy of the Small Business 
        Administration and other interested parties, including 
        entities, organizations, and individuals actively 
        engaged in enhancing or developing the technological 
        capabilities of small business concerns.
    (c) Progress Reports.--The National Research Council shall 
provide semiannual progress reports on the study conducted 
under this section to the Committee on Science and the 
Committee on Small Business of the House of Representatives, 
and to the Committee on Small Business of the Senate.
    (d) Report.--The National Research Council shall transmit 
to the heads of agencies entering into an agreement under this 
section and to the Committee on Science and the Committee on 
Small Business of the House of Representatives, and to the 
Committee on Small Business of the Senate--
            (1) not later than 3 years after the date of 
        enactment of this Act, a report including the results 
        of the study conducted under subsection (a)(1) and 
        recommendations made under subsection (a)(2); and
            (2) not later than 6 years after that date of 
        enactment, an update of such report.

SEC. 109. FEDERAL AGENCY EXPENDITURES FOR THE SBIR PROGRAM.

    Section 9(i) of the Small Business Act (15 U.S.C. 638(i)) 
is amended--
            (1) by striking ``(i) Each Federal'' and inserting 
        the following:
    ``(i) Annual Reporting.--
            ``(1) In general.--Each Federal''; and
            (2) by adding at the end the following:
            ``(2) Calculation of extramural budget.--
                    ``(A) Methodology.--Not later than 4 months 
                after the date of enactment of each 
                appropriations Act for a Federal agency 
                required by this section to have an SBIR 
                program, the Federal agency shall submit to the 
                Administrator a report, which shall include a 
                description of the methodology used for 
                calculating the amount of the extramural budget 
                of that Federal agency.
                    ``(B) Administrator's analysis.--The 
                Administrator shall include an analysis of the 
                methodology received from each Federal agency 
                referred to in subparagraph (A) in the report 
                required by subsection (b)(7).''.

SEC. 110. POLICY DIRECTIVE MODIFICATIONS.

    Section 9(j) of the Small Business Act (15 U.S.C. 638(j)) 
is amended by adding at the end the following:
            ``(3) Additional modifications.--Not later than 120 
        days after the date of enactment of the Small Business 
        Innovation Research Program Reauthorization Act of 
        2000, the Administrator shall modify the policy 
        directives issued pursuant to this subsection--
                    ``(A) to clarify that the rights provided 
                for under paragraph (2)(A) apply to all Federal 
                funding awards under this section, including 
                the first phase (as described in subsection 
                (e)(4)(A)), the second phase (as described in 
                subsection (e)(4)(B)), and the third phase (as 
                described in subsection (e)(4)(C));
                    ``(B) to provide for the requirement of a 
                succinct commercialization plan with each 
                application for a second phase award that is 
                moving toward commercialization;
                    ``(C) to require agencies to report to the 
                Administration, not less frequently than 
                annually, all instances in which an agency 
                pursued research, development, or production of 
                a technology developed by a small business 
                concern using an award made under the SBIR 
                program of that agency, and determined that it 
                was not practicable to enter into a follow-on 
                non-SBIR program funding agreement with the 
                small business concern, which report shall 
                include, at a minimum--
                            ``(i) the reasons why the follow-on 
                        funding agreement with the small 
                        business concern was not practicable;
                            ``(ii) the identity of the entity 
                        with which the agency contracted to 
                        perform the research, development, or 
                        production; and
                            ``(iii) a description of the type 
                        of funding agreement under which the 
                        research, development, or production 
                        was obtained; and
                    ``(D) to implement subsection (v), 
                including establishing standardized procedures 
                for the provision of information pursuant to 
                subsection (k)(3).''.

SEC. 111. FEDERAL AND STATE TECHNOLOGY PARTNERSHIP PROGRAM.

    (a) Findings.--Congress finds that--
            (1) programs to foster economic development among 
        small high-technology firms vary widely among the 
        States;
            (2) States that do not aggressively support the 
        development of small high-technology firms, including 
        participation by small business concerns in the SBIR 
        program, are at a competitive disadvantage in 
        establishing a business climate that is conducive to 
        technology development; and
            (3) building stronger national, State, and local 
        support for science and technology research in these 
        disadvantaged States will expand economic opportunities 
        in the United States, create jobs, and increase the 
        competitiveness of the United States in the world 
        market.
    (b) Federal and State Technology Partnership Program.--The 
Small Business Act (15 U.S.C. 631 et seq.) is amended--
            (1) by redesignating section 34 as section 36; and
            (2) by inserting after section 33 the following:

``SEC. 34. FEDERAL AND STATE TECHNOLOGY PARTNERSHIP PROGRAM.

    ``(a) Definitions.--In this section and section 35, the 
following definitions apply:
            ``(1) Applicant.--The term `applicant' means an 
        entity, organization, or individual that submits a 
        proposal for an award or a cooperative agreement under 
        this section.
            ``(2) Business advice and counseling.--The term 
        `business advice and counseling' means providing advice 
        and assistance on matters described in section 
        35(c)(2)(B) to small business concerns to guide them 
        through the SBIR and STTR program process, from 
        application to award and successful completion of each 
        phase of the program.
            ``(3) FAST program.--The term `FAST program' means 
        the Federal and State Technology Partnership Program 
        established under this section.
            ``(4) Mentor.--The term `mentor' means an 
        individual described in section 35(c)(2).
            ``(5) Mentoring network.--The term `Mentoring 
        Network' means an association, organization, coalition, 
        or other entity (including an individual) that meets 
        the requirements of section 35(c).
            ``(6) Recipient.--The term `recipient' means a 
        person that receives an award or becomes party to a 
        cooperative agreement under this section.
            ``(7) SBIR program.--The term `SBIR program' has 
        the same meaning as in section 9(e)(4).
            ``(8) State.--The term `State' means each of the 
        several States, the District of Columbia, the 
        Commonwealth of Puerto Rico, the Virgin Islands, Guam, 
        and American Samoa.
            ``(9) STTR program.--The term `STTR program' has 
        the same meaning as in section 9(e)(6).
    ``(b) Establishment of Program.--The Administrator shall 
establish a program to be known as the Federal and State 
Technology Partnership Program, the purpose of which shall be 
to strengthen the technological competitiveness of small 
business concerns in the States.
    ``(c) Grants and Cooperative Agreements.--
            ``(1) Joint review.--In carrying out the FAST 
        program under this section, the Administrator and the 
        SBIR program managers at the National Science 
        Foundation and the Department of Defense shall jointly 
        review proposals submitted by applicants and may make 
        awards or enter into cooperative agreements under this 
        section based on the factors for consideration set 
        forth in paragraph (2), in order to enhance or develop 
        in a State--
                    ``(A) technology research and development 
                by small business concerns;
                    ``(B) technology transfer from university 
                research to technology-based small business 
                concerns;
                    ``(C) technology deployment and diffusion 
                benefiting small business concerns;
                    ``(D) the technological capabilities of 
                small business concerns through the 
                establishment or operation of consortia 
                comprised of entities, organizations, or 
                individuals, including--
                            ``(i) State and local development 
                        agencies and entities;
                            ``(ii) representatives of 
                        technology-based small business 
                        concerns;
                            ``(iii) industries and emerging 
                        companies;
                            ``(iv) universities; and
                            ``(v) small business development 
                        centers; and
                    ``(E) outreach, financial support, and 
                technical assistance to technology-based small 
                business concerns participating in or 
                interested in participating in an SBIR program, 
                including initiatives--
                            ``(i) to make grants or loans to 
                        companies to pay a portion or all of 
                        the cost of developing SBIR proposals;
                            ``(ii) to establish or operate a 
                        Mentoring Network within the FAST 
                        program to provide business advice and 
                        counseling that will assist small 
                        business concerns that have been 
                        identified by FAST program 
                        participants, program managers of 
                        participating SBIR agencies, the 
                        Administration, or other entities that 
                        are knowledgeable about the SBIR and 
                        STTR programs as good candidates for 
                        the SBIR and STTR programs, and that 
                        would benefit from mentoring, in 
                        accordance with section 35;
                            ``(iii) to create or participate in 
                        a training program for individuals 
                        providing SBIR outreach and assistance 
                        at the State and local levels; and
                            ``(iv) to encourage the 
                        commercialization of technology 
                        developed through SBIR program funding.
            ``(2) Selection considerations.--In making awards 
        or entering into cooperative agreements under this 
        section, the Administrator and the SBIR program 
        managers referred to in paragraph (1)--
                    ``(A) may only consider proposals by 
                applicants that intend to use a portion of the 
                Federal assistance provided under this section 
                to provide outreach, financial support, or 
                technical assistance to technology-based small 
                business concerns participating in or 
                interested in participating in the SBIR 
                program; and
                    ``(B) shall consider, at a minimum--
                            ``(i) whether the applicant has 
                        demonstrated that the assistance to be 
                        provided would address unmet needs of 
                        small business concerns in the 
                        community, and whether it is important 
                        to use Federal funding for the proposed 
                        activities;
                            ``(ii) whether the applicant has 
                        demonstrated that a need exists to 
                        increase the number or success of small 
                        high-technology businesses in the 
                        State, as measured by the number of 
                        first phase and second phase SBIR 
                        awards that have historically been 
                        received by small business concerns in 
                        the State;
                            ``(iii) whether the projected costs 
                        of the proposed activities are 
                        reasonable;
                            ``(iv) whether the proposal 
                        integrates and coordinates the proposed 
                        activities with other State and local 
                        programs assisting small high-
                        technology firms in the State; and
                            ``(v) the manner in which the 
                        applicant will measure the results of 
                        the activities to be conducted.
            ``(3) Proposal limit.--Not more than 1 proposal may 
        be submitted for inclusion in the FAST program under 
        this section to provide services in any one State in 
        any 1 fiscal year.
            ``(4) Process.--Proposals and applications for 
        assistance under this section shall be in such form and 
        subject to such procedures as the Administrator shall 
        establish.
    ``(d) Cooperation and Coordination.--In carrying out the 
FAST program under this section, the Administrator shall 
cooperate and coordinate with--
            ``(1) Federal agencies required by section 9 to 
        have an SBIR program; and
            ``(2) entities, organizations, and individuals 
        actively engaged in enhancing or developing the 
        technological capabilities of small business concerns, 
        including--
                    ``(A) State and local development agencies 
                and entities;
                    ``(B) State committees established under 
                the Experimental Program to Stimulate 
                Competitive Research of the National Science 
                Foundation (as established under section 113 of 
                the National Science Foundation Authorization 
                Act of 1988 (42 U.S.C. 1862g));
                    ``(C) State science and technology 
                councils; and
                    ``(D) representatives of technology-based 
                small business concerns.
    ``(e) Administrative Requirements.--
            ``(1) Competitive basis.--Awards and cooperative 
        agreements under this section shall be made or entered 
        into, as applicable, on a competitive basis.
            ``(2) Matching requirements.--
                    ``(A) In general.--The non-Federal share of 
                the cost of an activity (other than a planning 
                activity) carried out using an award or under a 
                cooperative agreement under this section shall 
                be--
                            ``(i) 50 cents for each Federal 
                        dollar, in the case of a recipient that 
                        will serve small business concerns 
                        located in one of the 18 States 
                        receiving the fewest SBIR first phase 
                        awards (as described in section 
                        9(e)(4)(A));
                            ``(ii) except as provided in 
                        subparagraph (B), 1 dollar for each 
                        Federal dollar, in the case of a 
                        recipient that will serve small 
                        business concerns located in one of the 
                        16 States receiving the greatest number 
                        of such SBIR first phase awards; and
                            ``(iii) except as provided in 
                        subparagraph (B), 75 cents for each 
                        Federal dollar, in the case of a 
                        recipient that will serve small 
                        business concerns located in a State 
                        that is not described in clause (i) or 
                        (ii) that is receiving such SBIR first 
                        phase awards.
                    ``(B) Low-income areas.--The non-Federal 
                share of the cost of the activity carried out 
                using an award or under a cooperative agreement 
                under this section shall be 50 cents for each 
                Federal dollar that will be directly allocated 
                by a recipient described in subparagraph (A) to 
                serve small business concerns located in a 
                qualified census tract, as that term is defined 
                in section 42(d)(5)(C)(ii) of the Internal 
                Revenue Code of 1986. Federal dollars not so 
                allocated by that recipient shall be subject to 
                the matching requirements of subparagraph (A).
                    ``(C) Types of funding.--The non-Federal 
                share of the cost of an activity carried out by 
                a recipient shall be comprised of not less than 
                50 percent cash and not more than 50 percent of 
                indirect costs and in-kind contributions, 
                except that no such costs or contributions may 
                be derived from funds from any other Federal 
                program.
                    ``(D) Rankings.--For purposes of 
                subparagraph (A), the Administrator shall 
                reevaluate the ranking of a State once every 2 
                fiscal years, beginning with fiscal year 2001, 
                based on the most recent statistics compiled by 
                the Administrator.
            ``(3) Duration.--Awards may be made or cooperative 
        agreements entered into under this section for multiple 
        years, not to exceed 5 years in total.
    ``(f) Reports.--
            ``(1) Initial report.--Not later than 120 days 
        after the date of enactment of the Small Business 
        Innovation Research Program Reauthorization Act of 
        2000, the Administrator shall prepare and submit to the 
        Committee on Small Business of the Senate and the 
        Committee on Science and the Committee on Small 
        Business of the House of Representatives a report, 
        which shall include, with respect to the FAST program, 
        including Mentoring Networks--
                    ``(A) a description of the structure and 
                procedures of the program;
                    ``(B) a management plan for the program; 
                and
                    ``(C) a description of the merit-based 
                review process to be used in the program.
            ``(2) Annual reports.--The Administrator shall 
        submit an annual report to the Committee on Small 
        Business of the Senate and the Committee on Science and 
        the Committee on Small Business of the House of 
        Representatives regarding--
                    ``(A) the number and amount of awards 
                provided and cooperative agreements entered 
                into under the FAST program during the 
                preceding year;
                    ``(B) a list of recipients under this 
                section, including their location and the 
                activities being performed with the awards made 
                or under the cooperative agreements entered 
                into; and
                    ``(C) the Mentoring Networks and the 
                mentoring database, as provided for under 
                section 35, including--
                            ``(i) the status of the inclusion 
                        of mentoring information in the 
                        database required by section 9(k); and
                            ``(ii) the status of the 
                        implementation and description of the 
                        usage of the Mentoring Networks.
    ``(g) Reviews by Inspector General.--
            ``(1) In general.--The Inspector General of the 
        Administration shall conduct a review of--
                    ``(A) the extent to which recipients under 
                the FAST program are measuring the performance 
                of the activities being conducted and the 
                results of such measurements; and
                    ``(B) the overall management and 
                effectiveness of the FAST program.
            ``(2) Report.--During the first quarter of fiscal 
        year 2004, the Inspector General of the Administration 
        shall submit a report to the Committee on Small 
        Business of the Senate and the Committee on Science and 
        the Committee on Small Business of the House of 
        Representatives on the review conducted under paragraph 
        (1).
    ``(h) Program Levels.--
            ``(1) In general.--There is authorized to be 
        appropriated to carry out the FAST program, including 
        Mentoring Networks, under this section and section 35, 
        $10,000,000 for each of fiscal years 2001 through 2005.
            ``(2) Mentoring database.--Of the total amount made 
        available under paragraph (1) for fiscal years 2001 
        through 2005, a reasonable amount, not to exceed a 
        total of $500,000, may be used by the Administration to 
        carry out section 35(d).
    ``(i) Termination.--The authority to carry out the FAST 
program under this section shall terminate on September 30, 
2005.''.
    (c) Coordination of Technology Development Programs.--
Section 9 of the Small Business Act (15 U.S.C. 638) is amended 
by adding at the end the following:
    ``(u) Coordination of Technology Development Programs.--
            ``(1) Definition of technology development 
        program.--In this subsection, the term `technology 
        development program' means--
                    ``(A) the Experimental Program to Stimulate 
                Competitive Research of the National Science 
                Foundation, as established under section 113 of 
                the National Science Foundation Authorization 
                Act of 1988 (42 U.S.C. 1862g);
                    ``(B) the Defense Experimental Program to 
                Stimulate Competitive Research of the 
                Department of Defense;
                    ``(C) the Experimental Program to Stimulate 
                Competitive Research of the Department of 
                Energy;
                    ``(D) the Experimental Program to Stimulate 
                Competitive Research of the Environmental 
                Protection Agency;
                    ``(E) the Experimental Program to Stimulate 
                Competitive Research of the National 
                Aeronautics and Space Administration;
                    ``(F) the Institutional Development Award 
                Program of the National Institutes of Health; 
                and
                    ``(G) the National Research Initiative 
                Competitive Grants Program of the Department of 
                Agriculture.
            ``(2) Coordination requirements.--Each Federal 
        agency that is subject to subsection (f) and that has 
        established a technology development program may, in 
        each fiscal year, review for funding under that 
        technology development program--
                    ``(A) any proposal to provide outreach and 
                assistance to 1 or more small business concerns 
                interested in participating in the SBIR 
                program, including any proposal to make a grant 
                or loan to a company to pay a portion or all of 
                the cost of developing an SBIR proposal, from 
                an entity, organization, or individual located 
                in--
                            ``(i) a State that is eligible to 
                        participate in that program; or
                            ``(ii) a State described in 
                        paragraph (3); or
                    ``(B) any proposal for the first phase of 
                the SBIR program, if the proposal, though 
                meritorious, is not funded through the SBIR 
                program for that fiscal year due to funding 
                restraints, from a small business concern 
                located in--
                            ``(i) a State that is eligible to 
                        participate in a technology development 
                        program; or
                            ``(ii) a State described in 
                        paragraph (3).
            ``(3) Additionally eligible state.--A State 
        referred to in subparagraph (A)(ii) or (B)(ii) of 
        paragraph (2) is a State in which the total value of 
        contracts awarded to small business concerns under all 
        SBIR programs is less than the total value of contracts 
        awarded to small business concerns in a majority of 
        other States, as determined by the Administrator in 
        biennial fiscal years, beginning with fiscal year 2000, 
        based on the most recent statistics compiled by the 
        Administrator.''.

SEC. 112. MENTORING NETWORKS.

    The Small Business Act (15 U.S.C. 631 et seq.) is amended 
by inserting after section 34, as added by section 111(b)(2) of 
this Act, the following:

``SEC. 35. MENTORING NETWORKS.

    ``(a) Findings.--Congress finds that--
            ``(1) the SBIR and STTR programs create jobs, 
        increase capacity for technological innovation, and 
        boost international competitiveness;
            ``(2) increasing the quantity of applications from 
        all States to the SBIR and STTR programs would enhance 
        competition for such awards and the quality of the 
        completed projects; and
            ``(3) mentoring is a natural complement to the FAST 
        program of reaching out to new companies regarding the 
        SBIR and STTR programs as an effective and low-cost way 
        to improve the likelihood that such companies will 
        succeed in such programs in developing and 
        commercializing their research.
    ``(b) Authorization for Mentoring Networks.--The recipient 
of an award or participant in a cooperative agreement under 
section 34 may use a reasonable amount of such assistance for 
the establishment of a Mentoring Network under this section.
    ``(c) Criteria for Mentoring Networks.--A Mentoring Network 
established using assistance under section 34 shall--
            ``(1) provide business advice and counseling to 
        high technology small business concerns located in the 
        State or region served by the Mentoring Network and 
        identified under section 34(c)(1)(E)(ii) as potential 
        candidates for the SBIR or STTR programs;
            ``(2) identify volunteer mentors who--
                    ``(A) are persons associated with a small 
                business concern that has successfully 
                completed one or more SBIR or STTR funding 
                agreements; and
                    ``(B) have agreed to guide small business 
                concerns through all stages of the SBIR or STTR 
                program process, including providing assistance 
                relating to--
                            ``(i) proposal writing;
                            ``(ii) marketing;
                            ``(iii) Government accounting;
                            ``(iv) Government audits;
                            ``(v) project facilities and 
                        equipment;
                            ``(vi) human resources;
                            ``(vii) third phase partners;
                            ``(viii) commercialization;
                            ``(ix) venture capital networking; 
                        and
                            ``(x) other matters relevant to the 
                        SBIR and STTR programs;
            ``(3) have experience working with small business 
        concerns participating in the SBIR and STTR programs;
            ``(4) contribute information to the national 
        database referred to in subsection (d); and
            ``(5) agree to reimburse volunteer mentors for out-
        of-pocket expenses related to service as a mentor under 
        this section.
    ``(d) Mentoring Database.--The Administrator shall--
            ``(1) include in the database required by section 
        9(k)(1), in cooperation with the SBIR, STTR, and FAST 
        programs, information on Mentoring Networks and mentors 
        participating under this section, including a 
        description of their areas of expertise;
            ``(2) work cooperatively with Mentoring Networks to 
        maintain and update the database;
            ``(3) take such action as may be necessary to 
        aggressively promote Mentoring Networks under this 
        section; and
            ``(4) fulfill the requirements of this subsection 
        either directly or by contract.''.

SEC. 113. SIMPLIFIED REPORTING REQUIREMENTS.

    Section 9 of the Small Business Act (15 U.S.C. 638), as 
amended by this Act, is further amended by adding at the end 
the following:
    ``(v) Simplified Reporting Requirements.--The Administrator 
shall work with the Federal agencies required by this section 
to have an SBIR program to standardize reporting requirements 
for the collection of data from SBIR applicants and awardees, 
including data for inclusion in the database under subsection 
(k), taking into consideration the unique needs of each agency, 
and to the extent possible, permitting the updating of 
previously reported information by electronic means. Such 
requirements shall be designed to minimize the burden on small 
businesses.''.

SEC. 114. RURAL OUTREACH PROGRAM EXTENSION.

    (a) Extension of Termination Date.--Section 501(b)(2) of 
the Small Business Reauthorization Act of 1997 (15 U.S.C. 638 
note; 111 Stat. 2622) is amended by striking ``2001'' and 
inserting ``2005''.
    (b) Extension of Authorization of Appropriations.--Section 
9(s)(2) of the Small Business Act (15 U.S.C. 638(s)(2)) is 
amended by striking ``for fiscal year 1998, 1999, 2000, or 
2001'' and inserting ``for each of the fiscal years 2000 
through 2005,''.

                    TITLE II--BUSINESS LOAN PROGRAMS

SEC. 201. SHORT TITLE.

    This title may be cited as the ``Small Business Loan 
Improvement Act of 2000''.

SEC. 202. LEVELS OF PARTICIPATION.

    Section 7(a)(2)(A) of the Small Business Act (15 U.S.C. 
636(a)(2)(A)) is amended--
            (1) in paragraph (i) by striking ``$100,000'' and 
        inserting ``$150,000''; and
            (2) in paragraph (ii)--
                    (A) by striking ``80 percent'' and 
                inserting ``85 percent''; and
                    (B) by striking ``$100,000'' and inserting 
                ``$150,000''.

SEC. 203. LOAN AMOUNTS.

    Section 7(a)(3)(A) of the Small Business Act (15 U.S.C. 
636(a)(3)(A)) is amended by striking ``$750,000,'' and 
inserting, ``$1,000,000 (or if the gross loan amount would 
exceed $2,000,000),''.

SEC. 204. INTEREST ON DEFAULTED LOANS.

    Section 7(a)(4)(B) of the Small Business Act (15 U.S.C. 
636(a)(4)(B)) is amended by adding at the end the following:
                            ``(iii) Applicability.--Clauses (i) 
                        and (ii) shall not apply to loans made 
                        on or after October 1, 2000.''.

SEC. 205. PREPAYMENT OF LOANS.

    Section 7(a)(4) of the Small Business Act (15 U.S.C. 
636(a)(4)) is further amended--
            (1) by striking ``(4) Interest rates and fees.--'' 
        and inserting ``(4) Interest rates and prepayment 
        charges.--''; and
            (2) by adding at the end the following:
                    ``(C) Prepayment charges.--
                            ``(i) In general.--A borrower who 
                        prepays any loan guaranteed under this 
                        subsection shall remit to the 
                        Administration a subsidy recoupment fee 
                        calculated in accordance with clause 
                        (ii) if--
                                    ``(I) the loan is for a 
                                term of not less than 15 years;
                                    ``(II) the prepayment is 
                                voluntary;
                                    ``(III) the amount of 
                                prepayment in any calendar year 
                                is more than 25 percent of the 
                                outstanding balance of the 
                                loan; and
                                    ``(IV) the prepayment is 
                                made within the first 3 years 
                                after disbursement of the loan 
                                proceeds.
                            ``(ii) Subsidy recoupment fee.--The 
                        subsidy recoupment fee charged under 
                        clause (i) shall be--
                                    ``(I) 5 percent of the 
                                amount of prepayment, if the 
                                borrower prepays during the 
                                first year after disbursement;
                                    ``(II) 3 percent of the 
                                amount of prepayment, if the 
                                borrower prepays during the 
                                second year after disbursement; 
                                and
                                    ``(III) 1 percent of the 
                                amount of prepayment, if the 
                                borrower prepays during the 
                                third year after 
                                disbursement.''.

SEC. 206. GUARANTEE FEES.

    Section 7(a)(18) of the Small Business Act (15 U.S.C. 
636(a)(18)) is amended to read as follows:
            ``(18) Guarantee fees.--
                    ``(A) In general.--With respect to each 
                loan guaranteed under this subsection (other 
                than a loan that is repayable in 1 year or 
                less), the Administration shall collect a 
                guarantee fee, which shall be payable by the 
                participating lender, and may be charged to the 
                borrower, as follows:
                            ``(i) A guarantee fee equal to 2 
                        percent of the deferred participation 
                        share of a total loan amount that is 
                        not more than $150,000.
                            ``(ii) A guarantee fee equal to 3 
                        percent of the deferred participation 
                        share of a total loan amount that is 
                        more than $150,000, but not more than 
                        $700,000.
                            ``(iii) A guarantee fee equal to 
                        3.5 percent of the deferred 
                        participation share of a total loan 
                        amount that is more than $700,000.
                    ``(B) Retention of certain fees.--Lenders 
                participating in the programs established under 
                this subsection may retain not more than 25 
                percent of a fee collected under subparagraph 
                (A)(i).''.

SEC. 207. LEASE TERMS.

    Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) 
is further amended by adding at the end the following:
            ``(28) Leasing.--In addition to such other lease 
        arrangements as may be authorized by the 
        Administration, a borrower may permanently lease to one 
        or more tenants not more than 20 percent of any 
        property constructed with the proceeds of a loan 
        guaranteed under this subsection, if the borrower 
        permanently occupies and uses not less than 60 percent 
        of the total business space in the property.''.

SEC. 208. APPRAISALS FOR LOANS SECURED BY REAL PROPERTY.

    (a) Small Business Act.--Section 7(a) of the Small Business 
Act (15 U.S.C. 636(a)) is amended by adding at the end the 
following:
            ``(29) Real estate appraisals.--With respect to a 
        loan under this subsection that is secured by 
        commercial real property, an appraisal of such property 
        by a State licensed or certified appraiser--
                    ``(A) shall be required by the 
                Administration in connection with any such loan 
                for more than $250,000; or
                    ``(B) may be required by the Administration 
                or the lender in connection with any such loan 
                for $250,000 or less, if such appraisal is 
                necessary for appropriate evaluation of 
                creditworthiness.''.
    (b) Small Business Investment Act of 1958.--Section 
502(3)(E) of the Small Business Investment Act of 1958 (15 
U.S.C. 696(3)(E)) is amended--
            (1) by striking ``The collateral'' and inserting 
        the following:
                            ``(i) In general.--The 
                        collateral''; and
            (2) by adding at the end the following:
                            ``(ii) Appraisals.--With respect to 
                        commercial real property provided by 
                        the small business concern as 
                        collateral, an appraisal of the 
                        property by a State licensed or 
                        certified appraiser--
                                    ``(I) shall be required by 
                                the Administration before 
                                disbursement of the loan if the 
                                estimated value of that 
                                property is more than $250,000; 
                                or
                                    ``(II) may be required by 
                                the Administration or the 
                                lender before disbursement of 
                                the loan if the estimated value 
                                of that property is $250,000 or 
                                less, and such appraisal is 
                                necessary for appropriate 
                                evaluation of 
                                creditworthiness.''.

SEC. 209. SALE OF GUARANTEED LOANS MADE FOR EXPORT PURPOSES.

    Section 5(f)(1)(C) of the Small Business Act (15 U.S.C. 
634(f)(1)(C)) is amended to read as follows:
            ``(C) each loan, except each loan made under 
        section 7(a)(14), shall have been fully disbursed to 
        the borrower prior to any sale.''.

SEC. 210. MICROLOAN PROGRAM.

    (a) In General.--Section 7(m) of the Small Business Act (15 
U.S.C. 636(m)) is amended--
            (1) in paragraphs (1)(B)(iii) and (3)(E), by 
        striking ``$25,000'' each place it appears and 
        inserting ``$35,000'';
            (2) in paragraphs (1)(A)(iii)(I), (3)(A)(ii), and 
        (4)(C)(i)(II), by striking ``$7,500'' each place it 
        appears and inserting ``$10,000'';
            (3) in paragraph (3)(E), by striking ``$15,000'' 
        and inserting ``$20,000'';
            (4) in paragraph (5)(A)--
                    (A) by striking ``25 grants'' and inserting 
                ``55 grants''; and
                    (B) by striking ``$125,000'' and inserting 
                ``$200,000'';
            (5) in paragraph (6)(B), by striking ``$10,000'' 
        and inserting ``$15,000''; and
            (6) in paragraph (7), by striking subparagraph (A) 
        and inserting the following:
                    ``(A) Number of participants.--Under the 
                program authorized by this subsection, the 
                Administration may fund, on a competitive 
                basis, not more than 300 intermediaries.''.
    (b) Conforming Amendments.--Section 7(m)(11)(B) of the 
Small Business Act (15 U.S.C. 636(m)(11)(B)) is amended by 
striking ``$25,000'' and inserting ``$35,000''.

            TITLE III--CERTIFIED DEVELOPMENT COMPANY PROGRAM

SEC. 301. SHORT TITLE.

    This title may be cited as the ``Certified Development 
Company Program Improvements Act of 2000''.

SEC. 302. WOMEN-OWNED BUSINESSES.

    Section 501(d)(3)(C) of the Small Business Investment Act 
of 1958 (15 U.S.C. 695(d)(3)(C)) is amended by inserting before 
the comma ``or women-owned business development''.

SEC. 303. MAXIMUM DEBENTURE SIZE.

    Section 502(2) of the Small Business Investment Act of 1958 
(15 U.S.C. 696(2)) is amended to read as follows:
            ``(2) Loans made by the Administration under this 
        section shall be limited to $1,000,000 for each such 
        identifiable small business concern, except loans 
        meeting the criteria specified in section 501(d)(3), 
        which shall be limited to $1,300,000 for each such 
        identifiable small business concern.''.

SEC. 304. FEES.

    Section 503(f) of the Small Business Investment Act of 1958 
(15 U.S.C. 697(f)) is amended to read as follows:
    ``(f) Effective Date.--The fees authorized by subsections 
(b) and (d) shall apply to financings approved by the 
Administration on or after October 1, 1996, but shall not apply 
to financings approved by the Administration on or after 
October 1, 2003.''.

SEC. 305. PREMIER CERTIFIED LENDERS PROGRAM.

    Section 217(b) of the Small Business Administration 
Reauthorization and Amendments Act of 1994 (Public Law 103-403, 
15 U.S.C. 697 note) (relating to section 508 of the Small 
Business Investment Act of 1958) is repealed.

SEC. 306. SALE OF CERTAIN DEFAULTED LOANS.

    Section 508 of the Small Business Investment Act of 1958 
(15 U.S.C. 697e) is amended--
            (1) in subsection (a), by striking ``On a pilot 
        program basis, the'' and inserting ``The'';
            (2) by redesignating subsections (d) through (i) as 
        subsections (e) through (j), respectively;
            (3) in subsection (f) (as redesignated by paragraph 
        (2)), by striking ``subsection (f)'' and inserting 
        ``subsection (g)'';
            (4) in subsection (h) (as redesignated by paragraph 
        (2)), by striking ``subsection (f)'' and inserting 
        ``subsection (g)''; and
            (5) by inserting after subsection (c) the 
        following:
    ``(d) Sale of Certain Defaulted Loans.--
            ``(1) Notice.--If, upon default in repayment, the 
        Administration acquires a loan guaranteed under this 
        section and identifies such loan for inclusion in a 
        bulk asset sale of defaulted or repurchased loans or 
        other financings, it shall give prior notice thereof to 
        any certified development company which has a 
        contingent liability under this section. The notice 
        shall be given to the company as soon as possible after 
        the financing is identified, but not less than 90 days 
        before the date the Administration first makes any 
        records on such financing available for examination by 
        prospective purchasers prior to its offering in a 
        package of loans for bulk sale.
            ``(2) Limitations.--The Administration shall not 
        offer any loan described in paragraph (1) as part of a 
        bulk sale unless it--
                    ``(A) provides prospective purchasers with 
                the opportunity to examine the Administration's 
                records with respect to such loan; and
                    ``(B) provides the notice required by 
                paragraph (1).''.

SEC. 307. LOAN LIQUIDATION.

    (a) Liquidation and Foreclosure.--Title V of the Small 
Business Investment Act of 1958 (15 U.S.C. 695 et seq.) is 
amended by adding at the end the following:

``SEC. 510. FORECLOSURE AND LIQUIDATION OF LOANS.

    ``(a) Delegation of Authority.--In accordance with this 
section, the Administration shall delegate to any qualified 
State or local development company (as defined in section 
503(e)) that meets the eligibility requirements of subsection 
(b)(1) the authority to foreclose and liquidate, or to 
otherwise treat in accordance with this section, defaulted 
loans in its portfolio that are funded with the proceeds of 
debentures guaranteed by the Administration under section 503.
    ``(b) Eligibility for Delegation.--
            ``(1) Requirements.--A qualified State or local 
        development company shall be eligible for a delegation 
        of authority under subsection (a) if--
                    ``(A) the company--
                            ``(i) has participated in the loan 
                        liquidation pilot program established 
                        by the Small Business Programs 
                        Improvement Act of 1996 (15 U.S.C. 695 
                        note), as in effect on the day before 
                        promulgation of final regulations by 
                        the Administration implementing this 
                        section;
                            ``(ii) is participating in the 
                        Premier Certified Lenders Program under 
                        section 508; or
                            ``(iii) during the 3 fiscal years 
                        immediately prior to seeking such a 
                        delegation, has made an average of not 
                        less than 10 loans per year that are 
                        funded with the proceeds of debentures 
                        guaranteed under section 503; and
                    ``(B) the company--
                            ``(i) has one or more employees--
                                    ``(I) with not less than 2 
                                years of substantive, decision-
                                making experience in 
                                administering the liquidation 
                                and workout of problem loans 
                                secured in a manner 
                                substantially similar to loans 
                                funded with the proceeds of 
                                debentures guaranteed under 
                                section 503; and
                                    ``(II) who have completed a 
                                training program on loan 
                                liquidation developed by the 
                                Administration in conjunction 
                                with qualified State and local 
                                development companies that meet 
                                the requirements of this 
                                paragraph; or
                            ``(ii) submits to the 
                        Administration documentation 
                        demonstrating that the company has 
                        contracted with a qualified third-party 
                        to perform any liquidation activities 
                        and secures the approval of the 
                        contract by the Administration with 
                        respect to the qualifications of the 
                        contractor and the terms and conditions 
                        of liquidation activities.
            ``(2) Confirmation.--On request the Administration 
        shall examine the qualifications of any company 
        described in subsection (a) to determine if such 
        company is eligible for the delegation of authority 
        under this section. If the Administration determines 
        that a company is not eligible, the Administration 
        shall provide the company with the reasons for such 
        ineligibility.
    ``(c) Scope of Delegated Authority.--
            ``(1) In general.--Each qualified State or local 
        development company to which the Administration 
        delegates authority under section (a) may with respect 
        to any loan described in subsection (a)--
                    ``(A) perform all liquidation and 
                foreclosure functions, including the purchase 
                in accordance with this subsection of any other 
                indebtedness secured by the property securing 
                the loan, in a reasonable and sound manner 
                according to commercially accepted practices, 
                pursuant to a liquidation plan approved in 
                advance by the Administration under paragraph 
                (2)(A);
                    ``(B) litigate any matter relating to the 
                performance of the functions described in 
                subparagraph (A), except that the 
                Administration may--
                            ``(i) defend or bring any claim 
                        if--
                                    ``(I) the outcome of the 
                                litigation may adversely affect 
                                the Administration's management 
                                of the loan program established 
                                under section 502; or
                                    ``(II) the Administration 
                                is entitled to legal remedies 
                                not available to a qualified 
                                State or local development 
                                company and such remedies will 
                                benefit either the 
                                Administration or the qualified 
                                State or local development 
                                company; or
                            ``(ii) oversee the conduct of any 
                        such litigation; and
                    ``(C) take other appropriate actions to 
                mitigate loan losses in lieu of total 
                liquidation or foreclosures, including the 
                restructuring of a loan in accordance with 
                prudent loan servicing practices and pursuant 
                to a workout plan approved in advance by the 
                Administration under paragraph (2)(C).
            ``(2) Administration approval.--
                    ``(A) Liquidation plan.--
                            ``(i) In general.--Before carrying 
                        out functions described in paragraph 
                        (1)(A), a qualified State or local 
                        development company shall submit to the 
                        Administration a proposed liquidation 
                        plan.
                            ``(ii) Administration action on 
                        plan.--
                                    ``(I) Timing.--Not later 
                                than 15 business days after a 
                                liquidation plan is received by 
                                the Administration under clause 
                                (i), the Administration shall 
                                approve or reject the plan.
                                    ``(II) Notice of no 
                                decision.--With respect to any 
                                plan that cannot be approved or 
                                denied within the 15-day period 
                                required by subclause (I), the 
                                Administration shall within 
                                such period provide in 
                                accordance with subparagraph 
                                (E) notice to the company that 
                                submitted the plan.
                            ``(iii) Routine actions.--In 
                        carrying out functions described in 
                        paragraph (1)(A), a qualified State or 
                        local development company may undertake 
                        routine actions not addressed in a 
                        liquidation plan without obtaining 
                        additional approval from the 
                        Administration.
                    ``(B) Purchase of indebtedness.--
                            ``(i) In general.--In carrying out 
                        functions described in paragraph 
                        (1)(A), a qualified State or local 
                        development company shall submit to the 
                        Administration a request for written 
                        approval before committing the 
                        Administration to the purchase of any 
                        other indebtedness secured by the 
                        property securing a defaulted loan.
                            ``(ii) Administration action on 
                        request.--
                                    ``(I) Timing.--Not later 
                                than 15 business days after 
                                receiving a request under 
                                clause (i), the Administration 
                                shall approve or deny the 
                                request.
                                    ``(II) Notice of no 
                                decision.--With respect to any 
                                request that cannot be approved 
                                or denied within the 15-day 
                                period required by subclause 
                                (I), the Administration shall 
                                within such period provide in 
                                accordance with subparagraph 
                                (E) notice to the company that 
                                submitted the request.
                    ``(C) Workout plan.--
                            ``(i) In general.--In carrying out 
                        functions described in paragraph 
                        (1)(C), a qualified State or local 
                        development company shall submit to the 
                        Administration a proposed workout plan.
                            ``(ii) Administration action on 
                        plan.--
                                    ``(I) Timing.--Not later 
                                than 15 business days after a 
                                workout plan is received by the 
                                Administration under clause 
                                (i), the Administration shall 
                                approve or reject the plan.
                                    ``(II) Notice of no 
                                decision.--With respect to any 
                                workout plan that cannot be 
                                approved or denied within the 
                                15-day period required by 
                                subclause (I), the 
                                Administration shall within 
                                such period provide in 
                                accordance with subparagraph 
                                (E) notice to the company that 
                                submitted the plan.
                    ``(D) Compromise of indebtedness.--In 
                carrying out functions described in paragraph 
                (1)(A), a qualified State or local development 
                company may--
                            ``(i) consider an offer made by an 
                        obligor to compromise the debt for less 
                        than the full amount owing; and
                            ``(ii) pursuant to such an offer, 
                        release any obligor or other party 
                        contingently liable, if the company 
                        secures the written approval of the 
                        Administration.
                    ``(E) Contents of notice of no decision.--
                Any notice provided by the Administration under 
                subparagraph (A)(ii)(II), (B)(ii)(II), or 
                (C)(ii)(II)--
                            ``(i) shall be in writing;
                            ``(ii) shall state the specific 
                        reason for the Administration's 
                        inability to act on a plan or request;
                            ``(iii) shall include an estimate 
                        of the additional time required by the 
                        Administration to act on the plan or 
                        request; and
                            ``(iv) if the Administration cannot 
                        act because insufficient information or 
                        documentation was provided by the 
                        company submitting the plan or request, 
                        shall specify the nature of such 
                        additional information or 
                        documentation.
            ``(3) Conflict of interest.--In carrying out 
        functions described in paragraph (1), a qualified State 
        or local development company shall take no action that 
        would result in an actual or apparent conflict of 
        interest between the company (or any employee of the 
        company) and any third party lender, associate of a 
        third party lender, or any other person participating 
        in a liquidation, foreclosure, or loss mitigation 
        action.
    ``(d) Suspension or Revocation of Authority.--The 
Administration may revoke or suspend a delegation of authority 
under this section to any qualified State or local development 
company, if the Administration determines that the company--
            ``(1) does not meet the requirements of subsection 
        (b)(1);
            ``(2) has violated any applicable rule or 
        regulation of the Administration or any other 
        applicable law; or
            ``(3) fails to comply with any reporting 
        requirement that may be established by the 
        Administration relating to carrying out of functions 
        described in paragraph (1).
    ``(e) Report.--
            ``(1) In general.--Based on information provided by 
        qualified State and local development companies and the 
        Administration, the Administration shall annually 
        submit to the Committees on Small Business of the House 
        of Representatives and of the Senate a report on the 
        results of delegation of authority under this section.
            ``(2) Contents.--Each report submitted under 
        paragraph (1) shall include the following information:
                    ``(A) With respect to each loan foreclosed 
                or liquidated by a qualified State or local 
                development company under this section, or for 
                which losses were otherwise mitigated by the 
                company pursuant to a workout plan under this 
                section--
                            ``(i) the total cost of the project 
                        financed with the loan;
                            ``(ii) the total original dollar 
                        amount guaranteed by the 
                        Administration;
                            ``(iii) the total dollar amount of 
                        the loan at the time of liquidation, 
                        foreclosure, or mitigation of loss;
                            ``(iv) the total dollar losses 
                        resulting from the liquidation, 
                        foreclosure, or mitigation of loss; and
                            ``(v) the total recoveries 
                        resulting from the liquidation, 
                        foreclosure, or mitigation of loss, 
                        both as a percentage of the amount 
                        guaranteed and the total cost of the 
                        project financed.
                    ``(B) With respect to each qualified State 
                or local development company to which authority 
                is delegated under this section, the totals of 
                each of the amounts described in clauses (i) 
                through (v) of subparagraph (A).
                    ``(C) With respect to all loans subject to 
                foreclosure, liquidation, or mitigation under 
                this section, the totals of each of the amounts 
                described in clauses (i) through (v) of 
                subparagraph (A).
                    ``(D) A comparison between--
                            ``(i) the information provided 
                        under subparagraph (C) with respect to 
                        the 12-month period preceding the date 
                        on which the report is submitted; and
                            ``(ii) the same information with 
                        respect to loans foreclosed and 
                        liquidated, or otherwise treated, by 
                        the Administration during the same 
                        period.
                    ``(E) The number of times that the 
                Administration has failed to approve or reject 
                a liquidation plan in accordance with 
                subparagraph (A)(i), a workout plan in 
                accordance with subparagraph (C)(i), or to 
                approve or deny a request for purchase of 
                indebtedness under subparagraph (B)(i), 
                including specific information regarding the 
                reasons for the Administration's failure and 
                any delays that resulted.''.
    (b) Regulations.--
            (1) In general.--Not later than 150 days after the 
        date of enactment of this Act, the Administrator shall 
        issue such regulations as may be necessary to carry out 
        section 510 of the Small Business Investment Act of 
        1958, as added by subsection (a) of this section.
            (2) Termination of pilot program.--Beginning on the 
        date on which final regulations are issued under 
        paragraph (1), section 204 of the Small Business 
        Programs Improvement Act of 1996 (15 U.S.C. 695 note) 
        shall cease to have effect.

   TITLE IV--CORRECTIONS TO THE SMALL BUSINESS INVESTMENT ACT OF 1958

SEC. 401. SHORT TITLE.

    This title may be cited as the ``Small Business Investment 
Corrections Act of 2000''.

SEC. 402. DEFINITIONS.

    (a) Small Business Concern.--Section 103(5)(A)(i) of the 
Small Business Investment Act of 1958 (15 U.S.C. 662(5)(A)(i)) 
is amended by inserting before the semicolon at the end the 
following: ``regardless of the allocation of control during the 
investment period under any investment agreement between the 
business concern and the entity making the investment''.
    (b) Long Term.--Section 103 of the Small Business 
Investment Act of 1958 (15 U.S.C. 662) is amended--
            (1) in paragraph (15), by striking ``and'' at the 
        end;
            (2) in paragraph (16), by striking the period at 
        the end and inserting ``; and''; and
            (3) by adding at the end the following:
            ``(17) the term `long term', when used in 
        connection with equity capital or loan funds invested 
        in any small business concern or smaller enterprise, 
        means any period of time not less than 1 year.''.

SEC. 403. INVESTMENT IN SMALL BUSINESS INVESTMENT COMPANIES.

    Section 302(b) of the Small Business Investment Act of 1958 
(15 U.S.C. 682(b)) is amended--
            (1) by striking ``(b) Notwithstanding'' and 
        inserting the following:
    ``(b) Financial Institution Investments.--
            ``(1) Certain banks.--Notwithstanding''; and
            (2) by adding at the end the following:
            ``(2) Certain savings associations.--
        Notwithstanding any other provision of law, any Federal 
        savings association may invest in any 1 or more small 
        business investment companies, or in any entity 
        established to invest solely in small business 
        investment companies, except that in no event may the 
        total amount of such investments by any such Federal 
        savings association exceed 5 percent of the capital and 
        surplus of the Federal savings association.''.

SEC. 404. SUBSIDY FEES.

    (a) Debentures.--Section 303(b) of the Small Business 
Investment Act of 1958 (15 U.S.C. 683(b)) is amended by 
striking ``plus an additional charge of 1 percent per annum 
which shall be paid to and retained by the Administration'' and 
inserting ``plus, for debentures obligated after September 30, 
2000, an additional charge, in an amount established annually 
by the Administration, of not more than 1 percent per year as 
necessary to reduce to zero the cost (as defined in section 502 
of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a)) to 
the Administration of purchasing and guaranteeing debentures 
under this Act, which shall be paid to and retained by the 
Administration''.
    (b) Participating Securities.--Section 303(g)(2) of the 
Small Business Investment Act of 1958 (15 U.S.C. 683(g)(2)) is 
amended by striking ``plus an additional charge of 1 percent 
per annum which shall be paid to and retained by the 
Administration'' and inserting ``plus, for participating 
securities obligated after September 30, 2000, an additional 
charge, in an amount established annually by the 
Administration, of not more than 1 percent per year as 
necessary to reduce to zero the cost (as defined in section 502 
of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a)) to 
the Administration of purchasing and guaranteeing participating 
securities under this Act, which shall be paid to and retained 
by the Administration''.

SEC. 405. DISTRIBUTIONS.

    Section 303(g)(8) of the Small Business Investment Act of 
1958 (15 U.S.C. 683(g)(8)) is amended--
            (1) by striking ``subchapter s corporation'' and 
        inserting ``subchapter S corporation'';
            (2) by striking ``the end of any calendar quarter 
        based on a quarterly'' and inserting ``any time during 
        any calendar quarter based on an''; and
            (3) by striking ``quarterly distributions for a 
        calendar year,'' and inserting ``interim distributions 
        for a calendar year,''.

SEC. 406. CONFORMING AMENDMENT.

    Section 310(c)(4) of the Small Business Investment Act of 
1958 (15 U.S.C. 687b(c)(4)) is amended by striking ``five 
years'' and inserting ``1 year''.

          TITLE V--REAUTHORIZATION OF SMALL BUSINESS PROGRAMS

SEC. 501. SHORT TITLE.

    This title may be cited as the ``Small Business Programs 
Reauthorization Act of 2000''.

SEC. 502. REAUTHORIZATION OF SMALL BUSINESS PROGRAMS.

    Section 20 of the Small Business Act (15 U.S.C. 631 note) 
is amended by adding at the end the following:
    ``(g) Fiscal Year 2001.--
            ``(1) Program levels.--The following program levels 
        are authorized for fiscal year 2001:
                    ``(A) For the programs authorized by this 
                Act, the Administration is authorized to make--
                            ``(i) $45,000,000 in technical 
                        assistance grants as provided in 
                        section 7(m); and
                            ``(ii) $60,000,000 in direct loans, 
                        as provided in 7(m).
                    ``(B) For the programs authorized by this 
                Act, the Administration is authorized to make 
                $19,050,000,000 in deferred participation loans 
                and other financings. Of such sum, the 
                Administration is authorized to make--
                            ``(i) $14,500,000,000 in general 
                        business loans as provided in section 
                        7(a);
                            ``(ii) $4,000,000,000 in financings 
                        as provided in section 7(a)(13) of this 
                        Act and section 504 of the Small 
                        Business Investment Act of 1958;
                            ``(iii) $500,000,000 in loans as 
                        provided in section 7(a)(21); and
                            ``(iv) $50,000,000 in loans as 
                        provided in section 7(m).
                    ``(C) For the programs authorized by title 
                III of the Small Business Investment Act of 
                1958, the Administration is authorized to 
                make--
                            ``(i) $2,500,000,000 in purchases 
                        of participating securities; and
                            ``(ii) $1,500,000,000 in guarantees 
                        of debentures.
                    ``(D) For the programs authorized by part B 
                of title IV of the Small Business Investment 
                Act of 1958, the Administration is authorized 
                to enter into guarantees not to exceed 
                $4,000,000,000 of which not more than 50 
                percent may be in bonds approved pursuant to 
                section 411(a)(3) of that Act.
                    ``(E) The Administration is authorized to 
                make grants or enter cooperative agreements for 
                a total amount of $5,000,000 for the Service 
                Corps of Retired Executives program authorized 
                by section 8(b)(1).
            ``(2) Additional authorizations.--
                    ``(A) There are authorized to be 
                appropriated to the Administration for fiscal 
                year 2001 such sums as may be necessary to 
                carry out the provisions of this Act not 
                elsewhere provided for, including 
                administrative expenses and necessary loan 
                capital for disaster loans pursuant to section 
                7(b), and to carry out title IV of the Small 
                Business Investment Act of 1958, including 
                salaries and expenses of the Administration.
                    ``(B) Notwithstanding any other provision 
                of this paragraph, for fiscal year 2001--
                            ``(i) no funds are authorized to be 
                        used as loan capital for the loan 
                        program authorized by section 7(a)(21) 
                        except by transfer from another Federal 
                        department or agency to the 
                        Administration, unless the program 
                        level authorized for general business 
                        loans under paragraph (1)(B)(i) is 
                        fully funded; and
                            ``(ii) the Administration may not 
                        approve loans on its own behalf or on 
                        behalf of any other Federal department 
                        or agency, by contract or otherwise, 
                        under terms and conditions other than 
                        those specifically authorized under 
                        this Act or the Small Business 
                        Investment Act of 1958, except that it 
                        may approve loans under section 
                        7(a)(21) of this Act in gross amounts 
                        of not more than $1,250,000.
    ``(h) Fiscal Year 2002.--
            ``(1) Program levels.--The following program levels 
        are authorized for fiscal year 2002:
                    ``(A) For the programs authorized by this 
                Act, the Administration is authorized to make--
                            ``(i) $60,000,000 in technical 
                        assistance grants as provided in 
                        section 7(m); and
                            ``(ii) $80,000,000 in direct loans, 
                        as provided in 7(m).
                    ``(B) For the programs authorized by this 
                Act, the Administration is authorized to make 
                $20,050,000,000 in deferred participation loans 
                and other financings. Of such sum, the 
                Administration is authorized to make--
                            ``(i) $15,000,000,000 in general 
                        business loans as provided in section 
                        7(a);
                            ``(ii) $4,500,000,000 in financings 
                        as provided in section 7(a)(13) of this 
                        Act and section 504 of the Small 
                        Business Investment Act of 1958;
                            ``(iii) $500,000,000 in loans as 
                        provided in section 7(a)(21); and
                            ``(iv) $50,000,000 in loans as 
                        provided in section 7(m).
                    ``(C) For the programs authorized by title 
                III of the Small Business Investment Act of 
                1958, the Administration is authorized to 
                make--
                            ``(i) $3,500,000,000 in purchases 
                        of participating securities; and
                            ``(ii) $2,500,000,000 in guarantees 
                        of debentures.
                    ``(D) For the programs authorized by part B 
                of title IV of the Small Business Investment 
                Act of 1958, the Administration is authorized 
                to enter into guarantees not to exceed 
                $5,000,000,000 of which not more than 50 
                percent may be in bonds approved pursuant to 
                section 411(a)(3) of that Act.
                    ``(E) The Administration is authorized to 
                make grants or enter cooperative agreements for 
                a total amount of $6,000,000 for the Service 
                Corps of Retired Executives program authorized 
                by section 8(b)(1).
            ``(2) Additional authorizations.--
                    ``(A) There are authorized to be 
                appropriated to the Administration for fiscal 
                year 2002 such sums as may be necessary to 
                carry out the provisions of this Act not 
                elsewhere provided for, including 
                administrative expenses and necessary loan 
                capital for disaster loans pursuant to section 
                7(b), and to carry out title IV of the Small 
                Business Investment Act of 1958, including 
                salaries and expenses of the Administration.
                    ``(B) Notwithstanding any other provision 
                of this paragraph, for fiscal year 2002--
                            ``(i) no funds are authorized to be 
                        used as loan capital for the loan 
                        program authorized by section 7(a)(21) 
                        except by transfer from another Federal 
                        department or agency to the 
                        Administration, unless the program 
                        level authorized for general business 
                        loans under paragraph (1)(B)(i) is 
                        fully funded; and
                            ``(ii) the Administration may not 
                        approve loans on its own behalf or on 
                        behalf of any other Federal department 
                        or agency, by contract or otherwise, 
                        under terms and conditions other than 
                        those specifically authorized under 
                        this Act or the Small Business 
                        Investment Act of 1958, except that it 
                        may approve loans under section 
                        7(a)(21) of this Act in gross amounts 
                        of not more than $1,250,000.
    ``(i) Fiscal Year 2003.--
            ``(1) Program levels.--The following program levels 
        are authorized for fiscal year 2003:
                    ``(A) For the programs authorized by this 
                Act, the Administration is authorized to make--
                            ``(i) $70,000,000 in technical 
                        assistance grants as provided in 
                        section 7(m); and
                            ``(ii) $100,000,000 in direct 
                        loans, as provided in 7(m).
                    ``(B) For the programs authorized by this 
                Act, the Administration is authorized to make 
                $21,550,000,000 in deferred participation loans 
                and other financings. Of such sum, the 
                Administration is authorized to make--
                            ``(i) $16,000,000,000 in general 
                        business loans as provided in section 
                        7(a);
                            ``(ii) $5,000,000,000 in financings 
                        as provided in section 7(a)(13) of this 
                        Act and section 504 of the Small 
                        Business Investment Act of 1958;
                            ``(iii) $500,000,000 in loans as 
                        provided in section 7(a)(21); and
                            ``(iv) $50,000,000 in loans as 
                        provided in section 7(m).
                    ``(C) For the programs authorized by title 
                III of the Small Business Investment Act of 
                1958, the Administration is authorized to 
                make--
                            ``(i) $4,000,000,000 in purchases 
                        of participating securities; and
                            ``(ii) $3,000,000,000 in guarantees 
                        of debentures.
                    ``(D) For the programs authorized by part B 
                of title IV of the Small Business Investment 
                Act of 1958, the Administration is authorized 
                to enter into guarantees not to exceed 
                $6,000,000,000 of which not more than 50 
                percent may be in bonds approved pursuant to 
                section 411(a)(3) of that Act.
                    ``(E) The Administration is authorized to 
                make grants or enter into cooperative 
                agreements for a total amount of $7,000,000 for 
                the Service Corps of Retired Executives program 
                authorized by section 8(b)(1).
            ``(2) Additional authorizations.--
                    ``(A) There are authorized to be 
                appropriated to the Administration for fiscal 
                year 2003 such sums as may be necessary to 
                carry out the provisions of this Act not 
                elsewhere provided for, including 
                administrative expenses and necessary loan 
                capital for disaster loans pursuant to section 
                7(b), and to carry out title IV of the Small 
                Business Investment Act of 1958, including 
                salaries and expenses of the Administration.
                    ``(B) Notwithstanding any other provision 
                of this paragraph, for fiscal year 2003--
                            ``(i) no funds are authorized to be 
                        used as loan capital for the loan 
                        program authorized by section 7(a)(21) 
                        except by transfer from another Federal 
                        department or agency to the 
                        Administration, unless the program 
                        level authorized for general business 
                        loans under paragraph (1)(B)(i) is 
                        fully funded; and
                            ``(ii) the Administration may not 
                        approve loans on its own behalf or on 
                        behalf of any other Federal department 
                        or agency, by contract or otherwise, 
                        under terms and conditions other than 
                        those specifically authorized under 
                        this Act or the Small Business 
                        Investment Act of 1958, except that it 
                        may approve loans under section 
                        7(a)(21) of this Act in gross amounts 
                        of not more than $1,250,000.''.

SEC. 503. ADDITIONAL REAUTHORIZATIONS.

    (a) Drug-Free Workplace Program.--Section 27 of the Small 
Business Act (15 U.S.C. 654) is amended--
            (1) in the section heading, by striking ``DRUG-FREE 
        WORKPLACE DEMONSTRATION PROGRAM'' and inserting ``PAUL 
        D. COVERDELL DRUG-FREE WORKPLACE PROGRAM''; and
            (2) in subsection (g)(1), by striking ``$10,000,000 
        for fiscal years 1999 and 2000'' and inserting 
        ``$5,000,000 for each of fiscal years 2001 through 
        2003''.
    (b) HUBZone Program.--Section 31 of the Small Business Act 
(15 U.S.C. 657a) is amended by adding at the end the following:
    ``(d) Authorization of Appropriations.--There is authorized 
to be appropriated to carry out the program established by this 
section $10,000,000 for each of fiscal years 2001 through 
2003.''.
    (c) Very Small Business Concerns Program.--Section 304(i) 
of the Small Business Administration Reauthorization and 
Amendments Act of 1994 (Public Law 103-403; 15 U.S.C. 644 note) 
is amended by striking ``September 30, 2000'' and inserting 
``September 30, 2003''.
    (d) Socially and Economically Disadvantaged Businesses 
Program.--Section 7102(c) of the Federal Acquisition 
Streamlining Act of 1994 (Public Law 103-355; 15 U.S.C. 644 
note) is amended by striking ``September 30, 2000'' and 
inserting ``September 30, 2003''.
    (e) SBDC Services.--Section 21(c)(3)(T) of the Small 
Business Act (15 U.S.C. 648(c)(3)(T)) is amended by striking 
``2000'' and inserting ``2003''.

SEC. 504. COSPONSORSHIP.

    (a) In General.--Section 8(b)(1)(A) of the Small Business 
Act (15 U.S.C. 637(b)(1)(A)) is amended to read as follows:
            ``(1)(A) to provide--
                    ``(i) technical, managerial, and 
                informational aids to small business concerns--
                            ``(I) by advising and counseling on 
                        matters in connection with Government 
                        procurement and policies, principles, 
                        and practices of good management;
                            ``(II) by cooperating and advising 
                        with--
                                    ``(aa) voluntary business, 
                                professional, educational, and 
                                other nonprofit organizations, 
                                associations, and institutions 
                                (except that the Administration 
                                shall take such actions as it 
                                determines necessary to ensure 
                                that such cooperation does not 
                                constitute or imply an 
                                endorsement by the 
                                Administration of the 
                                organization or its products or 
                                services, and shall ensure that 
                                it receives appropriate 
                                recognition in all printed 
                                materials); and
                                    ``(bb) other Federal and 
                                State agencies;
                            ``(III) by maintaining a 
                        clearinghouse for information on 
                        managing, financing, and operating 
                        small business enterprises; and
                            ``(IV) by disseminating such 
                        information, including through 
                        recognition events, and by other 
                        activities that the Administration 
                        determines to be appropriate; and
                    ``(ii) through cooperation with a profit-
                making concern (referred to in this paragraph 
                as a `cosponsor'), training, information, and 
                education to small business concerns, except 
                that the Administration shall--
                            ``(I) take such actions as it 
                        determines to be appropriate to ensure 
                        that--
                                    ``(aa) the Administration 
                                receives appropriate 
                                recognition and publicity;
                                    ``(bb) the cooperation does 
                                not constitute or imply an 
                                endorsement by the 
                                Administration of any product 
                                or service of the cosponsor;
                                    ``(cc) unnecessary 
                                promotion of the products or 
                                services of the cosponsor is 
                                avoided; and
                                    ``(dd) utilization of any 1 
                                cosponsor in a marketing area 
                                is minimized; and
                            ``(II) develop an agreement, 
                        executed on behalf of the 
                        Administration by an employee of the 
                        Administration in Washington, the 
                        District of Columbia, that provides, at 
                        a minimum, that--
                                    ``(aa) any printed material 
                                to announce the cosponsorship 
                                or to be distributed at the 
                                cosponsored activity, shall be 
                                approved in advance by the 
                                Administration;
                                    ``(bb) the terms and 
                                conditions of the cooperation 
                                shall be specified;
                                    ``(cc) only minimal charges 
                                may be imposed on any small 
                                business concern to cover the 
                                direct costs of providing the 
                                assistance;
                                    ``(dd) the Administration 
                                may provide to the 
                                cosponsorship mailing labels, 
                                but not lists of names and 
                                addresses of small business 
                                concerns compiled by the 
                                Administration;
                                    ``(ee) all printed 
                                materials containing the names 
                                of both the Administration and 
                                the cosponsor shall include a 
                                prominent disclaimer that the 
                                cooperation does not constitute 
                                or imply an endorsement by the 
                                Administration of any product 
                                or service of the cosponsor; 
                                and
                                    ``(ff) the Administration 
                                shall ensure that it receives 
                                appropriate recognition in all 
                                cosponsorship printed 
                                materials.''.
    (b) Extension of Cosponsorship Authority.--Section 
401(a)(2) of the Small Business Administration Reauthorization 
and Amendments Act of 1994 (15 U.S.C. 637 note) is amended by 
striking ``September 30, 2000'' and inserting ``September 30, 
2003''.

                       TITLE VI--HUBZONE PROGRAM

                 Subtitle A--HUBZones in Native America

SEC. 601. SHORT TITLE.

    This subtitle may be cited as the ``HUBZones in Native 
America Act of 2000''.

SEC. 602. HUBZONE SMALL BUSINESS CONCERN.

    Section 3(p)(3) of the Small Business Act (15 U.S.C. 
632(p)(3)) is amended to read as follows:
            ``(3) Hubzone small business concern.--The term 
        `HUBZone small business concern' means--
                    ``(A) a small business concern that is 
                owned and controlled by 1 or more persons, each 
                of whom is a United States citizen;
                    ``(B) a small business concern that is--
                            ``(i) an Alaska Native Corporation 
                        owned and controlled by Natives (as 
                        determined pursuant to section 29(e)(1) 
                        of the Alaska Native Claims Settlement 
                        Act (43 U.S.C. 1626(e)(1))); or
                            ``(ii) a direct or indirect 
                        subsidiary corporation, joint venture, 
                        or partnership of an Alaska Native 
                        Corporation qualifying pursuant to 
                        section 29(e)(1) of the Alaska Native 
                        Claims Settlement Act (43 U.S.C. 
                        1626(e)(1)), if that subsidiary, joint 
                        venture, or partnership is owned and 
                        controlled by Natives (as determined 
                        pursuant to section 29(e)(2)) of the 
                        Alaska Native Claims Settlement Act (43 
                        U.S.C. 1626(e)(2))); or
                    ``(C) a small business concern--
                            ``(i) that is wholly owned by 1 or 
                        more Indian tribal governments, or by a 
                        corporation that is wholly owned by 1 
                        or more Indian tribal governments; or
                            ``(ii) that is owned in part by 1 
                        or more Indian tribal governments, or 
                        by a corporation that is wholly owned 
                        by 1 or more Indian tribal governments, 
                        if all other owners are either United 
                        States citizens or small business 
                        concerns.''.

SEC. 603. QUALIFIED HUBZONE SMALL BUSINESS CONCERN.

    (a) In General.--Section 3(p)(5)(A)(i) of the Small 
Business Act (15 U.S.C. 632(p)(5)(A)(i)) is amended by striking 
subclauses (I) and (II) and inserting the following:
                                    ``(I) it is a HUBZone small 
                                business concern--
                                            ``(aa) pursuant to 
                                        subparagraph (A) or (B) 
                                        of paragraph (3), and 
                                        that its principal 
                                        office is located in a 
                                        HUBZone and not fewer 
                                        than 35 percent of its 
                                        employees reside in a 
                                        HUBZone; or
                                            ``(bb) pursuant to 
                                        paragraph (3)(C), and 
                                        not fewer than 35 
                                        percent of its 
                                        employees engaged in 
                                        performing a contract 
                                        awarded to the small 
                                        business concern on the 
                                        basis of a preference 
                                        provided under section 
                                        31(b) reside within any 
                                        Indian reservation 
                                        governed by 1 or more 
                                        of the tribal 
                                        government owners, or 
                                        reside within any 
                                        HUBZone adjoining any 
                                        such Indian 
                                        reservation;
                                    ``(II) the small business 
                                concern will attempt to 
                                maintain the applicable 
                                employment percentage under 
                                subclause (I) during the 
                                performance of any contract 
                                awarded to the small business 
                                concern on the basis of a 
                                preference provided under 
                                section 31(b); and''.
    (b) Clarifying Amendment.--Section 3(p)(5)(D)(i) of the 
Small Business Act (15 U.S.C. 632(p)(5)(D)(i)) is amended by 
inserting ``once the Administrator has made the certification 
required by subparagraph (A)(i) regarding a qualified HUBZone 
small business concern and has determined that subparagraph 
(A)(ii) does not apply to that concern,'' before ``include''.

SEC. 604. OTHER DEFINITIONS.

    Section 3(p) of the Small Business Act (15 U.S.C. 632(p)) 
is amended by adding at the end the following:
            ``(6) Native american small business concerns.--
                    ``(A) Alaska native corporation.--The term 
                `Alaska Native Corporation' has the same 
                meaning as the term `Native Corporation' in 
                section 3 of the Alaska Native Claims 
                Settlement Act (43 U.S.C. 1602).
                    ``(B) Alaska native village.--The term 
                `Alaska Native Village' has the same meaning as 
                the term `Native village' in section 3 of the 
                Alaska Native Claims Settlement Act (43 U.S.C. 
                1602).
                    ``(C) Indian reservation.--The term `Indian 
                reservation'--
                            ``(i) has the same meaning as the 
                        term `Indian country' in section 1151 
                        of title 18, United States Code, except 
                        that such term does not include--
                                    ``(I) any lands that are 
                                located within a State in which 
                                a tribe did not exercise 
                                governmental jurisdiction on 
                                the date of enactment of this 
                                paragraph, unless that tribe is 
                                recognized after that date of 
                                enactment by either an Act of 
                                Congress or pursuant to 
                                regulations of the Secretary of 
                                the Interior for the 
                                administrative recognition that 
                                an Indian group exists as an 
                                Indian tribe (part 83 of title 
                                25, Code of Federal 
                                Regulations); and
                                    ``(II) lands taken into 
                                trust or acquired by an Indian 
                                tribe after the date of 
                                enactment of this paragraph if 
                                such lands are not located 
                                within the external boundaries 
                                of an Indian reservation or 
                                former reservation or are not 
                                contiguous to the lands held in 
                                trust or restricted status on 
                                that date of enactment; and
                            ``(ii) in the State of Oklahoma, 
                        means lands that--
                                    ``(I) are within the 
                                jurisdictional areas of an 
                                Oklahoma Indian tribe (as 
                                determined by the Secretary of 
                                the Interior); and
                                    ``(II) are recognized by 
                                the Secretary of the Interior 
                                as eligible for trust land 
                                status under part 151 of title 
                                25, Code of Federal Regulations 
                                (as in effect on the date of 
                                enactment of this 
                                paragraph).''.

                  Subtitle B--Other HUBZone Provisions

SEC. 611. DEFINITIONS.

    (a) Qualified Census Tract.--Section 3(p)(4)(A) of the 
Small Business Act (15 U.S.C. 632(p)(4)(A)) is amended by 
striking ``(I)''.
    (b) Qualified Nonmetropolitan County.--Section 3(p)(4) of 
the Small Business Act (15 U.S.C. 632(p)(4)) is amended by 
striking subparagraph (B) and inserting the following:
                    ``(B) Qualified nonmetropolitan county.--
                The term `qualified nonmetropolitan county' 
                means any county--
                            ``(i) that was not located in a 
                        metropolitan statistical area (as 
                        defined in section 143(k)(2)(B) of the 
                        Internal Revenue Code of 1986) at the 
                        time of the most recent census taken 
                        for purposes of selecting qualified 
                        census tracts under section 
                        42(d)(5)(C)(ii) of the Internal Revenue 
                        Code of 1986; and
                            ``(ii) in which--
                                    ``(I) the median household 
                                income is less than 80 percent 
                                of the nonmetropolitan State 
                                median household income, based 
                                on the most recent data 
                                available from the Bureau of 
                                the Census of the Department of 
                                Commerce; or
                                    ``(II) the unemployment 
                                rate is not less than 140 
                                percent of the Statewide 
                                average unemployment rate for 
                                the State in which the county 
                                is located, based on the most 
                                recent data available from the 
                                Secretary of Labor.''.

SEC. 612. ELIGIBLE CONTRACTS.

    (a) Commodities Contracts.--Section 31(b)(3) of the Small 
Business Act (15 U.S.C. 657a(b)(3)) is amended--
            (1) by striking ``In any'' and inserting the 
        following:
                    ``(A) In general.--Subject to subparagraph 
                (B), in any''; and
            (2) by adding at the end the following:
                    ``(B) Procurement of commodities.--For 
                purchases by the Secretary of Agriculture of 
                agricultural commodities, the price evaluation 
                preference shall be--
                            ``(i) 10 percent, for the portion 
                        of a contract to be awarded that is not 
                        greater than 25 percent of the total 
                        volume being procured for each 
                        commodity in a single invitation;
                            ``(ii) 5 percent, for the portion 
                        of a contract to be awarded that is 
                        greater than 25 percent, but not 
                        greater than 40 percent, of the total 
                        volume being procured for each 
                        commodity in a single invitation; and
                            ``(iii) zero, for the portion of a 
                        contract to be awarded that is greater 
                        than 40 percent of the total volume 
                        being procured for each commodity in a 
                        single invitation.
                    ``(C) Treatment of preference.--A contract 
                awarded to a HUBZone small business concern 
                under a preference described in subparagraph 
                (B) shall not be counted toward the fulfillment 
                of any requirement partially set aside for 
                competition restricted to small business 
                concerns.''.
    (b) Definitions.--Section 3(p) of the Small Business Act 
(15 U.S.C. 632(p)), as amended by this Act, is amended--
            (1) in paragraph (5)(A)(i)(III)--
                    (A) in item (aa), by striking ``and'' at 
                the end; and
                    (B) by adding at the end the following:
                                            ``(cc) in the case 
                                        of a contract for the 
                                        procurement by the 
                                        Secretary of 
                                        Agriculture of 
                                        agricultural 
                                        commodities, none of 
                                        the commodity being 
                                        procured will be 
                                        obtained by the prime 
                                        contractor through a 
                                        subcontract for the 
                                        purchase of the 
                                        commodity in 
                                        substantially the final 
                                        form in which it is to 
                                        be supplied to the 
                                        Government; and''; and
            (2) by adding at the end the following:
            ``(7) Agricultural commodity.--The term 
        `agricultural commodity' has the same meaning as in 
        section 102 of the Agricultural Trade Act of 1978 (7 
        U.S.C. 5602).''.

SEC. 613. HUBZONE REDESIGNATED AREAS.

    Section 3(p) of the Small Business Act (15 U.S.C. 632(p)) 
is amended--
            (1) in paragraph (1)--
                    (A) in subparagraph (B), by striking ``or'' 
                at the end;
                    (B) in subparagraph (C), by striking the 
                period at the end and inserting ``; or''; and
                    (C) by adding at the end the following:
                    ``(D) redesignated areas.''; and
            (2) in paragraph (4), by adding at the end the 
        following:
                    ``(C) Redesignated area.--The term 
                `redesignated area' means any census tract that 
                ceases to be qualified under subparagraph (A) 
                and any nonmetropolitan county that ceases to 
                be qualified under subparagraph (B), except 
                that a census tract or a nonmetropolitan county 
                may be a `redesignated area' only for the 3-
                year period following the date on which the 
                census tract or nonmetropolitan county ceased 
                to be so qualified.''.

SEC. 614. COMMUNITY DEVELOPMENT.

    Section 3(p) of the Small Business Act (15 U.S.C. 632(p)), 
as amended by this Act, is amended--
            (1) in paragraph (3)--
                    (A) in subparagraph (B), by striking ``or'' 
                at the end;
                    (B) in subparagraph (C), by striking the 
                period at the end and inserting ``; or''; and
                    (C) by adding at the end the following:
                    ``(D) a small business concern that is--
                            ``(i) wholly owned by a community 
                        development corporation that has 
                        received financial assistance under 
                        Part 1 of Subchapter A of the Community 
                        Economic Development Act of 1981 (42 
                        U.S.C. 9805 et seq.); or
                            ``(ii) owned in part by 1 or more 
                        community development corporations, if 
                        all other owners are either United 
                        States citizens or small business 
                        concerns.''; and
            (2) in paragraph (5)(A)(i)(I)(aa), by striking 
        ``subparagraph (A) or (B)'' and inserting 
        ``subparagraph (A), (B), or (D)''.

SEC. 615. REFERENCE CORRECTIONS.

    (a) Section 3.--Section 3(p)(5)(C) of the Small Business 
Act (15 U.S.C. 632(p)(5)(C)) is amended by striking ``subclause 
(IV) and (V) of subparagraph (A)(i)'' and inserting ``items 
(aa) and (bb) of subparagraph (A)(i)(III)''.
    (b) Section 8.--Section 8(d)(4)(D) of the Small Business 
Act (15 U.S.C. 637(d)(4)(D)) is amended by inserting 
``qualified HUBZone small business concerns,'' after ``small 
business concerns,''.

      TITLE VII--NATIONAL WOMEN'S BUSINESS COUNCIL REAUTHORIZATION

SEC. 701. SHORT TITLE.

    This title may be cited as the ``National Women's Business 
Council Reauthorization Act of 2000''.

SEC. 702. MEMBERSHIP OF THE COUNCIL.

    Section 407 of the Women's Business Ownership Act of 1988 
(15 U.S.C. 631 note) is amended--
            (1) in subsection (a), by striking ``Not later'' 
        and all that follows through ``the President'' and 
        inserting ``The President'';
            (2) in subsection (b)--
                    (A) by striking ``Not later'' and all that 
                follows through ``the Administrator'' and 
                inserting ``The Administrator''; and
                    (B) by striking ``the Assistant 
                Administrator of the Office of Women's Business 
                Ownership and'';
            (3) in subsection (d), by striking ``, except 
        that'' and all that follows through the end of the 
        subsection and inserting a period; and
            (4) in subsection (h), by striking ``Not later'' 
        and all that follows through ``the Administrator'' and 
        inserting ``The Administrator''.

SEC. 703. REPEAL OF PROCUREMENT PROJECT.

    Section 409 of the Women's Business Ownership Act of 1988 
(15 U.S.C. 631 note) is repealed.

SEC. 704. STUDIES AND OTHER RESEARCH.

    Section 410 of the Women's Business Ownership Act of 1988 
(15 U.S.C. 631 note) is amended to read as follows:

``SEC. 409. STUDIES AND OTHER RESEARCH.

    ``(a) In General.--The Council may conduct such studies and 
other research relating to the award of Federal prime contracts 
and subcontracts to women-owned businesses, to access to credit 
and investment capital by women entrepreneurs, or to other 
issues relating to women-owned businesses, as the Council 
determines to be appropriate.
    ``(b) Contract Authority.--In conducting any study or other 
research under this section, the Council may contract with 1 or 
more public or private entities.''.

SEC. 705. AUTHORIZATION OF APPROPRIATIONS.

    Section 411 of the Women's Business Ownership Act of 1988 
(15 U.S.C. 631 note) is amended to read as follows:

``SEC. 410. AUTHORIZATION OF APPROPRIATIONS.

    ``(a) In General.--There is authorized to be appropriated 
to carry out this title $1,000,000, for each of fiscal years 
2001 through 2003, of which $550,000 shall be available in each 
such fiscal year to carry out section 409.
    ``(b) Budget Review.--No amount made available under this 
section for any fiscal year may be obligated or expended by the 
Council before the date on which the Council reviews and 
approves the operating budget of the Council to carry out the 
responsibilities of the Council for that fiscal year.''.

                  TITLE VIII--MISCELLANEOUS PROVISIONS

SEC. 801. LOAN APPLICATION PROCESSING.

    (a) Study.--The Administrator of the Small Business 
Administration shall conduct a study to determine the average 
time that the Administration requires to process an application 
for each type of loan or loan guarantee made under the Small 
Business Act (15 U.S.C. 631 et seq.).
    (b) Transmittal.--Not later than 1 year after the date of 
enactment of this Act, the Administrator shall transmit to 
Congress the results of the study conducted under subsection 
(a).

SEC. 802. APPLICATION OF OWNERSHIP REQUIREMENTS.

    (a) Small Business Act.--Section 7(a) of the Small Business 
Act (15 U.S.C. 636(a)) is amended by adding at the end the 
following:
            ``(30) Ownership requirements.--Ownership 
        requirements to determine the eligibility of a small 
        business concern that applies for assistance under any 
        credit program under this Act shall be determined 
        without regard to any ownership interest of a spouse 
        arising solely from the application of the community 
        property laws of a State for purposes of determining 
        marital interests.''.
    (b) Small Business Investment Act of 1958.--Section 502 of 
the Small Business Investment Act of 1958 (15 U.S.C. 696) is 
amended by adding at the end the following:
            ``(6) Ownership requirements.--Ownership 
        requirements to determine the eligibility of a small 
        business concern that applies for assistance under any 
        credit program under this title shall be determined 
        without regard to any ownership interest of a spouse 
        arising solely from the application of the community 
        property laws of a State for purposes of determining 
        marital interests.''.

SEC. 803. SUBCONTRACTING PREFERENCE FOR VETERANS.

    Section 8(d) of the Small Business Act (15 U.S.C. 637(d)) 
is amended--
            (1) in paragraph (1), by inserting ``small business 
        concerns owned and controlled by veterans,'' after 
        ``small business concerns,'' the first place that term 
        appears in each of the first and second sentences;
            (2) in paragraph (3)--
                    (A) in subparagraph (A), by inserting 
                ``small business concerns owned and controlled 
                by service-disabled veterans,'' after ``small 
                business concerns owned and controlled by 
                veterans,'' in each of the first and second 
                sentences; and
                    (B) in subparagraph (F), by inserting 
                ``small business concern owned and controlled 
                by service-disabled veterans,'' after ``small 
                business concern owned and controlled by 
                veterans,''; and
            (3) in each of paragraphs (4)(D), (4)(E), (6)(A), 
        (6)(C), (6)(F), and (10)(B), by inserting ``small 
        business concerns owned and controlled by service-
        disabled veterans,'' after ``small business concerns 
        owned and controlled by veterans,''.

SEC. 804. SMALL BUSINESS DEVELOPMENT CENTER PROGRAM FUNDING.

    (a) Authorization.--
            (1) In general.--Section 20(a)(1) of the Small 
        Business Act (15 U.S.C. 631 note) is amended by 
        striking ``For fiscal year 1985'' and all that follows 
        through ``expended.'' and inserting the following: 
        ``For fiscal year 2000 and each fiscal year thereafter, 
        there are authorized to be appropriated such sums as 
        may be necessary and appropriate, to remain available 
        until expended, and to be available solely--
            ``(A) to carry out the Small Business Development 
        Center Program under section 21, but not to exceed the 
        annual funding level, as specified in section 21(a);
            ``(B) to pay the expenses of the National Small 
        Business Development Center Advisory Board, as provided 
        in section 21(i);
            ``(C) to pay the expenses of the information 
        sharing system, as provided in section 21(c)(8);
            ``(D) to pay the expenses of the association 
        referred to in section 21(a)(3)(A) for conducting the 
        certification program, as provided in section 21(k)(2); 
        and
            ``(E) to pay the expenses of the Administration, 
        including salaries of examiners, for conducting 
        examinations as part of the certification program 
        conducted by the association referred to in section 
        21(a)(3)(A).''.
            (2) Technical amendment.--Section 20(a) of the 
        Small Business Act (15 U.S.C. 631 note) is amended by 
        moving the margins of paragraphs (3) and (4), including 
        subparagraphs (A) and (B) of paragraph (4), 2 ems to 
        the left.
    (b) Funding Formula.--Section 21(a)(4)(C) of the Small 
Business Act (15 U.S.C. 648(a)(4)(C)) is amended to read as 
follows:
            ``(C) Funding formula.--
                    ``(i) In general.--Subject to clause (iii), 
                the amount of a formula grant received by a 
                State under this subparagraph shall be equal to 
                an amount determined in accordance with the 
                following formula:
                            ``(I) The annual amount made 
                        available under section 20(a) for the 
                        Small Business Development Center 
                        Program, less any reductions made for 
                        expenses authorized by clause (v) of 
                        this subparagraph, shall be divided on 
                        a pro rata basis, based on the 
                        percentage of the population of each 
                        State, as compared to the population of 
                        the United States.
                            ``(II) If the pro rata amount 
                        calculated under subclause (I) for any 
                        State is less than the minimum funding 
                        level under clause (iii), the 
                        Administration shall determine the 
                        aggregate amount necessary to achieve 
                        that minimum funding level for each 
                        such State.
                            ``(III) The aggregate amount 
                        calculated under subclause (II) shall 
                        be deducted from the amount calculated 
                        under subclause (I) for States eligible 
                        to receive more than the minimum 
                        funding level. The deductions shall be 
                        made on a pro rata basis, based on the 
                        population of each such State, as 
                        compared to the total population of all 
                        such States.
                            ``(IV) The aggregate amount 
                        deducted under subclause (III) shall be 
                        added to the grants of those States 
                        that are not eligible to receive more 
                        than the minimum funding level in order 
                        to achieve the minimum funding level 
                        for each such State, except that the 
                        eligible amount of a grant to any State 
                        shall not be reduced to an amount below 
                        the minimum funding level.
                    ``(ii) Grant determination.--The amount of 
                a grant that a State is eligible to apply for 
                under this subparagraph shall be the amount 
                determined under clause (i), subject to any 
                modifications required under clause (iii), and 
                shall be based on the amount available for the 
                fiscal year in which performance of the grant 
                commences, but not including amounts 
                distributed in accordance with clause (iv). The 
                amount of a grant received by a State under any 
                provision of this subparagraph shall not exceed 
                the amount of matching funds from sources other 
                than the Federal Government, as required under 
                subparagraph (A).
                    ``(iii) Minimum funding level.--The amount 
                of the minimum funding level for each State 
                shall be determined for each fiscal year based 
                on the amount made available for that fiscal 
                year to carry out this section, as follows:
                            ``(I) If the amount made available 
                        is not less than $81,500,000 and not 
                        more than $90,000,000, the minimum 
                        funding level shall be $500,000.
                            ``(II) If the amount made available 
                        is less than $81,500,000, the minimum 
                        funding level shall be the remainder of 
                        $500,000 minus a percentage of $500,000 
                        equal to the percentage amount by which 
                        the amount made available is less than 
                        $81,500,000.
                            ``(III) If the amount made 
                        available is more than $90,000,000, the 
                        minimum funding level shall be the sum 
                        of $500,000 plus a percentage of 
                        $500,000 equal to the percentage amount 
                        by which the amount made available 
                        exceeds $90,000,000.
                    ``(iv) Distributions.--Subject to clause 
                (iii), if any State does not apply for, or use, 
                its full funding eligibility for a fiscal year, 
                the Administration shall distribute the 
                remaining funds as follows:
                            ``(I) If the grant to any State is 
                        less than the amount received by that 
                        State in fiscal year 2000, the 
                        Administration shall distribute such 
                        remaining funds, on a pro rata basis, 
                        based on the percentage of shortage of 
                        each such State, as compared to the 
                        total amount of such remaining funds 
                        available, to the extent necessary in 
                        order to increase the amount of the 
                        grant to the amount received by that 
                        State in fiscal year 2000, or until 
                        such funds are exhausted, whichever 
                        first occurs.
                            ``(II) If any funds remain after 
                        the application of subclause (I), the 
                        remaining amount may be distributed as 
                        supplemental grants to any State, as 
                        the Administration determines, in its 
                        discretion, to be appropriate, after 
                        consultation with the association 
                        referred to in subsection (a)(3)(A).
                    ``(v) Use of amounts.--
                            ``(I) In general.--Of the amounts 
                        made available in any fiscal year to 
                        carry out this section--
                                    ``(aa) not more than 
                                $500,000 may be used by the 
                                Administration to pay expenses 
                                enumerated in subparagraphs (B) 
                                through (D) of section 
                                20(a)(1); and
                                    ``(bb) not more than 
                                $500,000 may be used by the 
                                Administration to pay the 
                                examination expenses enumerated 
                                in section 20(a)(1)(E).
                            ``(II) Limitation.--No funds 
                        described in subclause (I) may be used 
                        for examination expenses under section 
                        20(a)(1)(E) if the usage would reduce 
                        the amount of grants made available 
                        under clause (i)(I) of this 
                        subparagraph to less than $85,000,000 
                        (after excluding any amounts provided 
                        in appropriations Acts for specific 
                        institutions or for purposes other than 
                        the general small business development 
                        center program) or would further reduce 
                        the amount of such grants below such 
                        amount.
                    ``(vi) Exclusions.--Grants provided to a 
                State by the Administration or another Federal 
                agency to carry out subsection (a)(6) or 
                (c)(3)(G), or for supplemental grants set forth 
                in clause (iv)(II) of this subparagraph, shall 
                not be included in the calculation of maximum 
                funding for a State under clause (ii) of this 
                subparagraph.
                    ``(vii) Authorization of appropriations.--
                There is authorized to be appropriated to carry 
                out this subparagraph $125,000,000 for each of 
                fiscal years 2001, 2002, and 2003.
                    ``(viii) State defined.--In this 
                subparagraph, the term `State' means each of 
                the several States, the District of Columbia, 
                the Commonwealth of Puerto Rico, the Virgin 
                Islands, Guam, and American Samoa.''.

SEC. 805. SURETY BONDS.

    (a) Contract Amounts.--Section 411 of the Small Business 
Investment Act of 1958 (15 U.S.C. 694b) is amended--
            (1) in subsection (a)(1), by striking 
        ``$1,250,000'' and inserting ``$2,000,000''; and
            (2) in subsection (e)(2), by striking 
        ``$1,250,000'' and inserting ``$2,000,000''.
    (b) Extension of Certain Authority.--Section 207 of the 
Small Business Administration Reauthorization and Amendment Act 
of 1988 (15 U.S.C. 694b note) is amended by striking ``2000'' 
and inserting ``2003''.

SEC. 806. SIZE STANDARDS.

    (a) Industry Classifications.--Section 15(a) of the Small 
Business Act (15 U.S.C. 644(a)) is amended in the eighth 
sentence, by striking ``four-digit standard'' and all that 
follows through ``published'' and inserting ``definition of a 
`United States industry' under the North American Industry 
Classification System, as established''.
    (b) Annual Receipts.--Section 3(a)(1) of the Small Business 
Act (15 U.S.C. 632(a)(1)) is amended by striking ``$500,000'' 
and inserting ``$750,000''.

SEC. 807. NATIVE HAWAIIAN ORGANIZATIONS UNDER SECTION 8(A).

    Section 8(a)(15)(A) of the Small Business Act (15 U.S.C. 
637(a)(15)(A)) is amended to read as follows:
            ``(A) is a nonprofit corporation that has filed 
        articles of incorporation with the director (or the 
        designee thereof) of the Hawaii Department of Commerce 
        and Consumer Affairs, or any successor agency,''.

SEC. 808. NATIONAL VETERANS BUSINESS DEVELOPMENT CORPORATION 
                    CORRECTION.

    Section 33(k) of the Small Business Act (15 U.S.C. 657c(k)) 
is amended--
            (1) by striking paragraph (1) and inserting the 
        following:
            ``(1) In general.--Subject to paragraph (2), there 
        are authorized to be appropriated to the Corporation to 
        carry out this section--
                    ``(A) $4,000,000 for fiscal year 2001;
                    ``(B) $4,000,000 for fiscal year 2002;
                    ``(C) $2,000,000 for fiscal year 2003; and
                    ``(D) $2,000,000 for fiscal year 2004.'';
            (2) in paragraph (2)(A), by striking ``2001'' each 
        place it appears and inserting ``2002''; and
            (3) in paragraph (2)(B), by striking ``2002 or 
        2003'' and inserting ``2003 or 2004''.

SEC. 809. PRIVATE SECTOR RESOURCES FOR SCORE.

    Section 8(b)(1)(B) of the Small Business Act (15 U.S.C. 
637(b)(1)(B)) is amended by adding at the end the following: 
``Notwithstanding any other provision of law, SCORE may solicit 
cash and in-kind contributions from the private sector to be 
used to carry out its functions under this Act, and may use 
payments made by the Administration pursuant to this 
subparagraph for such solicitation.''.

SEC. 810. CONTRACT DATA COLLECTION.

    (a) Definition of Bundled Contract.--Section 3(o)(1) of the 
Small Business Act (15 U.S.C. 632(o)(1)) is amended to read as 
follows:
            ``(1) Bundled contract.--The term `bundled 
        contract' means a contract, or a modification of an 
        existing contract, that is entered into to meet--
                    ``(A) requirements that are consolidated in 
                a bundling of contract requirements regardless 
                of whether the contracting agency has conducted 
                a study of the effects of the solicitation for 
                the contract on civilian or military personnel 
                of the United States; or
                    ``(B) any procurement requirement that 
                permits the consolidation of 2 or more 
                procurement requirements.''.
    (b) Analysis Required With Respect to Bundled Contracts.--
Section 15(e)(2)(A) of the Small Business Act (15 U.S.C. 
644(e)(2)(A)) is amended--
            (1) by striking ``(A) In general.--'' and inserting 
        the following:
                    ``(A) Determination of necessity.--
                            ``(i) In general.--''; and
            (2) by adding at the end the following:
                            ``(ii) Identification of displaced 
                        prime contractors.--The market research 
                        required by clause (i) shall identify 
                        each small business concern that will 
                        be displaced as a prime contractor as a 
                        result of the award of a contract 
                        described in such clause, and the 
                        Administrator shall maintain such data 
                        for a period of not less than 10 years.
                            ``(iii) Bundled contracts subject 
                        to recompetition.--
                                    ``(I) In general.--Not less 
                                than 30 days before issuing a 
                                solicitation to recompete a 
                                previously bundled contract as 
                                a contract that continues to 
                                contain the bundling of 
                                contract requirements of the 
                                original bundled contract, the 
                                head of the agency shall notify 
                                the Administrator and transmit 
                                a report to the Administrator 
                                containing the results of the 
                                market research required under 
                                clause (i).
                                    ``(II) Review and 
                                determination.--The 
                                Administrator shall, not later 
                                than 30 days after notification 
                                under subclause (I), review and 
                                determine--
                                            ``(aa) the amount 
                                        of savings and benefits 
                                        (in accordance with 
                                        this subsection) 
                                        achieved under the 
                                        bundling of contract 
                                        requirements; and
                                            ``(bb) whether such 
                                        savings and benefits 
                                        will continue to be 
                                        realized if the 
                                        contract remains 
                                        bundled and whether 
                                        such benefits would be 
                                        greater if the 
                                        procurement 
                                        requirements were 
                                        divided into separate 
                                        solicitations suitable 
                                        for award to small 
                                        business concerns.
                                    ``(II) Appeal.--
                                            ``(aa) In 
                                        general.--If, after 
                                        conducting a review 
                                        under subclause (II), 
                                        the Administrator 
                                        reaches a conclusion 
                                        with respect to the 
                                        savings and benefits of 
                                        the recompeted bundle 
                                        different than that 
                                        reached by the head of 
                                        the contracting agency 
                                        as part of the market 
                                        analysis required under 
                                        clause (i) and such 
                                        head proceeds with a 
                                        solicitation for the 
                                        contract, the 
                                        Administrator shall 
                                        file an appeal with the 
                                        Administrator of the 
                                        Office of Federal 
                                        Procurement Policy.
                                            ``(bb) Notice.--If 
                                        the Administrator files 
                                        an appeal under item 
                                        (aa), the Administrator 
                                        shall notify the head 
                                        of the contracting 
                                        agency.
                                            ``(cc) Filing of 
                                        reports.--Not less than 
                                        5 calendar days after 
                                        notice is given under 
                                        item (bb), the 
                                        Administrator shall 
                                        submit a report 
                                        containing information 
                                        on the Administrator's 
                                        conclusions and 
                                        determinations under 
                                        subclause (II), and the 
                                        head of the contracting 
                                        agency shall submit the 
                                        report described in 
                                        subclause (I), to the 
                                        Administrator of the 
                                        Office of Federal 
                                        Procurement Policy.
                                            ``(dd) Decision.--
                                        Not later than 7 
                                        calendar days after the 
                                        submission of reports 
                                        under item (cc), the 
                                        Administrator of the 
                                        Office of Federal 
                                        Procurement Policy 
                                        shall determine whether 
                                        the subject contract 
                                        shall be recompeted as 
                                        bundled contract.''.
    (c) Annual Report on Contract Bundling.--Section 15 of the 
Small Business Act (15 U.S.C. 644) is amended by adding at the 
end the following:
    ``(p) Annual Report on Contract Bundling.--
            ``(1) In general.--Not later than 1 year after the 
        date of enactment of this subsection, and annually in 
        March thereafter, the Administration shall transmit a 
        report on contract bundling to the Committees on Small 
        Business of the House of Representatives and the 
        Senate.
            ``(2) Contents.--Each report transmitted under 
        paragraph (1) shall include--
                    ``(A) data on the number, arranged by 
                industrial classification, of small business 
                concerns displaced as prime contractors as a 
                result of the award of bundled contracts by 
                Federal agencies; and
                    ``(B) a description of the activities with 
                respect to previously bundled contracts of each 
                Federal agency during the preceding year, 
                including--
                            ``(i) data on the number and total 
                        dollar amount of all contract 
                        requirements that were bundled; and
                            ``(ii) with respect to each bundled 
                        contract, data or information on--
                                    ``(I) the justification for 
                                the bundling of contract 
                                requirements;
                                    ``(II) the cost savings 
                                realized by bundling the 
                                contract requirements over the 
                                life of the contract;
                                    ``(III) the extent to which 
                                maintaining the bundled status 
                                of contract requirements is 
                                projected to result in 
                                continued cost savings;
                                    ``(IV) the extent to which 
                                the bundling of contract 
                                requirements complied with the 
                                contracting agency's small 
                                business subcontracting plan, 
                                including the total dollar 
                                value awarded to small business 
                                concerns as subcontractors and 
                                the total dollar value 
                                previously awarded to small 
                                business concerns as prime 
                                contractors; and
                                    ``(V) the impact of the 
                                bundling of contract 
                                requirements on small business 
                                concerns unable to compete as 
                                prime contractors for the 
                                consolidated requirements and 
                                on the industries of such small 
                                business concerns, including a 
                                description of any changes to 
                                the proportion of any such 
                                industry that is composed of 
                                small business concerns.''.
    (d) Reporting of Bundled Contract Opportunities.--Section 
414(a) of the Small Business Reauthorization Act of 1997 (4 
U.S.C. 405 note) is amended--
            (1) by striking ``$5,000,000'' and inserting 
        ``$25,000''; and
            (2) by striking ``bundling of contract 
        requirements'' and inserting ``bundled contract''.
    (e) Provision of Data.--Upon the request of the 
Administrator of the Small Business Administration, the head of 
any contracting agency shall promptly provide to the 
Administrator such information as the Administrator determines 
to be necessary to carry out this section or the amendments 
made by this section.

SEC. 811. PROCUREMENT PROGRAM FOR WOMEN-OWNED SMALL BUSINESS CONCERNS.

    Section 8 of the Small Business Act (15 U.S.C. 637) is 
amended by adding at the end the following:
    ``(m) Procurement Program for Women-owned Small Business 
Concerns.--
            ``(1) Definitions.--In this subsection, the 
        following definitions apply:
                    ``(A) Contracting officer.--The term 
                `contracting officer' has the meaning given 
                such term in section 27(f)(5) of the Office of 
                Federal Procurement Policy Act (41 U.S.C. 
                423(f)(5)).
                    ``(B) Small business concern owned and 
                controlled by women.--The term `small business 
                concern owned and controlled by women' has the 
                meaning given such term in section 3(n), except 
                that ownership shall be determined without 
                regard to any community property law.
            ``(2) Authority to restrict competition.--In 
        accordance with this subsection, a contracting officer 
        may restrict competition for any contract for the 
        procurement of goods or services by the Federal 
        Government to small business concerns owned and 
        controlled by women, if--
                    ``(A) each of the concerns is not less than 
                51 percent owned by 1 or more women who are 
                economically disadvantaged (and such ownership 
                is determined without regard to any community 
                property law);
                    ``(B) the contracting officer has a 
                reasonable expectation that 2 or more small 
                business concerns owned and controlled by women 
                will submit offers for the contract;
                    ``(C) the contract is for the procurement 
                of goods or services with respect to an 
                industry identified by the Administrator 
                pursuant to paragraph (3);
                    ``(D) the anticipated award price of the 
                contract (including options) does not exceed--
                            ``(i) $5,000,000, in the case of a 
                        contract assigned an industrial 
                        classification code for manufacturing; 
                        or
                            ``(ii) $3,000,000, in the case of 
                        all other contracts;
                    ``(E) in the estimation of the contracting 
                officer, the contract award can be made at a 
                fair and reasonable price; and
                    ``(F) each of the concerns--
                            ``(i) is certified by a Federal 
                        agency, a State government, or a 
                        national certifying entity approved by 
                        the Administrator, as a small business 
                        concern owned and controlled by women; 
                        or
                            ``(ii) certifies to the contracting 
                        officer that it is a small business 
                        concern owned and controlled by women 
                        and provides adequate documentation, in 
                        accordance with standards established 
                        by the Administration, to support such 
                        certification.
            ``(3) Waiver.--With respect to a small business 
        concern owned and controlled by women, the 
        Administrator may waive subparagraph (2)(A) if the 
        Administrator determines that the concern is in an 
        industry in which small business concerns owned and 
        controlled by women are substantially underrepresented.
            ``(4) Identification of industries.--The 
        Administrator shall conduct a study to identify 
        industries in which small business concerns owned and 
        controlled by women are underrepresented with respect 
        to Federal procurement contracting.
            ``(5) Enforcement; penalties.--
                    ``(A) Verification of eligibility.--In 
                carrying out this subsection, the Administrator 
                shall establish procedures relating to--
                            ``(i) the filing, investigation, 
                        and disposition by the Administration 
                        of any challenge to the eligibility of 
                        a small business concern to receive 
                        assistance under this subsection 
                        (including a challenge, filed by an 
                        interested party, relating to the 
                        veracity of a certification made or 
                        information provided to the 
                        Administration by a small business 
                        concern under paragraph (2)(F)); and
                            ``(ii) verification by the 
                        Administrator of the accuracy of any 
                        certification made or information 
                        provided to the Administration by a 
                        small business concern under paragraph 
                        (2)(F).
                    ``(B) Examinations.--The procedures 
                established under subparagraph (A) may provide 
                for program examinations (including random 
                program examinations) by the Administrator of 
                any small business concern making a 
                certification or providing information to the 
                Administrator under paragraph (2)(F).
                    ``(C) Penalties.--In addition to the 
                penalties described in section 16(d), any small 
                business concern that is determined by the 
                Administrator to have misrepresented the status 
                of that concern as a small business concern 
                owned and controlled by women for purposes of 
                this subsection, shall be subject to--
                            ``(i) section 1001 of title 18, 
                        United States Code; and
                            ``(ii) sections 3729 through 3733 
                        of title 31, United States Code.
            ``(6) Provision of data.--Upon the request of the 
        Administrator, the head of any Federal department or 
        agency shall promptly provide to the Administrator such 
        information as the Administrator determines to be 
        necessary to carry out this subsection.''.

        TITLE IX--COMMUNITY RENEWAL AND NEW MARKETS INITIATIVES

SEC. 901. NEW MARKETS VENTURE CAPITAL PROGRAM.

    (a) Short Title.--This section may be cited as the ``New 
Markets Venture Capital Program Act of 2000''.
    (b) New Markets Venture Capital Program.--Title III of the 
Small Business Investment Act of 1958 (15 U.S.C. 681 et seq.) 
is amended--
            (1) in the heading for the title, by striking 
        ``SMALL BUSINESS INVESTMENT COMPANIES'' and inserting 
        ``INVESTMENT DIVISION PROGRAMS'';
            (2) by inserting before the heading for section 301 
        the following:

            ``Part A--Small Business Investment Companies'';

        and
            (3) by adding at the end the following:

             ``Part B--New Markets Venture Capital Program

``SEC. 351. DEFINITIONS.

    ``In this part, the following definitions apply:
            ``(1) Developmental venture capital.--The term 
        `developmental venture capital' means capital in the 
        form of equity capital investments in businesses made 
        with a primary objective of fostering economic 
        development in low-income geographic areas. For the 
        purposes of this paragraph, the term `equity capital' 
        has the same meaning given such term in section 
        303(g)(4).
            ``(2) Low-income individual.--The term `low-income 
        individual' means an individual whose income (adjusted 
        for family size) does not exceed--
                    ``(A) for metropolitan areas, 80 percent of 
                the area median income; and
                    ``(B) for nonmetropolitan areas, the 
                greater of--
                            ``(i) 80 percent of the area median 
                        income; or
                            ``(ii) 80 percent of the statewide 
                        nonmetropolitan area median income.
            ``(3) Low-income geographic area.--The term `low-
        income geographic area' means--
                    ``(A) any population census tract (or in 
                the case of an area that is not tracted for 
                population census tracts, the equivalent county 
                division, as defined by the Bureau of the 
                Census of the Department of Commerce for 
                purposes of defining poverty areas), if--
                            ``(i) the poverty rate for that 
                        census tract is not less than 20 
                        percent;
                            ``(ii) in the case of a tract--
                                    ``(I) that is located 
                                within a metropolitan area, 50 
                                percent or more of the 
                                households in that census tract 
                                have an income equal to less 
                                than 60 percent of the area 
                                median gross income; or
                                    ``(II) that is not located 
                                within a metropolitan area, the 
                                median household income for 
                                such tract does not exceed 80 
                                percent of the statewide median 
                                household income; or
                            ``(iii) as determined by the 
                        Administrator based on objective 
                        criteria, a substantial population of 
                        low-income individuals reside, an 
                        inadequate access to investment capital 
                        exists, or other indications of 
                        economic distress exist in that census 
                        tract; or
                    ``(B) any area located within--
                            ``(i) a HUBZone (as defined in 
                        section 3(p) of the Small Business Act 
                        and the implementing regulations issued 
                        under that section);
                            ``(ii) an urban empowerment zone or 
                        urban enterprise community (as 
                        designated by the Secretary of Housing 
                        and Urban Development); or
                            ``(iii) a rural empowerment zone or 
                        rural enterprise community (as 
                        designated by the Secretary of 
                        Agriculture).
            ``(4) New markets venture capital company.--The 
        term `New Markets Venture Capital company' means a 
        company that--
                    ``(A) has been granted final approval by 
                the Administrator under section 354(e); and
                    ``(B) has entered into a participation 
                agreement with the Administrator.
            ``(5) Operational assistance.--The term 
        `operational assistance' means management, marketing, 
        and other technical assistance that assists a small 
        business concern with business development.
            ``(6) Participation agreement.--The term 
        `participation agreement' means an agreement, between 
        the Administrator and a company granted final approval 
        under section 354(e), that--
                    ``(A) details the company's operating plan 
                and investment criteria; and
                    ``(B) requires the company to make 
                investments in smaller enterprises at least 80 
                percent of which are located in low-income 
                geographic areas.
            ``(7) Specialized small business investment 
        company.--The term `specialized small business 
        investment company' means any small business investment 
        company that--
                    ``(A) invests solely in small business 
                concerns that contribute to a well-balanced 
                national economy by facilitating ownership in 
                such concerns by persons whose participation in 
                the free enterprise system is hampered because 
                of social or economic disadvantages;
                    ``(B) is organized or chartered under State 
                business or nonprofit corporations statutes, or 
                formed as a limited partnership; and
                    ``(C) was licensed under section 301(d), as 
                in effect before September 30, 1996.
            ``(8) State.--The term ``State'' means each of the 
        several States, the District of Columbia, the 
        Commonwealth of Puerto Rico, the Virgin Islands, Guam, 
        American Samoa, the Commonwealth of the Northern 
        Mariana Islands, and any other commonwealth, territory, 
        or possession of the United States;

``SEC. 352. PURPOSES.

    ``The purposes of the New Markets Venture Capital Program 
established under this part are--
            ``(1) to promote economic development and the 
        creation of wealth and job opportunities in low-income 
        geographic areas and among individuals living in such 
        areas by encouraging developmental venture capital 
        investments in smaller enterprises primarily located in 
        such areas; and
            ``(2) to establish a developmental venture capital 
        program, with the mission of addressing the unmet 
        equity investment needs of small enterprises located in 
        low-income geographic areas, to be administered by the 
        Administrator--
                    ``(A) to enter into participation 
                agreements with New Markets Venture Capital 
                companies;
                    ``(B) to guarantee debentures of New 
                Markets Venture Capital companies to enable 
                each such company to make developmental venture 
                capital investments in smaller enterprises in 
                low-income geographic areas; and
                    ``(C) to make grants to New Markets Venture 
                Capital companies, and to other entities, for 
                the purpose of providing operational assistance 
                to smaller enterprises financed, or expected to 
                be financed, by such companies.

``SEC. 353. ESTABLISHMENT.

    ``In accordance with this part, the Administrator shall 
establish a New Markets Venture Capital Program, under which 
the Administrator may--
            ``(1) enter into participation agreements with 
        companies granted final approval under section 354(e) 
        for the purposes set forth in section 352;
            ``(2) guarantee the debentures issued by New 
        Markets Venture Capital companies as provided in 
        section 355; and
            ``(3) make grants to New Markets Venture Capital 
        companies, and to other entities, under section 358.

``SEC. 354. SELECTION OF NEW MARKETS VENTURE CAPITAL COMPANIES.

    ``(a) Eligibility.--A company shall be eligible to apply to 
participate, as a New Markets Venture Capital company, in the 
program established under this part if--
            ``(1) the company is a newly formed for-profit 
        entity or a newly formed for-profit subsidiary of an 
        existing entity;
            ``(2) the company has a management team with 
        experience in community development financing or 
        relevant venture capital financing; and
            ``(3) the company has a primary objective of 
        economic development of low-income geographic areas.
    ``(b) Application.--To participate, as a New Markets 
Venture Capital company, in the program established under this 
part a company meeting the eligibility requirements set forth 
in subsection (a) shall submit an application to the 
Administrator that includes--
            ``(1) a business plan describing how the company 
        intends to make successful developmental venture 
        capital investments in identified low-income geographic 
        areas;
            ``(2) information regarding the community 
        development finance or relevant venture capital 
        qualifications and general reputation of the company's 
        management;
            ``(3) a description of how the company intends to 
        work with community organizations and to seek to 
        address the unmet capital needs of the communities 
        served;
            ``(4) a proposal describing how the company intends 
        to use the grant funds provided under this part to 
        provide operational assistance to smaller enterprises 
        financed by the company, including information 
        regarding whether the company intends to use licensed 
        professionals, when necessary, on the company's staff 
        or from an outside entity;
            ``(5) with respect to binding commitments to be 
        made to the company under this part, an estimate of the 
        ratio of cash to in-kind contributions;
            ``(6) a description of the criteria to be used to 
        evaluate whether and to what extent the company meets 
        the objectives of the program established under this 
        part;
            ``(7) information regarding the management and 
        financial strength of any parent firm, affiliated firm, 
        or any other firm essential to the success of the 
        company's business plan; and
            ``(8) such other information as the Administrator 
        may require.
    ``(c) Conditional Approval.--
            ``(1) In general.--From among companies submitting 
        applications under subsection (b), the Administrator 
        shall, in accordance with this subsection, 
        conditionally approve companies to participate in the 
        New Markets Venture Capital Program.
            ``(2) Selection criteria.--In selecting companies 
        under paragraph (1), the Administrator shall consider 
        the following:
                    ``(A) The likelihood that the company will 
                meet the goals of its business plan.
                    ``(B) The experience and background of the 
                company's management team.
                    ``(C) The need for developmental venture 
                capital investments in the geographic areas in 
                which the company intends to invest.
                    ``(D) The extent to which the company will 
                concentrate its activities on serving the 
                geographic areas in which it intends to invest.
                    ``(E) The likelihood that the company will 
                be able to satisfy the conditions under 
                subsection (d).
                    ``(F) The extent to which the activities 
                proposed by the company will expand economic 
                opportunities in the geographic areas in which 
                the company intends to invest.
                    ``(G) The strength of the company's 
                proposal to provide operational assistance 
                under this part as the proposal relates to the 
                ability of the applicant to meet applicable 
                cash requirements and properly utilize in-kind 
                contributions, including the use of resources 
                for the services of licensed professionals, 
                when necessary, whether provided by persons on 
                the company's staff or by persons outside of 
                the company.
                    ``(H) Any other factors deemed appropriate 
                by the Administrator.
            ``(3) Nationwide distribution.--The Administrator 
        shall select companies under paragraph (1) in such a 
        way that promotes investment nationwide.
    ``(d) Requirements To Be Met for Final Approval.--The 
Administrator shall grant each conditionally approved company a 
period of time, not to exceed 2 years, to satisfy the following 
requirements:
            ``(1) Capital requirement.--Each conditionally 
        approved company shall raise not less than $5,000,000 
        of private capital or binding capital commitments from 
        one or more investors (other than agencies or 
        departments of the Federal Government) who meet 
        criteria established by the Administrator.
            ``(2) Nonadministration resources for operational 
        assistance.--
                    ``(A) In general.--In order to provide 
                operational assistance to smaller enterprises 
                expected to be financed by the company, each 
                conditionally approved company--
                            ``(i) shall have binding 
                        commitments (for contribution in cash 
                        or in kind)--
                                    ``(I) from any sources 
                                other than the Small Business 
                                Administration that meet 
                                criteria established by the 
                                Administrator;
                                    ``(II) payable or available 
                                over a multiyear period 
                                acceptable to the Administrator 
                                (not to exceed 10 years); and
                                    ``(III) in an amount not 
                                less than 30 percent of the 
                                total amount of capital and 
                                commitments raised under 
                                paragraph (1);
                            ``(ii) shall have purchased an 
                        annuity--
                                    ``(I) from an insurance 
                                company acceptable to the 
                                Administrator;
                                    ``(II) using funds (other 
                                than the funds raised under 
                                paragraph (1)) from any source 
                                other than the Administrator; 
                                and
                                    ``(III) that yields cash 
                                payments over a multiyear 
                                period acceptable to the 
                                Administrator (not to exceed 10 
                                years) in an amount not less 
                                than 30 percent of the total 
                                amount of capital and 
                                commitments raised under 
                                paragraph (1); or
                            ``(iii) shall have binding 
                        commitments (for contributions in cash 
                        or in kind) of the type described in 
                        clause (i) and shall have purchased an 
                        annuity of the type described in clause 
                        (ii), which in the aggregate make 
                        available, over a multiyear period 
                        acceptable to the Administrator (not to 
                        exceed 10 years), an amount not less 
                        than 30 percent of the total amount of 
                        capital and commitments raised under 
                        paragraph (1).
                    ``(B) Exception.--The Administrator may, in 
                the discretion of the Administrator and based 
                upon a showing of special circumstances and 
                good cause, consider an applicant to have 
                satisfied the requirements of subparagraph (A) 
                if the applicant has--
                            ``(i) a viable plan that reasonably 
                        projects the capacity of the applicant 
                        to raise the amount (in cash or in-
                        kind) required under subparagraph (A); 
                        and
                            ``(ii) binding commitments in an 
                        amount equal to not less than 20 
                        percent of the total amount required 
                        under paragraph (A).
                    ``(C) Limitation.--In order to comply with 
                the requirements of subparagraphs (A) and (B), 
                the total amount of a company's in-kind 
                contributions may not exceed 50 percent of the 
                company's total contributions.
    ``(e) Final Approval; Designation.--The Administrator 
shall, with respect to each applicant conditionally approved to 
operate as a New Markets Venture Capital company under 
subsection (c), either--
            ``(1) grant final approval to the applicant to 
        operate as a New Markets Venture Capital company under 
        this part and designate the applicant as such a 
        company, if the applicant--
                    ``(A) satisfies the requirements of 
                subsection (d) on or before the expiration of 
                the time period described in that subsection; 
                and
                    ``(B) enters into a participation agreement 
                with the Administrator; or
            ``(2) if the applicant fails to satisfy the 
        requirements of subsection (d) on or before the 
        expiration of the time period described in that 
        subsection, revoke the conditional approval granted 
        under that subsection.

``SEC. 355. DEBENTURES.

    ``(a) In General.--The Administrator may guarantee the 
timely payment of principal and interest, as scheduled, on 
debentures issued by any New Markets Venture Capital company.
    ``(b) Terms and Conditions.--The Administrator may make 
guarantees under this section on such terms and conditions as 
it deems appropriate, except that the term of any debenture 
guaranteed under this section shall not exceed 15 years.
    ``(c) Full Faith and Credit of the United States.--The full 
faith and credit of the United States is pledged to pay all 
amounts that may be required to be paid under any guarantee 
under this part.
    ``(d) Maximum Guarantee.--
            ``(1) In general.--Under this section, the 
        Administrator may guarantee the debentures issued by a 
        New Markets Venture Capital company only to the extent 
        that the total face amount of outstanding guaranteed 
        debentures of such company does not exceed 150 percent 
        of the private capital of the company, as determined by 
        the Administrator.
            ``(2) Treatment of certain federal funds.--For the 
        purposes of paragraph (1), private capital shall 
        include capital that is considered to be Federal funds, 
        if such capital is contributed by an investor other 
        than an agency or department of the Federal Government.

``SEC. 356. ISSUANCE AND GUARANTEE OF TRUST CERTIFICATES.

    ``(a) Issuance.--The Administrator may issue trust 
certificates representing ownership of all or a fractional part 
of debentures issued by a New Markets Venture Capital company 
and guaranteed by the Administrator under this part, if such 
certificates are based on and backed by a trust or pool 
approved by the Administrator and composed solely of guaranteed 
debentures.
    ``(b) Guarantee.--
            ``(1) In general.--The Administrator may, under 
        such terms and conditions as it deems appropriate, 
        guarantee the timely payment of the principal of and 
        interest on trust certificates issued by the 
        Administrator or its agents for purposes of this 
        section.
            ``(2) Limitation.--Each guarantee under this 
        subsection shall be limited to the extent of principal 
        and interest on the guaranteed debentures that compose 
        the trust or pool.
            ``(3) Prepayment or default.--In the event that a 
        debenture in a trust or pool is prepaid, or in the 
        event of default of such a debenture, the guarantee of 
        timely payment of principal and interest on the trust 
        certificates shall be reduced in proportion to the 
        amount of principal and interest such prepaid debenture 
        represents in the trust or pool. Interest on prepaid or 
        defaulted debentures shall accrue and be guaranteed by 
        the Administrator only through the date of payment of 
        the guarantee. At any time during its term, a trust 
        certificate may be called for redemption due to 
        prepayment or default of all debentures.
    ``(c) Full Faith and Credit of the United States.--The full 
faith and credit of the United States is pledged to pay all 
amounts that may be required to be paid under any guarantee of 
a trust certificate issued by the Administrator or its agents 
under this section.
    ``(d) Fees.--The Administrator shall not collect a fee for 
any guarantee of a trust certificate under this section, but 
any agent of the Administrator may collect a fee approved by 
the Administrator for the functions described in subsection 
(f)(2).
    ``(e) Subrogation and Ownership Rights.--
            ``(1) Subrogation.--In the event the Administrator 
        pays a claim under a guarantee issued under this 
        section, it shall be subrogated fully to the rights 
        satisfied by such payment.
            ``(2) Ownership rights.--No Federal, State, or 
        local law shall preclude or limit the exercise by the 
        Administrator of its ownership rights in the debentures 
        residing in a trust or pool against which trust 
        certificates are issued under this section.
    ``(f) Management and Administration.--
            ``(1) Registration.--The Administrator may provide 
        for a central registration of all trust certificates 
        issued under this section.
            ``(2) Contracting of functions.--
                    ``(A) In general.--The Administrator may 
                contract with an agent or agents to carry out 
                on behalf of the Administrator the pooling and 
                the central registration functions provided for 
                in this section including, notwithstanding any 
                other provision of law--
                            ``(i) maintenance, on behalf of and 
                        under the direction of the 
                        Administrator, of such commercial bank 
                        accounts or investments in obligations 
                        of the United States as may be 
                        necessary to facilitate the creation of 
                        trusts or pools backed by debentures 
                        guaranteed under this part; and
                            ``(ii) the issuance of trust 
                        certificates to facilitate the creation 
                        of such trusts or pools.
                    ``(B) Fidelity bond or insurance 
                requirement.--Any agent performing functions on 
                behalf of the Administrator under this 
                paragraph shall provide a fidelity bond or 
                insurance in such amounts as the Administrator 
                determines to be necessary to fully protect the 
                interests of the United States.
            ``(3) Regulation of brokers and dealers.--The 
        Administrator may regulate brokers and dealers in trust 
        certificates issued under this section.
            ``(4) Electronic registration.--Nothing in this 
        subsection may be construed to prohibit the use of a 
        book-entry or other electronic form of registration for 
        trust certificates issued under this section.

``SEC. 357. FEES.

    ``Except as provided in section 356(d), the Administrator 
may charge such fees as it deems appropriate with respect to 
any guarantee or grant issued under this part.

``SEC. 358. OPERATIONAL ASSISTANCE GRANTS.

    ``(a) In General.--
            ``(1) Authority.--In accordance with this section, 
        the Administrator may make grants to New Markets 
        Venture Capital companies and to other entities, as 
        authorized by this part, to provide operational 
        assistance to smaller enterprises financed, or expected 
        to be financed, by such companies or other entities.
            ``(2) Terms.--Grants made under this subsection 
        shall be made over a multiyear period not to exceed 10 
        years, under such other terms as the Administrator may 
        require.
            ``(3) Grants to specialized small business 
        investment companies.--
                    ``(A) Authority.--In accordance with this 
                section, the Administrator may make grants to 
                specialized small business investment companies 
                to provide operational assistance to smaller 
                enterprises financed, or expected to be 
                financed, by such companies after the effective 
                date of the New Markets Venture Capital Program 
                Act of 2000.
                    ``(B) Use of funds.--The proceeds of a 
                grant made under this paragraph may be used by 
                the company receiving such grant only to 
                provide operational assistance in connection 
                with an equity investment (made with capital 
                raised after the effective date of the New 
                Markets Venture Capital Program Act of 2000) in 
                a business located in a low-income geographic 
                area.
                    ``(C) Submission of plans.--A specialized 
                small business investment company shall be 
                eligible for a grant under this section only if 
                the company submits to the Administrator, in 
                such form and manner as the Administrator may 
                require, a plan for use of the grant.
            ``(4) Grant amount.--
                    ``(A) New markets venture capital 
                companies.--The amount of a grant made under 
                this subsection to a New Markets Venture 
                Capital company shall be equal to the resources 
                (in cash or in kind) raised by the company 
                under with section 354(d)(2).
                    ``(B) Other entities.--The amount of a 
                grant made under this subsection to any entity 
                other than a New Markets Venture capital 
                company shall be equal to the resources (in 
                cash or in kind) raised by the entity in 
                accordance with the requirements applicable to 
                New Markets Venture Capital companies set forth 
                in section 354(d)(2).
            ``(5) Pro rata reductions.--If the amount made 
        available to carry out this section is insufficient for 
        the Administrator to provide grants in the amounts 
        provided for in paragraph (4), the Administrator shall 
        make pro rata reductions in the amounts otherwise 
        payable to each company and entity under such 
        paragraph.
    ``(b) Supplemental Grants.--
            ``(1) In general.--The Administrator may make 
        supplemental grants to New Markets Venture Capital 
        companies and to other entities, as authorized by this 
        part, under such terms as the Administrator may 
        require, to provide additional operational assistance 
        to smaller enterprises financed, or expected to be 
        financed, by the companies.
            ``(2) Matching requirement.--The Administrator may 
        require, as a condition of any supplemental grant made 
        under this subsection, that the company or entity 
        receiving the grant provide from resources (in cash or 
        in kind), other than those provided by the 
        Administrator, a matching contribution equal to the 
        amount of the supplemental grant.
    ``(c) Limitation.--None of the assistance made available 
under this section may be used for any overhead or general and 
administrative expense of a New Markets Venture Capital company 
or a specialized small business investment company.

``SEC. 359. BANK PARTICIPATION.

    ``(a) In General.--Except as provided in subsection (b), 
any national bank, any member bank of the Federal Reserve 
System, and (to the extent permitted under applicable State 
law) any insured bank that is not a member of such system, may 
invest in any New Markets Venture Capital company, or in any 
entity established to invest solely in New Markets Venture 
Capital companies.
    ``(b) Limitation.--No bank described in subsection (a) may 
make investments described in such subsection that are greater 
than 5 percent of the capital and surplus of the bank.

``SEC. 360. FEDERAL FINANCING BANK.

    ``Section 318 shall not apply to any debenture issued by a 
New Markets Venture Capital company under this part.

``SEC. 361. REPORTING REQUIREMENTS.

    ``Each New Markets Venture Capital company that 
participates in the program established under this part shall 
provide to the Administrator such information as the 
Administrator may require, including--
            ``(1) information related to the measurement 
        criteria that the company proposed in its program 
        application; and
            ``(2) in each case in which the company under this 
        part makes an investment in, or a loan or grant to, a 
        business that is not located in a low-income geographic 
        area, a report on the number and percentage of 
        employees of the business who reside in such areas.

``SEC. 362. EXAMINATIONS.

    ``(a) In General.--Each New Markets Venture Capital company 
that participates in the program established under this part 
shall be subject to examinations made at the direction of the 
Investment Division of the Small Business Administration in 
accordance with this section.
    ``(b) Assistance of Private Sector Entities.--Examinations 
under this section may be conducted with the assistance of a 
private sector entity that has both the qualifications and the 
expertise necessary to conduct such examinations.
    ``(c) Costs.--
            ``(1) Assessment.--
                    ``(A) In general.--The Administrator may 
                assess the cost of examinations under this 
                section, including compensation of the 
                examiners, against the company examined.
                    ``(B) Payment.--Any company against which 
                the Administrator assesses costs under this 
                paragraph shall pay such costs.
            ``(2) Deposit of funds.--Funds collected under this 
        section shall be deposited in the account for salaries 
        and expenses of the Small Business Administration.

``SEC. 363. INJUNCTIONS AND OTHER ORDERS.

    ``(a) In General.--Whenever, in the judgment of the 
Administrator, a New Markets Venture Capital company or any 
other person has engaged or is about to engage in any acts or 
practices which constitute or will constitute a violation of 
any provision of this Act, or of any rule or regulation under 
this Act, or of any order issued under this Act, the 
Administrator may make application to the proper district court 
of the United States or a United States court of any place 
subject to the jurisdiction of the United States for an order 
enjoining such acts or practices, or for an order enforcing 
compliance with such provision, rule, regulation, or order, and 
such courts shall have jurisdiction of such actions and, upon a 
showing by the Administrator that such New Markets Venture 
Capital company or other person has engaged or is about to 
engage in any such acts or practices, a permanent or temporary 
injunction, restraining order, or other order, shall be granted 
without bond.
    ``(b) Jurisdiction.--In any proceeding under subsection 
(a), the court as a court of equity may, to such extent as it 
deems necessary, take exclusive jurisdiction of the New Market 
Venture Capital company and the assets thereof, wherever 
located, and the court shall have jurisdiction in any such 
proceeding to appoint a trustee or receiver to hold or 
administer under the direction of the court the assets so 
possessed.
    ``(c) Administrator as Trustee or Receiver.--
            ``(1) Authority.--The Administrator may act as 
        trustee or receiver of a New Markets Venture Capital 
        company.
            ``(2) Appointment.--Upon request of the 
        Administrator, the court may appoint the Administrator 
        to act as a trustee or receiver of a New Markets 
        Venture Capital company unless the court deems such 
        appointment inequitable or otherwise inappropriate by 
        reason of the special circumstances involved.

``SEC. 364. ADDITIONAL PENALTIES FOR NONCOMPLIANCE.

    ``(a) In General.--With respect to any New Markets Venture 
Capital company that violates or fails to comply with any of 
the provisions of this Act, of any regulation issued under this 
Act, or of any participation agreement entered into under this 
Act, the Administrator may in accordance with this section--
            ``(1) void the participation agreement between the 
        Administrator and the company; and
            ``(2) cause the company to forfeit all of the 
        rights and privileges derived by the company from this 
        Act.
    ``(b) Adjudication of Noncompliance.--
            ``(1) In general.--Before the Administrator may 
        cause a New Markets Venture Capital company to forfeit 
        rights or privileges under subsection (a), a court of 
        the United States of competent jurisdiction must find 
        that the company committed a violation, or failed to 
        comply, in a cause of action brought for that purpose 
        in the district, territory, or other place subject to 
        the jurisdiction of the United States, in which the 
        principal office of the company is located.
            ``(2) Parties authorized to file causes of 
        action.--Each cause of action brought by the United 
        States under this subsection shall be brought by the 
        Administrator or by the Attorney General.

``SEC. 365. UNLAWFUL ACTS AND OMISSIONS; BREACH OF FIDUCIARY DUTY.

    ``(a) Parties Deemed To Commit a Violation.--Whenever any 
New Markets Venture Capital company violates any provision of 
this Act, of a regulation issued under this Act, or of a 
participation agreement entered into under this Act, by reason 
of its failure to comply with its terms or by reason of its 
engaging in any act or practice that constitutes or will 
constitute a violation thereof, such violation shall also be 
deemed to be a violation and an unlawful act committed by any 
person who, directly or indirectly, authorizes, orders, 
participates in, causes, brings about, counsels, aids, or abets 
in the commission of any acts, practices, or transactions that 
constitute or will constitute, in whole or in part, such 
violation.
    ``(b) Fiduciary Duties.--It shall be unlawful for any 
officer, director, employee, agent, or other participant in the 
management or conduct of the affairs of a New Markets Venture 
Capital company to engage in any act or practice, or to omit 
any act or practice, in breach of the person's fiduciary duty 
as such officer, director, employee, agent, or participant if, 
as a result thereof, the company suffers or is in imminent 
danger of suffering financial loss or other damage.
    ``(c) Unlawful Acts.--Except with the written consent of 
the Administrator, it shall be unlawful--
    ``(1) for any person to take office as an officer, 
director, or employee of any New Markets Venture Capital 
company, or to become an agent or participant in the conduct of 
the affairs or management of such a company, if the person--
                    ``(A) has been convicted of a felony, or 
                any other criminal offense involving dishonesty 
                or breach of trust, or
                    ``(B) has been found civilly liable in 
                damages, or has been permanently or temporarily 
                enjoined by an order, judgment, or decree of a 
                court of competent jurisdiction, by reason of 
                any act or practice involving fraud, or breach 
                of trust; and
            ``(2) for any person continue to serve in any of 
        the capacities described in paragraph (1), if--
                    ``(A) the person is convicted of a felony, 
                or any other criminal offense involving 
                dishonesty or breach of trust, or
                    ``(B) the person is found civilly liable in 
                damages, or is permanently or temporarily 
                enjoined by an order, judgment, or decree of a 
                court of competent jurisdiction, by reason of 
                any act or practice involving fraud or breach 
                of trust.

``SEC. 366. REMOVAL OR SUSPENSION OF DIRECTORS OR OFFICERS.

    ``Using the procedures for removing or suspending a 
director or an officer of a licensee set forth in section 313 
(to the extent such procedures are not inconsistent with the 
requirements of this part), the Administrator may remove or 
suspend any director or officer of any New Markets Venture 
Capital company.

``SEC. 367. REGULATIONS.

    ``The Administrator may issue such regulations as it deems 
necessary to carry out the provisions of this part in 
accordance with its purposes.

``SEC. 368. AUTHORIZATIONS OF APPROPRIATIONS.

    ``(a) In General.--There are authorized to be appropriated 
for fiscal years 2001 through 2006, to remain available until 
expended, the following sums:
            ``(1) Such subsidy budget authority as may be 
        necessary to guarantee $150,000,000 of debentures under 
        this part.
            ``(2) $30,000,000 to make grants under this part.
    ``(b) Funds Collected for Examinations.--Funds deposited 
under section 362(c)(2) are authorized to be appropriated only 
for the costs of examinations under section 362 and for the 
costs of other oversight activities with respect to the program 
established under this part.''.
    (c) Conforming Amendment.--Section 20(e)(1)(C) of the Small 
Business Act (15 U.S.C. 631 note) is amended by inserting 
``part A of'' before ``title III''.
    (d) Calculation of Maximum Amount of SBIC Leverage.--
            (1) Maximum leverage.--Section 303(b)(2) of the 
        Small Business Investment Act of 1958 (15 U.S.C. 
        683(b)(2)) is amended to read as follows:
            ``(2) Maximum leverage.--
                    ``(A) In general.--After March 31, 1993, 
                the maximum amount of outstanding leverage made 
                available to a company licensed under section 
                301(c) of this Act shall be determined by the 
                amount of such company's private capital--
                            ``(i) if the company has private 
                        capital of not more than $15,000,000, 
                        the total amount of leverage shall not 
                        exceed 300 percent of private capital;
                            ``(ii) if the company has private 
                        capital of more than $15,000,000 but 
                        not more than $30,000,000, the total 
                        amount of leverage shall not exceed 
                        $45,000,000 plus 200 percent of the 
                        amount of private capital over 
                        $15,000,000; and
                            ``(iii) if the company has private 
                        capital of more than $30,000,000, the 
                        total amount of leverage shall not 
                        exceed $75,000,000 plus 100 percent of 
                        the amount of private capital over 
                        $30,000,000 but not to exceed an 
                        additional $15,000,000.
                    ``(B) Adjustments.--
                            ``(i) In general.--The dollar 
                        amounts in clauses (i), (ii), and (iii) 
                        of subparagraph (A) shall be adjusted 
                        annually to reflect increases in the 
                        Consumer Price Index established by the 
                        Bureau of Labor Statistics of the 
                        Department of Labor.
                            (ii) Initial adjustments.--The 
                        initial adjustments made under this 
                        subparagraph after the date of the 
                        enactment of the Small Business 
                        Reauthorization Act of 1997 shall 
                        reflect only increases from March 31, 
                        1993.
                    ``(C) Investments in low-income geographic 
                areas.--In calculating the outstanding leverage 
                of a company for the purposes of subparagraph 
                (A), the Administrator shall not include the 
                amount of the cost basis of any equity 
                investment made by the company in a smaller 
                enterprise located in a low-income geographic 
                area (as defined in section 351), to the extent 
                that the total of such amounts does not exceed 
                50 percent of the company's private capital.''.
            (2) Maximum aggregate leverage.--Section 303(b)(4) 
        of the Small Business Investment Act of 1958 (15 U.S.C. 
        683(b)(4)) is amended by adding at the end the 
        following new subparagraph:
                    ``(D) Investments in low-income geographic 
                areas.--In calculating the aggregate 
                outstanding leverage of a company for the 
                purposes of subparagraph (A), the Administrator 
                shall not include the amount of the cost basis 
                of any equity investment made by the company in 
                a smaller enterprise located in a low-income 
                geographic area (as defined in section 351), to 
                the extent that the total of such amounts does 
                not exceed 50 percent of the company's private 
                capital.''.
    (e) Bankruptcy Exemption for New Markets Venture Capital 
Companies.--Section 109(b)(2) of title 11, United States Code, 
is amended by inserting ``a New Markets Venture Capital company 
as defined in section 351 of the Small Business Investment Act 
of 1958,'' after ``homestead association,''.
    (f) Federal Savings Associations.--Section 5(c)(4) of the 
Home Owners' Loan Act (12 U.S.C. 1464(c)(4)) is amended by 
adding at the end the following:
                    ``(F) New markets venture capital 
                companies.--A Federal savings association may 
                invest in stock, obligations, or other 
                securities of any New Markets Venture Capital 
                company as defined in section 351 of the Small 
                Business Investment Act of 1958, except that a 
                Federal savings association may not make any 
                investment under this subparagraph if its 
                aggregate outstanding investment under this 
                subparagraph would exceed 5 percent of the 
                capital and surplus of such savings 
                association.''.

SEC. 902. BUSINESSLINC GRANTS AND COOPERATIVE AGREEMENTS.

    Section 8 of the Small Business Act (15 U.S.C. 637) is 
amended by adding at the end the following:
    ``(n) BusinessLINC Grants and Cooperative Agreements.--
            ``(1) In general.--In accordance with this 
        subsection, the Administrator may make grants to and 
        enter into cooperative agreements with any coalition of 
        private entities, public entities, or any combination 
        of private and public entities--
                    ``(A) to expand business-to-business 
                relationships between large and small 
                businesses; and
                    ``(B) to provide businesses, directly or 
                indirectly, with online information and a 
                database of companies that are interested in 
                mentor-protege programs or community-based, 
                statewide, or local business development 
                programs.
            ``(2) Matching requirement.--Subject to 
        subparagraph (B), the Administrator may make a grant to 
        a coalition under paragraph (1) only if the coalition 
        provides for activities described in paragraph (1)(A) 
        or (1)(B) an amount, either in kind or in cash, equal 
        to the grant amount.
            ``(3) Authorization of appropriations.--There is 
        authorized to be appropriated to carry out this 
        subsection $6,600,000, to remain available until 
        expended, for each of fiscal years 2001 through 
        2006.''.
      Following is explanatory language for H.R. 5545, as 
introduced on October 25, 2000. References in the following to 
the ``conference agreement'' refer to the text of that bill.
       JOINT STATEMENT OF MANAGERS OF H.R. 2614--SMALL BUSINESS 
                            REAUTHORIZATION

          Title I--Small Business Innovation Research Program

      The Small Business Innovation Research Program 
Reauthorization Act of 2000 (H.R. 2392) was introduced on June 
30, 1999, and referred to the House Committees on Small 
Business and Science. Both Committees held hearings and the 
House Committee on Small Business reported H.R. 2392 on 
September 23, 1999 (H. Rept. 106-329). In the interest of 
moving the bill to the floor of the House of Representatives 
promptly, the Committee on Science agreed not to exercise its 
right to report the legislation, provided that the House 
Committee on Small Business agreed to add the selected portions 
of the Science Committee version of the legislation, as 
Sections 8 through 11 of the House floor text of H.R. 2392. 
H.R. 2392 passed the House without further amendment on 
September 27. The Science Committee provisions were explained 
in floor statements by Congressmen Sensenbrenner, Morella, and 
Mark Udall.
      On March 21, 2000, the Senate Committee marked-up H.R. 
2392 and on May 10, 2000, reported the bill (S. Rept. 106-289). 
The Senate Committee struck several of the sections originating 
from the House Committee on Science and added sections not in 
the House-passed legislation, including a requirement that 
Federal agencies with Small Business Innovation Research (SBIR) 
programs report their methodology for calculating their SBIR 
budgets to the Small Business Administration (SBA) and a 
program to assist states in the development of small high-
technology businesses. Negotiations then began among the 
leadership of the Senate and House Committees on Small Business 
and the House Committee on Science (hereinafter referred to as 
the three committees). The resultant compromise text contains 
all major House and Senate provisions, some of which have been 
amended to reflect a compromise position. A section-by-section 
explanation of the revised text follows. For purposes of this 
statement, the bill passed by the House of Representatives is 
referred to as the ``House version'' and the bill reported by 
the Senate Committee on Small Business is referred to as the 
``Senate version.''
Section 101. Short title; table of contents
      The compromise text uses the Senate short title: ``Small 
Business Innovation Research Program Reauthorization Act of 
2000.'' The table of contents lists the sections in the 
compromise text.
Section 102. Findings
      The House and Senate versions of the findings are very 
similar. The compromise text uses the House version of the 
findings.
Section 103. Extension of the SBIR program
      The House version extends the SBIR program for seven 
years through September 30, 2007. The Senate version extends 
the program for ten years through September 30, 2010. The 
compromise text extends the program for eight years through 
September 30, 2008.
Section 104. Annual report
      The House version provides for the annual report on the 
SBIR program prepared by the SBA to be sent to the Committee on 
Science, as well as to the House and Senate Committees on Small 
Business that currently receive it. The Senate version did not 
include this section. The compromise text adopts the House 
language.
Section 105. Third phase assistance
      The compromise text of this technical amendment is 
identical to both the House and Senate versions.
Section 106. Report on programs for annual performance plan
      This section requires each agency that participates in 
the SBIR program to submit to Congress a performance plan 
consistent with the Government Performance and Results Act. The 
House and Senate versions have the same intent. The compromise 
text uses the House version.
Section 107. Output and outcome data
      Both the House and Senate versions contain sections 
enabling the collection and maintenance of information from 
awardees as is necessary to assess the SBIR program. Both the 
Senate and House versions require the SBA to maintain a public 
database at SBA containing information on awardees from all 
SBIR agencies. The Senate version adds paragraphs to the public 
database section dealing with database identification of 
businesses or subsidiaries established for the commercial 
application of SBIR products or services and the inclusion of 
information regarding mentors and mentoring networks. The House 
version further requires the SBA to establish and maintain a 
government database, which is exempt from the Freedom of 
Information Act and is to be used solely for program 
evaluation. Outside individuals must sign a non-disclosure 
agreement before gaining access to the database. The compromise 
text contains each of these provisions, with certain 
modifications and clarifications, which are addressed below.
      With respect to the public database, the compromise text 
makes clear that proprietary information, so identified by a 
small business concern, will not be included in the public 
database. With respect to the government database, the 
compromise text clarifies that the inclusion of information in 
the government database is not to be considered publication for 
purposes of patent law. The compromise text further permits the 
SBA to include in the government database any information 
received in connection with an SBIR award the SBA 
Administrator, in conjunction with the SBIR agency program 
managers, consider to be relevant and appropriate or that the 
Federal agency considers to be useful to SBIR program 
evaluation.
      With respect to small business reporting for the 
government database, the compromise text directs that when a 
small business applies for a second phase award it is required 
to update information in the government database. If an 
applicant for a second phase award receives the award, it shall 
update information in the database concerning the award at the 
termination of the award period and will be requested to 
voluntarily update the information annually for an additional 
period of five years. This reporting procedure is similar to 
current Department of Defense requirements for the reporting of 
such information. When sales or additional investment 
information is related to more than one second phase award is 
involved, the compromise text permits a small business to 
apportion the information among the awards in any way it 
chooses, provided the apportionment is noted on all awards so 
apportioned.
      The three committees understand that receiving complete 
commercialization data on the SBIR program is difficult, 
regardless of any reasonable time frame that could be 
established for the reporting of such data. Commercialization 
may occur many years following the receipt of a research grant 
and research from an award, while not directly resulting in a 
marketable product, may set the groundwork for additional 
research that leads to such a product. Nevertheless, the three 
committees believe that the government database will provide 
useful information for program evaluation.
Section 108. National research council reports
      The House version requires the four largest SBIR program 
agencies to enter into an agreement with the National Research 
Council (NRC) to conduct a comprehensive study of how the SBIR 
program has stimulated technological innovation and used small 
businesses to meet Federal research and development needs and 
to make recommendations on potential improvements to the 
program. The Senate version contains no similar provision. The 
study was designed to answer questions remaining from the House 
Committees' reviews of these programs and to make sure that a 
current evaluation of the program is available when the program 
next comes up for reauthorization.
      The compromise text makes several changes to the House 
text. The compromise text adds the National Science Foundation 
to the agencies entering the agreement with the NRC and 
requires the agencies to consult with the SBA in entering such 
agreement. It also expands on the House version, which requires 
a review of the quality of SBIR research, to require a 
comparison of the value of projects conducted under SBIR with 
those funded by other Federal research and development 
expenditures. The compromise text further broadens the House 
version's review of the economic rate of return of the SBIR 
program to require an evaluation of the economic benefits of 
the SBIR program, including economic rate of return, and a 
comparison of the economic benefits of the SBIR program with 
that of other Federal research and development expenditures. 
The compromise text allows the NRC to choose an appropriate 
time-frame for such analysis that results in a fair comparison.
      The three committees believe that a comprehensive report 
on the SBIR program and its relation to other Federal research 
expenditures will be useful in program oversight and will 
provide Congress with an understanding of the effects of 
extramural Federal research and development funding provided to 
large and small businesses and universities. The three 
committees understand, however, that measuring the direct 
benefits to the nation's economy from the SBIR program and 
other Federal research expenditures may be difficult to 
calculate and may not provide a complete portrayal of the 
benefits achieved by the SBIR program. Accordingly, the 
legislation requires the NRC also to review the non-economic 
benefits of the SBIR program, which may include, among other 
matters, the increase in scientific knowledge that has resulted 
from the program. The paragraph in the compromise text calling 
for recommendations remains the same as the House version, 
except that the bill now asks the NRC to make recommendations, 
should there be any.
      While the study is to be carried out within National 
Research Council study guidelines and procedures, the 
compromise text requires the NRC to take the steps necessary to 
ensure that individuals from the small business community with 
expertise in the SBIR program are well-represented in the panel 
established for performing the study and among the peer 
reviewers of the study. The NRC is to consult with and consider 
the views of the SBA's Office of Technology and the SBA's 
Office of Advocacy and to conduct the study in an open manner 
that makes sure that the views and experiences of small 
businesses involved in the program are carefully considered in 
the design and execution of the study. Extension of the SBIR 
program for eight years rather than the five being contemplated 
when the House study provision was initially written has 
necessitated some adjustments in the study. The report is now 
required three years rather than four years after the date of 
enactment of the Act and the NRC is to update the report within 
six years of enactment. The update is intended to bring 
current, any information from the study relevant to the 
reauthorization of the SBIR program. It is not intended to be a 
second full-fledged study. In addition, semiannual progress 
reports by NRC to the three committees are required.
Section 109. Federal agency expenditures for the SBIR program
      The Senate version requires each Federal agency with an 
SBIR program to provide the SBA with a report describing its 
methodology for calculating its extramural budget for purposes 
of SBIR program set-aside and requires the Administrator of the 
SBA to include an analysis of the methodology from each agency 
in its annual report to the Congress. The House version has no 
similar provision. The compromise text follows the Senate text 
except that it specifies that each agency, rather than the 
agency's comptroller, shall submit the agency's report to the 
Administrator. The three committees intend that each agency's 
methodology include an itemization of each research program 
that is excluded from the calculation of its extramural budget 
for SBIR purposes as well as a brief explanation of why the 
agency feels each excluded program meets a particular 
exemption.
Section 110. Policy directive modifications
      The House version includes policy directive modifications 
in Section 9 and the requirement of a second phase commercial 
plan in Section 10. The Senate version includes policy 
directive modifications in Section 6. The Senate version and 
now the compromise text require the Administrator to make 
modifications to SBA's policy directives 120 days after the 
date of enactment rather than the 30 days contained in the 
House version. The compromise text drops the House policy 
directive dealing with awards exceeding statutory dollar 
amounts and time limits because this flexibility is already 
being provided administratively. Addressed below is a 
description of the policy directive modifications contained in 
the compromise text that were not included in both the Senate 
version and the House version.
      Section 10 of the House version requires the SBA to 
modify its policy directives to require that small businesses 
provide a commercial plan with each application for a second-
phase award. The Senate version does not contain a similar 
provision. The compromise text requires the SBA to modify its 
policy directives to require that small businesses provide a 
``succinct commercialization plan for each second phase award 
moving towards commercialization.'' The three committees 
acknowledge that commercialization is a current element of the 
SBIR program. The statutory definition of SBIR, which is not 
amended by H.R. 2392, includes ``a second phase, to further 
develop proposals which meet particular program needs, in which 
awards shall be made based on the scientific and technical 
merit and feasibility of the proposals, as evidenced by the 
first phase, considering among other things the proposal's 
commercial potential . . .'', and lists evidence of commercial 
potential as the small business's commercialization record, 
private sector funding commitments, SBIR Phase III commitments, 
and the presence of other indicators of the commercial 
potential. The three committees do not intend that the addition 
of a commercialization plan either increase or decrease the 
emphasis an agency places on the commercialization when 
reviewing second-phase proposals. Rather, the commercialization 
plan will give SBIR agencies a means of determining the 
seriousness with which individual applicants approach 
commercialization.
      The commercialization plan, while concise, should show 
that the business has thought through both the steps it must 
take to prepare for the fruits of the SBIR award to enter the 
commercial marketplace or government procurement and the steps 
to build business expertise as needed during the SBIR second 
phase time period. The three committees intend that agencies 
take into consideration the stage of development of the product 
or process in deciding whether an appropriate commercialization 
plan has been submitted. In those instances when at the time of 
the SBIR Phase II proposal, the grantee cannot identify either 
a product or process with the potential eventually to enter 
either the commercial or the government marketplace, no 
commercialization plan is required.
      The compromise text also adds new provisions that were 
not contained in either the Senate version or the House 
version. Current law (Section 9(j)(3)(C) of the Small Business 
Act) requires that the Administrator put in place procedures to 
ensure, to the extent practicable, that an agency which intends 
to pursue research, development or production of a technology 
developed by a small business concern under an SBIR program 
enter into follow-on, non-SBIR funding agreements with the 
small business concern for such research, development, or 
production.
      The three committees are concerned that agencies 
sometimes provide these follow-on activities to large companies 
who are in incumbent positions or through contract bundling 
without written justification or without the statutorily 
required documentation of the impracticability of using the 
small business for the work. So that the SBA and the Congress 
can track the extent of this problem, the compromise text 
requires agencies to record and report each such occurrence and 
to describe in writing why it is impractical to provide the 
research project to the original SBIR company. Additionally, 
the compromise text directs the SBA to develop policy 
directives to implement the new subsection (v), Simplified 
Reporting Requirements. This subsection requires that the 
directives regarding collection of data be designed to minimize 
the burden on small businesses; to permit the updating the 
database by electronic means; and to use standardized 
procedures for the collection and reporting of data.
      Section 103(a)(2) of P.L. 102-564, which reauthorized the 
SBIR program in 1992, added language to the description of a 
third phase award which made it clear that the third phase is 
intended to be a logical conclusion of research projects 
selected through competitive procedures in phases one and two. 
The Report of the House Committee on Small Business (H.Rpt. 
102-554, Pt. I) provides that the purpose of that clarification 
was to indicate the Committee's intent that an agency which 
wishes to fund an SBIR project in phase three (with non-SBIR 
monies) or enter into a follow-on procurement contract with an 
SBIR company, need not conduct another competition in order to 
satisfy the Federal Competition in Contracting Act (CICA). 
Rather, by phase three the project has survived two 
competitions and thus has already satisfied the requirements of 
CICA, set forth in section 2302(2)(E) of that Act, as they 
apply to the SBIR program. As there has been confusion among 
SBIR agencies regarding the intent of this change, the three 
committees reemphasize the intent initially set forth in H.Rpt. 
102-554, Pt. 1, including the clarification that follow-on 
phase III procurement contracts with an SBIR company may 
include procurement of products, services, research, or any 
combination intended for use by the Federal government.
Section 111. Federal and state technology partnership program
      This section establishes the FAST program from the Senate 
version, which is a competitive matching grant program to 
encourage states to assist in the development of high-
technology businesses. The House version does not contain a 
similar provision. The most significant changes from the Senate 
version in the compromise text are an extension of the maximum 
duration of awards from three years to five and the lowering of 
the matching requirement for funds assisting businesses in low 
income areas to 50 cents per federal dollar, as advocated by 
Ranking Member Velazquez of the House Small Business Committee. 
The compromise text combines the definitions found in the 
Senate version of this section and the mentoring networks 
section.
Section 112. Mentoring networks
      The Senate version sets forth criteria for mentoring 
networks that organizations are encouraged to establish with 
matching funds from the FAST program and creates a database of 
small businesses willing to act as mentors. The compromise 
text, except for relocating the program definitions to Section 
111, is the same as the Senate text. The House version did not 
contain a similar provision.
Section 113. Simplified reporting requirements
      This section is not in either the House or the Senate 
versions. It requires the SBA Administrator to work with SBIR 
program agencies on standardizing SBIR reporting requirements 
with the ultimate goal of making the SBA's SBIR database more 
user friendly. This provision requires the SBA to consider the 
needs of each agency when establishing and maintaining the 
database. Additionally, it requires the SBA to take measures to 
reduce the administrative burden on SBIR program participants 
whenever possible including, for example, permitting updating 
by electronic means.
Section 114. Rural Outreach Program extension
      This provision, which was not in either the House or the 
Senate versions, extends the life and authorization for 
appropriations for the Rural Outreach Program of the Small 
Business Administration for four additional years through 
fiscal year 2005. It is the intent of the three committees that 
this program be evaluated on the same schedule and in the same 
manner as the FAST program. Among other things, the evaluation 
should examine the extent to which the programs complement or 
duplicate each other. The evaluation should also include 
recommendations for improvements to the program, if any.

                    Title II--Business Loan Programs

                          Section 7(a) Program

      The Conferees have been concerned that the availability 
of smaller 7(a) guaranteed business loans has not been keeping 
pace with the demands of the small business community. In 1994, 
SBA initiated the LowDoc pilot loan program to make loans of 
$100,000 and less more readily available. In 1995, the Congress 
established a guarantee level of 80% for LowDoc loans. As 
requested in the Administration's 2001 Budget, during 
consideration of H.R. 2615 in the House of Representatives, the 
80% guarantee was extended up to loans of $150,000. The Senate 
and the House both acted to increase the size of the LowDoc 
loans. In addition, both Houses agreed to increase the 
guaranteed percentage from 80% to 85% in anticipation that 
small business lenders will be more willing to focus on the 
smaller sized loans.
      In 1988, the Congress acted to establish the maximum 7(a) 
loan guarantee amount at $750,000. In order to keep up with 
inflation, the Committee bill increases the maximum guaranteed 
amount to $1 million. Although a strict inflationary increase 
in the maximum guaranteed amount would be closer to $1.25 
million, the Conferees believe it is prudent to limit the 
increase to $1 million, which will leave sufficient resources 
in the program for smaller loans.
      The Conference Report also establishes a ceiling on the 
maximum loan size of $2 million. It has been reported to the 
Committee that the 7(a) guarantee has been used in conjunction 
with large loans in excess of $2 million. Under the Federal 
Credit Reform Act of 1991, appropriated subsidy dollars are 
used based on the gross amount of the loan. In these cases, the 
SBA loan guarantee is a relatively small portion of the loan, 
and the Conferees have questioned whether these loans meet the 
``credit elsewhere'' standard for 7(a) loans and whether this 
is a good use of appropriated subsidy dollars. Therefore, the 
Committee agrees with the House of Representatives and has 
approved a ceiling of $2 million for the gross amount of a 7(a) 
loan.
      In an effort to reduce the size of the credit subsidy 
rate, in 1997 Congress adopted a provision to reduce SBA's 
liability for accrued interest on 7(a) loans that are in 
default. Section 501 deletes this provision since the intended 
savings from this provision have failed to materialize.
      For the past three years, the House and Senate Committees 
on Small Business have received reports about the increased 
number of early prepayments of large, long term SBA-guaranteed 
7(a) loans. Previously, as the result of an increase in 
prepayments, the credit subsidy rate was adjusted upwards for 
Fiscal Year 1998. Subsequently, the number of prepayments 
continued to climb. In some cases, it has been reported that 
some small businesses were using the 7(a) program for short 
term bridge financing, when the program is designed to help 
small businesses obtain long term credit at a reasonable 
interest rate. The effect of early prepayments is to reduce the 
availability of long term 7(a) loans to small businesses that 
cannot obtain credit elsewhere.
      The prepayment penalty approved by the Conferees would 
assess a fee to the borrower for early prepayment of any 7(a) 
loan with a term of 15 years or more. A penalty or fee will be 
assessed against any prepayment in excess of 25% of the 
outstanding amount of the loan during any of the first three 
years after disbursement. Five percent will be assessed in the 
first year, three percent in the second year, and one percent 
in the third year. If a prepayment in excess of 25% is made, 
the penalty will be assessed against the entire outstanding 
balance of the loan.
      In 1995, Congress increased the guarantee fees charged to 
7(a) borrowers in order to reduce the credit subsidy rate for 
the 7(a) program. The Senate agrees with provision, suggested 
by SBA and adopted by the House of Representatives, which 
simplifies the guarantee fee schedule. For loans totaling 
$150,000 or less, the guarantee fee would be two percent of the 
guarantee amount; for loans greater than $150,000 but less than 
$700,000, the fee would be three percent; and for loans of 
$700,000 or more, the guarantee fee would be three and \1/2\ 
percent. In addition, the Conferees approved a new provision 
designed to be an incentive for lenders to focus more on 
smaller loans. This provision allows a lender to retain 25% of 
the guarantee fee for loans of $150,000 or less.
      In 1997, Congress approved a new provision for the 504 
Certified Development Company program which allows borrowers to 
lease out 20% of the property being financed so long as the 
remaining 80% is occupied by the borrower. The Conferees have 
approved a similar provision for 7(a) borrowers. This new 
provision permits the property to be financed with a 7(a) loan 
20 percent or less of the business space will be rented to 
tenants with the borrower occupying 60% of the remaining space.

                           Microloan program

      This section makes programmatic and technical changes to 
the Small Business Administration's microloan program to make 
it more flexible to meet credit needs, more accessible to micro 
entrepreneurs across the nation, and more streamlined for 
lenders to make loans and provide management assistance. The 
Senate Committee on Small Business worked closely with industry 
and the SBA to develop these changes.
      Congress created the microloan program as a pilot in 1991 
(Public Law 102-140) to reach very small businesses that were 
not being served by traditional lenders or SBA's credit 
programs. Often minorities, women, and low-income individuals, 
these microentrepreneurs needed very little money to launch a 
business, but they could not get loans because they were 
considered unreliable or risky borrowers by traditional credit 
markets. Their often weak or non-existent credit histories or 
limited business experience caused traditional commercial 
lenders to shy away from making such loans. To fill this credit 
need, the Microloan program was designed to provide loans to 
non-profit intermediary lenders, who in turn provide fixed-rate 
loans of not more than $25,000, and on average, loans less than 
$10,000, to very small businesses. In addition, lending 
intermediaries receive an annual grant from the SBA to provide 
on-going technical assistance to small businesses. The 
technical assistance is fundamental to this program because it 
teaches microentrepreneurs how to manage a successful business, 
and running a successful business is key to loan repayment.
      As industry experts and micro borrowers have testified 
numerous times regarding the link between financing and 
technical assistance, it is critical to the success of micro 
enterprise, in general, and the SBA microloan program, in 
particular. The low default rates of loans are evidence of the 
tremendous success of this program. Since the first microloan 
was made in 1992, the Federal government has had only one 
default in its loans to the intermediary loan providers. 
Equally impressive, the lending intermediaries have had losses 
of only three to five percent from small businesses, and the 
losses are fully covered by the mandatory loss reserve that 
each intermediary must maintain. Because of this successful 
track record, in 1997 the Congress voted to transform the 
Microloan program from a demonstration program to a permanent 
part of the array of SBA credit assistance programs.
      There are currently 156 intermediaries and 19 non-lending 
technical assistance providers in the SBA Microloan Program. To 
date, the lending intermediaries have made 10,230 loans worth 
some $105 million. The SBA reports that for every microloan, 
1.7 jobs are created. The average loan to a microentrepreneur 
is about $10,000, with interest rates averaging 11 percent and 
an average term of 39 months.
      Since the microloan program was started in 1991, it has 
grown from 35 to 156 intermediaries. The market has also 
changed. Thus, as the Senate Committee on Small Business 
reviewed the program for reauthorization, it worked with trade 
associations representing microlenders, the Small Business 
Administration, and individual microlenders to craft 
legislation that would meet market needs and foster the success 
of the program.
      Chief among those changes, in large part to reflect 
inflation, is increasing the maximum loan amount and average 
loan sizes. The maximum loan amount would increase from $25,000 
to $35,000; the average loan size for each intermediary's 
portfolio would increase from $10,000 to $15,000. For 
speciality lenders, those making smaller loans and receiving 
additional technical assistance to make them, this legislation 
would raise their average loan size from $7,500 to $10,000.
      There are 156 intermediaries out of the 200 
Congressionally authorized. Three states--Alaska, Louisiana and 
Wyoming--do not have any intermediaries, though they are 
working to find appropriate participants. While the need for 
more technical assistance is partially to blame for the 
inability of the program to grow and add intermediaries, the 
industry groups, local economic development leaders and the SBA 
have asked Congress to expand the program. This Conference 
Report not only increases the appropriation for direct 
microloans and technical assistance for each of the next three 
years to allow the program to expand, but it also takes a 
balanced approach to increasing the number of intermediaries 
authorized. The House and Senate Conferees agreed to increase 
the number of intermediaries from 200 to 300.

            Title III--Certified Development Company Program

      Under the Small Business Investment Act of 1958, 504 
guaranteed loans for the following public policy goals are 
eligible for loans guarantees up to $1,000,000:
      Business district revitalization;
      Expansion of exports;
      Expansion of minority business development;
      Rural development;
      Enhanced economic competition;
      Changes necessitated by Federal budget cutbacks; and
      Business restructuring arising from Federal mandated 
standards or policies affecting the environment or the safety 
and health of employees.
      Both the House and Senate bill add loans to women-owned 
small businesses to the current list of public policy goals 
specified under the Act.
      In August 1988, Congress approved legislation (P.L. 100-
418) to increase the 504 loan guarantee ceiling to $750,000 
from $500,000, except for a limited number of loans meeting the 
special public policy purposes. In order to adjust this amount 
to reflect inflation, the loan guarantee ceiling would need to 
be increased to approximately $1,250,000. Therefore, the Senate 
agreed with the position taken by the House and approved an 
increase to $1,000,000. The House and Senate further agreed to 
increase the maximum guaranteed amount on loans made to meet 
the public policy purposes to $1,300,000 from $1,000,000.

                              program fees

      In 1995, at the urging of the SBA and the National 
Association of Development Companies (NADCO), the trade 
organization that represents the 504 lenders and Certified 
Development Companies (CDCs), both the House and Senate agreed 
to legislation mandating that the 504 program be supported 
entirely by fees paid by the private sector. These new fees 
were imposed beginning in FY 1996. Subsequently, the SBA 
undertook an extensive review of the performance of the 504 
program, and the credit subsidy rate, which determines the 
amount of money that must be maintained in the loss reserve 
account for this program, was increased from 0.57% to 6.85%, an 
increase of 1200%. Since the 504 program was being funded only 
by fees paid by the private sector, the fees paid by the 
borrower in FY 1997 were increased from 0.125% to 0.875%, which 
placed a financial burden on 504 borrowers. The Conferees are 
pleased to note that since FY 1997 the credit subsidy rate 
estimate has dropped resulting in a decrease in borrower fees 
from 0.875% to 0.472% for FY 2001. The bill authorizes SBA to 
collect these fees to offset the credit subsidy cost through 
September 30, 2003.

                   premier certified lenders program

      In October 1994, Congress approved the Premier Certified 
Lenders Program on a pilot basis (P.L. 103-403). In December 
1997, this pilot program was extended by Congress, and the 
limitation on the number of CDCs that could participate in the 
PCLP was removed (P.L. 105-135). The Senate noted the success 
of the program and has agreed with the House of Representatives 
to make the PCLP a permanent part of the 504 program. In making 
the PCLP pilot a permanent part of the 504 program, the 
Conferees expect the SBA to continue its efforts to work with 
the CDC community to take complete advantage of the strengths 
of the most successful and well-run CDCs.

                              asset sales

      In response to the plans by the SBA to undertake the sale 
of assets held by the Agency, both the Senate and House 
approved a provision that requires the SBA to notify CDCs prior 
to including a 504 loan in an asset sale. The Committee adopted 
this section in order to insure there is an open dialogue and 
cooperation between the Agency and the relevant CDCs. For the 
past four years, the Committee has encouraged the SBA to move 
forward with its asset sales program; however, we do not 
believe this step forward should necessarily harm its lending 
partners.

                        loan liquidation program

      In response to reports about low recoveries after the 
default of a 504 loan, the Congress approved legislation in 
1996 to establish the Loan Liquidation Pilot Program (P.L. 104-
208). The pilot liquidation program allowed up to 20 qualified 
CDCs to liquidate loans that they originated. It was 
implemented by the SBA in June 1997. The results to date for 
the pilot program are encouraging, and the Conferees have 
concluded that it is in the best interest of the 504 program to 
allow additional CDCs to conduct their own liquidation and 
foreclosure activities. The Committee is pleased to note that 
the recovery estimate for FY 2001 has increased for the first 
time since 1995. The Administration's estimate for FY 2001 is 
31 percent, and the assumptions used by OMB and the SBA do not 
include an increase in recoveries that should result from 
making the Loan Liquidation Program permanent. The Conferees 
urge the SBA to continue its efforts and to make maximum use of 
the Loan Liquidation Program so that the recovery level will 
increase further.
      A number of CDCs have demonstrated the ability through 
the pilot program and other lending programs in which they 
participate, to perform such activities, and have indicated a 
willingness to perform such functions to supplement SBA's 
activities in this area. Accordingly, the Conference Report 
makes the pilot liquidation program permanent and requires SBA 
to permit certain CDCs to foreclose and liquidate defaulted 
loans that they have originated under the 504 loan program.
      In order to participate in the loan liquidation program, 
a CDC must have made at least 10 loans per year for the past 
three fiscal years, and it must have at least one employee with 
two years of liquidation experience or be a member of the 
Accredited Lenders Program with at least one employee with two 
years of liquidation experience. Representatives of either 
group must complete a training program developed by SBA. 
Participants in the pilot liquidation program and Premier 
Certified Lenders automatically qualify for the permanent 
liquidation program.
      CDCs eligible to participate in liquidation activities 
are required to perform all liquidation and foreclosure 
functions pursuant to a liquidation plan approved by SBA. The 
Conference Report also authorizes CDCs to take other actions, 
in lieu of full liquidation or foreclosure, to mitigate loan 
losses pursuant to a workout plan. Prior to a CDC commencing 
liquidation or foreclosure activities and prior to engaging in 
other actions to mitigate loan losses, a CDC is required to 
provide the SBA with a liquidation plan or workout plan, as the 
case may be, for approval. The SBA has 15 days to approve a 
liquidation plan or a workout plan. The legislation further 
permits CDCs to litigate matters relating to their liquidation 
activities subject to SBA monitoring of such litigation.
      SBA is authorized to suspend or revoke the authority of a 
CDC to liquidate loans if the CDC either does not meet the 
eligibility requirements or fails to comply with any statutory 
or regulatory requirement relating to the foreclosure or 
liquidation of loans or any other applicable provision of law. 
CDCs are also prohibited from taking any action that would 
result in an actual or apparent conflict of interest in 
connection with the liquidation of their loans.
      The bill requires the SBA to submit annually to Congress 
a report on the results of the delegation of authority to CDCs 
to liquidate and foreclose loans and a comparison of such 
results to SBA's liquidation performance.

   Title IV--Corrections to the Small Business Investment Act of 1958

                              definitions

      The provisions generally make some technical improvements 
to the operations of the SBIC Program. Under current law, 
national banks, member banks of the Federal Reserve, and 
nonmember insured banks as permitted by State law are allowed 
to invest in SBICs. The Senate and House Committees approved a 
provision to allow any Federal Savings Association to make 
similar investments in SBICs.
      The Committees also approved a provision to clarify what 
is meant by the term ``long-term'' as found in Section 103 of 
the Small Business Investment Act. It is the Committees' 
understanding that the SBA has construed ``long term'' to mean 
a minimum of five years for all SBIC investments other than 
those made to ``disadvantaged businesses,'' when ``long term'' 
is construed to mean four years. The Committee believes the 
Agency's interpretation of ``long-term'' to be overly 
restrictive. Under the Generally Accepted Accounting Principles 
(GAAP), the accounting principles that govern business commerce 
in the United States, the term ``long-term'' is defined as any 
period of time greater than one year. Therefore, the Conferees 
have adopted a definition of ``long-term'' to be a period of 
time of not less than one year.

                              subsidy fees

      The President's FY 2001 budget request for SBA, as 
amended, included a ``0'' credit subsidy rate for the SBIC 
Debenture program. The House and Senate Committees have been 
informed by SBA staff that the income generated by fees paid by 
the SBICs to SBA will actually exceed the amounts needed to 
fund the reserve account required under the Federal Credit 
Reform Act of 1990 (2 U.S.C. 661a). The Conferees believe it is 
important that the SBICs should not be required to pay more in 
fees than is necessary to bring the credit subsidy rate to 
``0.'' Therefore, the Conferees have adopted a provision, 
similar to the one it adopted for the 504 Development Company 
Program in 1996, which directs the SBA to reduce the annual fee 
paid by the SBIC from 1 percent to the amount necessary to 
reduce the credit subsidy rate to ``0.'' The new provision 
applies to the SBIC Debenture and Participating Securities 
programs.

                             distributions

      The Senate Committee approved a technical change that 
permits a qualifying SBIC to make a quarterly tax distribution 
any time during the applicable calendar quarter. The House 
passed a similar provision in H.R. 3845. Conferees concur with 
this provision. Under current law, SBICs may make prioritized 
payment distributions, profit distributions, and other optional 
distributions on any date with prior SBA approval. Tax 
distributions, however, may only be made at the end of calendar 
year quarters. The SBIC community has informed the Senate 
Committee that the practical impact of this restriction is that 
SBICs are forced to delay otherwise permitted interim 
distributions (including tax distributions) to the end of a 
quarter or split their distributions into two distributions. 
Postponing an entire distribution to the end of a quarter has 
negative cash flow and internal rate of return (IRR) 
implications. Consequently, most SBICs decide to split their 
distributions, making tax distributions at the end of the 
calendar quarter, while making all other distributions at any 
time during the quarter. Splitting distributions requires the 
preparation, submission, and SBA review of two sets of 
documents. The result is an inefficient use of time and 
resources by SBA and the SBICs.

          Title V--Reauthorization of Small Business Programs

Sec. 502. Reauthorization of Small Business Programs
      Title I of the bill authorizes appropriations for SBA's 
business loan programs and certain other SBA programs. Included 
among the loan programs are Section 7(a) Guaranteed Business 
Loans, 504 Development Company Loans, Microloans, Disaster 
Loans, and Small Business Investment Company Debentures and 
Participating Securities.
      Funding for these SBA programs is detailed in the 
following chart. As indicated, the bill is a three year 
authorization. The Conferees have carefully considered the 
Administration's funding request for each program as well as 
recommendations from small business owners, individual 
entrepreneurs, the lending community, and members of this 
Conference.

                                                       PROGRAM LEVELS FOR SBA REAUTHORIZATION BILL
                                                     [In millions of dollars unless otherwise noted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                   SBA 3 year
                   Program                     Current level    FY01 budget       authorization      Reauthorization   Reauthorization   Reauthorization
                                                   FY00           request       request 01/02/03        bill 2001      bill 2002-2003         bill
--------------------------------------------------------------------------------------------------------------------------------------------------------
7(a) (in billions)..........................            $9.8           $11.5           $14.5/15/16             $14.5               $15               $16
504 (in billions)...........................            $3.5           $3.75           $5/5.25/5.5                $4              $4.5                $5
SBIC:
    Debentures..............................            $800            $500    $1,000/1,200/1,400            $1,500            $2,500            $3,000
    Participating Securities................          $1,350          $2,000    $2,000/2,500/3,000            $2,500            $3,500            $4,000
Microloan:
    Technical Assistance....................           $23.2           $45.0            $59/80/100               $45               $60               $70
    Direct Loans............................             $29             $60             $75/80/85               $60               $80              $100
    Guaranteed Loans........................       carryover              $0             $40/40/40               $50               $50               $50
Delta.......................................               $1,000                           $0/0/0              $500              $500              $500
Surety Bond Guarantee:
    General Program.........................          $1,800          $1,700    $2,000/2,000/2,000            $4,000            $5,000            $6,000
    Preferred Program.......................  ..............  ..............  ....................      50% of total      50% of total      50% of total
SCORE.......................................            $3.5            $5.0            $5.9/8/8.5                $5                $6                $7
SBDC........................................           $84.5             $85             $95/95/95              $125              $125              $125
HUBZone.....................................            $2.0            $5.0                $6/6/6               $10               $10               $10
--------------------------------------------------------------------------------------------------------------------------------------------------------

                      drug-free workplace program

      In 1998, the Congress enacted the Drug-Free Workplace 
Demonstration Program under the leadership of Senator Paul 
Coverdell of Georgia. The purpose of the program is to provide 
financial and technical assistance to small business concerns 
seeking to establish a drug-free workplace program. The law 
authorized $10 million in FY 1999 and 2000. Section 809 extends 
the Drug-Free Workplace Program for FY 2001, 2002 and 2003 and 
authorizes $5 million for each in the period. The Conference 
Report recognizes the important work of Senator Coverdell and 
names the program in his honor.

                            hubzone program

      This subsection would increase the annual authorization 
for the HUBZone Program to $10,000,000 for fiscal years 2001, 
2002, and 2003. It is the Conferees intention that funds 
appropriated under the authorization in this subsection shall 
be used for direct HUBZone Program expenses and should not be 
diverted by the SBA for any other program or account that is 
not part of the HUBZone Program.

                      very small business program

      This section would extend the Very Small Business Program 
pilot. The pilot program is targeted at firms seeking to do 
business with the Federal government with 15 or fewer employees 
and with less than $1 million in annual receipts. To date, SBA 
has had insufficient experience and data to evaluate the 
program, which SBA failed to implement until March 4, 1999, 
more than four years after Congress enacted the program. The 
Conferees anticipate that new reporting requirements set forth 
in the Federal Procurement Data System will provide SBA with 
sufficient data to evaluate the program over the next three 
years.

       socially and economically disadvantaged businesses program

      The Federal Acquisition Streamlining Act of 1994 (P.L. 
103-355; 15 U.S.C. 644 note) establishes procurement procedures 
to help small business concerns owned and controlled by 
socially and economically disadvantaged individuals to meet 
certain Federal procurement goals. The procurement procedures 
are scheduled to terminate on September 30, 2000. The 
Conference Report approved an extension of the program for 
three years, through September 30, 2003.

                             cosponsorship

      This program provides a means of leveraging the scarce 
resources at SBA, the Agency engages in a variety of 
cosponsorships with public and private sector organizations. 
Current statutory language refers only to training as a 
permitted cosponsored activity with for-profit entities. SBA 
defines training as being limited to narrower topics of 
interest to relatively small numbers of business owners or 
those in certain types of businesses. There are, however, 
broader business-related topics, such as the effective use of 
technology, e-commerce, exporting/importing, about which all 
small businesses should be informed and educated.
      The SBA has recommended that the terms ``information and 
education'' be added to the types of assistance that can be 
provided to small businesses. SBA believes this change will 
give it the flexibility in the types of assistance that can be 
provided to small businesses. The Conferees agreed with the 
SBA's recommendation, concluding that while traditional 
training in these areas may also be offered, the need to reach 
broader audiences with timely, updated information and 
education is vital to the success of the largest number of 
small businesses.

                       Title VI: HUBZone Program

      The HUBZone program aims to direct portions of Federal 
contracting dollars into areas of the country that in the past 
have been out of the economic mainstream. HUBZone areas, which 
include qualified census tracts, poor rural counties, and 
Indian reservations, often are relatively out-of-the-way places 
that the stream of commerce passes by, and thus tend to be in 
low or moderate income areas. These areas can also include 
certain rural communities and tend, generally, to be low-
traffic areas that do not have a reliable customer base to 
support business development. As a result, business has been 
reluctant to move into these areas. It simply has not been 
profitable, without a customer base to keep them operating.
      The HUBZone Act seeks to overcome this problem by making 
it possible for the Federal government to become a customer for 
small businesses that locate in HUBZones. While a small 
business works to establish its regular customer base, a 
Federal contract can help it stabilize its revenues and remain 
profitable. This gives small business a chance to get a 
foothold and provides jobs to these areas. New business and new 
jobs mean new life and hope for these communities.
      Since the HUBZone Act was adopted in the Small Business 
Reauthorization Act of 1997, the Small Business Administration 
has been implementing the program. On March 22, 1999, SBA began 
accepting applications from interested firms. Experience to 
date has revealed several difficulties with implementation, 
which the Senate Committee has sought to rectify in this 
legislation.

               Subtitle A--HUBZones in Native America Act

      One such problem was an unintended consequence of wording 
in the 1997 legislation that inadvertently excluded Indian 
Tribal enterprises and Alaska Native Corporations from 
participation. The definition of ``HUBZone small business 
concern'' specified that eligible small businesses must be 100% 
owned and controlled by U.S. citizens. This provision sought to 
insure that HUBZone benefits, financed by the American 
taxpayer, should be available only for U.S. beneficiaries.
      However, since citizens are ``born or naturalized'' under 
the Fourteenth Amendment, ownership by citizens implies 
ownership by individual flesh-and-blood human beings. Corporate 
owners and Tribal government owners are not ``born or 
naturalized'' in the usual meanings of those terms. Thus, the 
Small Business Administration found that it had no authority to 
certify small businesses owned wholly or partly by Alaska 
Native Corporations and Tribal governments.
      Since Native American communities were always intended to 
benefit from HUBZone opportunities, the Committee has included 
language to make such firms eligible. On many reservations, 
particularly the isolated ones, the only investment resources 
available are the Tribal governments. Excluding those 
governments from investing in their own reservations means, in 
practical terms, excluding those reservations from the HUBZone 
program entirely. Similarly, Alaska Native Corporations have 
corporate resources that are necessary to make real investments 
in rural Alaska and to provide jobs to Alaska Natives who 
currently have no hope of getting them.
      The Senate Committee was guided by three broad principles 
in crafting this legislation. First, no firm should be made 
eligible solely by virtue of who it is. For example, Alaska 
Native Corporations will not be eligible solely because they 
are Alaska Native Corporations. Instead, Alaska Native 
Corporations and Indian Tribal enterprises should be eligible 
only if they agree to advance the goals of the HUBZone program: 
job creation and economic development in the areas that need it 
most.
      Second, the Senate Committee sought to make the HUBZone 
program conform to existing Native American policy. The 
Committee is aware of controversy over whether to change Alaska 
Native policy so that Alaska Natives exercise governmental 
jurisdiction over their lands, just like Tribes in the Lower 48 
States do on both their reservations and trust lands. The 
Alaska Native Claims Settlement Act (ANCSA) of 1971 
deliberately refrained from creating Alaska Native 
jurisdictions in Alaska, and this Committee's legislation is 
intended to conform to existing practice in ANCSA.
      The third principle underlying this bill is that Alaska 
Natives and Indian Tribes should participate on as even a 
playing field as possible. Exact equivalence is not possible 
because the Federal relationship with Alaska Natives differs 
significantly from the relationship with Indian Tribes, and 
also because Alaska is a very different State from the Lower 
48. However, ANCSA provided that Alaska Natives should be 
eligible to participate in Federal Indian programs ``on the 
same basis as other Native Americans.'' The House Conferees 
have agreed to adopt the Senate provision.

                  Subtitle B--Other HUBZone Provisions

      Subtitle B contains several technical changes to clarify 
interpretive issues concerning the original HUBZone Act, as 
well as new language to correct an unforeseen situation 
regarding procurement of commodities. Subtitle B makes a 
further amendment to the categories of eligible HUBZone firms, 
to include the HUBZone program as one of the tools Community 
Development Corporations can use in rebuilding their 
communities and neighborhoods.
      The Conference Report includes a technical correction to 
the definition of ``qualified census tract.'' It also makes two 
major substantive changes to the definition of ``qualified 
nonmetropolitan county.''
      First, the definition is clarified to ensure that 
nonmetropolitan counties in the HUBZone program are those that 
were considered to be such as of the time of the last decennial 
(10 year) census. The HUBZone program relies on census tracts 
selected in metropolitan areas based on the last census, so 
that a metropolitan county--in order to have such census 
tracts--must have been considered metropolitan at that time. A 
nonmetropolitan county may be eligible as a HUBZone based on 
income data collected during the census or on unemployment data 
produced annually by the Bureau of Labor Statistics.
      During the ten-year period between each census, some 
counties become so integrated into the commercial activities of 
a metropolitan area that they are moved from the 
nonmetropolitan category to the metropolitan category. Such 
counties would become ineligible for HUBZone participation. 
They would not have been metropolitan counties at the time of 
the last census, so no qualified census tracts would have been 
selected there. They would also no longer be nonmetropolitan 
counties, so the income and unemployment tests available to 
such counties would no longer apply. Thus, counties that change 
from nonmetropolitan to metropolitan, in the period between 
each census, would become ineligible until the next census is 
taken. The Conference Report corrects this problem by freezing, 
for HUBZone purposes, the categories of metropolitan and 
nonmetropolitan counties as they stood at the time of the last 
census.
      The second major change to the definition of ``qualified 
nonmetropolitan county'' is the addition of a grandfathering 
clause. Because the Bureau of Labor Statistics (BLS) issues new 
county-level unemployment data annually, nonmetropolitan 
counties may shift into and out of eligibility on a yearly 
basis. The Committee believes that this type of movement is too 
fluid for a program that should be stable in its first few 
years. Companies will be confused about the merits of the 
program if firms lose and gain eligibility from year to year. A 
company will not want to invest in such a county only to have 
it suddenly become ineligible, due to new BLS data, before the 
company has even had the opportunity to recoup its investment 
by participating in the HUBZone program.
      The legislation seeks to stabilize this situation by 
looking at the unemployment picture over a three-year period 
for nonmetropolitan counties. It also provides that companies 
in such a county will have a one year period to pursue HUBZone 
opportunities and wrap up its activities under the program, 
after such a county becomes ineligible due to new BLS data. A 
similar one year period is provided for changes that may result 
due to enactment of this legislation.

                        commodities procurement

      In 1999, the Senate Committee became aware of potential 
implementation problems in HUBZone procurements of certain 
commodities, particularly food-aid commodities purchased by the 
Department of Agriculture (USDA), that could lead to unintended 
and anti-competitive results. Because bids for commodities 
generally tend to fall within a narrow range of prices, the 10% 
price evaluation preference that currently exists could be 
overwhelmingly decisive. In such purchases, a handful of 
HUBZone firms could secure significant portions of these 
markets. This, in turn, could prompt other vendors to abandon 
these markets, thus reducing USDA's vendor base and reducing 
competition. These are results that would be contrary to the 
goals set forth in Sec. 2 of the Small Business Act.
      To prevent irreparable harm to USDA's vendor base until 
the matter could be addressed more comprehensively in this 
legislation, Senator Bond sponsored a proviso in the Fiscal 
2000 Agriculture Appropriations Act. As adopted in the 
conference report, Sec. 751 of that Act limited the price 
evaluation preference to 5% for up to half of the total dollar 
value of each commodity in a particular tender (solicitation). 
It also prohibited contract awards to a HUBZone firm that would 
be of such magnitude as to require the firm to subcontract to 
purchase the commodity being procured, since such a scenario 
would simply allow these firms to purchase commodities from 
subcontractors and in turn sell them to the Government at 
inflated prices.
      The legislation seeks to address this issue on a more 
permanent basis. The Conferees are aware that USDA relies upon 
a complex computer program to evaluate commodities bids, and 
thus the Conference Report seeks to set a long-term policy that 
will not require frequent and expensive changes to this 
software. Although the legislation reduces the level of HUBZone 
program incentives that otherwise would be available under the 
HUBZone Act, the bill still seeks to ensure substantial awards 
to HUBZone concerns, while protecting existing incentives 
available to other types of small business concerns. The 
Conferees intend that these incentives help commodities 
procurements contribute their fair share toward achieving the 
Government-wide goal of 23% of prime contract dollars to small 
business concerns, but without the anti-competitive effects of 
awarding overwhelming shares of the market to HUBZone firms.

                   community development corporations

      For reasons similar to the problems preventing HUBZone 
program participation by Indian Tribal enterprises and Alaska 
Native Corporations, small businesses owned by Community 
Development Corporations were also inadvertently made 
ineligible by the original HUBZone Act. The Conference Report 
has included a provision to correct this problem. As with 
Tribal enterprises and Alaska Native Corporations, addressed in 
Subtitle A of this Title, Community Development Corporations 
are not made automatically eligible. These firms must agree to 
advance the job-creation goals of the HUBZone program. 
Specifically, as other businesses must do, these enterprises 
must maintain their principal office in a HUBZone and employ 
35% of their workforce from one or more HUBZones.

      Title VII: National Women's Business Council Reauthorization

      The Senate bill would re-authorize the National Women's 
Business Council for three years, from FY 2001 to 2003, and to 
increase the annual appropriation from $600,000 to $1 million. 
The increase in funding will allow the Council to: support new 
and ongoing research; produce and distribute reports and 
recommendations prepared by the Council; and create an 
infrastructure to assist states in developing women's business 
advisory councils, coordinate summits and establish an 
interstate communication network. The House Conferees agree in 
part with the Senate's title.
      The increase will also be used to assist Federal agencies 
meet the procurement goal for women-owned businesses 
established by Congress in 1994 under section 15(g) of the 
Small Business Act. By law, Federal agencies must strive to 
award women-owned small businesses at least 5 percent of the 
total amount of Federal prime contract dollars. The Conferees 
feel strongly that Federal agencies should meet the five-
percent goal, and it supports the Council's plan to expand its 
efforts to increase the percentage of prime contracts that go 
to women-owned businesses. Based on current data, women are not 
receiving awards proportionate to their presence in the 
economy. For example, women-owned businesses make up 38 percent 
of all small businesses, yet women-owned businesses received 
only 2.42 percent of the $189 billion in Federal prime 
contracts in FY1999.
      According to the National Foundation for Women Business 
Owners, over the past decade the number of women-owned 
businesses in this country has grown by 103 percent to an 
estimated 9.1 million firms. They generate almost $3.6 trillion 
in sales annually and employ more than 27.5 million workers. 
With the impact of women-owned businesses on our economy 
increasing at an unprecedented rate, Congress relies on the 
Council to serve as its eyes and ears as it anticipates the 
needs of this burgeoning entrepreneurial sector. Since it was 
established in 1988, the Council, which is bi-partisan, has 
provided important unbiased advice and counsel to Congress.
      This Conference Report allows the Council to continue to 
perform its duties at the level it has done so far, as well as 
expand its activities to support initiatives that are creating 
the infrastructure for women's entrepreneurship at the state 
and local level.

                  Title VIII: Miscellaneous Provisions

                      Loan Application Processing

      The Senate Conferees agreed with the House provision 
directing the SBA to conduct a study in one year from the date 
of enactment to determine the average time SBA requires to 
process an SBA-guaranteed loan.

                 application of ownership requirements

      The Conferees agreed to a provision to clarify the impact 
of community property state laws to determine the eligibility 
for applicants for assistance under SBA's credit programs. The 
new provision applies to the Small Business Act and the Small 
Business Investment Act of 1958. It states that eligibility of 
an applicant under the SBA's credit programs will be determine 
without regard to any ownership interest of a spouse arising 
solely from the application of the community property laws of a 
State for purposes of determining marital interests.

                 subcontracting preference for veterans

      The House Conferees agreed with the Senate provision to 
clarify that service-disabled veterans are on the same 
preference level as small disadvantaged businesses (SDBs) and 
women-owned small businesses for Federal contracting 
opportunities. When the Congress enacted the Veterans 
Entrepreneurship and Small Business Development Act (P.L. 106-
50), it was not absolutely clear that the contracting 
preferences were to apply specifically to service-disabled 
veterans. The Conferees intend for this section to clear up any 
misunderstandings that might remain.

           small business development center program funding

      The House Conferees agreed with the Senate provision to 
clarify the funding formula for States to receive funds under 
the Small Business Development Center (SBDC) program. This 
funding formula was developed in close consultation with the 
SBA and the SBDC association. Importantly, the formula sets 
forth how the minimum funding level will be applied. The 
Conference Agreement assures that each SBDC will receive a 
minimum of $500,000 annually unless the annual appropriation 
from Congress is less than $81,500,000. If the annual 
appropriation is more than $90,000,000, the minimum annual 
amount shall be $500,000 plus a percentage amount equal to the 
percentage amount by which the appropriation exceeds 
$90,000,000.

     national veterans business development corporation correction

      The Conferees have agreed to a technical change that 
defers for one year the requirement that the National Veterans 
Business Development Corporation provide matching funds. The 
authorization level for the Corporation to receive Federal 
funds has been adjusted to the following: $4,000,000 in fiscal 
years 2001 and 2002, and $2,000,000 in fiscal years 2003 and 
2004.

                   private sector resources for score

      The Committees on Small Business for the Senate and House 
of Representatives have followed the success and growth of the 
SCORE program over the past five years. Much of the success or 
the program is tied to its ability to obtain in-kind and 
monetary contributions from the private sector to supplement 
the annual Congressional appropriation. Companies have donated 
computers and Internet services to support the efforts of 
14,000 SCORE volunteers to provide counseling to small 
businesses throughout the United States. The section approved 
by the Conferees makes it clear that SCORE may solicit cash and 
in-kind contributions from the private sector to carry out its 
functions under the Small Business Act.

                        contract data collection

      The Senate Conferees agreed with the House Conferees to 
include a new section that makes improvements in the collection 
of data on the growing practice by Federal agencies to bundle 
multiple contract requirements into one large contract. This 
practice has had a detrimental impact on the ability of small 
businesses to compete for Federal contracts. The new section 
clarifies the definition of a bundled contract and requires the 
SBA to prepare an annual report for the House and Senate 
Committees on Small Business. The section also strengthens the 
ability of the Administrator of SBA to challenge an agency 
decision to bundle multiple contract requirements.

      procurement program for women-owned small business concerns

      The Senate Conferees agreed with the House Conferees to 
include a new section to give Federal agencies the authority to 
restrict competition for any contract for the procurement of 
goods or services by the Federal government to small businesses 
owned and controlled by women who are economically 
disadvantaged. The SBA Administrator may waive the requirement 
that the businesses must be owned by women who are economically 
disadvantaged if it is determined the business is in an 
industry in which small business concerns owned and controlled 
by women are substantially under represented.
      The purpose of H.R. 5545 the ``New Markets Venture 
Capital Program Act of 2000,'' is to promote economic 
development, wealth and job opportunities in low income (LI) 
areas by encouraging venture capital investments and offering 
technical assistance to small enterprises. The central goal of 
the legislation is to fulfill the unmet equity investment needs 
of small enterprises primarily located in LI areas.
      The bill creates a developmental venture capital program 
by amending the Small Business Investment Act to authorize the 
U.S. Small Business Administration (SBA) to enter into 
participation agreements with 10 to 20 New Markets Venture 
Capital (NMVC) companies in a public/private partnership. It 
further authorizes SBA to guarantee debentures of NMVC 
companies to enable them to make venture capital investments in 
smaller enterprises in LI areas. And it authorizes SBA to make 
grants to NMVC companies, and to other entities, for the 
purpose of providing technical assistance to smaller 
enterprises that are financed, or expected to be financed, by 
such companies.
      The Act will also enhance the ability of existing Small 
Business Investment Companies (SBICs) to invest in LI areas. It 
allows them to have access to the leverage capital authorized 
under the program, without entering into a participation 
agreement with SBA to act as an NMVC company.
      Finally, enhances the ability of existing Specialized 
Small Business Investment Companies (SSBICs) to invest in LI 
areas. It allows them to have access to the operational 
assistance grant funds authorized under the program, also 
without entering into a participation agreement with SBA to act 
as an NMVC company.
      Despite our unprecedented economic prosperity, there 
remain places in America that have yet to reap the benefits of 
this prosperity. Although many Americans enjoy strong income 
and wage growth, millions in underserved areas still do not 
have access to jobs or entrepreneurial opportunities.
      For example, between 1997 and 1998, the median income for 
the nation's households rose 3.5 percent in real terms. Yet 
12.7 percent of Americans (34.5 million people) still live 
below the poverty level. These 34.5 million people live in the 
inner cities and rural areas of America, where jobs are scarce 
and there is little to attract would-be small business 
investors.
      The overall poverty rate for the U.S. in 1998 was 12.7 
percent, but the poverty rate among both African American and 
Latino populations was 26 percent--double the national average. 
In rural communities, poverty remains a persistent problem. Job 
growth is well below the national average, with unemployment 
hovering at or above 14%. Additionally, the unemployment levels 
in many urban communities range from 7.5% for African Americans 
to 6.4% for Hispanics. Both are nearly double the national 
average.
      It is not enough to merely create jobs in these pockets 
of poverty. Rather, we must create a small business backbone, 
an economic infrastructure to enable these communities to 
develop their full potential and participate fully in the 
economic mainstream.
      H.R. 5545 uses SBA resources targeted to corporations and 
small businesses that want to do business in the untapped 
markets of our underserved communities. It is a wise investment 
in the hopes of millions of families who are not sharing in the 
American Dream.
      There is a pressing need for this legislation. There are 
virtually no institutional sources of equity capital in 
distressed communities. The national venture capital industry 
for community development comprises only 25 firms managing 
approximately $157 million. Only 14 of those are capitalized at 
$5 million or more--the absolute minimum for economic 
viability.
      H.R. 5545 will tap unrealized resources in our nation, 
thus benefiting our economy as a whole. It will increase the 
attractiveness of investment in places with high unemployment 
and too few businesses. The more the business community knows 
about these new markets, the more likely they will invest in 
them--and the more businesses that invest in these new markets, 
the more these areas will share in our nation's economic 
prosperity. This legislation provides a road map for the next 
generation to succeed, and it makes good sense from both a 
public policy and business standpoint.

                      Section-by-Section Analysis

Section 1. Short title
      Designates the bill as the ``New Markets Venture Capital 
Program Act of 2000.''
Section 2. New Markets Venture Capital Program
      This Section amends Title III of the Small Business 
Investment Act of 1958 by adding new Sections 351 through 368 
to establish the ``New Markets Venture Capital Program.''
      H.R. 5545 will add the following new sections to the 
Small Business Investment Act:
Section 351. Definitions
      Establishes definitions for developmental venture 
capital, New Markets Venture Capital Companies, low- or 
moderate-income geographic area, operational assistance, 
participation agreement, and Specialized Small Business 
Investment Companies as used in the legislation.
      ``Developmental venture capital'' is defined as equity 
capital invested in small businesses, with a primary objective 
of fostering economic development in low income geographic 
areas. For the purposes of this Act, the Committee considers 
equity capital investments to mean stock of any class in a 
corporation, stock options, warrants, limited partnership 
interests, membership interests in a limited liability company, 
joint venture interests, or subordinated debt with equity 
features if such debt provides only for interest payments 
contingent upon earnings. Such investments must not require 
amortization. They may be guaranteed; but neither the Equity 
capital investment nor the guarantee may be secured.
      A ``New Markets Venture Capital Company'' is defined as a 
company that has been approved by the Administration to operate 
under the New Markets Venture Capital Program, and has entered 
into a participation agreement with the Administration to make 
equity investments and provide technical assistance to small 
enterprises located in low- or moderate-income areas.
      The term ``low income geographic area'' means a census 
tract, or the equivalent county division as defined by the 
Bureau of the Census for purposes of defining poverty areas, in 
which the poverty rate is not less than 20 percent. In those 
areas in a metropolitan area 50 percent or more of the 
households must have an income equal to less than 60 percent of 
the median income for the area. In rural areas the median 
household income for a tract must not exceed 80 percent of the 
statewide median household income. This definition also 
includes any area located within a HUBZone, an Urban 
Empowerment Zone or an Urban Enterprise Community, or a rural 
Empowerment Zone or a Rural Enterprise Community.
      The term ``low income individual'' is included for the 
purpose of allowing waivers of the low income area requirement 
for areas of significant economic disadvantage that may not 
otherwise qualify. A low income individual is defined as 
someone whose income does not exceed 80 percent of the area 
median income in metropolitan areas, or 80 percent of either 
the area or statewide median income in rural areas.
      The term ``operational assistance'' is defined as 
management, marketing, and other technical assistance that 
assists a small business concern with business development.
      ``Participation agreement'' is defined as an agreement 
between the Administration and an NMVC Company detailing the 
company's operating plan and investment criteria; and requiring 
that investments be made in smaller enterprises at least 80 
percent of which are located in low income geographic areas.
      ``Specialized Small Business Investment Company'' means 
any small business investment company that was licensed under 
section 301(d) as in effect before September 30, 1996.
Section 352. Purposes
      Describes the purposes of the Act, which are:
            (1) to promote economic development and the 
        creation of wealth and job opportunities in low- or 
        moderate-income geographic areas and among individuals 
        living in such areas by encouraging developmental 
        venture capital investments in smaller enterprises 
        primarily located in such areas; and
            (2) to establish a developmental venture capital 
        program, with the mission of addressing the unmet 
        equity investment needs of small entrepreneurs located 
        in low- or moderate-income areas; to be administered by 
        the Small Business Administration; to enter into a 
        participation agreement with NMVC companies; to 
        guarantee debentures of NMVC companies to enable each 
        such company to make developmental venture capital 
        investments in smaller enterprises in low- or moderate-
        income geographic areas; and to make grants to NMVC 
        companies for the purpose of providing operational 
        assistance to smaller enterprises financed, or expected 
        to be financed, by such companies.
Section 353. Establishment
      Authorizes the SBA to establish the NMVC Program, under 
which the SBA may form New Markets Venture Capital companies by 
entering into participation agreements with firms that are 
granted final approval under the requirements set forth in 
Section 354 and formed for the purposes outlined in Section 
352.
      This Section also authorizes SBA to guarantee the 
debentures issued by the NMVC Companies as provided in Section 
355; and to make operational assistance grants to NMVC 
Companies and other entities in accordance with Section 358.
Section 354. Selection of the New Markets Venture Capital Companies
      Establishes the criteria to be followed by SBA in 
selecting the NMVC Companies. This section provides for 
specific selection criteria to be developed by the SBA--based 
on the criteria enumerated in this legislation--and designed to 
ensure that a variety of investment models are chosen and that 
appropriate public policy goals are addressed. Geographic 
dispersion must also be taken into account in the selection 
process.
      H.R. 5545 requires Program participants to satisfy the 
following application requirements:
            (1) Each NMVC must be a newly formed, for-profit 
        entity with at least $5 million of contributed capital 
        or binding capital commitments from non-Federal 
        investors, and with the primary objective of economic 
        development in low- or moderate-income geographic 
        areas.
            (2) Each NMVC's management team must be experienced 
        in some form of community development or venture 
        capital financing.
            (3) Each NMVC must concentrate its activities on 
        serving its investment areas, and submit a proposal 
        that will expand economic opportunities and address the 
        unmet capital needs within the investment areas.
            (4) Each applicant must submit a strong proposal to 
        provide operational assistance, including the possible 
        use of outside, licensed professionals.
            (5) Each NMVC must have binding commitments (in 
        cash or in-kind) for operational assistance and 
        overhead, payable or available over a multi-year period 
        not to exceed 10 years, in an amount equal to 30% of 
        its committed and contributed capital. These 
        commitments may be from any non-SBA source and the cash 
        portion may be invested in an annuity payable semi-
        annually over a multi-year period not to exceed 10 
        years.
      The Committee is well aware that it will be difficult for 
some NMVCs to raise their entire operational assistance match 
during the application stage. Those NMVCs that are unable to 
raise the required match, but have submitted a reasonable plan 
to the Administrator to meet the requirement, may be granted a 
conditional approval from the Administrator and be allowed to 
draw one dollar of federal matching funds for every dollar of 
private funds raised provided that (for the purpose of final 
approval) they raise at least 20 percent of the required 
matching funds, and have at least 20 percent of the match on 
hand when applying for additional grant funds.
      The Committee believes that it is important to give NMVCs 
the flexibility to obtain the required private operational 
assistance funds, however, from a safety and soundness 
standpoint, federal assistance funds should not be placed at 
greater risk than private assistance funds.
      This conditional approval shall be made with the 
expectation that the required capital funding commitments will 
be obtained within two years of the conditional approval.
      The bill also authorizes SBA to select firms that have 
experience with investing in enterprises located in low income 
areas to participate as NMVCs. SBA will enter into an agreement 
with each NMVC setting forth the specific terms of that firm's 
participation in the program. Each agreement will be tailored 
to the particular NMVC's operations and will be based on the 
NMVC's own proposal, submitted as part of the NMVC's 
application form. The agreement will require that investments 
be made by the NMVC in smaller enterprises, at least 80% of 
which are located in low income geographic areas.
      In order for an investment to be counted toward the 80% 
goal under H.R. 5545, the investment must be made in a small 
business concern located in an LI area. This ensures that the 
New Markets Venture Capital Company Program will focus 
investment capital where it is most needed, rather than 
duplicating existing SBA programs.
      The Committee believes that the targeting of low-income 
communities is the most important element of H.R. 4530. If 
Congress and the Administration are serious about helping our 
nation's low-income cities, towns, and rural areas we should 
demonstrate our commitment by ensuring that this bill is 
focused on these areas. The Committee has accomplished this by 
requiring that 80% of all investment will concentrate on those 
needing this help the most.
      By clearly focusing this legislation on the communities 
that need assistance the most, the Committee has maximized the 
impact of this program. It is also the Committee's view that by 
investing the majority of funds in low income communities, we 
will not only provide the benefit of increased opportunities 
for working families, but H.R. 4530 will also provide the 
benefit of improving the physical community. This double 
benefit ensures that the resources spent under H.R. 4530 will 
provide the maximum economic impact on the low- or moderate-
income communities to which this bill is targeted.
      The Committee recognizes that the legislation may offer 
some benefits to working families located outside of the LMI 
areas as defined by the legislation. To address this concern, 
up to 20% of a New Markets Venture Capital Company's 
investments are permitted in those businesses that are in need 
of equity investment, but fall outside the LMI areas as defined 
by the legislation. However, it is the Committee's strong 
opinion that to reduce the targeting below 80% would 
significantly diminish the impact in the LMI areas, and would 
be contrary to the intent of the program. In addition, the Act 
includes a provision allowing the Administrator to waive the 
low income designation requirements for areas of significant 
economic distress that would not otherwise qualify.
Section 355. Debentures
      Authorizes SBA to guarantee debentures issued by NMVC 
companies. The terms of the guaranteed debentures issued under 
this section may not exceed 15 years and the maximum total 
guarantee for any NMVC company shall not exceed 150 percent of 
a company's private capital.
Section 356. Issuance and guarantee of trust certificates
      Authorizes SBA to issue and guarantee trust certificates 
representing ownership of all or part of the debentures issued 
by an NMVC company and guaranteed by the Administration. Each 
guarantee issued under this section is limited to the amount of 
the principal and interest on the guaranteed debentures that 
compose the trust or pool of certificates.
      This section grants SBA subrogation and ownership rights 
over the trust certificates guaranteed under this section, but 
prohibits SBA from collecting a fee for any guarantee of a 
trust certificate issued under this section. Finally, this 
section allows SBA to contract with an agent to carry out the 
pooling and central registration functions for the trust 
certificates issued.
Section 357. Fees
      Authorizes SBA to charge such fees as it deems 
appropriate with respect to any guarantee or grant issued to an 
NMVC company.
      This authorization is subject to the prohibition 
contained in Section 356 that prohibits SBA from collecting a 
fee for any guarantee of a trust certificate issued under that 
section.
Section 358. Operational assistance grants
      Authorizes SBA to make operational assistance grants to 
New Markets Venture Capital Companies established under the 
legislation and to certain Specialized Small Business 
Investment Companies.
      Each NMVC is eligible for one or more grants, on a 
matching basis, in an amount equal to the amount the NMVC makes 
available for operational assistance. The operational 
assistance grant will be made available to the NMVC semi-
annually over a multi-year period not to exceed 10 years. SBA 
is also authorized to provide supplemental grants to NMVCs.
      This section of the bill also allows Specialized Small 
Business Investment Companies (``SSBICs'') access to the 
operational assistance grant funds authorized under the program 
without entering into a participation agreement with SBA to act 
as an NMVC company. The participation of the SSBICs, however, 
is limited only to investments they make in LMI areas after the 
date of enactment, and they must match the operational 
assistance funds to one LMI investment.
      This section of the bill explicitly prohibits NMVCs and 
SSBICs from using operational assistance grants, both the 
federal contribution and the match, to supplement their own 
bottom line. This prohibition includes items that are not aimed 
at directly benefiting the small enterprises, such as, but not 
limited to--the purchase of furniture, office supplies, 
physical improvements to the NMVCs' or SSBICs' places of 
business, and marketing services. The Committee included this 
limitation to ensure that the investments made through this 
program will be for the benefit of small businesses located in 
LMI areas, which is the intent of the legislation.
      It is the Committee's view that this provision does allow 
for operational assistance funds under the legislation to be 
used for salaries of those NMVC or SSBIC employees that are 
providing direct technical assistance to the small enterprise. 
NMVCs and SSBICs that use their own staff to provide the 
necessary direct assistance to smaller enterprises may be 
reimbursed for the direct cost of staff out of grant funds, but 
only to the extent such costs are allocable to the operational 
assistance.
      This section also requires the NMVC companies to document 
in their operation plan the extent to which they intend to use 
licensed professionals (e.g., licensed attorneys and Certified 
Public Accountants) when providing technical assistance that 
requires such expertise. This ensures that the NMVC companies 
will provide the best assistance possible to the small business 
concerns. It is not meant to be construed as requirement that 
licensed professionals are sole persons to provide such 
assistance, but their use is encouraged in highly technical 
situations.
      Evidence presented to the Congress by the community 
development venture capital advocates indicates that providing 
technical assistance to a small business dramatically increases 
that business' chance of success. The Congress wishes to ensure 
that all small businesses receiving technical assistance under 
this program will receive the best technical assistance 
available. We believe this will further increase the 
businesses' chances of success.
Section 359. Bank participation
      Allows any national bank, and any member bank of the 
Federal Reserve System to invest in an NMVC company formed 
under this legislation so long as the investment would not 
exceed 5 percent of the capital and surplus of the bank.
      Banks that are not members of the Federal Reserve System 
are allowed to invest in an NMVC company formed under this 
legislation so long as such investment is allowed under 
applicable State law, and so long as the investment would not 
exceed 5 percent of the capital and surplus of the bank.
Section 360. Federal financing bank
      Establishes that Section 318 of the Small Business 
Investment Act does not apply to any NMVC company created under 
this legislation.
Section 361. Reporting requirements
      Establishes reporting requirements for the NMVC 
companies. Specifically, the NMVC companies are required to 
provide to SBA such information as the Administration requires, 
including: information related to the measurement criteria that 
the NMVC proposed in its program application; and, for each 
case in which the NMVC makes an investment or a grant to a 
business located outside of an LMI area, a report on the number 
and percentage of employees of the business who reside in an 
LMI area.
Section 362. Examinations
      Requires that each NMVC company shall be subjected to 
examinations made at the direction of the Investment Division 
of SBA. This section allows for examinations to be conducted 
with the assistance of a private sector entity that has both 
the necessary qualifications and expertise.
      It is the intent of the Committee that the oversight of 
the NMVC program be modeled after that developed for the SBIC 
program and administered by SBA's Investment Division. 
Oversight should include a close working relationship between 
SBA analysts and NMVC management teams, detailed reporting 
requirements, frequent on-site examinations to evaluate 
performance and conformance with the operating plan, and 
careful analysis of the firm's economic impact.
Section 363. Injunctions and other orders
      Grants SBA the power of injunction over NMVC companies 
and the authority to act as a trustee or receiver of a company 
if appointed by a court.
      This section of the legislation closely tracks the 
existing injunction provision (Section 311) of the Small 
Business Investment Act of 1958. Again, it is the Committee's 
intent that oversight of the NMVC program be modeled after that 
developed for the SBIC program and administered by SBA's 
Investment Division. This oversight should include a close 
working relationship between SBA analysts and NMVC management 
teams, detailed reporting requirements, frequent on-site 
examinations to evaluate performance and conformance with the 
operating plan, and careful analysis of the firm's economic 
impact.
Section 364. Additional penalties for noncompliance
      Grants SBA or the Attorney General the authority to file 
a cause of action against an NMVC company for noncompliance. 
Should a court find that a company violated or failed to comply 
with provisions of this legislation or other provisions of the 
Small Business Investment Act of 1958, this section grants SBA 
the authority to void the participation agreement between the 
company and the SBA.
Section 365. Unlawful acts and omissions; breach of fiduciary duty
      Defines what is to be considered as a violation of this 
legislation, who is considered to have a fiduciary duty, and 
who is ineligible to serve as an officer, director, or employee 
of any NMVC company because of unlawful acts.
      This section of the legislation closely tracks the 
unlawful acts provision (Section 314) of the Small Business 
Investment Act of 1958. It is the Committee's intent to grant 
SBA the same authority over NMVC companies that it has over 
Small Business Investment Companies with respect to unlawful 
acts and the breach of fiduciary responsibility.
Section 366. Removal or suspension of directors or officers
      Grants SBA the authority to use the procedures set forth 
in Section 313 of the Small Business Investment Act of 1958 to 
remove or suspend any director or officer of an NMVC company.
Section 367. Regulations
      Authorizes the Small Business Administration to issue 
such regulations as it deems necessary to carry out the 
provisions of the legislation.
Section 368. Authorization of appropriations
      Authorizes appropriations for the Program for Fiscal 
Years 2001 through 2006. This section authorizes such subsidy 
budget authority as necessary to guarantee $150,000,000 of 
debentures and $30,000,000 to make operational assistance 
grants.
      The Committee estimates that the Program will only 
require a one-time appropriation of $45 million--$15 million 
for loan guarantees and $30 million for operational assistance 
grants. This $15 million will allow SBA to back $150 million in 
loans to small business in low- or moderate-income areas.
Section 368(c). Conforming amendment
      Makes a conforming change to the Small Business 
Investment Act of 1958 to account for the changes made by this 
legislation.
Section 368(d). Calculation of maximum amount of SBIC leverage
      Allows Small Business Investment Companies (``SBICs'') to 
obtain additional access to leverage outside the statutory 
caps. The exemption of the SBICs, however, is limited only to 
investments they make in LMI areas.
      This section provides that investments made in LMI areas 
will not apply against the leverage cap of the individual SBIC 
as long as the total amount invested through the program does 
not exceed 50% of the SBIC's paid-in capital.
Section 368(e). Bankruptcy exemption for new markets venture capital 
        companies
      Adds NMVC companies to the list of entities that may not 
be considered a debtor under a Title 11 bankruptcy proceeding.
Section 368(f). Federal savings associations
      Amends the ``Home Owners Loan Act'' to allow federal 
savings associations to invest in an NMVC company formed under 
this legislation so long as the investment would not exceed 5 
percent of the capital and surplus of the savings association.

                              BusinessLINC

      H.R. 5545, also establishes the BusinessLINC program, 
designed to promote business growth in inner cities and 
economically distressed rural areas by matching large and small 
firms into business-to-business partnering and mentoring 
relationships. BusinessLinc would accomplish this by providing 
seed funding to third party entities such as local Chambers of 
Commerce to promote such relationships. In addition to seed 
funding, such entities will also receive funds for technical 
assistance programs to small businesses to supplement the 
mentor-protege relationships established as a result of 
BusinessLINC.
      BusinessLINC helps businesses by providing online 
information and a database of companies that are interested in 
mentor-protege programs.
      Grants may be made to a coalition/combination of private 
and public entities only if the coalition/combination provides 
an amount, either in kind or in cash, equal to the grant amount 
for the purposes above.
      Despite the unprecedented economic prosperity we are 
experiencing in this country, there are several areas of the 
country that have still not achieved parity. These areas are 
primarily inner cities, rural areas, and Native American 
communities. BusinessLINC will enable business opportunities 
for small businesses who would otherwise have no access to 
outside larger markets. While these small businesses have 
strong potential, they are located in communities where 
corporate America would not necessarily look. BusinessLINC will 
break that barrier. When the BusinessLINC model has been 
applied in the past, small businesses have seen growth as much 
as 45 percent. With this assistance, the local community will 
be charting its own path to recovery. The ``LINC'' in 
BusinessLINC stands for ``Learning, Information, Networking, 
and Collaboration.''

                      Section-by-Section Analysis

Section 1. Short title
      Designates the bill as the ``BusinessLINC Act of 2000.''
Section 2. Authorization
      This Section amends the Small Business Act by Adding a 
new paragraph (m), ``BusinessLINC grants and cooperative 
agreements.''
      Paragraph (1) allows the Administrator to make grants or 
enter into cooperative agreements with any coalition/
combination of private and/or public entities to (a) promote 
business-to-business relationships between large and small 
businesses and (b) to provide online information and a database 
of companies that are interested in mentor-protege programs.
      It is the opinion of the Conference that private and/or 
public entities eligible for grants should be limited to 
chambers of commerce and other not-for-profit business 
organizations. The Conferees intend that grant money be 
provided to large businesses. Further, if a grant is made to a 
combination of entities, one entity must take a lead position.
      It is further the opinion of the Conference that 
promotion of business-to-business relationships between large 
and small businesses referenced in paragraph (a) above should 
include the facilitation of such relationships as mentor-
protege, prime/subcontractor, and teaming.
      The Conference intends that an element to be considered 
by the Administrator when evaluating a grant proposal, shall be 
the training of small businesses or ``proteges.'' An additional 
evaluation element intended by the Conference shall be 
measurable goals to be achieved through the business-to-
business partnerships.
      The Conference further intends that the online database 
referenced in paragraph (b) above, should make use of the SBA's 
current PRO-Net database to the greatest extent practicable. 
The Conference is concerned that online privacy issues should 
also be addressed by the SBA in the implementation of the 
databases. Further, it is the Committee's opinion that the 
databases should be vigilantly maintained by the SBA to ensure 
that only firms eligible to be mentors should be included in 
the mentor database, and only those firms eligible to serve as 
intermediaries should be included in the intermediary database.
      Paragraph (2) specifies that the Administrator may make 
grants as long as the coalition/combination of public and/or 
private entities provides an amount, either in kind or in cash, 
equal to the grant amount for the purposes delineated in 
paragraph (1) above.
      The Conference is well aware that it may be difficult for 
some entities to raise their entire match during the 
application stage. Those entities that are unable to raise the 
required match, but have submitted to the Administrator a 
reasonable plan to meet the requirement, may be granted a 
conditional approval from the Administrator and be allowed to 
draw one dollar of federal matching funds for every dollar of 
private funds raised. This conditional approval shall be made 
with the expectation that the required funding commitments will 
be obtained within two years of the conditional approval.
      The Conference believes that it is important to give 
entities the flexibility to obtain the required private 
operational assistance funds, however, from a safety and 
soundness standpoint, federal funds should not be placed at 
greater risk than private capital.
      Paragraph (3) specifies the authorization for the program 
for fiscal years 2001 through 2003. This amount shall be 
$6,600,000 for each of the three fiscal years.

                                   Jim Talent,
                                   Dick Armey,
                                 Managers on the Part of the House.

                                   Christopher Bond,
                                   Conrad Burns,
                                Managers on the Part of the Senate.

                                
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